Chapter 10—Variance Analysis—A Tool for Cost Control and Performance Evaluation
MULTIPLE CHOICE
1. A budget for a single unit of a product or service is called as a:
a.
fixed cost.
b.
real cost.
c.
standard cost.
d.
total cost.
2. Which of the following statements is true regarding the budgeted cost for direct materials?
a.
It would be used on a static budget but not a flexible budget.
b.
It would consist of two components – a standard quantity and a standard price.
c.
It must be determined after materials are purchased for the year.
d.
It can not be determined if a company uses a just-in-time inventory system.
3. Variance analysis compares:
a.
practical standards and ideal standards.
b.
static budgets and flexible budgets.
c.
standard costs and actual costs.
d.
product costs and period costs.
4. Which of the following statements is false regarding task analysis?
a.
It examines the production process in detail.
b.
It may involve the use of engineers.
c.
It emphasizes what it should cost to produce a product rather than historical costs.
d.
It uses actual historical data in the determination of standard costs.
5. Task analysis:
a.
is used to determine the tasks that production employees should complete on a daily basis.
b.
is used to evaluate employee performance.
c.
is used to set standard costs.
d.
emphasizes the historical costs of a product.
6. A(n) ____ is attainable only when near-perfect conditions exist.
a.
practical standard
b.
ideal standard
c.
static budget
d.
flexible budget
7. In most companies, machines break down occasionally and employees are often less than perfect.
Which type of standard acknowledges these characteristics when determining the standard cost of a
product?
a.
Efficiency standard
b.
Ideal standard
c.
Practical standard
d.
Budgeted standard
8. Hathaway Inc. produces and sells golf umbrellas to local resorts. Hathaway anticipates April to be a
busy month with the sale of 2,000 umbrellas. The company has prepared the following static budget
for April:
Sales revenue (2,000 units)
$60,000
Variable costs:
Direct materials
6,000
Direct labor
8,000
Overhead
2,500
Fixed costs
6,000
Net operating income
$37,500
During April, Hathaway actually produced and sold 2,300 umbrellas. What should be Hathaway’s net
operating income in April based on a flexible budget?
a.
$44,025
b.
$43,125
c.
$37,500
d.
$35,025
9. Hoppe Inc. manufactures widgets. Management has determined that each widget has a standard
materials cost of $3.50 when 2.5 ounces of raw material at a cost of $1.40 per ounce are used. The
static budget for the month of December showed an estimated production of 4,000 widgets in
December. During December, 4,300 widgets were actually produced. The actual cost for each widget
was $3.60 when 2.25 ounces of raw material at a cost of $1.60 per ounce were purchased and used.
What should be the total direct materials cost according to Hoppe’s flexible budget for December?
a.
$14,400
b.
$15,050
c.
$14,000
d.
$15,480
10. Violetta Inc. manufactures plastic storage boxes. Management has determined that each medium-sized
box has a standard materials cost of $1.20 when 4 pounds of raw material at a cost of $.30 per pound
are used. The static budget for the month of March showed an estimated production of 15,000 boxes in
March. During March, 17,000 boxes were actually produced. The actual cost for each box was $1.56
when 3.9 pounds of raw material at a cost of $.40 per pound were purchased and used. What should be
the total direct materials cost according to Violetta’s flexible budget for March?
a.
$20,400
b.
$26,520
c.
$18,000
d.
$23,400
11. Holt Products manufactures desktop computers. Management has determined that each computer has a
standard labor cost of $75.00 when 5 hours of labor at a cost of $15.00 per hour are used. The static
budget for the month of April showed an estimated production of 4,200 computers. During April,
4,500 computers were actually produced. The actual direct labor cost for each computer was $85.80
when 5.5 hours of labor at a cost of $15.60 per hour was used. What should be the total direct labor
cost according to Holt’s flexible budget for April?
a.
$360,360
b.
$315,000
c.
$337,500
d.
$386,100
12. Summerlin Law Offices applies overhead to clients based on direct labor hours. The office manager
determined that overhead will be applied at a rate of $25 per direct labor hour. The static budget for the
month of November showed an estimated 2,500 direct labor hours would be incurred. During
November, 2,800 direct labor hours were actually incurred and actual overhead costs were $58,800.
