Practice Exam

Dr. George ACCT. 202 Practice Exam. 1. A budget a. is a substitute for management. b. is an aid to management. c. can operate or enforce itself. d. is the responsibility of the accounting department. 2. Budgeting is usually most closely associated with which management function? a. Planning b. Directing c. Organizing d. Controlling 3. Which of the following items do not follow from the adoption of a budget? a. Promote efficiency b. Deterrent to waste c. Basis for performance evaluation d. Guarantee of accomplishing the profit objective 4. A common starting point in the budgeting process is a. expected future net income. b. past performance. c. to motivate the sales force. d. a clean slate, with no expectations. 5. If budgets are to be effective, there must be a. a history of successful operations b. independent verification of budget goals c. an organizational structure with clearly defined lines of authority and responsibility d. excess plant capacity. 6. It a. b. c. d.

is important that budgets be accepted by division managers. department heads. supervisors. all of these.

7. Which of the following statements about budget acceptance in an organization is true? a. The most widely accepted budget by the organization is the one prepared by top management. b. The most widely accepted budget by the organization is the one prepared by the department heads. c. Budgets are hardly ever accepted by anyone except top management. d. Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.

Practice Exam.--Page 2 8. An a. b. c. d.

unrealistic budget is more likely to result when it has been developed in a top down fashion. has been developed in a bottom up fashion. has been developed by all levels of management. is developed with performance appraisal usages in mind.

9. A budget is most likely to be effective if a. it is used to assess blame when things do not occur according to plans. b. it is not used to evaluate a manager's performance. c. employees and managers at the lower levels do not get involved in the budgeting process. d. it has top management support. 10. In of a. b. c. d.

many companies, responsibility for coordinating the preparation the budget is assigned to the company's independent certified public accountants. the company's internal auditors. the company's board of directors. a budget committee.

11. A budget period should be a. monthly: b. for a year or more. c. long-term. d. long enough to provide an obtainable goal under normal business conditions. 12. If a company has adopted continuous budgeting, the budget will show plans for a. every day. b. a full year ahead. c. the current year and the next year. d. at least five years. 13. Budget development for the coming year usually starts a. a year in advance. b. the first month of the year to be budgeted. c. several months before the end of the current year. d. the last month of the previous year. 14. The budget committee would not normally include the a. research director. b. treasurer. c. sales manager. d. external auditor. 15. The budget committee in a company is often headed by the a. president. b. controller. c. treasurer. e. budget director.

Practice Exam.--Page 3 16. Long-range planning usually encompasses a period of at least a. six-months. b. 1 year. c. 5 years. d. 10 years. 17. If there were 20,000 pounds of raw material on hand on January 1, 40,000 pounds are desired for inventory at January 31, and 120,000 pounds required for January production, how many pounds of raw material should be purchased in January? a. 100,000 pounds b. 160,000 pounds c. 80,000 pounds d. 140,000 pounds 18. The total direct labor hours required in preparing a direct labor budget are calculated using the a. sales forecast. b. production budget. c. direct materials budget. d. sales budget. 19. Which of the following is not an operating budget? a. Direct labor budget b. Sales budget c. Production budget d. Cash budget 20. The financial budgets include the a. cash budget and the selling and administrative expense budget. b. cash budget and the budgeted balance sheet. c. budgeted balance sheet and the budgeted income statement. d. cash budget and the production budget. 21. The culmination of preparing operating budgets is the a. budgeted balance sheet. b. production budget. c. cash budget. d. budgeted income statement. 22. In a production budget, total required units are the budgeted sales units plus a. beginning finished goods units. b. desired ending finished goods units. c. desired ending finished goods units plus beginning finished goods units. d. desired ending finished goods units minus beginning finished goods units.

