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.

MULTIPLE CHOICE

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 ona.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 thata.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 thata.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 actualquantity of materials used in production.FALSE2. In general, the purchasing agent is responsible for the materials price variance.TRUE3. A materials price variance is favorable if the actual price exceeds the standard price.FALSE4. Generally speaking, it is the responsibility of the production department to see that material usage is kept in line with standards.TRUE5. When more hours of labor time are necessary to complete a job than the standard allows, the labor rate variance is unfavorable.FALSE6. Standard costs should generally be based on the actual costs of prior periods.FALSE7. The standard quantity per unit for direct materials should not include an allowance for waste.FALSE8. Ideal standards should be used for forecasting and planning.FALSE9. The standard cost per unit is computed by multiplying the standard quantity or hours by the standard price or rate.TRUE10. Standard costs greatly increase the complexity of the bookkeeping process.FALSE11. When computing standard cost variances, the difference between actual and standard price multiplied by actual quantity yieldsa(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 inresponse to the demands of the production manager due to a mistake in production scheduling. The materials were shipped byairfreight at a rate higher than that ordinarily charged for shipment by truck, resulting in an unfavorable materials price variance. Thelower quality material proved to be unsuitable on the production line and resulted in excessive waste. In this situation, who should beheld responsible for the materials price and quantity variances?

A. Option AB. Option BC. Option CD. Option D14. Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unitof Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. Theaccountant 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 ofTitactium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Titactium. There wasan unfavorable materials price variance of $380 and a favorable materials quantity variance of $120. Based on these variances, onecould 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, thenA. 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 efficiencyvariance 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.TRUE3. 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 planningbudget.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 actualamount 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 otherreasons.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 actuallevel 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 budgetB. static planning budget and actual resultsC. flexible budget and actual resultsD. 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.T2.Direct labor-hours would generally be a better measure of activity for a flexible budget than direct labor cost.F3.In a flexible budget, when the activity declines, the variable costs per unit also declines.F4.Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.F5.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.F6.The overhead spending variance is not affected by excessive usage or waste of overhead materials.T7.The variable overhead efficiency variance provides a measure of how efficiently the activity base which underlies the flexible budget is being utilized in production.T8.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.F9.The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate.F10.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.T11.When fixed manufacturing overhead cost is applied to work in process, it is treated as if it were a variable cost.T12.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.F13.There can be a volume variance for either variable manufacturing overhead or fixed manufacturing overhead.F14.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.F15.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 QuestionsC 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.D18The 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 budgetD)master budget.B20.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).C21.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.B23.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.C25.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.