What should be the total overhead cost according to the firm’s flexible budget for November?
a.
$70,000
b.
$58,800
c.
$62,500
d.
$52,500
13. The type of budget that consider standard costs for the actual volume of production is a:
a.
standard budget.
b.
static budget.
c.
flexible budget.
d.
fixed budget.
14. Trina makes handmade leis in Hawaii which she sells to local tourists. She anticipates August to be a
busy month with the sale of 500 leis. She has prepared the following static budget for August:
Sales revenue (500 units)
$5,000
Variable costs:
Direct materials
1,000
Direct labor
1,000
Overhead
375
Fixed costs
200
Net operating income
$2,425
During August, Trina actually produced and sold 400 leis. What should be Trina’s net operating
income in August based on a flexible budget?
a.
$1,940
b.
$1,825
c.
$1,425
d.
$1,900
Rogers Rods & Reels Ltd.
Rogers Rods & Reels Ltd. manufactures and sells various types of fishing equipment. At the end of
2011, Rogers had estimated for the production and sale of 15,000 bass fishing rods. Each rod has a
standard calling for 1.5 pounds of direct material at a standard rate of $8.00 per pound and 15 minutes
of direct labor time at a standard rate of $.18 per minute. During 2012, Rogers actually produced and
sold 16,000 rods. These 16,000 rods had an actual direct materials cost of $179,200 (25,600 pounds at
$7.00 per pound) and an actual direct labor cost of $44,800 (224,000 minutes at $.20 per minute). Each
rod sells for $50.
15. Refer to the Rogers Rods & Reels Ltd. information above. What is Rogers’ net operating income based
on a flexible budget?
a.
$579,500
b.
$564,800
c.
$576,000
d.
$590,000
16. Refer to the Rogers Rods & Reels Ltd. information above. What is Rogers’ flexible budget variance?
a.
$11,200 F
b.
$11,200 U
c.
$ 3,500 F
d.
$ 3,500 U
17. Differences in sales revenue between the flexible budget and actual results can be attributed to:
a.
the sales volume variance.
b.
the flexible budget variance.
c.
the sales price variance.
d.
the variable overhead efficiency variance.
18. Martin Corporation had an unfavorable sales price variance of $4,800 for 2012. Martin had budgeted
for sales of 10,000 units at a sales price of $5 each. Actual sales in 2012 totaled 12,000 units. What
was the actual sales price per unit?
a.
$5.40
b.
$4.60
c.
$4.52
d.
$5.48
19. The difference between operating income on a flexible budget and actual operating income is called
the:
a.
sales price variance.
b.
efficiency variance.
c.
standard variance.
d.
flexible budget variance.
20. The flexible budget variance:
a.
directs management’s attention to specific reasons for why budgeted income differed from
actual operating income.
b.
compares the static budget to the flexible budget.
c.
removes any differences between budgeted operating income and actual operating income
that are attributable to differences in budgeted and actual volume.
d.
is most often used to determine whether or not there is sufficient demand for a company’s
product.
21. Dorffman Inc. has a $18,000 favorable flexible budget variance for May. Which of the following
statements is true, if May’s actual net operating income was $72,000?
a.
Dorffman’s static budget must have showed a net operating income of $54,000.
b.
Dorffman’s static budget must have showed a net operating income of $90,000.
c.
Dorffman’s flexible budget must have showed a net operating income of $54,000.
d.
Dorffman’s flexible budget must have showed a net operating income of $90,000.
22. Prevo Products Inc. has a $15,000 unfavorable flexible budget variance for July. Which of the
following statements is true, if July‘s actual net operating income was $300,000?
a.
Prevo’s static budget must have showed a net operating income of $315,000.
b.
Prevo’s static budget must have showed a net operating income of $285,000.
c.
Prevo’s flexible budget must have showed a net operating income of $315,000.
d.
Prevo’s flexible budget must have showed a net operating income of $285,000.
