Question 1

When analyzing end of period production cost variances, which of the following product cost components will not need "flexing"?

Accepted Answer

Fixed manufacturing overhead does not need to be flexed because it is a fixed cost that does not change with changes in production levels. Therefore, any variance in fixed overhead costs can be attributed to factors other than production volume, such as changes in the cost of supplies or utilities.

Question 2

If it is to be most useful for control purposes, what variance should be reported to the supervisor responsible for the number of pounds of corn syrup used in the manufacture of a candy bar?

Accepted Answer

D

Question 3

When an income statement shows data for segments of the organization, and data for each segment are added together to get totals for the whole organization:

Accepted Answer

Segment reporting only requires direct revenues and expenses to be assigned to segments, as these are the costs and revenues that can be directly traced to a specific segment. Common fixed expenses cannot be directly traced to a segment and should not be allocated to them. Direct fixed expenses are already included in the direct expenses assigned to a segment and should not be subtracted from the total.

Question 4

The difference between standard and actual cost per unit of input is measured by:

Accepted Answer

The difference between standard and actual cost per unit of input can be measured by all of the variances mentioned in the options. The raw materials price variance measures the difference between the actual cost of raw materials and the standard cost of raw materials per unit of input. The direct labor rate variance measures the difference between the actual hourly wage rate paid to direct labor and the standard hourly wage rate per unit of input. The variable overhead spending variance measures the difference between the actual variable overhead cost incurred and the standard variable overhead cost per unit of input. Therefore, option D, all of the above, is the best choice.

Question 5

The term noncontrollable cost:

Accepted Answer

Noncontrollable costs are costs that cannot be influenced or controlled by a manager, implying that there is really nothing the manager can do to influence the amount of cost.

Question 6

If the actual level of activity is different from the budgeted level, a _________ budget is prepared for the actual level of activity:

Accepted Answer

A flexible budget is prepared for the actual level of activity, which allows for adjustments in the budget based on changes in activity levels. This type of budget can provide more accurate and useful information for decision-making compared to a static budget, which is prepared based on a fixed level of activity. Continuous and master budgets refer to different aspects of the budgeting process, while zero-based budgeting is a different approach to budgeting altogether.

Question 7

A budget adjusted to reflect a budget allowance based on actual activity achieved rather than the planned level of activity in the original budget is a:

Accepted Answer

A flexible budget is designed to adjust for changes in activity levels, allowing for more accurate cost and revenue projections based on actual activity achieved. It is flexible because it can accommodate changes in activity levels throughout the budget period, which can result in changes to revenue and expenses. This type of budget is particularly useful for businesses that experience seasonal fluctuations, uncertain demand or other shifts in their operating environment.

Question 8

The total budget variance is caused by two factors:

Accepted Answer

The total budget variance is the difference between the actual cost and the budgeted cost. This difference can be caused by two factors: quantity and price. Quantity variance occurs when the actual quantity used is different from the budgeted quantity. Price variance occurs when the actual price paid for a unit is different from the budgeted price. Therefore, the best choice is A.

Question 9

The principal objective of a performance report is to:

Accepted Answer

The principal objective of a performance report is to highlight activities that need management attention. This could include areas where goal targets were not met, budget overruns, or potential areas for improvement in business operations. The report is not intended to place blame but rather to identify areas where improvements can be made. Additionally, rewarding effective managers may be a secondary objective but not the principal one.

Question 10

Val's travel budget for October was $720, based on her plan to drive 3,000 miles at a cost of $0.24 per mile. During October, she actually drove 2,800 miles at a total cost of $700. A flexed budget performance report would show a variance of:

Accepted Answer

The formula for flexed budget is as follows:

Flexed budget = (Actual quantity * Budgeted price)

Using this formula, we can calculate Val's expected cost for the actual amount of miles driven:

Flexed budget = (2,800 * $0.24) = $672

The difference between the flexed budget and the actual cost is:

$700 - $672 = $28 higher than expected (unfavorable variance)

Therefore, the answer is C, $28 U (unfavorable).

