Chapter 23 Flexible Budgets and Standard Costs
MULTIPLE CHOICE QUESTIONS
1) Standard costs can be used by management to assess the reasonableness of actual costs incurred.
A) True
B) False
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.
A) True
B) False
3) Standard costs are preset costs for delivering a product or service under normal conditions.
A) True
B) False
4) When standard costs are used, factory overhead is assigned to products with a predetermined
standard overhead rate.
A) True
B) False
5) Companies promoting continuous improvement strive to achieve practical standards rather than
ideal standards.
A) True
B) False
6) While companies strive to achieve ideal standards, reality implies that some loss of materials
usually occurs with any process.
A) True
B) False
7) A cost variance is the difference between actual cost and standard cost.
A) True
B) False
8) A budget performance report shows budgeted amounts, actual amounts, and differences between
budgeted and actual amounts.
A) True
B) False
9) A cost variance can be further separated into the quantity variance and the price variance.
A) True
B) False
10) When computing a price variance, the price is held constant.
A) True
B) False
11) When computing a price variance, the quantity is held constant.
A) True
B) False
12) Within the same flexible budget performance report, it is impossible to have both favorable and
unfavorable variances.
A) True
B) False
13) Cost variances are ignored under management by exception.
A) True
B) False
14) Management by exception means that managers focus on the most significant differences between
actual costs and standard costs.
A) True
B) False
15) Variable budget is another name for a flexible budget.
A) True
B) False
16) Fixed budget performance reports compare actual results with the results expected under a fixed
budget.
A) True
B) False
17) Another name for a static budget is a variable budget.
A) True
B) False
18) Fixed budgets are also known as flexible budgets.
A) True
B) False
19) A flexible budget is based on a single predicted amount of sales or other activity measure.
A) True
B) False
20) A fixed budget is based on a single predicted amount of sales or other activity measure.
A) True
B) False
21) A variable or flexible budget is so named because it only focuses on variable costs.
A) True
B) False
22) A fixed budget performance report never provides useful information for evaluating variances.
A) True
B) False
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.
A) True
B) False
24) The total sales variance can be divided into the sales price variance and the sales volume variance.
A) True
B) False
25) A flexible budget expresses all costs on a per unit basis, regardless of cost behavior.
A) True
B) False
26) The usefulness of a flexible budget depends on the valid classification of variable and fixed costs.
A) True
B) False
27) A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.
A) True
B) False
28) The purchasing department is usually responsible for the price paid for materials.
A) True
B) False
29) A direct labor cost variance can be divided into price and quantity variances, which are almost
always called controllable and volume variances.
A) True
B) False
30) When the actual cost of direct materials used exceeds the standard cost, the company must have
experienced an unfavorable direct materials price variance.
A) True
B) False
31) A favorable direct materials price variance might lead to an unfavorable direct materials quantity
variance because the company purchased inferior materials.
A) True
B) False
32) One possible explanation for direct labor rate and efficiency variances is the use of workers with
different skill levels.
A) True
B) False
33) An overhead cost variance is the difference between the total overhead actually incurred for the
period and the standard overhead applied to products.
A) True
B) False
34) A volume variance is the difference between overhead at maximum volume of production and the
standard volume of production.
A) True
B) False
35) A volume variance occurs when the company operates at a different capacity level than was
expected.
A) True
B) False
36) An unfavorable variance is recorded with a debit because it reflects additional costs higher than the
standard cost.
A) True
B) False
37) If ending variance account balances are material, they should always be closed directly to Cost of
Goods Sold.
A) True
B) False
38) If ending variance account balances are immaterial, they can be closed directly to Cost of Goods
Sold.
A) True
B) False
39) Standard costs are:
A) Established by the IMA.
B) Uniform among companies within an industry.
C) Preset costs for delivering a product or service under normal conditions.
D) Actual costs incurred to produce a specific product or perform a service.
E) Rarely achieved.
40) The anticipated costs incurred under normal conditions to produce a specific product or to perform
a specific service are:
A) Fixed costs.
B) Variable 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) Controllable variance.
C) Volume variance.
D) Quantity variance.
E) Price variance.
42) The difference between actual quantity of input used and the standard quantity of input used results
in a:
A) Quantity variance.
B) Standard variance.
C) Budget variance.
D) Controllable variance.
E) Price variance.
43) The difference between the actual cost incurred and the standard cost is called the:
A) Flexible variance.
B) Price variance.
C) Controllable variance.
D) Cost variance.
E) Volume variance.
44) Which of the following is not part of the flow of events in variance analysis:
A) Identifying questions and their explanations.
B) Working to ensure that all variances are favorable.
C) Preparing a standard cost performance report.
D) Taking corrective and strategic actions.
E) Computing and analyzing variances.
45) Standard costs are used in the calculation of:
A) Quantity variances only.
B) Quantity and sales variances.
C) Price and quantity variances.
D) Price variances only.
E) Price, 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 @ $2.00/unit)
Actual costs:
$ 810,000
Direct Materials costs incurred (403,750 units @ $2.20/unit)
$ 888,250
A) $80,750 Unfavorable.
B) $2,500 Favorable.
C) $80,750 Favorable.
D) $78,250 Favorable.
E) $78,250 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)
Actual costs:
$ 810,000
Direct Materials costs incurred (403,750 units @ $2.20/unit)
$ 888,250
A) $81,000 Unfavorable.
B) $80,750 Favorable.
C) $78,250 Favorable.
D) $80,750 Unfavorable.
E) $81,000 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 @ $2.00/unit)
Actual costs:
$ 810,000
Direct Materials costs incurred (403,750 units @ $2.20/unit)
$ 888,250
A) $78,250 Favorable.
B) $2.500 Favorable.
C) $2,750 Unfavorable
D) $2,500 Unfavorable.
E) $2,750 Favorable.
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) Performance management.
B) Management by variance.
C) Management by objectives.
D) Controllable management.
E) Management by exception.
50) In this type of control system, 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) Variable budget.
B) Flexible budget.
C) Fixed budget.
D) Sales budget.
E) Standard budget.