23. Taylor Products Inc. has an $5,000 unfavorable flexible budget variance for October. Which of the
following statements is true, if October’s flexible budget net operating income was $175,000?
a.
Taylor’s static budget must have showed a net operating income of $180,000.
b.
Taylor’s static budget must have showed a net operating income of $170,000.
c.
Taylor’s actual net operating income must have been $180,000.
d.
Taylor’s actual net operating income must have been $170,000.
24. Smith Corporation has a $6,000 favorable flexible budget variance for January. Which of the
following statements is true, if January’s flexible budget net operating income was $100,000?
a.
Smith’s static budget must have showed a net operating income of $106,000.
b.
Smith’s static budget must have showed a net operating income of $94,000.
c.
Smith’s actual net operating income must have been $106,000.
d.
Smith’s actual net operating income must have been $94,000.
Coppelli Inc.
In early 2012, Coppelli Inc. had budgeted for the production and sale of 24,000 units. The standard
sales price and variable costs per unit were budgeted to be $6.00 and $2.00, respectively. Actual sales
for 2012 totaled 25,300 units, and the actual sales price and variable costs per unit were $6.50 and
$2.10, respectively. Both budgeted and actual fixed costs were $30,000.
25. Refer to the Coppelli Inc. information above. What was Coppelli’s sales price variance for 2012?
a.
$12,650 F
b.
$12,650 U
c.
$12,000 F
d.
$12,000 U
Fox Manufacturing
At the beginning of the year, Fox Manufacturing had budgeted for the production and sale of 24,000
units. The standard sales price and variable costs per unit were budgeted to be $20.00 and $8.00,
respectively. Actual sales for the year totaled 21,000 units, and the actual sales price and variable costs
per unit were $19.50 and $8.00, respectively. Both budgeted and actual fixed costs were $20,000.
26. Refer to the Fox Manufacturing information above. What was Fox’s sales price variance for the year?
a.
$10,500 F
b.
$10,500 U
c.
$12,000 F
d.
$12,000 U
27. Lukey Products has an unfavorable materials usage variance. Which of the following would be the
most likely reason for this variance?
a.
The company under budgeted the quantity of material to be used for each unit.
b.
The company purchased material at a price for less than what was expected.
c.
The company budgeted for a lower sales volume than what actually occurred.
d.
The company did not use up all the material that had been purchased.
Chilé Products Ltd.
Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell
65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each
bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of
material were purchased out of which 46,000 ounces were used at a cost of $.37 per ounce.
28. Refer to the Chilé Products Ltd. information above. The direct materials price variance for 2012 was:
a.
$1,560 F.
b.
$1,560 U.
c.
$1,380 F.
d.
$1,380 U.
29. Refer to the Chilé Products Ltd. information above. The direct materials usage variance for 2012 was:
a.
$ 800 F.
b.
$ 800 U.
c.
$1,600 F.
d.
$1,600 U.
Mystic Falls Inc.
Mystic Falls Inc. bottles and sells a popular soft drink. In 2011, the company had expected to sell
1,000,000 bottles but actually bottled and sold 900,000 bottles. The standard direct materials cost for
each bottle is $.40 comprised of 10 ounces at a cost of $.04 per ounce. During 2011, 10,000,000
ounces of material were purchased out of which 9,200,000 ounces were used at a cost of $.05 per
ounce.
30. Refer to the Mystic Falls Inc. information above. The direct materials price variance for 2011 was:
a.
$ 92,000 U.
b.
$ 92,000 F.
c.
$100,000 U.
d.
$100,000 F.
31. Refer to the Mystic Falls Inc. information above. The direct materials usage variance for 2011 was:
a.
$ 8,000 U.
b.
$ 8,000 F.
c.
$40,000 U.
d.
$40,000 F.
32. Chapman Products has a favorable materials usage variance. Which of the following would be the
most likely reason for this variance?
a.
The company under budgeted the quantity of material to be used for each unit.
b.
The company purchased material at a price for less than what was expected.
c.
The company’s employees were less trained than expected.
d.
The company’s machines were better maintained resulting in lower wastage of materials.
