Question 1

If demand is insufficient to keep everyone busy and workers are not laid off, an unfavorable (U)variable overhead efficiency variance often will be a result unless managers build excessive inventories.

Accepted Answer

If there is insufficient demand to keep all workers busy, the variable overhead cost is still being incurred, but the output is less than expected, resulting in an unfavorable efficiency variance. To avoid this variance, managers may build excessive inventories which can lead to additional carrying costs.

Question 2

A quantity standard indicates how much of an input should be used to make a unit of product or provide a unit of service.

Accepted Answer

This is a correct definition of a quantity standard. It specifies how much of a certain input, such as materials or labor, should be used to produce a unit of output, such as a product or service. It helps to ensure consistency and efficiency in production processes.

Question 3

An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

Accepted Answer

An unfavorable materials quantity variance occurs when the actual quantity used in production is more than the standard quantity allowed for the actual output of the period.

Question 4

If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a favorable labor rate variance and unfavorable variable overhead rate variance for the same period.

Accepted Answer

It is possible to have a favorable labor rate variance and an unfavorable variable overhead rate variance if there are fluctuations in the actual labor hours used compared to the estimated labor hours used to apply the variable overhead. This can lead to a favorable labor rate variance but an unfavorable variable overhead rate variance.

Question 5

The variable overhead efficiency variance does not actually measure how efficiently variable manufacturing overhead resources were used.

Accepted Answer

The variable overhead efficiency variance actually measures the difference between the actual variable overhead cost and the budgeted variable overhead cost based on the actual hours worked, which may not always indicate the actual efficiency of resource utilization. It is affected by various factors such as the actual wage rate, actual usage rate per hour, and the actual number of hours worked.

Question 6

The standard price per unit for direct materials should reflect the final, delivered cost of the materials.

Accepted Answer

The standard price per unit for direct materials should incorporate all costs incurred to get the materials to their final destination, including transportation, handling, and any other related costs. Therefore, it should reflect the final delivered cost.

Question 7

The standard labor rate per hour should not include any employment taxes.

Accepted Answer

The standard labor rate per hour should include employment taxes such as Social Security, Medicare, and unemployment taxes. Employers often have to pay additional taxes on top of the standard labor rate per hour, which should also be factored in when calculating labor costs.

Question 8

If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U).

Accepted Answer

If the actual hourly rate is greater than the standard hourly rate, it means that more money was spent on labor than originally budgeted, resulting in a higher cost for the project. This is considered unfavorable because it goes against the plan and can impact the project budget and profitability.

Question 9

When more hours of labor time are necessary to complete a job than the standard allows, the labor efficiency variance is unfavorable.

Accepted Answer

A favorable labor efficiency variance occurs when fewer hours of labor time are required to complete a job than the standard allows. Therefore, if more hours are required than the standard, the variance is unfavorable.

Question 10

The standard quantity or standard hours allowed refers to the amount of the input that should have been used to produce the actual output of the period.

Accepted Answer

The statement is true. Standard quantity or standard hours allowed is a measure of expected input used to produce a specific level of output during a specified time period.

Question 11

In a flexible budget, what will happen to fixed costs as the activity level increases?
A)The fixed cost per unit will decrease.
B)The fixed cost per unit will remain unchanged.
C)The fixed cost per unit will increase.
D)Fixed costs are not included in a flexible budget.

Accepted Answer

Fixed costs per unit decrease as the activity level increases because the total fixed costs are spread over more units, reducing the cost allocated to each unit.

Question 12

The materials price variance is computed based on the amount of materials purchased during the period.

Accepted Answer

The materials price variance is calculated by taking the difference between the actual cost of materials purchased and the standard cost of those materials, multiplied by the quantity of materials purchased.

Question 13

If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance.

Accepted Answer

This statement is false. Skilled workers with higher hourly rates of pay should be assigned tasks that require their skills to achieve better productivity and quality. Assigning them to duties that require lower skills and lower hourly rates of pay may result in a favorable labor rate variance in the short term but will eventually lead to decreased productivity and quality, affecting the overall performance of the organization.

Question 14

In general, the production manager is responsible for the materials price variance.

Accepted Answer

The production manager is responsible for overseeing the production process and ensuring efficiency, but the materials price variance is typically the responsibility of the purchasing department or procurement manager who negotiates prices with suppliers.

Question 15

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the fixed part of the predetermined overhead rate.

Accepted Answer

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate, not the fixed part.

Question 16

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the standard hours allowed for the actual output.

Accepted Answer

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual hours worked, not the standard hours allowed for the actual output.

Question 17

When using a flexible budget, a decrease in activity within the relevant range:
A)decreases variable cost per unit.
B)increases variable cost per unit.
C)decreases total costs.
D)increases total costs.

Accepted Answer

A flexible budget adjusts costs based on changes in activity levels. Therefore, a decrease in activity decreases total costs, as variable costs adjust with the level of activity. Variable cost per unit remains constant.

Question 18

The labor efficiency variance is labeled favorable (F)if the actual hours used is less than the standard hours allowed for the actual output.

Accepted Answer

This statement is true. Labor efficiency variance measures the difference between the actual hours used and the standard hours allowed for the actual output. If actual hours used is less than the standard hours allowed, it means that labor was more efficient than expected, resulting in a favorable variance.

Question 19

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.

Accepted Answer

This is the formula for calculating the variable overhead efficiency variance.

Question 20

If demand is insufficient to keep everyone busy and workers are not laid off, a favorable (F)labor efficiency variance often will be a result.

Accepted Answer

A favorable labor efficiency variance is achieved when employees achieve their output goals with fewer hours worked than anticipated. If workers are not laid off despite the insufficient demand, it may lead to overstaffing and reduced labor efficiency, resulting in an unfavorable labor efficiency variance.

Quiz 9: Flexible Budgets Standard Costs and Variance Analysis