F 1. The master budget is one type of flexible budget.

The master budget is a static budget.

F 2. A flexible budget is calculated at the start of the
budget period.
A flexible budget is calculated at the end of the budget
period when actual output is known.

F 3. Information regarding the causes of variances is
provided when the master budget is compared with
actual results.

F 4. A favorable variance results when budgeted
revenues exceed actual revenues.
An unfavorable variance results when budgeted
revenues exceed actual revenues.

T 5. Management by exception is the practice
of concentrating on areas not operating as anticipated
(such as a cost overrun) and placing less attention on
areas operating as anticipated.


T 6. The essence of variance analysis is to
capture a departure from what was expected.

F 7. A favorable variance should be ignored by
management.
Favorable variance investigation may lead to improved
production methods, other discoveries for future
opportunities, or not be good news at all and adversely
affect other variances.

T 8. An unfavorable variance may be due to poor
planning rather than due to inefficiency.

T 9. If budgets contain slack, cost variances will tend
to be favorable.

T 10. The only difference between the static budget
and flexible budget is that the static budget is prepared
using planned output.

T 11. The static-budget variance can be subdivided
into the flexible-budget variance and the sales-volume
variance.

F 12. The flexible-budget variance may be the result of
inaccurate forecasting of units sold.
The sales-volume variance is the result of inaccurate
forecasting of units sold.

F 13. Decreasing demand for a product may create a
favorable sales-volume variance.
Decreasing demand for a product may create an
unfavorable sales-volume variance.

F 14. An unfavorable variance is conclusive evidence
of poor performance.
An unfavorable variance suggests further investigation,
not conclusive evidence of poor performance.

T 15. A company would not need to use a
flexible budget if it had perfect foresight about actual
output units.

T 16. The flexible-budget variance pertaining
to revenues is often called a selling-price variance.

F 17. Cost control is the focus of the sales-volume
variance.
The sales-volume variance is not a measure of cost, but
rather a measure of actual output units differing from
budgeted output units.

T 18. Managers generally have more control over
efficiency variances than price variances.
Efficiency variances are primarily affected by internal
factors, whereas price changes may be influenced by
market factors.

F 19. To prepare budgets based on actual data from
past periods is preferred since past inefficiencies are
excluded.
A deficiency of using budgeted input quantity
information based on actual quantity data from past
periods is that past inefficiencies are included.

F 20. All budgets are based on standard costs.


Budgets may be based on standard costs, actual
amounts from last year, or data from other companies.

T 21. A standard is attainable through efficient
operations but allows for normal disruptions such as
machine breakdowns and defective production.

T 22. The presumed cause of a material price variance
will determine how a company responds.

T 23. The use of high-quality raw materials is likely to
result in a favorable efficiency variance and an
unfavorable price variance.

F 24. The direct manufacturing labor price variance is
likely to be favorable if higher-skilled workers are put
on a job.
The direct manufacturing labor variance is likely to be
unfavorable if higher-skilled workers are put on a job
since they are usually also higher paid.

T 25. Although computed separately, price variances
and efficiency variances should not be analyzed
separately from each other.

F 26. A favorable variance can be automatically
interpreted as good news.
A favorable variance may not be good news at all
because it adversely affects other variances that
increase total costs.

T 27. Variances often affect each other.

F 28. If variance analysis is used for performance
evaluation, managers are encouraged to meet targets
using creativity and resourcefulness.
The most common outcome when variance analysis is
used for performance evaluation is that managers seek
targets that are easily attainable and avoid targets that
require creativity and resourcefulness.

T 29. For critical items such as product defects, a small
variance may prompt investigation.

F 30. A particular variance generally signals one
particular problem.
There are many potential causes of a single variance.

T 31. Continuous improvement budgeted costs target
price reductions and efficiency improvements.


F 32. Improvement opportunities are easier to identify
when products have been on the market for a
considerable period of time.
Improvement opportunities are easier to identify when
products are first produced.

