Which of the following most accurately describes the relationship between favorable variances and cost of goods sold?
It is an inverse relationship: as the favorable variance increases, the cost of goods sold decreases.
The following explanations appeared on last week's variance report for JT Engineering's purchasing department. Which of these explanations could reflect negatively on the purchasing department?
rush order
When reporting variances
the reports should facilitate management by exception
Which of the following is usually responsible for a labor price variance attributable to misallocation of workers?
Production
Which of the following departments is generally responsible for an unfavorable material price variance?
Purchasing
Information on Smith's direct labor costs for the month of August is as follows:
No alt text provided for this image
What was the standard rate for August?
Act Rate: $7.50 Std Hours 11,000, Actual Hours 10000, Direct Labor Price Var - Unfav
$7.00
(10000hours x $7.50)-(10000 x #)= 5000 Unf
An unfavorable labor quantity variance means that
actual hours exceeded standard hours.
In the Pretzel Company 20,000 direct labor hours were worked when standard hours were 21,000 and the actual pay rate was $6.30 when the standard rate was $6.50. The labor quantity variance is
$6,500 favorable.
The labor quantity variance is: (20,000 X $6.50) - (21,000 X $6.50) = $6,500 F.
The labor price variance is the difference between the
standard and actual rate multiplied by actual hours
Which of the following is the difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours?
total labor variance
JT Engineering uses copper in its widgets. Demand for copper in the widget industry is greater than the available supply. As a result, JT is unable to secure its typical discount with suppliers. Assuming that JT orders the same quantity as usual and that
an unfavorable materials price variance
JT Engineering usually pays $21 per pound of copper and uses 300 pounds of copper per 1,000 widgets. Due to the current high demand for copper, JT is currently paying $32 per pound of copper. What will JT's materials price variance be for this purchase
$3,300
The formula for materials price variance is ([actual quantity
actual price] - [actual quantity
standard price]), or ([300 pounds
$32] - [300 pounds
$21]) = $3,300.
According to standard production costs, it should cost JT Engineering $14,000 in direct materials, $12,600 in direct labor, and $6,200 in total overhead to produce 1,000 widgets. During the most recent period, JT actually spent $13,860 in direct materials
$20 favorable
First, total standard costs must be determined ($14,000 + $12,600 + $6,200 = $32,800). Then, total actual costs must be determined ($13,860 + $12,420 + $6,500 = $32,780). Finally, the variance must be determined by subtracting the actual tot
In the Haden Company, the standard material cost for the silk used in making a dress is $27.00 based on three square feet of silk at a cost of $9.00 per square foot. The production of 1,000 dresses resulted in the use of 3,400 square feet of silk at a cos
$3,600 unfavorable
The materials quantity variance is: (3,400 X $9.00) - (3,000 X $9.00) = $3,600 U.
In the McCaffee Company, each unit of finished goods requires one pound of direct materials at $2 per pound. In producing 50,000 units, 45,000 pounds of materials are used at $2.10 per pound. The materials price variance is
$4,500 unfavorable.
Which of the following most accurately describes the relationship between a direct materials price standard and a direct materials quantity standard?
The standards are multiplicative; the price standard is multiplied by the materials standard to determine the standard cost per unit.
JT Engineering's normal capacity is 20,000 direct labor hours. If JT's variable costs are $26,400 and its fixed costs are $14,900 when the company runs at normal capacity, what is its standard manufacturing overhead rate per hour?
First, total overhead costs must be determined by adding the fixed and variable costs ($26,400 + $14,900 = $41,300). Then, the total overhead costs must be divided by the standard direct labor hours ($41,300 / 20,000 hours =
$2.07).
JT Engineering spends $1.30 per pound purchasing raw materials, $0.30 per pound to ship the raw materials, and $0.13 per pound receiving the materials. JT then uses 2.75 pounds of raw materials making widgets, allowing 0.25 pounds of waste per widget. Wha
Per pound prices must be added to determine the direct materials price standard ($1.30 + $0.30 + $0.13 = $1.73). Then pounds per widget must be added to determine the direct materials quantity standard (2.75 pounds + 0.25 pounds = 3 pounds). Then, the pri
Garrett and Liam manage two different divisions of the same company. Garrett uses ideal standards to gauge his employees' performance, while Liam uses normal standards to gauge his employees' performance. Whose employees are likely to perform better? Why?
Liam's employees, because normal standards are better for morale, as they are rigorous but attainable.
A standard that represents the optimum level of performance under perfect operating conditions is called a(n)
ideal standard.
Identify the measure(s) relating to the customer perspective of the balanced scorecard. Select all that apply.
number of new customers , number of customer complaints , market share
Identify the measure(s) relating to the learning and growth perspective of the balanced scorecard. Select all that apply
employee turnover rate employee satisfaction training hours per employee
Clarkdale Industries recently purchased a new energy-efficient furnace to melt glass that will be shaped into light bulbs. Before the purchase of the furnace, the total overhead variance was increasingly unfavorable each month. What effect do you expect t
The overhead variance will become more favorable
Which balanced scorecard perspective answers the question, "How do our investors see us?
financial perspective
The learning and growth perspective answers the question
Are we developing employees and providing technologies that facilitate change and improvement?
Which balanced scorecard perspective focuses on creating products and services that customers' desire and delivering them in a timely manner?
internal processes perspective
Century Manufacturing developed the following per-unit standards for its product: 4 pounds of direct materials at $6.40 per pound. Last month, 3,000 pounds of direct materials were purchased for $18,240. The direct materials price variance for last month
$960 favorable
Materials price variance = (AQ x AP) - (AQ x SP)
$18,240 - (3,000 x $6.40) = $960 F
In April, Graduation Experts plans to produce 8,000 graduation gowns, 8,000 graduation hats and tassels, and 1,500 honor cords. The company expects total manufacturing overhead for the year to be $3,331,125 and total direct labor hours for the year to be
$116.94
Predetermined overhead rate = ($3,331,125 � 235,000) = $14.175. $14.175 x 8.25 hours per hat and tassel = $116.94.
