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Flashcards in B2-5 Deck (21):
1

In analyzing company operations, the controller of the Jason Corporation found a $250,000 favorable flexible-budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by:

a.

Changes in unit selling prices.

b.

The total flexible budget variance.

c.

Changes in the number of units sold.

d.

The total sales volume variance.

Choice "a" is correct. A revenue variance (also known as a sales price variance) is due to a change in unit selling prices.

Choice "b" is incorrect. A flexible budget variance deals with costs, not revenues.

Choice "d" is incorrect. A sales volume variance results from a change in the number of units sold. A flexible budget adjusts for this volume change.

Choice "c" is incorrect. A change in the number of units sold is compensated for by the flex in the flexible budget.

2

The variance that arises solely because the quantity actually sold differs from the quantity budgeted to be sold is:

a.

Flexible budget variance.

b.

Static budget variance.

c.

Sales volume variance.

d.

Sales mix variance.

Choice "c" is correct. Sales volume variance arises solely because the quantity actually sold differs from the quantity budgeted to be sold.

Choice "b" is incorrect. Static budget variance does not occur when a flexible budget is used, and variance analysis usually requires use of a flexible budget.

Choice "d" is incorrect. For a company that produces more than one product, the sales volume variance can be divided into sales quantity variance and sales mix variance.

Choice "a" is incorrect. Flexible budget variance deals with costs, not revenues. It is the difference between the actual amounts and the flexible budget amounts for the actual output achieved.

3

The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?

a.

Labor usage.

b.

Indirect labor spending.

c.

Labor rate.

d.

Direct labor spending.

Rule: The two-way direct labor variances are computed as follows:

Actual Hours
Actual Rate      

 ←Rate Variance→

Actual Hours
Standard Rate

←Usage/Efficiency→

Standard Hours
Standard Rate

Choice "a" is correct. The difference between standard hours at standard wage rates and actual hours at standard rates is the labor usage/ efficiency variance

Choice "c" is incorrect. The direct labor rate variance is the difference between actual hours at standard rate and actual hours at actual rate.

Choice "d" is incorrect. Spending variances are typically associated with three way overhead variances, not labor wage variances.

Choice "b" is incorrect. Spending variances are typically associated with three way overhead variances, not labor wage variances.

4

In general, the purchasing manager is held responsible for unfavorable material price variances. Causes of these variances include all of the following, except:

a.

Purchasing nonstandard or uneconomical lots.

b.

Inadequate supervision.

c.

Failure to correctly forecast price increases.

d.

Purchasing from suppliers other than those offering the most favorable terms.

 

Choice "b" is correct. Inadequate supervision pertains to management of employees, materials, and equipment by the production manager, and results in material usage variances.

Choices "c", "a", and "d" are incorrect. All of these are causes of unfavorable material price variances

5

ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was $60,000, and there was an unfavorable quantity variance of $2,500.

ChemKing's standard price for one unit of material is:

a.

$2.00

b.

$5.00

c.

$3.00

d.

$2.50

 

Choice "d" is correct. $2.50 standard price for one unit of material.

The standard allowed for the material was $60,000, and 12,000 units were produced in November. Therefore, the materials cost on the "standard" was $5.00 per unit [$60,000/12,000 units]. However, we are told that it takes two units of raw material to make one unit of completed goods. So, the standard price for one unit of material is $2.50 [$5.00/2].

$60,000 / 12,000 units of finished goods = $5

$5 / 2 units of direct material = $2.50 per unit

Choices "a", "c", and "b" are incorrect, based on the above calculation.

6

For a company that produces more than one product, the sales volume variance can be divided into which two of the following additional variances?

a.

Sales price variance and flexible budget variance.

b.

Sales quantity variance and sales mix variance.

c.

Sales mix variance and production volume variance.

d.

Sales efficiency variance and sales price variance.

 

Choice "b" is correct. For a company that produces more than one product, the sales volume variance can be divided into sales quantity variance and sales mix variance.

