How can we help?

You can also find more resources in our Help Center.

277 terms

Combo with Accounting 2 - Chapter 25 - Test 3 - Review MC and 5 others

STUDY
PLAY
The amount of income that would result from an alternative use of cash is called:
opportunity cost
A cost that will not be affected by later decisions is termed a(n):
sunk cost
A practical approach which is frequently used by managers when setting normal long-run prices is the:
cost-plus approach
Which of the following would be considered a sunk cost?
Net book value of obsolete equipment that has no market value
Relevant revenues and costs focus on:
differences between the alternatives being considered
In using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?
Total selling and administrative expenses plus desired profit
Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?
Variable cost
Which of the following is NOT a cost concept commonly used in applying the cost-plus approach to product pricing?
Fixed cost concept
In using the total cost concept of applying the cost-plus approach to product pricing, what is included in the markup?
Desired profit
In using the variable cost concept of applying the cost-plus approach to product pricing, what is included in the markup?
Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the "markup"?
Total cost concept
What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the "cost" amount to which the markup is added?
Product cost concept
Defense contractors would be more likely to use which of the following cost concepts in pricing their product?
Total cost
What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the "markup"?
Product cost concept
All of the following should be considered in a make or buy decision except
the supplier will make a profit that would no longer belong to the business
Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?
when the variable costs are less than revenues
In contrast to the total product and variable cost concepts used in setting seller's prices, the target cost approach assumes that:
selling price is set by the marketplace
A business may decide to accept additional business at a special price for all of the following reasons except
if there is an increase to sales even if fixed expenses are also increased.
What pricing method is used if all costs are considered and a fair mark-up is added to determine the selling price?
Total cost method
Which equation better describes Target Costing?
Selling Price - Desired Profit = Target Costs
What pricing method may be used if there are several providers in the same market and there is sufficient demand for your product?
Competition-based method
Target costing is arrived at by
taking the selling price and subtracting desired profit.
Which of the following would be most effective in a small owner/manager-operated business?
Centralization
Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be:
decentralized
Which of the following is NOT a disadvantage of decentralized operation?
Top management freed from everyday tasks to do strategic planning
Which is the best example of a decentralized operation?
Each unit is responsible for their own operations and decision making.
The following are advantages of decentralization except:
Each decentralized operation purchases their own assets and pays for operating costs.
Which of the following is not one of the common types of responsibility centers?
Revenue Center
Which of the following is a disadvantage of decentralization?
Decisions made by one manager may negatively affect the profitability of the entire company.
A manager is responsible for costs only in a(n):
cost center
In a cost center, the manager has responsibility and authority for making decisions that affect:
costs
For higher levels of management, responsibility accounting reports:
are more summarized than for lower levels of management
Most manufacturing plants are considered cost centers because the have control over
costs only.
The following is a measure of a manager's performance working in a cost center.
budget performance report
A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):
profit center
In a profit center, the department manager has responsibility for and the authority to make decisions that affect:
both costs and revenues for the department or division
Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?
Insurance on inventory of sporting goods
Which of the following expenses incurred by a department store is an indirect expense?
Salary of vice-president of finance
In a profit center, the manager has responsibility and authority for making decisions that affect:
costs
Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:
direct expenses
In evaluating the profit center manager, the income from operations should be compared:
to historical performance or budget
The costs of services charged to a profit center on the basis of its use of those services are called:
service department charges
To calculate income from operations, total service department charges are:
subtracted from income from operations before service department charges
What is the term used to describe expenses that are incurred for the benefit of a specific department?
Direct expenses
Responsibility accounting reports for profit centers will include
revenues, expenses, net income or loss from operations.
Some organizations use internal service departments to provide like services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department?
Inventory Control
The following is a measure of a manager's performance working in a profit center.
divisional income statements
Which of the following would not be considered an internal centralized service department?
Manufacturing department
Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?
Investment center
A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:
an investment center
In an investment center, the manager has the responsibility for and the authority to make decisions that affect:
not only costs and revenues, but also assets invested in the center
In an investment center, the manager has responsibility and authority for making decisions that affect:
costs, revenues, and assets
The profit margin is the:
ratio of income from operations to sales
The investment turnover is the:
ratio of sales to invested assets
Identify the formula for the rate of return on investment.
Income From Operations/Invested Assets
Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?
Income From Operations/Sales
Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?
Sales/Invested Assets
What additional information is needed to find the rate of return on investment if income from operations is known?
Invested assets
The best measure of managerial efficiency in the use of investments in assets is:
investment turnover
The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:
residual income
Which one of the following is NOT a measure that management can use in evaluating and controlling investment center performance?