33. Miller Company has an unfavorable materials price variance. Which of the following would be the
least likely reason for this variance?
a.
The company purchased a higher quality material than was budgeted.
b.
The company could not take advantage of quantity discounts.
c.
The company used more material than was budgeted for in each unit.
d.
The company under budgeted the standard price for materials.
34. When the quantity of materials purchased and materials used is different, which of the following is
more relevant for the purpose of calculating the direct materials price variance?
a.
Standard quantity allowed
b.
Actual quantity purchased
c.
Actual quantity used
d.
The lower of the standard quantity allowed and the actual quantity purchased
35. When the quantity of materials purchased and materials used is different, which of the following is
more relevant for the purpose of calculating the direct materials usage variance?
a.
Actual quantity purchased
b.
Actual quantity used
c.
The lower of standard quantity allowed and actual quantity purchased
d.
The lower of actual quantity used and actual quantity purchased
36. Byron Products has a favorable materials price variance. Which of the following would be the least
likely reason for this variance?
a.
The company over budgeted the standard price for materials.
b.
The company took advantage of quantity discounts from its suppliers.
c.
The company’s employees were more efficient with the use of their production time.
d.
The company purchased a substandard material at a cheaper price.
37. Tulley Manufacturing has an unfavorable direct labor rate variance. Which of the following would be
the most likely reason for this variance?
a.
The company used lower-paid workers in the production process than they had expected.
b.
Employees took a longer amount of time to produce the product than expected.
c.
The company gave employees an unexpected raise due to union negotiations.
d.
Employees used more direct materials in the production process than expected.
38. Bukowitz Inc. has a favorable direct labor rate variance. Which of the following would be the most
likely reason for this variance?
a.
The company used lower-paid workers in the production process more than they had
expected.
b.
Employees took a shorter amount of time to produce the product than expected.
c.
The company used a standard direct labor rate that was too low.
d.
Employees used less direct materials in the production process than expected.
39. Dabney Inc. has a favorable direct labor efficiency variance. Which of the following would be the most
likely reason for this variance?
a.
The company used lower-paid workers in the production process more than they had
expected.
b.
Employees took a shorter amount of time to produce the product than expected.
c.
The company used a standard direct labor rate that was too low.
d.
Employees used less direct materials in the production process than expected.
40. Peterson Inc. uses direct labor hours as the cost driver for variable overhead. Which of the following
items does not need to be known, in order to calculate the variable overhead spending variance?
a.
Actual overhead costs
b.
Actual direct labor hours
c.
Standard variable overhead rate per direct labor hour
d.
Standard direct labor hours allowed
41. Bellow Ltd. uses direct labor hours as the cost driver for variable overhead. Which of the following
items does not need to be known, in order to calculate the variable overhead efficiency variance?
a.
Actual overhead costs
b.
Actual direct labor hours
c.
Standard variable overhead rate per direct labor hour
d.
Standard direct labor hours allowed
Sampson Apparel Inc.
Sampson Apparel Inc. incurred actual variable overhead expenses of $20,000 in the current year for
the production of 5,000 units. Variable overhead was applied at a rate of $1.50 per direct labor hour
and 2 direct labor hours were budgeted for each unit. The company used 9,000 direct labor hours for
production.
42. Refer to the Sampson Apparel Inc. information above. What was Sampson’s variable overhead
spending variance?
a.
$6,500 U
b.
$6,500 F
c.
$1,500 U
d.
$1,500 F
43. Refer to the Sampson Apparel Inc. information above. What was Sampson’s variable overhead
efficiency variance?
a.
$6,500 U
b.
$6,500 F
c.
$1,500 U
d.
$1,500 F
44. Refer to the Latimer Textiles Inc. information above. What was Latimer’s variable overhead spending
variance?
a.
$3,450 U
b.
$3,450 F
c.
$2,450 U
d.
$2,450 F
45. Refer to the Latimer Textiles Inc. information above. What was Latimer’s variable overhead efficiency
variance?
a.
$3,450 U
b.
$3,450 F
c.
$2,450 U
d.
