15.1 Variance Analysis Overview

Question 1

The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to

A. Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations.
B. Trace the variances to finished goods so that the inventory can be properly valued at year-end.
C. Determine the proper cost of the products produced so that selling prices can be adjusted accordingly.
D. Pinpoint fault for operating problems in the organization.

Answer 1

A. Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations.

Question 2

A difference between standard costs used for cost control and the budgeted costs of the same manufacturing effort can exist because

A. Standard costs represent what costs should be, whereas budgeted costs are expected actual costs.
B. Budgeted costs are historical costs, whereas standard costs are based on engineering studies.
C. Budgeted costs include some slack, whereas standard costs do not.
D. Standard costs include some slack, whereas budgeted costs do not.

Answer 2

A. Standard costs represent what costs should be, whereas budgeted costs are expected actual costs.

Question 3

Which one of the following statements about management by exception is least likely to be correct?

A. It is especially useful when directed at controllable items.
B. Positive variances need not be investigated.
C. It could result in changing a process altogether.
D. Managers can focus efforts on the most critical areas.

Answer 3

B. Positive variances need not be investigated.

Positive variances still need to be investigated. If the cause of the positive variance can be found, it can be applied to other areas to decrease the number of negative variances.