Practice Exam.--Page 4 23. The direct materials budget details 1. the quantity of direct materials to be purchased. 2. the cost of direct materials to be purchased. a. 1 b. 2 c. both 1 and 2 d. neither 1 nor 2 24. The production budget shows expected unit sales of 8,000. Beginning finished goods units are 1,400. Required production units are 8,400. What are the desired ending finished goods units? a. 1,000. b. 1,400. c. 1,600. d. 1,800. 25. The production budget shows expected unit sales are 7,500. The required production units are 7,800. What are the beginning and desired ending finished goods units, respectively?

a. b. c. d.

Beginning Units 750 450 300 750

Ending Units 450 750 750 300

26. The production budget shows that expected unit sales are 8,000. The total required units are 9,000. What are the required production units? a. 1,000 b. 1, 500 c. 2,000 d. cannot be determined from the data provided. 27. The direct materials budget shows: Units to be produced Total pounds needed for production Total materials required What are the direct materials per unit? a. 1.08 pounds b. 3.0 pounds c. 3.2 pounds d. cannot be determined from the data.

3,000 9,000 9,700

Practice Exam.--Page 5 28. The direct materials budget shows: Desired ending direct materials Total materials required Direct materials purchases

6,000 pounds 9,000 pounds 7,900 pounds

The total direct materials needed for production is a. 3,000 pounds. b. 1,100 pounds. c. 1,900 pounds. d. 16,900 pounds. 29. If the required direct materials purchases are 6,000 pounds and the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct material in pounds? a. 15,000 b. 3,000 c. 9,000 d. 6,000 30. Which of the following expenses would not appear on a Selling and Administrative Expense Budget? a. Sales commissions b. Depreciation c. Property taxes d. Indirect labor 31. Which of the following would not appear as a fixed expense on the Selling and Administrative Expense Budget? a. Freight-out b. office salaries c. Property taxes d. Depreciation 32. A master budget consists of a. an interrelated long-term plan and operating budgets. b. financial budgets and a long-term plan. c. interrelated financial budgets and operating budgets. d. all the accounting journals and ledgers used by a company. 33. The starting point in preparing a master budget is the preparation of the a. production budget. b. sales budget. c. purchasing budget. d. personnel budget.

Practice Exam.--Page 6 34. Which one of the following is not needed in preparing a production budget? a. Budgeted unit sales b. Budgeted raw materials c. Beginning finished goods units d. Ending finished goods units 35. A company budgeted unit sales of 34,000 units for January, 1999 and 40,000 units for February, 1999.The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 10,200 units of inventory on hand on December 31, 1998, how many units should be produced in January, 1999 in order for the company to meet its goals? a. 35,800 units b. 34,000 units c. 32,200 units d. 46,000 units 36. A company determined that the budgeted cost of producing a product is $20 per unit. On June 1, there were 12,000 units on hand, the sales department budgeted sales of 45,000 units in June, and the company desires to have 18,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be a. $780,000. b. $1,140,000. c. $900,000. d. $1,020,000. 37. The single most important output in preparing financial budgets is the a. sales forecast. b. determination of the unit cost of the product. c. cash budget. d. budgeted income statement. 38. The financing section of a cash budget is needed if there is a cash deficiency or if the ending cash balance is less than a. the prior years. b. management's minimum required balance. c. the amount needed to avoid a service charge at the bank. d. the industry average. 39. Beginning cash balance plus total receipts a. equals ending cash balance. b. must equal total disbursements. c. equals total available cash. d. is the excess of available cash over disbursements.

Practice Exam.--Page 7 40. What is the proper preparation sequencing of the following budgets? 1. Budgeted Balance Sheet 2. Sales Budget 3. Selling and Administrative Budget 4. Budgeted Income Statement a. b. c. d.

1, 2, 2, 2,

2, 3, 3, 4,

3, 1, 4, 1,

4 4 1 3

41. The following information was taken from the Sloan Company cash budget for the month of July: Beginning cash balance Cash receipts Cash disbursements

$60,000 38,000 68,000

If the company has a policy of maintaining a minimum end of the month cash balance of $50,000, the amount the company would have to borrow is a. $20,000. b. $10,000. c. $30,000. d. $12,000. 42. The following credit sales are budgeted by Roswell Company: January February March April

$ 51,000 75,000 105,000 90,000

The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is a. $92,580. b. $84,000. c. $90,000. d. $88,200.