$2,450 F
Atkinson Landscaping
Atkinson Landscaping applies variable overhead based on direct labor hours. At the beginning of the
current year, Atkinson had estimated the following:
Estimated variable overhead
$56,000
Estimated units of production
10,000 units
Standard direct labor hours per unit
2.5 hours
During the year, 11,000 units were produced using a total of 27,200 direct labor hours and actual
overhead costs were $60,000.
46. Refer to the Atkinson Landscaping information above. Atkinson’s variable overhead spending
variance for the year is:
a.
$ 672 F.
b.
$ 928 F.
c.
$4,000 U.
d.
$ 145 U.
47. Refer to the Atkinson Landscaping information above. Atkinson’s variable overhead efficiency
variance for the year is:
a.
$ 672 F.
b.
$ 928 F.
c.
$4,000 U.
d.
$ 145 U.
48. The variable overhead efficiency variance:
a.
is interpreted in the same manner as the direct labor efficiency variance.
b.
measures the efficient use of factory utilities, factory maintenance, and factory supplies.
c.
measures the efficient use of the cost driver used in the flexible budget.
d.
measures the efficient use of direct materials.
49. Which of the following types of companies would not have a need to calculate a fixed overhead
volume variance?
a.
A company that uses variable costing.
b.
A company that uses absorption costing.
c.
A company that applies fixed overhead based on direct labor hours.
d.
A company that uses activity-based costing (ABC).
50. Washington Inc. has an unfavorable fixed overhead spending variance. Which of the following would
be the most likely reason for this variance?
a.
More units were actually produced than predicted.
b.
Fewer units were actually produced than predicted.
c.
Actual fixed overhead was more than predicted.
d.
Actual fixed overhead was less than predicted.
51. New Hampshire Products has a favorable fixed overhead spending variance. Which of the following
would be the most likely reason for this variance?
a.
More units were actually produced than predicted.
b.
Fewer units were actually produced than predicted.
c.
Actual fixed overhead was more than predicted.
d.
Actual fixed overhead was less than predicted.
Armstrong Products
Armstrong Products applies fixed overhead at a rate of $3 per direct labor hour. Each unit produced is
expected to take 2 direct labor hours. Armstrong expected production in the current year to be 10,000
units but 9,000 units were actually produced. Actual direct labor hours were 19,000 and actual fixed
overhead costs were $62,000.
52. Refer to the Armstrong Products information above. Armstrong’s fixed overhead spending variance
is:
a.
$8,000 F.
b.
$8,000 U.
c.
$2,000 F.
d.
$2,000 U.
53. Refer to the Armstrong Products information above. Armstrong’s fixed overhead volume variance is:
a.
$2,000.
b.
$6,000.
c.
$8,000.
d.
$ 0.
Hayward Inc.
Hayward Inc. produces a unique item. Hayward’s management team wishes to perform a variance
analysis on its fixed overhead. Fixed overhead is applied to units produced using direct labor hours as
its cost driver. The company’s managerial accountant has compiled the following information:
Projected data:
Estimated direct labor hours
50,000 hours
Estimated fixed overhead
$75,000
Actual data:
Actual production
104,000 units
Actual direct labor hours used
52,000 hours
Actual fixed overhead
$80,000
54. Refer to the Hayward Inc. information above. Hayward’s fixed overhead spending variance is:
a.
$2,000 F.
b.
$2,000 U.
c.
$5,000 F.
d.
$5,000 U.
55. Refer to the Hayward Inc. information above. Hayward’s fixed overhead volume variance is:
a.
$5,000.
b.
$2,000.
c.
$3,000.
d.
$2,500.
56. The fixed overhead volume variance is calculated by taking the difference between:
a.
actual fixed overhead and budgeted fixed overhead.
b.
budgeted fixed overhead and budgeted variable overhead.
c.
budgeted fixed overhead and applied fixed overhead.
d.
actual fixed overhead and applied fixed overhead.
57. Which of the following variances is generally not reported as being favorable or unfavorable?
a.
Variable overhead efficiency variance
b.
Direct labor rate variance
c.
Fixed overhead volume variance
d.
