CH 7 multiple choice Flashcards
What is the primary purpose of variance analysis?
A) To determine the amount of profit generated by the business
B) To investigate why actual results did not meet budgeted expectations
C) To allocate indirect costs to products
D) To calculate the total direct material cost for production
B) To investigate why actual results did not meet budgeted expectations
What does a favorable variance in direct material price indicate?
A) The actual cost of direct materials is more than the budgeted cost
B) The actual cost of direct materials is less than the budgeted cost
C) The actual quantity of direct materials used is higher than planned
D) The actual production level is higher than budgeted
B) The actual cost of direct materials is less than the budgeted cost
Which of the following describes a static budget?
A) A budget that adjusts for changes in activity levels or output
B) A budget that uses flexible costing to adapt to actual results
C) A fixed budget created at one output level that does not change during the period
D) A budget that is prepared based on future predictions and adjustments
C) A fixed budget created at one output level that does not change during the period
Which type of budget allows comparisons between actual results and adjusted budgeted figures based on actual output?
A) Static Budget
B) Flexible Budget
C) Master Budget
D) Performance Budget
B) Flexible Budget
What is the formula for calculating the Flexible Budget Variance (FBV)?
A) FBV = Static Budget - Actual Results
B) FBV = Actual Results - Flexible Budget Amount
C) FBV = Flexible Budget Amount - Static Budget Amount
D) FBV = Static Budget Amount - Flexible Budget Amount
B) FBV = Actual Results - Flexible Budget Amount
What does the term “benchmarking” refer to?
A) The process of creating a budget for a business
B) Comparing performance against the best period or the competitors’ performance
C) Analyzing variance between actual and budgeted figures
D) Measuring the efficiency of direct labor costs in a business
B) Comparing performance against the best period or the competitors’ performance
What is the purpose of activity-based costing (ABC)?
A) To allocate direct costs to products based on the production volume
B) To assign costs based on the activities that consume resources
C) To create a static budget based on past production data
D) To calculate the total amount of direct labor costs for a period
B) To assign costs based on the activities that consume resources
Which of the following is an example of a product-sustaining cost in ABC systems?
A) Direct materials used in production
B) Machine setup costs
C) Product design and development costs
D) Facility-wide utility costs
C) Product design and development costs
In a flexible budget, the variances are used to analyze which of the following?
A) Effectiveness and efficiency of operations
B) Total sales volume for the period
C) Only direct material costs
D) Fixed costs for the period
A) Effectiveness and efficiency of operations
What is the main advantage of using a flexible budget over a static budget?
A) It provides an unchanging forecast for comparison
B) It adjusts for changes in actual activity levels, allowing for better performance comparisons
C) It is easier to prepare than a static budget
D) It focuses only on direct costs
B) It adjusts for changes in actual activity levels, allowing for better performance comparisons
In a standard costing system, what happens if actual spending is less than budgeted costs?
A) The variance is considered unfavorable and results in a debit
B) The variance is considered favorable and results in a credit
C) The variance is written off at the end of the period
D) The variance is ignored and not recorded
B) The variance is considered favorable and results in a credit
Which of the following is an example of a facility-sustaining cost in an activity-based costing system?
A) Depreciation on machinery
B) Product research and design costs
C) Marketing costs for a specific product
D) Salaries of the CEO and other executives
D) Salaries of the CEO and other executives
How does the “management by exception” approach work in variance analysis?
A) Focuses on variances that are within acceptable limits and ignores all others
B) Focuses on performance that does not meet expectations and investigates the causes
C) Reviews all variances, regardless of size, to determine corrective actions
D) Reviews only favorable variances and celebrates success
B) Focuses on performance that does not meet expectations and investigates the causes
When comparing a static budget with actual results, which of the following is true?
A) It adjusts for changes in output or activity levels
B) It highlights variances based on actual performance and planned targets
C) It is based on a hypothetical scenario where actual output was predicted correctly
D) It does not provide useful insights for performance comparisons
B) It highlights variances based on actual performance and planned targets
What action is taken if the variance between actual and budgeted overhead is material at the end of the period?
A) It is ignored as it does not affect the financial statements
B) The variance is closed into the Cost of Goods Sold (COGS) account
C) It is transferred to a separate variance account for future analysis
D) The variance is adjusted in the balance sheet only
B) The variance is closed into the Cost of Goods Sold (COGS) account
