ACC 312 Lecture Notes - Lecture 10: Earnings Before Interest And Taxes, Variable Cost, Task Analysis

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12 Jan 2018

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Wednesday november 1st, monday november 6th, and wednesday november 8th 2017. Chapter 10 and 11 variance analysis & flexible budgeting. At the beginning and during a period the budget provides a plan for managers to follow in making decisions and directing an organization"s activities. Compare actual results with the budgeted amounts to judge performance. Variances tell us how much and why we were over or under budget. The terms favorable and unfavorable relate to financial statements. However, an unfavorable variance can be a good thing non-financially. For example, ford could have an unfavorable direct material price variance, but that could be due to buying better quality direct materials. (the opposite can also be true, where a f can be a bad thing. Way back in chapter 2 we learned there are three costs of making a product. Electricity bill is ,000, plant rent is ,000, maintenance is ,000, etc.

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1. What is standard cost?
A. The total number of units times the budgeted amount expected
B. Any amount that appears on a budget
C. The total amount that appears on the budget for product costs
D. The amount management thinks should be incurred to produce a good or service

2. A standard cost is
A. the average cost in an industry.
B. a predetermined cost.
C. the historical cost of producing a product last year
D. a cost which is paid for a group of similar products.

3. The difference between a budget and a standard is that
A. a budget expresses what costs were, while a standard expresses what costs should be.
B. a budget expresses a total amount, while a standard expresses a unit amount.
C. a budget expresses management's plans, while a standard reflects what actually happened.
D. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

4. Standard costs may be used by
A. universities.
B. governmental agencies.
C. charitable organizations.
D. all of these answers are correct

5. The final decision as to what standard costs should be is the responsibility of
A. management.
B. the quality control engineer.
C. the purchasing agent.
D. the managerial accountants.

6. The most rigorous of all standards is the
A. normal standard.
B. realistic standard.
C. conceivable standard.
D. ideal standard.

7. An unfavorable materials quantity variance would occur if
A. more materials were purchased than were used.
B. actual pounds of materials used were greater than the standard pounds allowed
C. actual pounds of materials used were less than the standard pounds allowed
D. actual labor hours used were greater than the standard labor hours allowed

8. Which of the following statements is true?
A. Variances are the differences between total actual costs and total standard costs.
B. When actual costs exceed standard costs, the variance is favorable.
C. An unfavorable variance results when actual costs are decreasing but standards are not changed.
D. all of the above are true

10. Labor efficiency is measured by the
A. materials quantity variance.
B. labor quantity variance.
C. labor rate variance.
D. total labor variance.

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All of the following are advantages of decentralizationexcept:

to improve customer relations.

to encourage use of expert knowledge.

to increase employee motivation.

to allow goal congruence to be achieved more easily.

All of the following are responsibility centersexcept:

profit centers.

investment centers.

customer centers.

cost centers.

3. Thedifferences between actual and budgeted figures are known as:

fluctuations.

variances.

overages.

underages.

4. Which of thefollowing is a performance measure commonly used to assess theperformance of investment centers?

Return on investment

Profit margin

Current ratio

Gross income

5. Residualincome is calculated as:

revenues less expenses.

contribution margin less minimum acceptable income.

operating income less minimum acceptable income.

sales less variable costs.

6. Which of thefollowing is NOT a strategy for determining the transfer price of aproduct?

Related party discounted price

Market price

Cost or cost-plus a markup

Negotiated price

7. Employeecapabilities, information system capabilities, and the companyâsâclimate for actionâ are important factors of the:

employee perspective.

customer perspective.

internal business perspective.

learning and growth perspective.

8. AssumeCucumber Company expects each division to earn an 8% target rate ofreturn. Assume the Companyâs Pickle Division had the followingresults:

Sales $24,500,000

Operatingincome 1,250,000

Totalassets 15,500,000

The Divisionâs ROI is:

8.1%.

15.8%.

5.1%.

8.0%.

Assume Ametrine Company expects each division to earn an 8%target rate of return. Assume the Companyâs Division A had thefollowing results:

Sales $24,500,000

Operatingincome 1,250,000

Totalassets 15,500,000

The Divisionâs RI is:

â$10,000.

$10,000.

â$710,000.

$710,000.

10. Which of the followingare examples of KPIs?

Average customer satisfaction ratings

Number of repeat customers

Sales revenue growth

All of the above are examples of KPIs

Which of the following is NOT an advantage of using standardcosts and variances?

Use as a performance benchmark for evaluation of actualcosts

Use as a basis for components of the master budget

Simplification of bookkeeping

Change in behavior of managers to obtain desired variances

One level of a companyâs flexible budget was prepared forproduction of 8,000 units. Total costs were $38,000 and includeddirect materials, direct labor, and variable overhead at $1.50,$2.50, and $0.50 per unit respectively. What is the total cost ofproduction of 8,500 units?

$ 2,000

$38,000

$38,250

$40,250

3. The directlabor price variance was unfavorable and much greater thananticipated. Who would be in the best position to explain why theunfavorable variance occurred?

