Question 1

The amount of fixed overhead cost in the static budget compared to the flexible budget is

Accepted Answer

The amount of fixed overhead cost remains the same in both the static and flexible budgets, regardless of the actual volume of production, because fixed costs do not vary with the level of production or sales volume.

Question 2

If a variance is favourable, it should be closed directly to cost of sales.

Accepted Answer

Favorable variances are typically closed to income summary or directly to retained earnings, not directly to cost of sales. They reflect a better-than-expected performance, such as lower costs or higher revenues, and are treated as part of the overall financial performance of the period.

Question 3

If the total variances in the accounting information system are favourable, the accounting treatment is to adjust accounts by decreasing costs during the closing process.

Accepted Answer

Favorable variances indicate that actual costs were lower than expected, so adjusting accounts by decreasing costs aligns reported figures with actual performance.

Question 4

AASB 102 requires that variances relating to over and under applied overhead should be pro-rated between cost of sales and inventory.

Accepted Answer

AASB 102 does not specifically address the treatment of variances relating to over and under applied overhead; it focuses on the accounting for inventories and requires that inventories be measured at the lower of cost and net realisable value. The treatment of overhead variances is more directly related to costing methodologies rather than the specific requirements of AASB 102.

Question 5

Consider the following data for Morethanmoney Ltd. 
Standard revenue per unit $10.00
Budgeted sales volume 5,000
Actual sales volume 5,500
Total standard cost per unit $8.00
Actual total revenue $53,900
The sales price variance for Morethanmoney Ltd is:

Accepted Answer

Sales price variance = (Actual sales volume - Budgeted sales volume) * Standard revenue per unit= (5,500 - 5,000) * $10.00= 500 * $10.00= $5,000

Question 6

The variable overhead spending variance can be caused by higher or lower usage of the variable overhead allocation base.

Accepted Answer

The variable overhead spending variance is caused by paying more or less than expected for the variable overhead costs, not by the usage of the variable overhead allocation base, which affects the variable overhead efficiency variance.

Question 7

If manufacturing cost variances are considered to be immaterial they are directly charged to the statement of profit of loss.

Accepted Answer

When manufacturing cost variances are considered immaterial, they are often directly charged to the statement of profit or loss to simplify accounting processes and avoid the complexity of adjusting inventory values.

Question 8

If manufacturing cost variances are considered to be material the preferred treatment is to pro rata the variance to work in process, finished goods inventory and cost of sales.

Accepted Answer

When manufacturing cost variances are considered material, the preferred treatment is to allocate the variance among work in process, finished goods inventory, and cost of sales based on the stages of production the variance impacts. This approach ensures that the cost of inventory and cost of goods sold are accurately reflected.

Question 9

Which of the following may have affected Morethanmoney Ltd's market share variance:

Accepted Answer

Seasonal factors can affect demand for products and services, which can lead to fluctuations in market share.

Question 10

For external reporting purposes variances relating to over and under applied overhead should be treated as an expense.

Accepted Answer

For external reporting purposes, variances relating to over and under-applied overhead are typically closed to the cost of goods sold or allocated among the work-in-process, finished goods, and cost of goods sold accounts, thus treated as an expense in the period they occur.

Question 11

Consider the following data for Morethanmoney Ltd.
 Standard revenue per unit $10.00
Budgeted sales volume 5,000
Actual sales volume 5,500
Total standard cost per unit $8.00
The budgeted revenue for Morethanmoney Ltd is:

Accepted Answer

The budgeted revenue is calculated by multiplying the standard revenue per unit by the budgeted sales volume: $10.00 * 5,000 = $50,000.

Question 12

The production volume variance is calculated only for:

Accepted Answer

The production volume variance is calculated for fixed overhead because it measures the difference between the budgeted fixed overhead and the applied fixed overhead based on actual production levels.

Question 13

Assume the additional information for Morethanmoney Ltd. 
Planned Market Size 20,000
Actual Market Size 19,800
Morethanmoney Ltd's planned market share 25%
The market share variance is:

Accepted Answer

The market share variance is calculated as follows:Planned market share = 25%Actual market share = 19,800 / 20,000 = 99%Market share variance = (Planned market share - Actual market share) * Planned market size= (25% - 99%) * 20,000= $4,435.20 F

Question 14

Revenue variances can be broken down into:

Accepted Answer

Revenue variances are typically broken down into sales price variance, which measures the effect of the difference between actual and expected selling price on revenue, and sales volume variance, which measures the effect of the difference between actual and expected sales volume on revenue.

Question 15

The market size, market share and product mix variances are components of the:

Accepted Answer

The market size, market share, and product mix variances are components of the sales volume variance, which analyzes the differences between the actual and budgeted sales in terms of the quantity of products sold.

Question 16

Managers should consider sales levels when investigating the production volume variance.

Accepted Answer

Sales levels can impact the demand for products, thereby influencing the production volume and potentially causing variances between actual and budgeted production volumes. Managers should consider this relationship when analyzing production volume variances.

Question 17

The fixed overhead spending variance can be caused by an increase in the activity level to a new relevant range.

Accepted Answer

The fixed overhead spending variance is caused by a difference between the actual fixed overhead costs and the budgeted fixed overhead costs. An increase in the activity level to a new relevant range can cause the actual fixed overhead costs to be higher than the budgeted fixed overhead costs, resulting in an unfavorable fixed overhead spending variance.

Question 18

Consider the following data for Morethanmoney Ltd. 
Standard revenue per unit $10.00
Budgeted sales volume 5,000
Actual sales volume 5,500
Total standard cost per unit $8.00
Actual total revenue $53,900
The sales quantity variance for Morethanmoney Ltd is:

Accepted Answer

The answer of Consider the following data for Morethanmoney Ltd....

Question 19

The use of standards allows managers to:

Accepted Answer

Standards help managers identify where actual performance deviates from expected performance (sources of variances) and also reveal if compensating variances are masking underlying operational issues, thus both A and B are correct.

Question 20

Assume the additional information for Morethanmoney Ltd. 
Planned Market Size 20,000
Actual Market Size 19,800
Morethanmoney Ltd's planned market share 25%
The market size variance is:

Accepted Answer

The market size variance is calculated as (Planned Market Size - Actual Market Size) x Planned Market Share. Here, (20,000 - 19,800) x 25% = 200 x 0.25 = 50. Since the actual market size is less than planned, it is unfavorable (U).

Quiz 9: Variance Analysis: Revenue and Cost