Practice Exam.--Page 8 43. A company's past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were: January February March

$60,000 36,000 90,000

The cash inflow in the month of March is expected to be a. $67,800. b. $51,300 c. $54,000. d. $64,800. 44. In of a. b. c. d.

a merchandising company, the starting point for the development the master budget is the cash budget. sales budget. selling and administrative expenses budget. budgeted income statement.

45. An appropriate activity index for a college or university for budgeting faculty positions would be a. faculty hours worked. b. the number of administrators. c. the credit hours taught by a department d. the number of days in the school term. 46. A major element in budgetary control is a. the preparation of long-term plans. b. the comparison of actual results with planned objectives. c. the valuation of inventories. d. approval of the budget by the stockholders. 47. Budget reports should be prepared a. daily. b. monthly. c. weekly. d. as frequently as needed. 48. On a. b. c. d.

the basis of the budget reports, management analyzes differences between actual and planned results. management may take corrective action. management may modify the future plans. all of these.

Practice Exam.--Page 9 49. The comparison of differences between actual and planned results a. is done by the external auditors. b. appears on the company's external financial statements. c. is usually done orally in departmental meetings. d. appears on periodic budget reports. 50. A static budget is appropriate in evaluating a manager's performance if a. actual activity closely approximates the master budget activity. b. actual activity is less than the master budget activity. c. the company prepares reports on an annual basis. d. the company is a not-for-profit organization 51. When budgeted and actual results are not the same amount, there is a budget a. error. b. difference. c. anomaly. d. by-product. 52. Top management's reaction to a difference between budgeted and actual sales often depends on a. whether the difference is favorable or unfavorable. b. whether management anticipated the difference. c. the materiality of the difference. d. the personality of the top managers. 53. If costs are not responsive to changes in activity level, then these costs can be best described as a. mixed. b. flexible. c. variable. d. fixed. 54. A static budget is appropriate for a. variable overhead costs. b. direct material costs. c. fixed overhead costs. d. none of these. 55. A flexible budget a. is prepared when management can't agree on objectives for the company. b. projects budget data for various levels of activity. I c. is only useful in controlling fixed costs. d. cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.

Practice Exam.--Page 10 56. The master budget of Benedict Company shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected: Indirect labor Machine supplies Indirect materials Depreciation on factory building Total manufacturing overhead

$240,000 60,000 70,000 50,000 $420,000

A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of a. $494,000. b. $420,000. c. $504,000. d. $454,000. 57. A department has budgeted monthly manufacturing overhead cost of $90,000 plus $4 per direct labor hour. If a flexible budget report reflects $174,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was a. 66,000 direct labor hours. b. 21,000 direct labor hours. c. 43,500 direct labor hours. d. cannot be determined. 58.

In developing a flexible budget within a relevant range of activity, a. only fixed costs are included. b. it is necessary to relate variable cost data to the activity index chosen c. it is necessary to prepare a budget at 1,000 unit increments. d. variable and fixed costs are combined and are reported as a total cost.

59. The flexible budget a. is prepared before the master budget. b. is relevant both within and outside the relevant range. c. eliminates the need for a master budget. d. is a series of static budgets at different levels of activity. 60. A flexible budget can be prepared for which of the following budgets comprising the master budget? a. Sales b. Overhead c. Direct materials d. All of these