F 33. It is best to rely totally on financial performance
measures rather than using a combination of financial
and nonfinancial performance measures.
It is best to rely on a combination of financial and
nonfinancial performance measures.

F 34. From the perspective of control, the direct
materials price variance should be isolated at the time
the direct materials are requisitioned for use.
From the perspective of control, the direct materials
price variance should be isolated at the earliest
possible time, which is at the time of purchase not of
use.

T 35. Employees logging in to production floor
terminals and other modern technologies greatly
facilitate the use of a standard costing system.

T 36. Performance variance analysis can be used in
activity-based costing systems.

T 37. Price variances can be calculated for batch-level
costs as well as for output unit-level costs.


T 38. Benchmarking is the continuous process of
measuring products, services, and activities against the
best possible levels of performance, either inside or
outside the organization.


F 39. When benchmarking, the best levels of
performance are typically found in companies that are
totally different.

When benchmarking, the best levels of performance are
typically found in competing companies or in companies
having similar processes

T 40. One problem with benchmarking is ensuring that
numbers are comparable.

F 41. When benchmarking it is best when management
accountants simply analyze the costs and allow
management to provide the insight as to why the
revenues and costs differ between companies.
When benchmarking, management accountants are
more valuable when they analyze the costs and also
provide management with insight as to why the
revenues and costs differ between companies.

MULTI PLE CHOI CE

B 42. The master budget is
a. a flexible budget.
b. a static budget.
c. developed at the end of the period.
d. based on the actual level of output.

B 43. A flexible budget
a. is another name for management by exception.
b. is developed at the end of the period.
c. is based on the budgeted level of output.
d. provides favorable operating results.

B 44. Management by exception is the practice of
concentrating on
a. the master budget.
b. areas not operating as anticipated.
c. favorable variances.
d. unfavorable variances.

C 45. A variance is
a. the gap between an actual result and a
benchmark amount.
b. the required number of inputs for one standard
output.
c. the difference between an actual result and a
budgeted amount.
d. the difference between a budgeted amount and a
standard amount.

C 46. An unfavorable variance indicates that
a. actual costs are less than budgeted costs.
b. actual revenues exceed budgeted revenues.
c. the actual amount decreased operating income
relative to the budgeted amount.
d. all of the above are true.

B 47. A favorable variance indicates that
a. budgeted costs are less than actual costs.
b. actual revenues exceed budgeted revenues.
c. the actual amount decreased operating income
relative to the budgeted amount.
d. all of the above are true.

_________________________________________--
1. The materials price variance is computed by
multiplying the difference between the actual price and
the standard price by the actual
quantity of materials used in production.
FALSE
2. In general, the purchasing agent is responsible for the
materials price variance.
TRUE
3. A materials price variance is favorable if the actual
price exceeds the standard price.
FALSE
4. Generally speaking, it is the responsibility of the
production department to see that material usage is kept
in line with standards.
TRUE
5. When more hours of labor time are necessary to
complete a job than the standard allows, the labor rate
variance is unfavorable.
FALSE
6. Standard costs should generally be based on the
actual costs of prior periods.
FALSE
7. The standard quantity per unit for direct materials
should not include an allowance for waste.
FALSE
8. Ideal standards should be used for forecasting and
planning.
FALSE
9. The standard cost per unit is computed by multiplying
the standard quantity or hours by the standard price or
rate.
TRUE
10. Standard costs greatly increase the complexity of the
bookkeeping process.
FALSE
11. When computing standard cost variances, the
difference between actual and standard price multiplied
by actual quantity yields
a(n):
A. combined price and quantity variance.
B. efficiency variance.
C. price variance.
D. quantity variance.
Materials price variance = AQ (AP - SP)