Negotiated price
A factor in determining the rate of return on investment--the ratio of income from operations to sales--is called:
profit margin
A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:
investment turnover
Investment centers differ from profit centers in that they
are able to invest in assets.
The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. Identify one of the following that is not included as a performance measurement.
Employees
The following is a measure of a manager's performance working in an investment center.
A. budget performance report
B. rate of return and residual income measures
C. divisional income statements
The balanced scorecard measures
both financial and nonfinancial information
Which of the following is not a commonly used approach to setting transfer prices?
Revenue price approach
Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:
Market price approach
When is it appropriate to use the market price approach when two related companies are providing services or products to each other?
The purchasing company is currently purchasing a product at a price from an outside supplier as it would from its related company that is operating at full capacity.
Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?
Market Price
The transfer price which is uses a variety of cost concepts is the
Cost price approach
The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called
the negotiated cost approach
Standard costs are used in companies for a variety of reasons. Which of the following is not one of the benefits for using standard costs?
Used to indicate where changes in technology and machinery need to be made.
Manufacturing companies use standard costs for the following except:
Variable costs
Several people play an essential part in setting standards. Which of the following is incorrect as to setting standards?
Quality managers provide quality measures that will be used to evaluate rejects.
Standards that represent levels of operation that can be attained with reasonable effort are called:
normal standards
Which of the following conditions normally would not indicate that standard costs should be revised?
Actual costs differed from standard costs for the preceding week.
The principle of exceptions allows managers to
focus on correcting variances between standard costs and actual costs.
The standard price and quantity of direct materials are separated because:
direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department
Standard costs are divided into which of the following components?
Price Standard and Quantity Standard
A favorable cost variance occurs when
Standard costs are more than actual costs.
Total manufacturing cost variance includes:
Direct materials cost variance, direct labor cost variance, factory overhead cost variance
Periodic comparisons between planned objectives and actual performance are reported in:
budget performance reports
Which of the following is not a reason standard costs are separated in two components?
variances brings attention to discrepancies in the budget and requires managers to revise budgets closer to actual.
If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is termed:
quantity variance
If the price paid per unit differs from the standard price per unit for direct materials, the variance is termed:
price variance
If the wage rate paid per hour differs from the standard wage rate per hour for direct labor, the variance is termed:
rate variance
If the actual direct labor hours spent producing a commodity differ from the standard hours, the variance is termed:
time variance
The formula to compute direct material quantity variance is to calculate the difference between
(actual quantity * standard price) - standard costs
The formula to compute direct labor rate variance is to calculate the difference between
actual costs - (actual hours * standard rate)
The formula to compute direct labor time variance is to calculate the difference between
(actual hours * standard rate) - standard costs
Which of the following would not lend itself to applying direct labor variances?
Administrative assistant
Which of the following is not a reason for a direct materials quantity variance?
Material requiring rework
The formula to compute direct materials price variance is to calculate the difference between
actual costs - (actual quantity * standard price)
Assuming that the standard fixed overhead rate is based on full capacity, the cost of available but unused productive capacity is indicated by the:
factory overhead cost volume variance
The controllable variance measures:
the efficiency of using variable overhead resources
The unfavorable volume variance may be due to all but the following factors:
unexpected increases in the cost of utilities
Favorable volume variances may be harmful when:
production in excess of normal capacity cannot be sold
Incurring actual indirect factory wages in excess of budgeted amounts for actual production results in a:
controllable variance
A negative fixed overhead volume variance can be caused due to the following except:
Increase in utility costs
The use of standards for nonmanufacturing expenses is:
not as common as it is for manufacturing costs
If at the end of the fiscal year the variances from standard are significant, the variances should be transferred to the:
work in process, cost of goods sold, and finished goods accounts
Variances from standard costs are usually reported to:
management
At the end of the fiscal year, variances from standard costs are usually transferred to the:
cost of goods sold account
Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
True
Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.
False
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $82 per pound.
False
If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $48.
False
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $22 per pound.
True
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce.
The differential cost of producing Product P is $13 per pound.
True
If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.
True
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential cost of producing Product P is $55 per pound.
False
A cost that will not be affected by later decisions is termed an opportunity cost.
False
The amount of income that would result from an alternative use of cash is called opportunity cost.
True
Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.
True
Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.
False
A cost that will not be affected by later decisions is termed a sunk cost.
True
In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.
True
In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all costs and expenses, plus provide a reasonable amount for profit.