Practice Exam.--Page 11 61. Another name for the static budget is a. master budget. b. overhead budget. c. permanent budget. d. flexible budget. 62. If a company plans to sell 12,000 units of product but sells 16,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on a. the original planned level of activity. b. 14,000 units of activity. c. 16,000 units of activity. d. 12,000 units of activity. 63. Sales results that are evaluated by a static budget might show 1. favorable differences that are not justified. 2. unfavorable differences that are not justified. a. 1 b. 2 c. both 1 and 2. d. neither 1 nor 2. 64. Management by exception a. causes managers to be buried under voluminous paperwork. b. means that all differences will be investigated. c. means that only unfavorable differences will be investigated. d. means that material differences will be investigated. 65. Under management by exception, which differences between planned and actual results should be investigated? a. Material and noncontrollable b. Controllable and noncontrollable c. Material and controllable d. All differences should be investigated 66. A static budget is not appropriate in evaluating a manager's effectiveness if a company has a. substantial fixed costs. b. substantial variable costs. c. planned activity levels that match actual activity levels. d. no variable costs. 67. The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called a. static reporting. b. flexible accounting. c. responsibility accounting. d. master budgeting.

Practice Exam.--Page 12 68. A cost is considered controllable at a given level of responsibility if a. the manager has the power to incur the cost within b. the cost has not exceeded the budget amount in the c. it is a variable cost, but it is uncontrollable if d. it changes in magnitude in a flexible budget.

managerial a given time period. master budget. it is a fixed cost.

69. A responsibility report should a. be prepared in accordance with generally accepted accounting principles. b. show only those costs that a manager can control. c. only show variable costs. d. only be prepared at the highest level of managerial responsibility. 70. Costs incurred indirectly and allocated to a responsibility level are considered to be a. nonmaterial. b. mixed. c. controllable. d. noncontrollable. 71. Management by exception a. is most effective at top levels of management. b. can be implemented at each level of responsibility within an organization. c. can only be applied when comparing actual results with the master budget. d. is the opposite of goal congruence. 72. The linens department of a large department store is a. not a responsibility center. b. a profit center. c. a cost center. d. an investment center. 73. A cost center a. only incurs costs and does b. incurs costs and generates c. is a responsibility center d. is a responsibility center investment cost of earning

not directly generate revenues. revenues. of a company which incurs losses. which generates profits and evaluates the the profit.

74. A manager of a cost center is evaluated mainly on a. the profit that the center generates. b. his or her ability to control costs. c. the amount of investment it takes to support the cost center. d. the amount of revenue that can be generated.

Practice Exam.--Page 13 75. A profit center is a. a responsibility b. a responsibility c. evaluated by the center. d. referred to as a objectives.

center that always reports a profit. center that incurs costs and generates revenues. rate of return earned on the investment allocated to the loss center when operations do not meet the company's

76. The best measure of the performance of the manager of a profit center is the a. rate of return on investment. b. success in meeting budgeted goals for controllable costs. c. amount of controllable margin generated by the profit center. d. amount of contribution margin generated by the profit center. 77. Controllable margin is defined as a. sales minus variable costs. b. sales minus contribution margin. c. contribution margin less controllable fixed costs. d. contribution margin less noncontrollable fixed costs. 78. Controllable margin is most useful for a. external financial reporting. b. preparing the master budget. c. performance evaluation of profit centers. d. break-even analysis. 79. Given below is an excerpt from a management performance report: Contribution margin Controllable fixed costs

Budget $1,000,000 $ 500,000

Actual $1,050,000 $ 450,000

Difference $50,000 $50,000

The manager's overall performance a. is 20% below expectations. b. is 20% above expectations. c. is equal to expectations. d. cannot be determined from information given. 80. Given below is an excerpt from a management performance report:

Contribution margin Controllable fixed costs

Budget

Actual

$600,000 $200,000

$580,000 $220,000

The manager's overall performance a. is 10% above expectations. b. is 10% below expectations. c. is equal to expectations. d. cannot be determined from the information provided.

