8-8 - 10 EQs (C) - 70%

Question 1

Which of the following describes a normal yield curve?

Upward sloping.
Downward sloping.
Flat.
Humped

Answer 1

Ans. Upward sloping

A normal yield curve is one in which short-term rates are lower than intermediate-term rates which are lower than long-term rates. Therefore, the curve is upward sloping.

Question 2

According to the Institute of Internal Auditors’ Standards, the internal audit function should have all of the following competencies except:

Knowledge of key information technology risks.

Knowledge to evaluate fraud risk.

Knowledge of information technology audit techniques.

Knowledge of financial reporting.

Answer 2

Knowledge of financial reporting.

This knowledge is not required.

Question 3

In the computation of manufacturing cost per equivalent unit, the weighted-average method of process costing considers

Current costs only.

Current costs plus cost of ending work in process inventory.

Current costs plus cost of beginning work in process inventory.

Current costs less cost of beginning work in process inventory.

Answer 3

Ans. C

Current costs plus cost of beginning work in process inventory.

When computing equivalent units of production under the weighted-average method, the work done last period on beginning work in process (BWIP) is considered. Therefore, when computing cost per equivalent unit, the cost associated with BWIP must be added to the current costs.

Question 4

How is a materials price variance calculated?

Answer 4

Materials price variance = (AQ x AP) - (AQ x SC)

Materials usage variance = (AQ x SP) - (SQ x SP).

Example:
Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of materials at a cost of $70,000. The materials usage variance was $2,500 unfavorable and the standard materials allowed for May production was 17,000 pounds. What was the materials price variance for May?

The materials price variance is equal to (Actual quantity × Actual price) − (Actual quantity × Standard cost) and the materials usage variance is equal to (Actual quantity × Standard price) − (Standard quantity × Standard price). Since the standard quantity for May was 17,000 and the actual quantity was 17,500, the excess quantity used was 500 units (17,000 − 17,500). Therefore, the standard cost is $5.00 per unit ($2,500 unfavorable usage variance ÷ 500 excess units used), and the price variance is $17,500 favorable [$70,000 actual cost − (17,500 actual quantity used × $5.00 standard unit cost)].

Ans: $17,500 favorable