ACG4341 Chapter 7 Review

Question 1

Calculate flexible-budget variance for operating income

Answer 1

Actual result - flexible budget amount = flexible-budget variance

Question 2

Examples that results in unfavorable direct materials price variance

Answer 2

Direct material prices increased
Budgeted purchase price of direct materials too low
Ordered smaller quantities than quantities budgeted

Question 3

Calculate direct manufacturing labor efficiency variance

Answer 3

(Direct manufacturing labor hours - (actual quantity produced * budgeted quantity of input allowed)) * budgeted direct manufacturing labor rate
- = F; + = U

Question 4

Use of variances for performance measurement

Answer 4

Two commonly evaluated attributes of performance are effectiveness and efficiency
Important to understand causes of variance before using it for evaluation
If single performance measure is overemphasized, managers tend to make decisions that make it seem to look good
Positive variances can happen outside of control and can lead to costlier unfavorable variances

Question 5

Calculate flexible budget for revenues

Answer 5

Budgeted selling price * actual quantity of output

Question 6

Calculate standard direct material cost per unit

Answer 6

Rate of unit allowed * standard price

Question 7

Static budget

Answer 7

Prepared on planned output at beginning of the period

Question 8

Flexible budget

Answer 8

Prepared on actual output at the end of the period.

Question 9

Management by exception

Answer 9

Practice where managers focus more closely on areas that are not operating as expected and less closely on areas that are

Question 10

Benchmarking

Answer 10

Continuous process of comparing firm’s performance levels against the best levels of performance in competing companies or similar companies

Question 11

Financial measures

Answer 11

Evaluates the overall cost efficiency on existing operations to help the manager understand the impact of diverse physical activities

Question 12

Sales-volume variance

Answer 12

The difference between a flexible budget amount and a static budget amount

Question 13

Flexible-budget variance

Answer 13

Difference between an actual result and flexible budget amount

Question 14

Efficiency/usage variance

Answer 14

Difference between actual input quantity and the budgeted input quantity allowed for actual output times by budgeted price

Question 15

Price/rate variance

Answer 15

Difference between actual price and budgeted price * actual input quantity

Question 16

Advantage of using actual data from past periods

Answer 16

Use to analyze trends and patterns to estimate budgeted prices and quantities

Question 17

Journal entry to record direct materials price variance when direct materials were purchased

Answer 17

Debit direct materials control, direct materials price variance (if U)
Credit accounts payable control, direct materials price variance (if F)