Difference $20,000 U $20,000U

Practice Exam.--Page 14 81. A distinguishing characteristic of an investment center is that a. revenues are generated by selling and buying stocks and bonds. b. interest revenue is the major source of revenues. c. the profitability of the center is related to the funds invested in the center. d. it is a responsibility center which only generates revenues. 82. A measure frequently used to evaluate the performance of the manager of an investment center is a. the amount of profit generated. b. the rate of return on funds invested in the center. c. the percentage increase in profit over the previous year. d. departmental gross profit. 83. Return on investment is calculated by dividing a. contribution margin by sales. b. controllable margin by sales. c. contribution margin by average operating assets. d. controllable margin by average operating assets. 84. Which one of the following will not increase return on investment? a. Variable costs are increased b. An increase in sales c. Average operating assets are decreased d. Variable costs are decreased 85. If an investment center has generated a controllable margin of $40,000 and sales of $200,000, what is the return on investment for the investment center if average operating assets were $500,000 during the period? a. 8% b. 20% c. 32% d. 40% 86. The denominator in the formula for return on investment calculation is a. investment center controllable margin. b. dependent on the specific type of profit center. c. average investment center operating assets. d. sales for the period. 87. In a. b. c. d.

the formula for ROI, idle plant assets are included in the calculation of controllable margin. included in the calculation of operating assets. excluded in the calculation of operating assets. excluded from total assets.

Practice Exam.--Page 15 88. In a. b. c. d.

computing ROI, land held for future use will hurt the performance measurement of an investment center's manager. is important in evaluating the performance of a profit center manager. is included in the calculation of operating assets. is considered a nonoperating asset.

89. If an investment center has a $12,000 controllable margin and $160,000 of sales, what average operating assets are needed to have a return on investment of 10%? a. $16,000. b. $20,000. c. $120,000. d. $160,000. 90. Which of the following valuations of operating assets are not readily available from the accounting records? a. Cost b. Book value c. Market value d. Both cost and market value 91. A standard cost is a. a cost which is paid for a group of similar products. b. the average cost in an industry. c. a predetermined cost. d. the historical cost of producing a product last year. 92. 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 management's plans, while a standard reflects what actually happened. c. a budget expresses a total amount while a standard expresses a unit amount. d. standards are excluded from the cost accounting system whereas budgets are generally incorporated into the cost accounting system. 93. Standard costs may be used by a. universities. b. governmental agencies. c. charitable organizations. d. all of these. 94. Which of the following statements is false? a. A standard cost is more accurate than a budgeted cost. b. A standard is a unit amount. c. In concept, standards and budgets are essentially the same. d. The standard cost of a product is equivalent to the budgeted cost per unit of product.

Practice Exam.--Page 16 95. Standard costs a. may show past cost experience. b. help establish expected future costs. c. are the budgeted cost per unit in the present. d. all of these. 96. If a company is concerned with the potential negative effects of establishing standards, they should a. set loose standards that are easy to fulfill. b. offer wage incentives to those meeting standards. c. not employ any standards. d. set tight standards in order to motivate people. 97. A standard which represents an efficient level of performance that is attainable under expected operating conditions is called a(n) a. ideal standard. b. loose standard. c. tight standard. d. normal standard. 98. Ideal standards a. are rigorous but attainable. b. are the standards generally used in a master budget. c. reflect optimal performance under perfect operating conditions. d. will always motivate employees to achieve the maximum output. 99. The final decision as to what standard cost should be is the responsibility of a. the quality control engineer. b. the managerial accountants. c. the purchasing agent. d. management. 100. The labor time requirements for standards may be determined by the a. sales manager. b. product manager. c. industrial engineers. d. payroll department manager. 101. The two levels that standards may be set at are a. normal and fully efficient. b. normal and ideal. c. ideal and less efficient. d. fully efficient and fully effective. 102. Most companies that use standards set them at a. the normal level. b. a conceivable level. c. the ideal level. d. last year's level.

Practice Exam.--Page 17 103. A managerial accountant 1. does not participate in the standard setting process. 2. provides knowledge of cost behaviors in the standard setting process. 3. provides input of historical costs to the standard setting process. a. 1 b. 2 c. 3 d. 2 and 3 104. The cost of freight-in a. is to be included in the standard cost of direct materials. b. is considered a selling expense. c. should have a separate standard apart from direct materials. d. should not be included in standard cost system. 105. The direct materials quantity standard would not be expressed in a. pounds. b. barrels. c. dollars. d. board feet. 106. The direct materials quantity standard should a. exclude unavoidable waste. b. exclude quality considerations. c. allow for normal spoilage. d. always be expressed as an ideal standard. 107. The direct labor quantity standard is sometimes called the direct labor a. volume standard. b. effectiveness standard. c. efficiency standard. d. quality standard. 108. A manufacturing company would include setup and downtime in their direct a. materials price standard. b. materials quantity standard. c. labor price standard. d. labor quantity standard. 109. Allowance for spoilage is part of the direct a. materials price standard. b. materials quantity standard. c. labor price standard. d. labor quantity standard.