Choice "a" is incorrect. Sales price variance is not part of sales volume variance; and flexible budget variance part of overhead volume variance.

Choice "d" is incorrect. Sales efficiency variance is not part of sales volume variance; and sales price variance is not.

Choice "c" is incorrect. Sales mix variance is part of sales volume variance; but production volume variance is part of overhead volume variance.

7

Which of the following types of variances would a purchasing manager most likely influence?

a.

Direct materials quantity.

b.

Direct labor efficiency.

c.

Direct labor rate.

d.

Direct materials price.

Choice "d" is correct. The purchasing manager is directly involved in the negotiation of materials prices and would have the greatest influence over the direct materials price variance. The direct materials price variance could be used to monitor purchasing manager performance.

Choice "a" is incorrect. The direct materials quantity variance relates to the amount of materials used and would be influenced most significantly by the production manager.

Choice "c" is incorrect. The direct labor rate variance is associated with compensation paid to the direct labor force. A human resource or other professional tasked with recruiting and hiring direct labor would have greater influence on this variance than the purchasing manager.

Choice "b" is incorrect. The direct labor efficiency variance would largely be under the control of the production manager, not the purchasing manager.

8

Performance reports should be formatted and designed to meet organizational needs. In this regard, performance reports normally include all of the following, except:

a.

A user focus.

b.

Specific time horizons.

c.

Strategic plans.

d.

Exceptional items that are controllable.

 

Choice "c" is correct. Strategic plans are broad-based and long-term in nature. Performance reports are much more specific and shorter term. A performance report would not normally include strategic plans.

Choices "d", "b", and "a" are incorrect. All of these items would be included in performance reports.

9

The inventory control supervisor at Wilson Manufacturing Corporation reported that a large quantity of a part purchased for a special order that was never completed remains in stock. The order was not completed because the customer defaulted on the order. The part is not used in any of Wilson's regular products. After consulting with Wilson's engineers, the vice president of production approved the substitution of the purchased part for a regular part in a new product. Wilson's engineers indicated that the purchased part could be substituted providing it was modified. The units manufactured using the substituted part required additional direct labor hours resulting in an unfavorable direct labor efficiency variance in the Production Department. The unfavorable direct labor efficiency variance resulting from the substitution of the purchased part in inventory would best be assigned to the:

a.

Engineering manager.

b.

Vice president of production.

c.

Production manager.

d.

Sales manager.

Choice "b" is correct. The direct labor efficiency variance was expected once the vice president of production made the decision to substitute the non-standard part.

Choices "d", "a", and "c" are incorrect. All of these parties had input to the decision, but the responsibility belongs to the vice president of production.

10

Smart Co. uses a static budget. When actual sales are less than budget, Smart would report favorable variances on which of the following expense categories?

~Sales commisions
~Building rent
a.

Yes

Yes

b.

No

No

c.

No

Yes

d.

Yes

No

 

Choice "d" is correct. Static budgets do not take changes in sales volume into account. Sales are less than budget, so sales commissions will also be less than budgeted. Sales commissions would have a favorable budget variance. Building rent is generally a fixed expense and is likely not influenced by the level of company sales. There would be no variance in building rent as a result of changes in sales volume.

Note: Favorable sales commission variance is not good news; it means actual sales are less than budgeted. Yet, variances from a static budget would show positive or "favorable" variances from budget. Flexible budget variances provide more meaningful information than static budget variances.

Choices "a", "c", and "b" are incorrect, per the above explanation.

11

In general, the production manager or foreman is held responsible for unfavorable labor efficiency variances. Causes of these variances include all of the following, except:

a.

Substandard or inefficient equipment.

b.

Poorly trained labor.

c.

Inadequate supervision.

d.

High hourly rates.

Choice "d" is correct. High hourly rates are the responsibility of the Personnel Dept, and pertain to labor rate variances.

Choices "b", "a", and "c" are incorrect. All of these are causes of unfavorable labor efficiency variances.

