Question 1

Variance analysis involves the steps listed below. In which order should the steps be performed? 1 Calculate variances
2 Choose variances for further investigation
3 Draw conclusions and take action
4 Identify reasons for variances
A) 1, 2, 3, 4
B) 2, 1, 3, 4
C) 2, 1, 4, 3
D) 1, 2, 4, 3

Accepted Answer

The correct order for performing variance analysis is: 1) Calculate variances to identify differences between actual and expected results. 2) Choose variances that are significant enough to warrant further investigation. 4) Identify reasons for these significant variances. 3) Draw conclusions from the analysis and take appropriate action based on those conclusions.

Question 2

If a variance analysis shows that operations are better than expected, managers should
A) Do nothing
B) Revise standard costs to make them harder to achieve
C) Distribute extra dividends to shareholders
D) Monitor quality to ensure it was maintained

Accepted Answer

If operations are better than expected, managers should monitor quality to ensure it was maintained. This helps to determine if the results were due to improved efficiency or if quality was sacrificed in order to achieve better results. By monitoring quality, managers can ensure that they maintain customer satisfaction and avoid potential issues in the future. Therefore, option D is the best choice.

Question 3

Variance analysis includes which of the following processes? 
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Accepted Answer

The answer of Variance analysis includes which of the following...

Question 4

Which of the following statements regarding trade-offs among variances is true?
A) Managers generally do not need to consider trade-offs in variance analysis
B) Managers may sometimes make trade-offs between favorable and unfavorable variances
C) Unfavorable direct material price variances often lead to unfavorable direct labor efficiency variances
D) Favorable direct material price variances often lead to favorable direct material efficiency variances

Accepted Answer

Managers may sometimes make trade-offs between favorable and unfavorable variances, depending on the strategic goals of the organization. For example, a manager may accept an unfavorable direct labor efficiency variance if the result is a favorable direct material price variance, as this trade-off may ultimately result in a lower overall cost of production. However, the relationship between direct material price variances and direct labor efficiency variances is not always predictable, and managers must take each situation into consideration individually. Therefore, options A, C, and D are incorrect.

Question 5

The process of calculating variances and analysing the reasons they occurred is called
A) Variance analysis
B) Budget analysis
C) Historical analysis
D) Activity-based analysis

Accepted Answer

Variance analysis is the process of comparing actual results to budgeted or expected results in order to identify and understand the reasons why there were variances or differences. This analysis can help management make decisions on how to improve operations, reduce costs, and increase profitability. Budget analysis looks at the overall budget and determines whether actual spending is above or below budgeted amounts. Historical analysis looks at past trends and performance to gain insights into future performance. Activity-based analysis focuses on identifying and analyzing the activities that drive costs in order to improve efficiency and effectiveness.

Question 6

At the end of 2010, ELM's production manager estimated direct labor overtime hours at 200 for the first quarter of 2010. At the end of the first quarter, actual overtime hours totaled 180. This difference is most likely to lead to
A) Favorable variable overhead spending variance
B) Unfavorable production volume variance
C) Favorable labor efficiency variance
D) Unfavorable labor efficiency variance

Accepted Answer

The difference in estimated and actual direct labor overtime hours indicates that the actual labor efficiency (hours worked per unit produced) was better than estimated. This leads to a favorable labor efficiency variance.

Question 7

Which of the following is not a typical step in variance analysis?
A) Calculate variances
B) Identify reasons for variances
C) Report variances in financial statements
D) Draw conclusions and take action

Accepted Answer

Variance analysis typically involves calculating variances, identifying reasons for the variances, drawing conclusions and taking action based on the analysis. Reporting variances in financial statements is not a typical step in variance analysis as financial statements are prepared for external stakeholders and variance analysis is more focused on internal decision-making.

Question 8

A favorable variance in one area might be offset by
A) Favorable variance in another area
B) Unfavorable variance in another area
C) Increase in period costs
D) Decrease in period costs

Accepted Answer

A favorable variance in one area can be offset by an unfavorable variance in another area, as both variances affect the overall performance and financial results of the company. The other choices, such as an increase or decrease in period costs, may or may not be related to the variances and do not necessarily offset them.

Question 9

ELM introduced a new automated production process that has reduced the amount of labour needed, but not affected the use of materials. The standard cost system has not been changed yet to reflect this new process. Assuming the machinery is functioning properly and that workers were properly trained in its use, which of the following variances is most likely to result?
A) Favorable variable overhead spending variance
B) Favorable direct labor efficiency variance
C) Unfavorable direct labor efficiency variance
D) Favorable direct materials price variance

Accepted Answer

The new automated process reduces labor needs, leading to a favorable direct labor efficiency variance as less labor is used than initially planned.

Question 10

The production manager of CLR calculated a material and unfavorable variance of $4,000 with respect to the cost of direct materials. Which of the following is a likely next step for the production manager?
A) Identify and discipline the responsible employee
B) Take actions to prevent the variance from recurring
C) Ascertain the cause of the variance
D) Switch suppliers for direct materials

Accepted Answer

The answer of The production manager of CLR calculated a...

Question 11

If a variance is investigated and determined to be random, managers should
A) Write off the variance against cost of goods sold
B) Do nothing
C) Identify and discipline the employee(s) responsible
D) Write off the variance against work in process

Accepted Answer

If a variance is determined to be random, it means that it is not caused by any employee's actions or any controllable factor. Therefore, it is best for managers to do nothing and accept the variance as an inherent part of the business operations. Writing off the variance against any cost or work in process would not be appropriate since it is not directly related to any specific cost or production activity. Disciplining an employee for a random variance would also not be fair or productive.