Question 11

For performance reports to be most effective for management by exception, they should:

Accepted Answer

Performance reports should be issued as soon as possible after the activity or period covered to ensure timely decision making by management. Delaying the reports could result in missed opportunities or increased risks. Issuing the reports at the same time for all responsibility centers could cause delays, and showing all costs may not be relevant or necessary for management by exception. Holding the reports until the financial statements for the month have been issued is not necessary as performance reports can provide more detailed information that may not be included in the financial statements.

Question 12

A variance is the difference between actual costs and:

Accepted Answer

A variance is the difference between actual costs and expected costs, which is a commonly used method in budgeting and accounting to track financial performance. Option A is incorrect because selling price is not relevant to cost variances. Option C is incorrect because activity-based costs are a method of assigning costs to specific activities, not a basis for comparing actual and expected costs. Option D is incorrect because historical costs are the actual costs incurred in the past, not a basis for calculating variances.

Question 13

A performance report for direct labor shows a variance between the budget and actual amounts. This difference is a:

Accepted Answer

The answer of A performance report for direct labor shows...

Question 14

An example of a cost that is noncontrollable in the short run is:

Accepted Answer

Noncontrollable costs are those costs that cannot be easily influenced or changed in the short run. Property taxes are an example of a noncontrollable cost because they are imposed by the government and cannot be reduced or eliminated in the short term. The other options, such as direct labor, raw materials, and supervisors' salaries, are examples of controllable costs because they can be adjusted or managed in the short term by the company.

Question 15

The key difference between a controllable cost and a noncontrollable cost is:

Accepted Answer

Controllable costs are costs that can be influenced or controlled by the manager in the short term, such as labor costs, while noncontrollable costs are costs that cannot be influenced or controlled by the manager in the short term, such as rent or insurance. The amount, frequency, or type of cost does not determine whether it is controllable or noncontrollable, but rather the manager's ability to influence or control it. The fixed or variable nature of the cost is also not relevant to this distinction.

Question 16

The total variance for any particular cost component is referred to as the:

Accepted Answer

The total variance for any particular cost component is referred to as the budget variance. This variance represents the difference between actual costs and budgeted costs for that particular cost component. It takes into account both the price variance and the efficiency variance for that cost component. Therefore, options A and B are incorrect as they refer to individual variances and not the total variance. Option D is also incorrect as it does not provide a specific answer.

Question 17

The best reason for flexing a budget is to:

Accepted Answer

Flexing a budget allows for a more accurate determination of variances by adjusting the budget to reflect the actual level of activity, making it easier to compare with actual results.

Question 18

The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw materials purchase price variance that might very well have been more than offset by:

Accepted Answer

The lower quality raw materials may result in an unfavorable raw materials usage variance because they may not produce the same amount of finished goods as the higher quality materials. This could result in a higher cost per unit of production which could negate the savings from the lower purchase price. The other options listed are not directly related to the quality of the raw materials purchased.

Question 19

When an appropriately established and effective standard cost system is used to value inventory:

Accepted Answer

A significant unfavorable net variance may be reported as an expense of the current period when using an appropriately established and effective standard cost system to value inventory. This is because the standard cost system assumes that production costs will remain constant, so any deviations from the standard cost are considered variances and may result in expenses or income in the current period. Cumulative variances are not deferred in this system, as they are constantly monitored and adjusted for. The explanatory notes to the financial statements should still explain the disposition of the net variance, but this is not the best choice.

Question 20

________________ is a technique used to filter cost information contained in performance reports to each manager within the organization at an appropriate level of detail or summarization.

Accepted Answer

Responsibility reporting is the technique used to filter cost information contained in performance reports to each manager within the organization at an appropriate level of detail or summarization. This type of reporting provides managers with cost information related to their specific area of responsibility, allowing them to better monitor and control costs. Financial reporting is a broader type of reporting that provides an overview of the organization's financial performance, while segment reporting focuses on the performance of specific segments within the organization. Managerial reporting is a term that can encompass any type of reporting used by managers to make informed decisions.

Quiz 15: Cost Control