12. The general model for calculating a price variance is:
A. actual quantity of inputs (actual price - standard
price).
B. standard price (actual quantity of inputs - standard
quantity allowed for output).
C. (actual quantity of inputs at actual price) - (standard
quantity allowed for output at standard price).
D. actual price (actual quantity of inputs - standard
quantity allowed for output).
Materials price variance = AQ (AP - SP)

13. The purchasing agent of the Clampett Company
ordered materials of lower quality in an effort to
economize on price and in
response to the demands of the production manager due
to a mistake in production scheduling. The materials
were shipped by
airfreight at a rate higher than that ordinarily charged for
shipment by truck, resulting in an unfavorable materials
price variance. The
lower quality material proved to be unsuitable on the
production line and resulted in excessive waste. In this
situation, who should be
held responsible for the materials price and quantity
variances?



A. Option A
B. Option B
C. Option C
D. Option D
14. Todco planned to produce 3,000 units of its single
product, Teragram, during November. The standard
specifications for one unit
of Teragram include six pounds of material at $0.30 per
pound. Actual production in November was 3,100 units
of Teragram. The
accountant computed a favorable materials purchase
price variance of $380 and an unfavorable materials
quantity variance of $120.
Based on these variances, one could conclude that:
A. more materials were purchased than were used.
B. more materials were used than were purchased.
C. the actual cost of materials was less than the
standard cost.
D. the actual usage of materials was less than the
standard allowed.

15. The materials quantity variance should be computed:
A. when materials are purchased.
B. based upon the amount of materials used in
production.
C. based upon the difference between the actual and
standard prices per unit times the actual quantity used.
D. only when there is a difference between standard and
actual cost per unit for the materials.
16. Which department should usually be held
responsible for an unfavorable materials price variance?
A. Production.
B. Materials Handling.
C. Engineering.
D. Purchasing.

17. Tower Company planned to produce 3,000 units of
its single product, Titactium, during November. The
standards for one unit of
Titactium specify six pounds of materials at $0.30 per
pound. Actual production in November was 3,100 units
of Titactium. There was
an unfavorable materials price variance of $380 and a
favorable materials quantity variance of $120. Based on
these variances, one
could conclude that:
A. more materials were purchased than were used.
B. more materials were used than were purchased.
C. the actual cost per pound for materials was less than
the standard cost per pound.
D. the actual usage of materials was less than the
standard allowed.

18. If the labor efficiency variance is unfavorable, then
A. actual hours exceeded standard hours allowed for
the actual output.
B. standard hours allowed for the actual output
exceeded actual hours.
C. the standard rate exceeded the actual rate.
D. the actual rate exceeded the standard rate.

19. A labor efficiency variance resulting from the use of
poor quality materials should be charged to:
A. the production manager.
B. the purchasing agent.
C. manufacturing overhead.
D. the industrial engineering department.

20. An unfavorable direct labor efficiency variance could
be caused by:
A. an unfavorable materials quantity variance.
B. an unfavorable variable overhead rate variance.
C. a favorable materials quantity variance.
D. a favorable variable overhead rate variance.

21. Variable manufacturing overhead is applied to
products on the basis of standard direct labor-hours. If
the direct labor efficiency
variance is unfavorable, the variable overhead efficiency
variance will be:
A. favorable.
B. unfavorable.
C. either favorable or unfavorable.
D. zero.

22. Which of the following statements concerning ideal
standards is incorrect?
A. Ideal standards generally do not provide the best
motivation for workers.
B. Ideal standards do not make allowances for waste,
spoilage, and machine breakdowns.
C. Ideal standards are better suited for cash
budgeting than practical standards.
D. Ideal standards may be better than practical
standards when managers seek continual improvement.
1. Fixed costs should not be included in a performance
report because fixed costs are not controllable.
FALSE

2. A flexible budget can be used to determine what costs
should have been at a given level of activity.
TRUE
3. If activity is higher than expected, total variable costs
should be higher than expected. If activity is lower than
expected, total variable costs should be lower than
expected.
TRUE

