Question 1

If standard cost variances are allocated (i.e., prorated)  to inventory and cost of goods sold (CGS)  accounts at the end of a period, which of the following is correct?

Accepted Answer

A)  Conceptually, the amount allocated to each account is based on the relative amount of the current period's standard cost in the end-of-period balance in each account.
B)  The resulting balances represent relative actual cost in each of the affected accounts.
C)  There is a presumption that the net variance for the period is immaterial in amount.
D)  The amount allocated to inventories is generally larger than the amount allocated to CGS.
E)  Adjusting journal entries for income tax effects will have to be made.F) C) and E)
G) All of the above

Question 2

Which one of the following journal entries in a standard cost system is needed at the end of the period to close out to Cost of Goods Sold an unfavorable production-volume variance?

Accepted Answer

A)  A credit to Finished Goods Inventory, at standard cost.
B)  A credit to Cost of Goods sold, at standard cost.
C)  A credit to Cost of Goods sold, at actual cost.
D)  A debit to the Production Volume Variance account.
E)  A debit to Cost of Goods sold.F) A) and B)
G) A) and C)

Question 3

A comprehensive management accounting and control system regarding manufacturing overhead costs:

Accepted Answer

A)  Includes nonfinancial but not financial performance indicators.
B)  Relies on direct managerial observation rather than a formal system for cost-control purposes.
C)  Provides information for strategic but not operational control.
D)  Provides financial-control information to operating personnel, while both financial and nonfinancial performance indicators to managers.
E)  Includes both financial performance indicators as well as nonfinancial performance indicators.F) C) and D)
G) C) and E)

Question 4

In terms of the variance-investigation decision under uncertainty, which of the following items contains a cross-listing of costs associated with two states of nature (random vs. nonrandom variance)  and management actions (investigate the variance vs. do not investigate the variance) ?

Accepted Answer

A)  Indifference probability chart.
B)  Statistical control chart.
C)  Run chart.
D)  Variance control chart.
E)  Payoff table.F) All of the above
G) A) and B)

Question 5

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:

Accepted Answer

A)  Only to work-in-process (WIP)  inventory.
B)  Only to finished goods inventory.
C)  To work-in-process and finished goods inventories.
D)  Entirely to cost of goods sold.
E)  To cost of goods sold and all inventory accounts.F) C) and E)
G) None of the above

Question 6

Which of the following is a characteristic of calculating standard cost variances for manufacturing overhead costs under an activity-based cost (ABC)  system?

Accepted Answer

A)  Only non-volume-related cost drivers are used in the cost-allocation process.
B)  An ABC system would likely have a greater number of standard cost variances reported each period.
C)  Fewer variances need to be reported, compared to the number of overhead variances calculated under a traditional cost system.
D)  Flexible budgets are used for planning but not cost-control purposes.
E)  The flexible-budget variance will be the same under both a traditional cost system and an ABC system.F) All of the above
G) A) and E)

Question 7

The factory overhead spending variance in 2013, based on a three-variance breakdown (decomposition)  of the total overhead variance for Bluecap Co., is:

Accepted Answer

A)  $3,200 favorable.
B)  $11,440 unfavorable.
C)  $15,040 favorable.
D)  $17,280 favorable.
E)  $17,440 unfavorable.F) None of the above
G) All of the above

Question 8

A deviation from standard because of an inaccurate estimation of the amounts of variables used in the standard-setting process is an example of a(n) :

Accepted Answer

A)  Random error.
B)  Prediction error.
C)  Implementation error.
D)  Modeling error.
E)  Measurement error.F) C) and E)
G) B) and E)

Question 9

Management is currently deciding whether or not to investigate a cost variance that was identified by the accounting system. To help address this question, you have generated the following data:
Possible States of Nature:
1. The underlying operation is in control (i.e., is operating normally).
2. The underlying operation is out of control (and therefore is in need of an intervention)
Possible Decisions/Courses of Action:
1. Investigate the variance (to determine its underlying cause(s)).
2. Do not investigate the variance.
Estimated Costs and Probabilities:
1. Cost of investigating the variance = I = $1,500.
2. Cost of correcting an out-of-control process (if the process is found to be out of control) = C = $6,000.
3. Losses from not correcting an out-of-control process = L = $50,000.
4. Probability, p, of the process being out of control = 15%
Required:
1. Given the above information, what is the expected value of investigating the reported variance? (Show calculation.).
2. Prepare a payoff table that summarizes the states of nature (i.e., possible outcomes) and the decision alternatives (i.e., management actions). Your table should include cells for combinations of management actions and states of nature, plus cells to represent the expected value of each management action. Which decision is recommended on the basis of information in your payoff table?
3. Given the above information, what is the probability level, p, for an out-of-control process (i.e., a nonrandom variance) that would make management indifferent between investigating and not investigating the variance?
a. In what sense can this probability be considered a breakeven probability? (Demonstrate this by calculating the expected value of each management action, based on the break-even probability, p, you calculated.) Round final answers to the nearest whole numbers.
b. What is the correct management action if the probability of an out-of-control process is greater than the break-even probability, p? Show all calculations.