Which of the following expresses the materials quantity variance?
(AQ x SP) - (SQ x SP)
Which of the following expresses the materials price variance?
(AQ x AP) - (AQ x SP)
Which of the following statements is an example of a direct materials quantity standard for a company that manufactures chairs?
Twenty nails should be used in each chair.
Which of the following conditions would result in a favorable variance?
Actual costs are less than standard costs.
In order to determine the quantity variance, the standard quantity x standard price is subtracted from
actual quantity x standard price.
When a company uses standard costs and prepares an income statement for management, which of the following amounts is reported both at standard prices and at actual prices?
Gross profit
Gradebook Publishers produces textbooks for public grade schools and public high schools. The standard direct labor cost per textbook is .5 direct labor hours and the standard direct labor rate is $10 per hour. Last month, 150,000 textbooks were produced
Direct labor price variance = (AH x AR) - (AH x SR)
$698,250 - (73,500 x $10) = $36,750 favorable
Standard cost represents
business cost to produce one unit of product
Components of total variance include ________ variance.
price &
quantity
Ramble Wood, Inc. produces a product which requires 6 hours of direct labor at $32 per hour. During February, Ramble Wood's actual payroll was $393,120 and the company used 12,600 direct labor hour to produce 2,000 units of the product. What is Ramble Woo
$9,120 U
Direct labor variance = (AH x AR) - (SH x SR)
$393,120 - (12,000 x $32) = $9,120 unfavorable.
A variance is defined as the
difference between total actual costs and total standard costs.
Of the following, which is correct about the annual rate of return method?
The timing of the cash inflows is not considered.
Elm Company had an investment which cost $260,000 and had no salvage value at the end of its useful life of zero. If Elm's expected annual net income is $20,000, the annual rate of return is
15.4%
The annual rate of return is expected annual net income, $20,000, divided by average investment of $130,000 [($260,000 + 0)/2].
The minimum required rate of return
is compared to the annual rate of return to decide if a project is acceptable
What is the formula for the annual rate of return?
Expected Annual Net Income � Average Investment
Palmer Soaps is considering a project to expand their line of hand soaps for mechanics and hard laborers. The project has an initial investment of $187,000. Annual cash flows are expected to be $52,000 for five years. Based on the internal rate of return
Yes, because the IRR is greater than 11%
The internal rate of return factor for this project is $187,000 / $52,000 = 3.59615. For a project with five periods with this IRR factor, this would correspond to an internal rate of return greater than 12%. There
When a potential investment has a negative net present value
its internal rate of return is less than the required rate of return.
Chris Lawrence is contemplating a project with an initial investment of $50,000. Chris also has a discount rate of 8%. If the project has estimated net annual cash flows of $12,000 for the next six years, what is the profitability index for the project?
1.11
The profitability index is 1.11 [($12,000 X 4.62288) � $50,000].
How is the profitability index calculated?
dividing the present value of cash flows by the initial investment
A negative net present value means that the
project's rate of return is less than the required rate of return.
Of the following, which is considered in the net present value method?
Present value of liquidation proceeds
Chaz Denver Company has identified that the cost of a new computer will be $40,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is
net income + depreciation expense), [$40,000 � ($5,000 + $3,000)].
5 years
Which of the following best represents the cash payback formula?
Cost of Capital Investment � Net Annual Cash Flow
Of the following, which is typically considered a cash inflow?
Sale of old equipment.
Which of the following statements is correct?
The board of directors approves the capital budget.
Which of the following must be considered when a capital budgeting decision is being made?
1. The risks associated with a particular project
2. The time value of money
The risks associated with a particular project
Which of the following methods uses discounted cash flow techniques?
1. The internal rate of return method
2. The net present value method
Both 1 and 2
The payback period method utilizes
both even and uneven cash flows.
How do the NPV simplifying assumptions about cash flow predictability differ from cash flow predictability in the real world?
Simplifying assumptions assume that future cash flows can be predicted with certainty, when in reality they cannot be.
To be accepted, a project's internal rate of return should
meet or exceed the hurdle rate.
What is a potential advantage to using the annual rate of return method for determining the desirability of a project rather than using the NPV method
Annual rate of return uses a simpler calculation that does not require the use of annuity tables.
Which capital budgeting technique divides expected net annual income by the average investment to determine the profitability of a capital expenditure?
the annual rate of return method
When calculating the annual rate of return,
depreciation on fixed assets is taken into account
The annual rate of return
does not consider time value of money
The annual rate of return, unlike the internal rate of return and the payback period, does not focus on cash flows.
True
If a company wants to assess a project quickly with the help of the accrual accounting data it already possesses, it will use the
annual rate of return.
How does the annual rate of return method differ from the internal rate of return and NPV methods?
It is based on accrual accounting data rather than on cash flows.
Windsor Manufacturing is considering a project with an internal rate of return of 12%, an annual rate of return of 18%, and a 5-year useful life. The cost of the project is $150,000 and it has a $6,000 salvage value. Windsor uses straight-line depreciatio
14,040
Annual return = Expected net income/Average investment
.18 = Expected net income/[($150,000 + $6,000)/2]; Expected net income = $14,040
The annual rate of return ________ other methods in that it ________ on cash flows.
differs from; does not focus