4. When a flexible budget is used in performance
evaluation, actual costs are compared to what the costs
should have been for the actual level of activity during
the period rather than to the static planning budget.
TRUE

5. An activity variance is due solely to the difference
between the level of activity assumed in the planning
budget and the actual level of activity used in the flexible
budget.
TRUE

6. The activity variance for revenue is favorable if the
actual level of activity for the period exceeds the planned
level of activity.
TRUE

7. The activity variance for revenue is unfavorable if the
revenue in the flexible budget is less than the revenue in
the static planning
budget.
TRUE

8. The revenue and spending variances are the
differences between the static planning budget and the
actual results for the period.
FALSE

9. A revenue variance is favorable if the revenue in the
static planning budget exceeds the revenue in the
flexible budget.
FALSE

10. A spending variance is the difference between how
much a cost should have been, given the actual level of
activity, and the actual
amount of the cost for the period.
TRUE

11. A favorable spending variance occurs when the
actual cost exceeds the amount of that cost in the
flexible budget.
FALSE

12. A flexible budget performance report contains both
activity variances and revenue and spending variances.
TRUE

13. While fixed costs should not be affected by a change
in the level of activity within the relevant range, they may
change for other
reasons.
TRUE

14. Flexible budgets cannot be used when there is more
than one cost driver (i.e., measure of activity).
FALSE

15. Directly comparing static budget costs to actual costs
only makes sense if the costs are fixed.
TRUE

16. If the actual level of activity is 4% more than
planned, then the variable costs in the static budget
should be increased by 4%
before comparing them to actual costs.
TRUE

17. The purpose of a flexible budget is to:
A. remove items from performance reports that are not
controllable by managers.
B. permit managers to reduce the number of unfavorable
variances that are reported.
C. update the static planning budget to reflect the actual
level of activity of the period.
D. reduce the amount of conflict between
departments when the master budget is prepared.
When a flexible budget is used in performance
evaluation, actual costs are compared to what the
costs should have been for the actual
level of activity during the period rather than to the
static planning budget.

18. A static budget:
A. should be compared to actual costs to assess how
well costs were controlled.
B. should be compared to a flexible budget to assess
how well costs were controlled.
C. is valid for only one level of activity.
D. represents the best way to set spending targets for
managers.
A planning budget is prepared before the period begins
and is valid for only the planned level of activity.

19. Which of the following comparisons best isolates the
impact of a change in activity on performance?
A. static planning budget and flexible budget
B. static planning budget and actual results
C. flexible budget and actual results
D. master budget and static planning budget

20. Which of the following would not appear on a flexible
budget performance report as shown in the text?
A. Variable costs.
B. Mixed costs.
C. A flexible budget adjusted to the actual level of
activity.
D. The previous year's actual costs.
____________________________________________-
T 1.A key feature of a flexible budget is that actual
results can be compared to budgeted costs at
the same level of activity.