Direct materials usage variance
58. When managers apply the process of “management by exception”:
a.
they take action when there is a significant variance between planned and actual results.
b.
they take action when there is a variance of any size or amount between planned and
actual results.
c.
they are allowed to use standard costs rather than actual costs on financial statements
issued to decision makers.
d.
they are not required to compute the standard cost of making a product.
59. Managers who properly apply the concept of “management by exception” will:
a.
investigate only unfavorable variances.
b.
investigate only favorable variances.
c.
always investigate unfavorable and favorable variances regardless of size.
d.
investigate only variances of a certain size or scope.
60. Which of the following statements is false regarding variance analysis in the modern manufacturing
environment?
a.
It is often not timely enough to be useful to managers.
b.
It is often too detailed to be of much use to managers.
c.
Not all variances are required to be investigated.
d.
It can influence employee behavior.
61. Which of the following statements is true regarding variance analysis in the modern manufacturing
environment?
a.
It requires all variances, regardless of size, to be investigated by managers.
b.
The use of ideal standards over practical standards will always be the best motivator to
employees.
c.
An “unfavorable” variance should always be interpreted as “bad”.
d.
It is often not available in a timely enough manner to be useful to employees.
62. Which of the following statements is true regarding “management by exception”?
a.
It is rarely used in variance analysis.
b.
It forces managers to investigate all variances, regardless of size.
c.
It requires managers to investigate variances that are material in amount.
d.
It requires managers to calculate standard costs but not actual costs.
Mary’s Fine Fashions
Mary’s Fine Fashions manufactures and sells various types of women’s clothing. At the end of 2011,
Mary had estimated for the production and sale of 25,000 short-sleeve shirts. Each shirt has a standard
calling for 2.5 yards of direct material at a standard rate of $1.25 per yard and 12 minutes of direct
labor time at a standard rate of $.20 per minute. During 2012, the company actually produced and sold
23,000 shirts. These 23,000 shirts had an actual direct materials cost of $77,142 (59,340 yards at $1.30
per yard) and an actual direct labor cost of $63,250 (253,000 minutes at $.25 per minute). Each shirt
sells for $20.
63. Refer to the Mary’s Fine Fashions information above. What is Mary’s net operating income based on a
flexible budget?
a.
$332,925
b.
$361,875
c.
$347,400
d.
$307,400
64. Refer to the Mary’s Fine Fashions information above. What is Mary’s flexible budget variance?
a.
$14,475 F
b.
$28,950 U
c.
$42,267 F
d.
$13,317 U
Supreme Catering
At the end of January, Supreme Catering prepared the following budget for the upcoming month of
February estimating that they would serve 5,000 people:
Sales revenue per guest
$25
Variable costs per guest
11
Total fixed costs
$7,000
During February, there were 4,800 guests actually served. Actual costs incurred were $67,200 for
variable costs and $8,000 for fixed costs. Each guest was charged $25.
65. Refer to the Supreme Catering information above. Supreme Catering’s flexible budget for February
would show net operating income of:
a.
$63,000.
b.
$60,200.
c.
$59,200.
d.
$45,800.
66. Refer to the Supreme Catering information above. Supreme Catering’s flexible budget variance for
February would show a variance of:
a.
$15,400 U.
b.
$15,400 F.
c.
$18,200 U.
d.
$18,200 F.
JAX Inc.
In early 2012, JAX Inc. had budgeted for the production and sales of 5,000 units at a sales price of $15
per unit. The following information is available regarding the standard cost for each unit:
Direct materials:
1.50 pounds at $2.50 per lb
Direct labor:
30 minutes of assembly at $.20 per minute
Actual results for 2012 were determined to be as follows:
Number of units produced
and sold:
5,600 units
Sales revenue:
$100,800 ($18 per unit)
Direct materials cost:
$ 22,848 (9,520 lbs purchased and used at $2.40 per lb)
Direct labor cost:
$ 38,192 (173,600 minutes at $.22 per minute)
67. Refer to the JAX Inc. information above. What was JAX Inc.’s sales price variance for 2012?
a.
$15,000 F
b.
$15,000 U
c.
$16,800 F
d.
$16,800 U