False
Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.
True
The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.
False
When a company is showing a net loss, it is always best to discontinue the segment in order not to continue with losses.
False
In addition to the differential costs in an equipment replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.
True
Eliminating a product or segment may have the long-term effect of reducing fixed costs.
True
Manufacturers must conform to the Robinson-Patman Act which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.
True
Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.
True
Make or buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.
True
Make or buy decisions should be made only with related parties.
False
Depending on the capacity of the plant, a company may best be served by further processing some of the product and leaving the rest as is, with no further processing.
True
The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
False
In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.
True
In using the total cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.
False
A practical approach which is frequently used by managers when setting normal long-run prices is the cost-plus approach.
True
The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
True
In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.
False
In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.
True
The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.
True
When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon ideal levels of performance.
False
When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance.
True
The lowest contribution margin per scarce resource is the most profitable.
False
A bottleneck happens when an employee is too slow to keep with current production.
False
When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.
True
A bottleneck begins when demand for the company's product exceeds the ability to produce the product.
True
Activity-based costing is determined by charging products for only the services (activities) they used during production.
True
Activity-based costing is determined by charging products for only the services (activities) they used during production.
True
Activity-based costing is a more expensive approach to product costing.
False
Activity-based costing provides more accurate and useful cost data.
True
The DuPont formula uses financial and nonfinancial information to measure the performance of a business.
False
The service department will determine its service department charge rate and charge the company's divisions or departments according to their use of that particular service department.
True
The amount of detail presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.
True
Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.
False
If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 1.2.
True
The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.
True
The minimum amount of desired divisional income from operations is set by top management by establishing a maximum rate of return considered acceptable for invested assets.
False
A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.
False
The minimum amount of desired divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets.
True
The ratio of sales to investment is termed the rate of return on investment.
False
If income from operations for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover is 6.3.
False
If divisional income from operations is $100,000, invested assets are $850,000, and the minimum rate of return on invested assets is 8%, the residual income is $68,000.
False
Developing and retaining quality managers is an advantage of decentralization.
True
The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income.
True
The negotiated price approach allows the managers of decentralized units to agree among themselves as to the transfer price.
True
Transfer prices may be used when decentralized units are organized as cost, profit, or investment centers.
True
Office salaries expense for a department store is an indirect expense.
True
Controllable expenses are those that can be influenced by the decisions of the profit center management.
True
Responsibility accounting reports for profit centers are normally in the form of income statements.
True
The objective of transfer pricing is to encourage each division manager to transfer goods and services between divisions if overall company income can be increased by doing so.
True
A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.
True
A decentralized business organization is one in which all major planning and operating decisions are made by top management.
False
If Division Q's income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%.
True
The manager of a profit center does not make decisions concerning the fixed assets invested in the center.
True
The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.
True
The DuPont formula uses financial information to measure the performance of a business.
True
By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.
False
If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%.
True
The ratio of income from operations to sales is termed the profit margin component of the rate of return on investment.
True
If income from operations for a division is $30,000, sales are $243,750, and invested assets are $187,500, the investment turnover is 1.3.
True
The primary accounting tool for controlling and reporting for cost centers is a budget.
True
The rates at which services are charged to each division are called service department charge rates.
True
The profit center income statement should include only revenues and expenses that are controlled by the manager.
True
Under the cost price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.
False
If divisional income from operations is $75,000, invested assets are $637,500, and the minimum rate of return on invested assets is 6%, the residual income is $36,750.
True
The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.
True
In rate of return on investment analysis, the investment turnover component focuses on efficiency in the use of assets and indicates the rate at which sales are being generated for each dollar of invested assets.
True
Property tax expense for a department store's store equipment is an example of a direct expense.
True
The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.
True
A manager in a cost center also has responsibility and authority over the revenues and the costs.
False
A centralized business organization is one in which all major planning and operating decisions are made by top management.
True
The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.
True
The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting.
True
Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct expenses.
True
Budget performance reports prepared for the vice-president of production would generally contain less detail than reports prepared for the various plant managers.
True
Service department charges are similar to the expenses of a profit center that purchased services from a source outside the company.
True
If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment is 7.3%.
False
A disadvantage to using the Residual Income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.
False
One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.
False
The rate of return on investment may be computed by multiplying investment turnover by the profit margin.
True
Separation of businesses into more manageable operating units is termed decentralization.
True
The manager of the furniture department of a leading retailer does not control the salaries of departmental personnel.
False
Three measures of investment center performance are income from operations, rate of return on investment, and residual income.