Question 12

Unattainable standards are likely to lead to 
A) I only
B) II only
C) III only
D) I and III only

Accepted Answer

The answer of Unattainable standards are likely to lead to...

Question 13

Accountants investigate manufacturing overhead spending variances to determine
A) Which specific overhead costs differ from expectations, and whether corrections are needed
B) Which specific direct costs differ from expectations, and whether corrections are needed
C) Which specific marketing costs differ from expectations, and whether corrections are needed
D) Whether the variance is material

Accepted Answer

Accountants investigate manufacturing overhead spending variances to determine which specific overhead costs differ from expectations and whether corrections are needed. They analyze the budgeted overhead costs and actual overhead costs to identify the variances between them. They then investigate the reasons behind the variances and determine whether corrective actions are necessary. Options B and C are incorrect because the question is specifically about manufacturing overhead spending variances, not direct or marketing costs. Option D is not the best choice because just determining whether the variance is material is not sufficient; accountants need to determine the reasons behind the variance and take corrective actions if needed.

Question 14

Managers investigate
A) All variances
B) All unfavorable variances
C) Variances they consider important
D) Variances that are reported in the financial statements

Accepted Answer

Managers typically investigate the variances that they consider important, meaning that they focus on the areas that have the greatest impact on their decision-making and overall performance. They may not necessarily investigate all variances or just the unfavorable ones, as some variances may be small or insignificant. The variances that are reported in the financial statements may not always be the most relevant or meaningful for management purposes.

Question 15

How do managers decide which variances are important enough to investigate? 
A) I only
B) II only
C) III only
D) I and III only

Accepted Answer

The answer of How do managers decide which variances are...

Question 16

Theft of raw materials is most likely to lead to
A) Direct materials price variance
B) Favorable direct materials price variance
C) Unfavorable direct materials efficiency variance
D) Favorable direct materials efficiency variance

Accepted Answer

Theft of raw materials would result in a decrease in the quantity of raw materials used in production, which would lead to a negative (unfavorable) direct materials efficiency variance.

Question 17

Intentional worker damage is most likely to result in which type of variance?
A) Direct materials price variance
B) Direct materials efficiency variance
C) Direct labor price variance
D) Variable overhead spending variance

Accepted Answer

Intentional worker damage is related to the efficiency of direct materials usage, which affects the direct materials efficiency variance. This variance measures the difference between the amount of direct materials that should have been used for the actual level of output and the amount of direct materials actually used. The intentional damage caused by the workers can result in a higher amount of direct materials being used compared to what was originally planned, leading to a negative efficiency variance. The other variances listed are not directly related to intentional worker damage.

Question 18

Rewarding employees in one production department for meeting or exceeding standard cost benchmarks can create new sets of problems for organisations. Which of the following is not one of them?
A) An unfavorable efficiency variance because of rework needed on work from another department
B) Variances in another production department
C) Unmotivated employees in that production department
D) Poor quality finished goods

Accepted Answer

Unmotivated employees in that production department is not a problem caused by rewarding employees for meeting or exceeding cost benchmarks; rather, it is the opposite, as rewards are intended to motivate employees.

Question 19

Variances can be caused by 
A) I and III only
B) II and III only
C) I and II only
D) I, II, and III

Accepted Answer

I. Differences in actual costs incurred versus budgeted costs
II. Differences in quantity or volume of inputs used versus budgeted levels
III. Differences in prices of inputs used versus budgeted prices

Question 20

LST entered into a new contract with one of its raw material suppliers. The new contract required the supplier to deliver raw materials with a 24-hour notice from LST. This reduces LST's material handling costs, but has increased the cost of the raw materials delivered. Which of the following variances is most likely to result?
A) Unfavorable direct material price variance
B) Favorable direct price variance
C) Unfavorable variable overhead spending variance
D) Unfavorable fixed overhead spending variance

Accepted Answer

With the new contract, the cost of raw materials delivered has increased, leading to an unfavorable direct material price variance. Although the new contract reduces LST's material handling costs, the increased cost of raw materials outweighs the cost savings, resulting in an increased variance.

Quiz 10: Standard Costs, Flexible Budgets and Variance Analysis

Variance analysis involves the steps listed below. In which order should the steps be performed? 1 Calculate variances 2 Choose variances for further investigation 3 Draw conclusions and take action 4 Identify reasons for variances

If a variance analysis shows that operations are better than expected, managers should

Variance analysis includes which of the following processes?

Which of the following statements regarding trade-offs among variances is true?

The process of calculating variances and analysing the reasons they occurred is called

At the end of 2010, ELM's production manager estimated direct labor overtime hours at 200 for the first quarter of 2010. At the end of the first quarter, actual overtime hours totaled 180. This difference is most likely to lead to

Which of the following is not a typical step in variance analysis?

A favorable variance in one area might be offset by

The production manager of CLR calculated a material and unfavorable variance of $4,000 with respect to the cost of direct materials. Which of the following is a likely next step for the production manager?

If a variance is investigated and determined to be random, managers should

Unattainable standards are likely to lead to

Accountants investigate manufacturing overhead spending variances to determine

Managers investigate

How do managers decide which variances are important enough to investigate?

Theft of raw materials is most likely to lead to

Intentional worker damage is most likely to result in which type of variance?

Rewarding employees in one production department for meeting or exceeding standard cost benchmarks can create new sets of problems for organisations. Which of the following is not one of them?

Variances can be caused by