Accepted Answer

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Question 10

The term used to refer to persistent variances (i.e., those that are likely to recur until corrected)  is

Accepted Answer

A)  Systematic variance.
B)  Random variance.
C)  Standard cost variance.
D)  Noncontrollable variance.
E)  Flexible-budget variance.F) None of the above
G) B) and D)

Question 11

A statistical control chart:

Accepted Answer

A)  Sets control limits on the basis of managerial intuition and experience with the process.
B)  Is useful for identifying random versus systematic variances.
C)  Is useful for identifying in-control but not out-of-control operations.
D)  Depicts the expected mean (or target)  value of a process, but not the allowable range around that value.
E)  Determines control limits (both upper and lower)  heuristically.F) C) and E)
G) B) and E)

Question 12

What is the factory overhead production volume variance for Zero Company in December?

Accepted Answer

A)  $0.
B)  $150 unfavorable.
C)  $225 favorable.
D)  $425 unfavorable.
E)  $650 unfavorable.F) C) and D)
G) None of the above

Question 13

Which one of the following standard cost variances is not available when analyzing batch-related manufacturing overhead costs using an activity-based cost (ABC)  system?

Accepted Answer

A)  Production-volume variance.
B)  Variable setup spending variance.
C)  Fixed spending variance.
D)  Fixed flexible-budget variance.
E)  Sales volume variance.F) None of the above
G) A) and B)

Question 14

A deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures is an example of a(n) :

Accepted Answer

A)  Random error.
B)  Prediction error.
C)  Implementation error.
D)  Modeling error.
E)  Accounting errorF) A) and B)
G) All of the above

Question 15

Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?

Accepted Answer

A)  The choice typically will affect end-of-period asset values, but not the production-volume variance for the period.
B)  The choice is important only if the company in question uses variable costing.
C)  Under absorption (full)  costing, this choice can affect reported profits for the period.
D)  This choice has no effect on the standard overhead cost-allocation rate.
E)  The choice affects the standard overhead cost-allocation rate but not product cost.F) B) and D)
G) A) and B)

Question 16

Carl Jones Company's master budget for the year just completed was based on 100% capacity and included 50,000 machine hours and $300,000 total factory overhead. (That is, the denominator volume, for purposes of calculating the fixed overhead application rate, is defined as 100% capacity.) Budgeted fixed overhead at 70% factory capacity is $200,000 (and 35,000 machine hours). The company operated at 80% capacity for the year, and incurred $275,000 total factory overhead.
Required:
1. Determine the factory overhead flexible-budget variance for the year just completed. Show calculations.
2. Calculate the factory overhead production volume variance for the year just completed. Show calculations.
3. In an essay, provide an interpretation of each of the two variances calculated above.

Accepted Answer

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Question 17

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:

Accepted Answer

A)  Volume and efficiency components.
B)  Spending and efficiency variances.
C)  Spending and production volume variances.
D)  Spending variances only.E) All of the above
F) None of the above

Question 18

The total factory overhead flexible-budget variance in April for Neptune, Inc. is:

Accepted Answer

A)  $940 unfavorable.
B)  $1,040 favorable.
C)  $1,980 favorable.
D)  $2,160 favorable.E) All of the above
F) A) and C)

Question 19

Which of the following statements regarding the "expected value of perfect information" (EVPI)  is not true?

Accepted Answer

A)  It is useful for addressing the variance-investigation decision under uncertainty.
B)  It can be used to measure manufacturing cycle efficiency (MC
E)  .
C)  It represents the maximum amount that a rational decision maker would be willing to pay for information that would reveal the correct decision/course of action to take.
D)  It is the difference between the expected cost of a decision with perfect information and the expected cost of a decision without perfect information.
E)  It requires for its calculation knowledge of the best course of action (decision)  for each possible state of nature that could occur.F) A) and D)
G) B) and D)

Question 20

Determining the standard fixed factory overhead applied to production for a period involves all of the following essential elements except:

Accepted Answer

A)  The actual amount of fixed overhead cost incurred during the period.
B)  A cost driver (or drivers)  for applying the fixed overhead.
C)  The standard fixed overhead application rate.
D)  An output level, as reflected by the quantity of the cost driver for applying the fixed overhead (i.e., the denominator activity level for the period) .
E)  The total budgeted fixed overhead cost for the period.F) A) and E)
G) A) and B)

Exam 15: Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

A comprehensive management accounting and control system regarding manufacturing overhead costs:

Correct Answer
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In terms of the variance-investigation decision under uncertainty, which of the following items contains a cross-listing of costs associated with two states of nature (random vs. nonrandom variance) and management actions (investigate the variance vs. do not investigate the variance) ?