Both the production and human resource supervisors

The production supervisor

The purchasing manager

Both the purchasing manager and production supervisor

4. A managerpurchased better quality materials for a slightly higher cost thananticipated. However, as a result, there was less spoilage thannormal. What is the effect on the price and quantity variancesrespectively?

Favorable, favorable

Favorable, unfavorable

Unfavorable, favorable

Unfavorable, unfavorable

5. Acompany uses a single raw material in its production process. Thestandard price for a unit of material is $2.00. During the monththe company purchased and used 600 units of this material at aprice of $2.25 per unit. The standard quantity required perfinished product is 2 units and during the month, the companyproduced 310 finished units. How much was the material pricevariance?

$150 favorable

$150 unfavorable

$155 favorable

$155 unfavorable

6. Acompany uses a single raw material in its production process. Thestandard price for a unit of material is $2.00. During the monththe company purchased and used 600 units of this material at aprice of $2.25 per unit. The standard quantity required perfinished product is 2 units and during the month, the companyproduced 310 finished units. How much was the material quantityvariance?

$40 favorable

$40 unfavorable

$45 favorable

$45 unfavorable

7. Acompany produced 2,200 units of output during a production processthat normally requires 2 hours of labor per unit of output. Thestandard labor rate is $16 per hour, but the company paid $15 perhour. Actual hours needed to complete the production process were4,600. How much was the labor efficiency variance?

$3,000 favorable

$3,000 unfavorable

$3,200 favorable

$3,200 unfavorable

8. Acompany produced 2,200 units of output during a production processthat normally requires 2 hours of labor per unit of output. Thestandard labor rate is $16 per hour, but the company paid $15 perhour. Actual hours needed to complete the production process were4,600. How much was the labor rate variance?

$4,400 favorable

$4,400 unfavorable

$4,600 favorable

$4,600 unfavorable

9. Which of thefollowing formulas is used to compute variable overheadrate (or spending) variance?

actual hours Ã (actual rate â standard rate)

standard hours allowed Ã (actual rate â standard rate)

actual rate Ã (actual hours â standard hours allowed)

standard rate Ã (actual hours â standard hours allowed)

10. Which of the followingis a true statement regarding fixed overhead volume variance?

If production volume is less than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is favorable.

If production volume is less than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is unfavorable.

If production volume is greater than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is favorable.

If production volume is greater than anticipated, then fixedoverhead has been overallocated and the fixed overhead volumevariance is unfavorable.

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1. T or F: Standardsare set for units; budgets are expressed in total dollars.

2. T or F: The standard cost per unit iscomputed by multiplying the standard quantity or hours by the

standard price or rate.

3. T or F: When actual revenue is above budgetor actual cost is below budget, a favorable variance

occurs.

4. T or F: Anunfavorable cost variance occurs when actual cost is higher thanbudget cost.

5. T or F With a flexible budget a manager can determine whatcosts should have been attained at a

given level of activity.

6. T or F : In a standard costing system wherethe denominator activity for the predetermined

overhead rate is labor-hours, overhead costs are applied to work inprocess on the basis of

actual hours worked.

7. T or F: A volumevariance and an efficiency variance are computed for fixed overheadcosts.

8. T or F: The budgetvariance represents the difference between the actual fixedoverhead cost

incurred during a period and the budgeted fixedoverhead cost.

9. T or F: Under theabsorption costing method, a company can increase profits byincreasing

production rather than by increasing sales.

10. T or F: Profitsmove in the same direction as sales when variable costing is usedif selling prices,

thesales mix, and the cost structure remain the same.

11. T or F: Thesalary of the CEO of Wal-Mart is a traceable fixed cost of thevarious WM stores.

12. T or F: Indirectcost is not traced directly to specific cost objects (products,jobs, or customers).

13. T or F: A costthat has already been incurred and therefore cannot be changed byany alternatives

issunk cost.

14. T or F:Generally, a product line should be dropped when the fixed coststhat can be avoided by dropping the product line are less than thecontribution margin that will be lost.

15. When the amount assigned to aresponsibility center is significantly influenced by the actions ofsomeone within the responsibility center, the item of cost is a_____________________.

16. In a _____________ cost system,every unit of product moving along the production line bears thesame amount of overhead cost, regardless of how much time itactually takes to process a particular unit.

17. In _______________ costing, nofixed overhead costs are charged to individual units of product, sono overhead rate for the fixed component of overhead costs need beused in the cost accounting system.

18. A cost that is incurred to supporta number of costing objects but cannot be traced to themindividually is a ___________________.

19. _______________is often regardedas the best approach to the transfer pricing problem, particularlyif transfer price negotiations routinely become bogged down.

20. A _______________ is simply thedifference between a predetermined norm or standard and the____________ results. Management wants to know not only what theamounts of the differences were but also, and more important, whythese occurred to take corrective action.

21. A _______________ center is anybusiness segment whose manger has control over both cost andrevenue. However, it generally does not have control overinvestment funds.

* Words banks for theabove Q15 through Q21: Absorbed, Actual, Budgeted, Common cost,Controllable cost, Cost, Full, Market price, Negotiated transferprice, Profit, Standards, Transfer price, Variable, &Variance.

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ACC 312 Lecture Notes - Lecture 10: Earnings Before Interest And Taxes, Variable Cost, Task Analysis

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