T 2. Direct labor-hours would generally be a better
measure of activity for a flexible budget than
direct labor cost.
F 3. In a flexible budget, when the activity declines,
the variable costs per unit also declines.
F 4. Fixed costs should not be included in a flexible
budget because they do not change when the
level of activity changes.
F 5. To assess how well a production manager has
controlled costs, actual costs should be
compared to what the costs should have been
for the planned level of production.
F 6. The overhead spending variance is not affected
by excessive usage or waste of overhead
materials.
T 7. The variable overhead efficiency variance
provides a measure of how efficiently the
activity base which underlies the flexible budget
is being utilized in production.
T 8. A company has a standard cost system in which
fixed and variable manufacturing overhead
costs are applied to products on the basis of
direct labor-hours. The company's choice of the
denominator level of activity affects the fixed
overhead volume variance.
F 9. The higher the denominator activity level used
to compute the predetermined overhead rate,
the higher the predetermined overhead rate.
F 10. In a standard costing system, if the actual fixed
manufacturing overhead cost exceeds the budgeted
fixed manufacturing overhead cost for the period, then
fixed manufacturing overhead cost would be
underapplied for the period.
T 11. When fixed manufacturing overhead cost is
applied to work in process, it is treated as if it
were a variable cost.
T 12. A company has a standard cost system in which
fixed and variable manufacturing overhead
costs are applied to products on the basis of
direct labor-hours. The company's choice of the
denominator level of activity has no effect on
the variable portion of the predetermined
overhead rate.
F 13. There can be a volume variance for either
variable manufacturing overhead or fixed
manufacturing overhead.
F 14. If the denominator level of activity is
less than the standard hours allowed for the output of
the period, then the volume variance is unfavorable,
indicating an overutilization of available facilities.
F 15. A company has a standard cost system in which
fixed and variable manufacturing overhead
costs are applied to products on the basis of
direct labor-hours. A fixed overhead volume
variance will necessarily occur in a month in
which actual direct labor-hours differ from
standard hours allowed.
Multiple Choice Questions
C 16. The purpose of a flexible budget is to:
A) allow management some latitude in
meeting goals.
B) eliminate fluctuations in production
reports by ignoring variable costs.
C) compare actual and budgeted results at
virtually any level of activity.
D) reduce the time to prepare the annual
budget.
B 17.When using a flexible budget, a decrease in
activity within the relevant range:
A) decreases variable cost per unit.
B) decreases total costs.
C) increases total fixed costs.
D) increases variable cost per unit.
D 18 The activity base that is used for a flexible
budget for an overhead cost should be:
A) direct labor-hours.
B) units of output.
C) expressed in dollars, if possible.
D) the cause of the overhead cost.
B 19. A budget that is based on the actual activity of a
period is known as a:
A) continuous budget.
B) flexible budget.
C) static budget
D) master budget.
B 20. The fixed manufacturing overhead budget
variance equals:
A) Actual fixed manufacturing overhead
cost--Applied fixed manufacturing
overhead cost.
B) Actual fixed manufacturing overhead
cost--Budgeted fixed manufacturing
overhead cost.
C) Budgeted fixed manufacturing overhead
cost--Applied fixed manufacturing
overhead cost.
D) Actual fixed manufacturing overhead
cost-- (Actual hours x Standard fixed
overhead rate).
C 21. Which of the following variances is least
significant from a standpoint of cost control?
A) materials price variance.
B) labor efficiency variance.
C) fixed overhead volume variance.
D) variable overhead spending variance.
D 22. The manufacturing overhead variance that is a
measure of capacity utilization is:
A) the overhead spending variance.
B) the overhead efficiency variance.
C) the overhead budget variance.
D) the overhead volume variance.
B 23. If the denominator activity is less than the
standard hours allowed for the actual output,
one would expect that:
A) the variable overhead efficiency variance
would be unfavorable.
B) the fixed overhead volume variance
would be favorable.
C) the fixed overhead budget variance
would be unfavorable.
D) the variable overhead efficiency variance
would be favorable.
A 24. The volume variance is nonzero whenever:
A) standard hours allowed for the output of
a period differ from the denominator
level of activity.
B) actual hours differ from the denominator
level of activity.
C) standard hours allowed for the output of
a period differ from the actual hours
during the period.
D) actual fixed overhead costs incurred
during a period differ from budgeted
fixed overhead costs as contained in the
flexible budget.
C 25. A volume variance is computed for:
A) both variable and fixed overhead.
B) variable overhead only.
C) fixed overhead only.
D) direct labor costs as well as overhead
costs.
A 26. Which of the following standard cost variances
would usually be least controllable by a
production supervisor?
A) Fixed overhead volume variance.
B) Variable overhead efficiency variance.
C) Direct labor efficiency variance.
D) Materials usage (quantity) variance.