Correct Answer
verified

A deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures is an example of a(n) :

Correct Answer
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Which one of the following standard cost variances is not available when analyzing batch-related manufacturing overhead costs using an activity-based cost (ABC) system?

Correct Answer
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Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?

Correct Answer
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The term used to refer to persistent variances (i.e., those that are likely to recur until corrected) is

Correct Answer
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Correct Answer
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Answer may vary
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Which one of the following journal entries in a standard cost system is needed at the end of the period to close out to Cost of Goods Sold an unfavorable production-volume variance?

Correct Answer
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A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:

Correct Answer
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Correct Answer
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Answer may vary
Feedback: 3. The total ...
View Answer

Which of the following is a characteristic of calculating standard cost variances for manufacturing overhead costs under an activity-based cost (ABC) system?

Correct Answer
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What is the factory overhead production volume variance for Zero Company in December?

Correct Answer
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Determining the standard fixed factory overhead applied to production for a period involves all of the following essential elements except:

Correct Answer
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A deviation from standard because of an inaccurate estimation of the amounts of variables used in the standard-setting process is an example of a(n) :

Correct Answer
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If standard cost variances are allocated (i.e., prorated) to inventory and cost of goods sold (CGS) accounts at the end of a period, which of the following is correct?

Correct Answer
verified

The factory overhead spending variance in 2013, based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Co., is:

Correct Answer
verified

The total factory overhead flexible-budget variance in April for Neptune, Inc. is:

Correct Answer
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A statistical control chart:

Correct Answer
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Which of the following statements regarding the "expected value of perfect information" (EVPI) is not true?

Correct Answer
verified

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:

Correct Answer
verified

Exam 15: Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

A comprehensive management accounting and control system regarding manufacturing overhead costs:

Correct AnswerverifiedShow Answer

In terms of the variance-investigation decision under uncertainty, which of the following items contains a cross-listing of costs associated with two states of nature (random vs. nonrandom variance) and management actions (investigate the variance vs. do not investigate the variance) ?

Correct AnswerverifiedShow Answer

A deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures is an example of a(n) :

Correct AnswerverifiedShow Answer

Which one of the following standard cost variances is not available when analyzing batch-related manufacturing overhead costs using an activity-based cost (ABC) system?

Correct AnswerverifiedShow Answer

Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?

Correct AnswerverifiedShow Answer

The term used to refer to persistent variances (i.e., those that are likely to recur until corrected) is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAnswer may varyFeedback:1. E(investiga...View AnswerShow Answer

Which one of the following journal entries in a standard cost system is needed at the end of the period to close out to Cost of Goods Sold an unfavorable production-volume variance?

Correct AnswerverifiedShow Answer

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAnswer may varyFeedback: 3. The total ...View AnswerShow Answer

Which of the following is a characteristic of calculating standard cost variances for manufacturing overhead costs under an activity-based cost (ABC) system?

Correct AnswerverifiedShow Answer

What is the factory overhead production volume variance for Zero Company in December?

Correct AnswerverifiedShow Answer

Determining the standard fixed factory overhead applied to production for a period involves all of the following essential elements except:

Correct AnswerverifiedShow Answer

A deviation from standard because of an inaccurate estimation of the amounts of variables used in the standard-setting process is an example of a(n) :

Correct AnswerverifiedShow Answer

If standard cost variances are allocated (i.e., prorated) to inventory and cost of goods sold (CGS) accounts at the end of a period, which of the following is correct?

Correct AnswerverifiedShow Answer

The factory overhead spending variance in 2013, based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Co., is:

Correct AnswerverifiedShow Answer

The total factory overhead flexible-budget variance in April for Neptune, Inc. is:

Correct AnswerverifiedShow Answer

A statistical control chart:

Correct AnswerverifiedShow Answer

Which of the following statements regarding the "expected value of perfect information" (EVPI) is not true?

Correct AnswerverifiedShow Answer

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Answer may vary
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Correct Answer
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Correct Answer
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Correct Answer
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Answer may vary
Feedback: 3. The total ...
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