Accounting Chapter 21 While companies strive to achieve ideal standards, reality implies that

Financial and Managerial Accounting, 8e (Wild)

Chapter 21 Flexible Budgets and Standard Costs

1) Standard costs can be used by management to assess the reasonableness of actual costs

incurred.

2) Standard material costs, standard labor costs, and standard overhead costs can be obtained

from standard cost tables published by the Institute of Management Accountants.

3) Standard costs are preset costs for delivering a product or service under normal conditions.

4) When standard costs are used, factory overhead is assigned to products with a predetermined

standard overhead rate.

5) Management by exception means studying industry standards to define normal conditions.

6) While companies strive to achieve ideal standards, reality implies that some loss of materials

usually occurs with any process.

7) A cost variance is the difference between actual cost and standard cost.

8) A budget performance report shows budgeted amounts, actual amounts, and differences

between budgeted and actual amounts.

9) A cost variance can be further separated into the quantity variance and the price variance.

10) When computing a price variance, the price is held constant.

11) When computing a price variance, the quantity is held constant.

12) Within the same flexible budget performance report, it is impossible to have both favorable

and unfavorable variances.

13) Cost variances are ignored under management by exception.

14) Management by exception means that managers focus on the most significant differences

between actual costs and standard costs.

15) Variable budget is another name for a flexible budget.

16) Fixed budget performance reports compare actual results with the results expected under a

fixed budget.

17) Another name for a static budget is a variable budget.

18) Fixed budgets are also known as flexible budgets.

19) A flexible budget is based on a single predicted amount of sales or other activity measure.

20) A fixed budget is based on a single predicted amount of sales or other activity measure.

21) A variable or flexible budget is so named because it only focuses on variable costs.

22) A fixed budget performance report never provides useful information for evaluating

variances.

23) In sales variance analysis, the budgeted amount of unit sales is the predicted activity level

and the budgeted cost of the goods sold can be treated as a “standard” price.

24) The total sales variance can be divided into the sales price variance and the sales volume

variance.

25) A flexible budget expresses all costs on a per unit basis, regardless of cost behavior.

26) A flexible budget is useful both before and after the period’s activities are complete.

27) A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.

28) The purchasing department is responsible for the price paid for materials.

29) A direct labor cost variance can be divided into price and quantity variances, which are

almost always called controllable and volume variances.

30) When the actual price per unit of direct materials used exceeds the standard price per unit,

the company has an unfavorable direct materials price variance.

31) A favorable direct materials price variance might lead to an unfavorable direct materials

quantity variance because the company purchased inferior materials.

32) One possible explanation for direct labor rate and efficiency variances is the use of workers

with different skill levels.

33) An overhead cost variance is the difference between the total overhead actually incurred for

the period and the standard overhead applied to products.

34) A volume variance is the difference between overhead at maximum volume of production

and the standard volume of production.

35) A volume variance occurs when the company operates at a different capacity level than was

expected.

36) An unfavorable variance is recorded with a debit because it reflects additional costs higher

than the standard cost.

37) The process of closing ending variance account balances increases Cost of Goods Sold.

38) If ending variance account balances are immaterial, they can be closed directly to Cost of

Goods Sold.

39) Standard costs are:

A) Actual costs incurred to produce a specific product or perform a service.

B) Preset costs for delivering a product or service under normal conditions.

C) Established by the IMA.

D) Rarely achieved.

E) Uniform among companies within an industry.

40) The anticipated costs incurred under normal conditions to produce a specific product or to

perform a specific service are:

A) Variable costs.

B) Fixed costs.

C) Standard costs.

D) Product costs.

E) Period costs.

41) The difference between actual price per unit of input and the standard price per unit of input

results in a:

A) Standard variance.

B) Quantity variance.

C) Volume variance.

D) Controllable variance.

E) Price variance.

42) The difference between actual quantity of input used and the standard quantity of input used

results in a:

A) Controllable variance.

B) Standard variance.

C) Budget variance.

D) Quantity variance.

