CHAPTER 7 QUIZ
1. [CMA Adapted] Flexible budgets
a. accommodate changes in the inflation rate.
b. accommodate changes in activity levels.
c. are used to evaluate capacity utilization.
d. are static budgets that have been revised for changes in price(s).
2. [CMA Adapted] The following information is available for the Gabriel Products
Company for the month of July:
Static Budget Actual
Units 5,000 5,100
Sales revenue $60,000 $58,650
Variable manufacturing costs $15,000 $16,320
Fixed manufacturing costs $18,000 $17,000
Variable marketing and administrative expense $10,000 $10,500
Fixed marketing and administrative expense $12,000 $11,000
The total sales-volume variance for the month of July would be
a. $2,550 unfavorable.
b. $1,350 unfavorable.
c. $700 favorable.
d. $100 favorable.
3. [CMA Adapted] Bartholomew Corporation’s master budget calls for the production of
6,000 units of product monthly. The master budget includes indirect labor of $396,000
annually; Bartholomew considers indirect labor to be a variable cost. During the month of
September, 5,600 units of product were produced, and indirect labor costs of $30,970 were
incurred. A performance report utilizing flexible budgeting would report a flexible-budget
variance for indirect labor of
a. $170 unfavorable.
b. $170 favorable.
c. $2,030 unfavorable.
d. $2,030 favorable.
4. Which of the following is not an advantage for using standard costs for variance
analysis?
a. Standards simplify product costing.
b. Standards are developed using past costs and are available at a relatively low cost.
c. Standards are usually expressed on a per-unit basis.
d. Standards can take into account expected changes planned to occur in the budgeted
period.
5. Information on Pruitt Company’s direct-material costs for the month of July 2005 was as
follows:
Actual quantity purchased 30,000 units
Actual unit purchase price $2.75
Materials purchase-price variance
—unfavorable (based on purchases) $1,500
Standard quantity allowed for actual production 24,000 units
Actual quantity used 22,000 units
[CPA Adapted] For July 2005 there was a favorable direct-materials efficiency variance of
a. $7,950.
b. $5,500.
c. $5,400.
d. $5,600.
6. Information for Garner Company’s direct-labor costs for the month of September 2005
was as follows:
Actual direct-labor hours 34,500 hours
Standard direct-labor hours 35,000 hours
Total direct-labor payroll $241,500
Direct-labor efficiency variance—favorable $ 3,200
[CPA Adapted] What is Garner’s direct-labor price (or rate) variance?
a. $21,000 favorable
b. $21,000 unfavorable
c. $17,250 unfavorable
d. $20,700 unfavorable
7. Performance evaluation using variance analysis should guard against
a. emphasis on a single performance measure.
b. emphasis on total company objectives.
c. basing effect of a manager’s action on total costs of the company as a whole.
d. highlighting individual aspects of performance.
8. The basic principles and concepts of variance analysis can be applied to activity-based
costing
a. by application as to the levels of cost hierarchy.
b. through careful classification of costs as direct and indirect as applied to the product or
job.
c. with use of standard costing systems only.
d. only through those activities related to individual units of product or service.
9. Benchmarking is
a. relatively easy to do with the amount of available financial information about
companies.
b. best done with the best in their field regardless of type of company.
c. simply reporting the magnitude of differences in costs or revenues across companies.
d. making comparisons to direct attention to why differences in costs exist across
companies.
CHAPTER 7 QUIZ SOLUTIONS