12

A standard costing system is most often used by a firm in conjunction with:

a.

Job order cost systems.

b.

Flexible budgets.

c.

Participative management programs.

d.

Management by objectives.

Choice "b" is correct. A standard costing system is most often used by a firm in conjunction with flexible budgets.

Choice "d" is incorrect. Management by objectives simply requires that objectives be defined before resources are used to achieve them.

Choice "c" is incorrect. Participative management programs bring "managers" and "workers" together to participate in management decisions.

Choice "a" is incorrect. Job order cost systems may use standard costs.

13

To meet its monthly budgeted production goals, Acme Mfg. Co. planned a need for 10,000 widgets at a price of $20 per widget. Acme's actual units were 11,200 at a price of $18.50 per widget. What amount reflected Acme's price variance?

a.

$15,000 favorable.

b.

$7,200 unfavorable.

c.

$24,000 unfavorable.

d.

$16,800 favorable.

 

Choice "d" is correct. Price variance is computed as follows:

Price variance = (Standard price - Actual price) x Actual units

Price variance = ($20 - $18.50) x 11,200

Price variance = $1.50 x 11,200 = $16,800 favorable

The price variance is favorable because the actual price is less than the standard price.

Choice "b" is incorrect. The price variance cannot be unfavorable because the actual price is less than the standard price. It is difficult to determine, however, where the $7,200 came from since there are 11,200 actual units; the price difference would have to be $.64 instead of $1.50, and there is nothing in the question that clearly generates that difference.

Choice "a" is incorrect. In this answer, it seems that the price difference of $1.50 is incorrectly multiplied by the 10,000 budgeted units rather than the 11,200 actual units.

Choice "c" is incorrect. The price variance cannot be unfavorable because the actual price is less than the standard price. It is difficult to determine, however, where the $24,000 came from; the price difference would have to be $2.14, and there is nothing in the question that clearly generates that difference.

14

For the current period production levels, XL Molding Co. budgeted 8,500 board feet of production and used 9,000 board feet for actual production. Material cost was budgeted at $2 per foot. The actual cost for the period was $3 per foot. What was XL's material efficiency variance for the period?

a.

$1,000 unfavorable.

b.

$1,500 unfavorable.

c.

$1,500 favorable.

d.

$1,000 favorable.

 

Choice "a" is correct. The materials efficiency variance is computed as:

(Actual Quantity Used − Standard Quantity Used) × Standard Price

The fact pattern anticipates that budgeted amounts are the standard quantity allowed. As a result, the variance is computed as follows:

(9,000 board feet − 8,500 board feet) × $2 = $1,000

Because we used more than what was budgeted for, the variance is unfavorable.

Choice "d" is incorrect. The variance is unfavorable, not favorable, because the company used more board feet than budgeted.

Choice "c" is incorrect.  The variance is unfavorable, not favorable. The materials efficiency variance is calculated using the budgeted material cost, not the actual material cost. Actual material cost is used when computing the materials price variance.

Choice "b" is incorrect. The materials efficiency variance is calculated using the budgeted material cost, not the actual material cost. Actual materials cost is used when computing the material price variance.

15

A favorable material price variance coupled with an unfavorable material usage variance would most likely result from:

a.

Product mix production changes.

b.

The purchase of lower than standard quality material.

c.

The purchase and use of higher than standard quality material.

d.

Machine efficiency problems.

Choice "b" is correct. The purchase of lower than standard quality material will often result in an unfavorable material usage variance (the inferior material causes more waste) and a favorable material price variance (the inferior material costs less).

Choice "d" is incorrect. Machine efficiency problems would not affect the price variance.

Choice "a" is incorrect. Product mix changes would affect sales volumes, not material price or production efficiency.

Choice "c" is incorrect. Higher than standard material would likely lead to unfavorable price variances and favorable efficiency variances.

16

y produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor usage variance?

a.

$30,000 favorable.

b.

$30,000 unfavorable.

c.

$25,000 unfavorable.

d.