E) Price variance.

43) The difference between the total actual cost incurred and the total standard cost is called the:

A) Flexible variance.

B) Usage variance.

C) Cost variance.

D) Controllable variance.

E) Volume variance.

44) Which of the following is not part of the flow of events in variance analysis:

A) Preparing a standard cost performance report.

B) Identifying questions and their answers.

C) Taking corrective and strategic actions.

D) Computing and analyzing variances.

E) Working to ensure that all variances are favorable.

45) Standard costs are used in the calculation of:

A) Price and quantity variances.

B) Price variances only.

C) Quantity variances only.

D) Price, quantity, and sales variances.

E) Quantity and sales variances.

46) A company provided the following direct materials cost information. Compute the total

direct materials cost variance.

Standard costs assigned:

Direct materials standard cost (405,000 units @ $2/unit)

$

810,000

Actual costs:

Direct Materials costs incurred (403,750 units @ $2.20/unit)

$

888,250

A) $2,500 Favorable.

B) $78,250 Favorable.

C) $78,250 Unfavorable.

D) $80,750 Favorable.

E) $80,750 Unfavorable.

47) A company provided the following direct materials cost information. Compute the direct

materials price variance.

Standard costs assigned:

Direct materials standard cost (405,000 units @ $2.00/unit)

$

810,000

Actual costs:

Direct Materials costs incurred (403,750 units @ $2.20/unit)

$

888,250

A) $81,000 Favorable.

B) $81,000 Unfavorable.

C) $80,750 Unfavorable.

D) $80,750 Favorable.

E) $78,250 Favorable.

48) A company provided the following direct materials cost information. Compute the direct

materials quantity variance.

Standard costs assigned:

Direct materials standard cost (405,000 units @ $2/unit)

$

810,000

Actual costs:

Direct Materials costs incurred (403,750 units @ $2.20/unit)

$

888,250

A) $78,250 Favorable.

B) $2,750 Unfavorable.

C) $2,750 Favorable.

D) $2,500 Favorable.

E) $2,500 Unfavorable.

49) An analytical technique used by management to focus attention on the most significant

variances and give less attention to the areas where performance is reasonably close to standard

is known as:

A) Controllable management.

B) Management by variance.

C) Performance management.

D) Management by objectives.

E) Management by exception.

50) In this type of budget, the master budget is based on a single prediction for sales volume, and

the budgeted amount for each cost essentially assumes that a specific amount of sales will occur:

A) Sales budget.

B) Standard budget.

C) Flexible budget.

D) Fixed budget.

E) Variable budget.

51) A budget based on several different levels of activity, often including both a best-case and

worst-case scenario, is called a:

A) Rolling budget.

B) Production budget.

C) Flexible budget.

D) Merchandise purchases budget.

E) Fixed budget.

52) Static budget is another name for:

A) Standard budget.

B) Flexible budget.

C) Variable budget.

D) Fixed budget.

E) Master budget.

53) Variable budget is another name for:

A) Cash budget.

B) Flexible budget.

C) Fixed budget.

D) Manufacturing budget.

E) Rolling budget.

54) Identify the situation below that will result in a favorable variance.

A) Actual revenue is higher than budgeted revenue.

B) Actual revenue is lower than budgeted revenue.

C) Actual income is lower than expected income.

D) Actual costs are higher than budgeted costs.

E) Actual expenses are higher than budgeted expenses.

55) A flexible budget performance report compares the differences between:

A) Actual performance and budgeted performance based on actual sales volume.

B) Actual performance over several periods.

C) Budgeted performance over several periods.

D) Actual performance and budgeted performance based on budgeted sales volume.

E) Actual performance and standard costs at the budgeted sales volume.

56) Sales variance analysis is used by managers for:

A) Planning purposes only.

B) Budgeting purposes only.

C) Control purposes only.

D) Planning and control purposes.

E) Planning and budgeting purposes.

57) An internal report that helps management analyze the difference between actual performance

and budgeted performance based on the actual sales volume (or other level of activity) is called