True
If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.
True
Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.
True
The profit margin component of rate of return on investment analysis focuses on profitability by indicating the rate of profit earned on each sales dollar.
True
The profit center income statement should include only controllable revenues and expenses.
True
Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity bases.
True
The underlying principle of allocating operating expenses to departments is to assign to each department an amount of expense proportional to the revenues of that department.
False
If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 24%.
False
In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.
True
It is beneficial for two related companies to use the cost price approach for transfer pricing when both of the companies operate as cost centers and are not concerned with the revenue.
True
The major shortcoming of income from operations as an investment center performance measure is that it ignores the amount of revenues earned by the center.
False
Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar.
False
Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.
True
Sales commissions expense for a department store is an example of a direct expense.
True
Depreciation expense on store equipment for a department store is an indirect expense.
False
The balanced scorecard is a set of financial and nonfinancial measures that reflect the performance of the business.
True
If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5.
False
It is beneficial for related companies to negotiate a transfer price when the supplying company has unused capacity in its plant.
True
The ratio of sales to invested assets is termed the investment turnover component of the rate of return on investment.
True
A variable cost system is an accounting system where standards are set for each manufacturing cost element.
False
One reason not to depend solely on historical records to set standards is that there may be inefficiencies contained in past costs.
True
Standard costs serve as a device for measuring efficiency.
True
The standard cost is how much a product should cost to manufacture.
True
Standard costs can be used with both the process cost and job order cost systems.
True
Cost systems using detailed estimates of each element of manufacturing cost entering into the finished product are called standard cost systems.
True
Cost systems using detailed estimates of each element of manufacturing cost entering into the finished product are called budgeted cost systems.
False
Normally standard costs should be revised when labor rates change to incorporate new union contracts.
True
Standard costs should always be revised when they differ from actual costs.
False
Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.
True
In most businesses, cost standards are established principally by accountants.
False
It is correct to rely exclusively on past cost data when establishing standards.
False
Ideal standards are developed under conditions that assume no idle time, no machine breakdowns, and no materials spoilage.
True
Currently attainable standards do not allow for reasonable production difficulties.
False
If employees are given bonuses for exceeding normal standards, the standards may be very effective in motivating employees.
True
The fact that workers are unable to meet a properly determined direct labor standard is sufficient cause to change the standard.
False
Standards cannot be used for inventory valuation on financial statements.
False
Changes in technology, machinery, or production methods may make past cost data irrelevant when setting standards
True
The difference between the standard cost of a product and its actual cost is called a variance.
True
Standards are performance goals used to evaluate and control operations.
True
Standards are set for only direct labor and direct materials.
False
Principle of exceptions allows managers to focus on correcting variances between standard costs and actual costs.
True
Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.
False
While setting standards, the managers should never allow for spoilage or machine breakdowns in their calculations.
False
A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.
True
A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.
True
An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.
False
Standards are designed to evaluate price and quantity variances separately.
True
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 unfavorable.
False
If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable.
False
If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.
True
If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable.
False
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 favorable.
False
If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 favorable.
False
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable.
False
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 unfavorable.
True
If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the time variance was $1,500 unfavorable.
False
Standard costs are determined by multiplying expected price by expected quantity.
True
The direct labor time variance measures the efficiency of the direct labor force.
True
The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.
True
The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.
True
The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost budget.
False
The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report.
True
Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable overhead exceeds actual results, the variance is favorable.
True
An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work.
True
Favorable volume variances are never harmful, since achieving them encourages managers to run the factory above normal capacity.
False
When using a flexible budget, the variable costs will be the same regardless of the production levels.
False
Volume variance measures fixed factory overhead.
True
Though favorable volume variances are usually good news, if inventory levels are too high, additional production could be harmful.
True
Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or they can be incorporated in the accounts.
True
At the end of the fiscal year, the variances from standard are usually transferred to the finished goods account.
False
Standard cost variances are usually not reported in reports to stockholders.
True
Standards are more widely used for nonmanufacturing expenses than for manufacturing costs.
False
Variances from standard rarely conflict with nonfinancial performance measures, such as employee satisfaction.
False
On-time delivery and elapsed time between customer order and product delivery should not enter into the process of developing cost standards.
True
Though it is harder to apply, standards for nonmanufacturing expenses can be used for common and repetitive operations.
True
A company must choice either a standard system or nonfinancial performance measures to evaluate the performance of a company.
False
Employees may work quickly to meet expected production but fail to meet quality standards, in turn, it may cause expensive rework, rejects, and customer dissatisfaction.
True