$25,000 favorable.

 

Choice "a" is correct. The direct labor usage (efficiency) variance is computed as follows:

Direct labor usage variance = Difference in standard and actual hours × standard rate

Direct labor usage variance = ((10,000 units × .50 hour) − 3,000 hours) × $15 per hour

Direct labor usage variance = $30,000 favorable

The usage variance is favorable because the actual hours were less than the standard hours

Choice "d" is incorrect. It is unclear how the $25,000 variance can be calculated in this question, but $25,000 favorable or unfavorable is certainly not correct.

Choice "c" is incorrect. It is unclear how the $25,000 variance can be calculated in this question, but $25,000 favorable or unfavorable is certainly not correct.

Choice "b" is incorrect. The variance was favorable, not unfavorable, because the actual hours were less than the standard hours.

17

Management has reviewed the standard cost variance analysis and is trying to explain an unfavorable labor efficiency variance of $8,000. Which of the following is the most likely cause of the variance?

a.

The quality of raw materials has improved greatly.

b.

The department manager has chosen to use highly skilled workers.

c.

The new labor contract increased wages.

d.

The maintenance of machinery has been inadequate for the last few months.

 

Choice "d" is correct. If machinery is inadequately maintained, there will be worker downtime for repairs. This will lead to an unfavorable efficiency variance.

Note: This is a logical theory type question that makes sense when it is thought through.

Choice "c" is incorrect. New labor contracts that increase wages would lead to unfavorable rate variances, not efficiency variances.

Choice "b" is incorrect. Use of highly skilled workers should lead to a favorable efficiency variance because the workers are more proficient.

Choice "a" is incorrect. Raw materials of improved quality should lead to a favorable efficiency variance because the materials flow through the system easily and there would be less downtime and waste.

18

The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to:

a.

Determine the proper cost of the products produced so that selling prices can be adjusted accordingly.

b.

Trace the variances to finished goods so that the inventory can be properly valued at year-end.

c.

Pinpoint fault for operating problems in the organization.

d.

Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations.

Choice "d" is correct. The purpose of identifying and assigning responsibility for a variance to a person/department should be to use the knowledge to promote learning and continuous improvement.

Choice "b" is incorrect. Proper valuation of inventory can occur without assigning responsibility to a person or department.

Choice "a" is incorrect. Selling prices depend on the market, not cost variances.

Choice "c" is incorrect. Pinpointing fault is not productive.

19

An unfavorable direct labor efficiency variance could be caused by a(n):

a.

Favorable variable overhead spending variance.

b.

Unfavorable fixed overhead volume variance.

c.

Unfavorable variable overhead spending variance.

d.

Unfavorable material usage variance.

Choice "d" is correct. An unfavorable direct labor efficiency variance could be caused by an unfavorable material usage variance. Poor quality materials could mean unfavorable material usage and cause inefficient labor usage.

Choices "c", "b", and "a" are incorrect. Overhead variances would not affect the direct labor variance.

20

The standard direct material cost to produce a unit of Lem is 4 meters of material at $2.50 per meter. During May of the current year, 4,200 meters of material costing $10,080 were purchased and used to produce 1,000 units of Lem. What was the material price variance for May?

a.

$480 unfavorable.

b.

$400 favorable.

c.

$420 favorable.

d.

$80 unfavorable.

 

Choice "c" is correct. Material price variance is the difference between actual price and standard price times actual quantity.

(AP - SP) × AQ = Material price variance

[($10,080 ÷ 4,200) - $2.50] × 4,200

($2.40 - $2.50) × 4,200 = 420

The variance is favorable because the actual cost ($2.40) was less than the standard cost ($2.50).

Choice "b" is incorrect. The material price variance equals the difference in prices times the quantity purchased.

Choice "d" is incorrect. The total material variance is $80 unfavorable ($10,000 − $10,080). This total variance needs to be separated into price and quantity variances.

Choice "a" is incorrect. The material price variance equals the difference in prices times the quantity purchased.

21