Practice Exam.--Page 18 110. The total a. at the b. at the c. on the d. in the

standard cost to produce one unit of product is shown bottom of the income statement. bottom of the balance sheet. standard cost card. Work in Process Inventory account.

111. An a. b. c.

unfavorable materials quantity variance would occur if more material is purchased than is used. actual pounds of material used was less than the standard pounds allowed actual labor hours used was greater than the standard labor hours allowed. d. actual pounds of material used was greater than the standard pounds allowed.

112. If a. b. c. d.

actual costs are greater than standard costs, there is a(n) normal variance. unfavorable variance. favorable variance. error in the accounting system.

113. A total materials variance is analyzed in terms of a. price and quantity variances. b. buy and sell variances. c. quantity and quality variances. d. tight and loose variances. 114. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for $3,800. The direct materials price variance for last month was a. $3,800 favorable. b. $200 favorable. c. $100 favorable. d. $200 unfavorable. 115. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 2,800 gallons of direct material which actually cost $10,600 was used to produce 1,500 units of product. The direct materials quantity variance for last month was a. $800 favorable. b. $600 favorable. c. $800 unfavorable. d. $1,400 unfavorable.

Practice Exam.--Page 19 116. The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in producing 600 units, the actual direct labor cost was $12,800 for 1,000 direct labor hours worked, the total direct labor variance is a. $480 unfavorable. b. $1,600 favorable. c. $1,000 unfavorable. d. $1,600 unfavorable. 117. The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was $24,500 for 2,500 direct labor hours worked, the direct labor price (rate) variance is a. $500 unfavorable. b. $500 favorable. c. $700 unfavorable. d. $700 favorable. 118. The standard number of hours that should have been worked for the output attained is 4,000 direct labor hours and the actual number of direct labor hours worked was 4,200. If the direct labor price variance was $2,100 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the actual rate of pay for direct labor? a. $8.50 per direct labor hour b. $7.50 per direct labor hour c. $9.50 per direct labor hour d. $9.00 per direct labor hour 119. The total materials variance is equal to the a. materials price variance. b. difference between the materials price variance and materials quantity variance. c. product of the materials price variance and the materials quantity variance. d. sum of the materials price variance and the materials quantity variance. 120. The total overhead variance is equal to the a. sum of the total materials variance and the total labor variance. b. difference between the total materials variance and the total labor variance. c. sum of the controllable variance and the volume variance. d. total variance minus the controllable variance and the volume variance. 121. The total variance is $3,000. The total materials variance is $1,200. The total labor variance is twice the total overhead variance. What is the total overhead variance? a. $300. b. $600. c. $900. d. $1,200.

Practice Exam.--Page 20 122. A company uses 4,200 pounds of material and exceeds the standard by 200 pounds. The quantity variance is $600 unfavorable. What is the standard price? a. $1.00. b. $2.00. c. $3.00. d. Cannot be determined from the data provided. 123. A company purchases 7,500 pounds of material. The materials price variance is $1,500 favorable. What is the difference between the standard and actual price paid for the materials? a. $1.00. b. $.20. c. $5.00. d. Cannot be determined. 124. A company uses 10,000 pounds of material for which they paid $6.40 a pound. What is the materials price variance? a. $.40. b. $1.00. c. $2.40. d. Cannot be determined from the data provided. 125. If the materials price variance is $800 F and the materials quantity and labor variances are each $600 U, what is. the total materials variance? a. $800 F b. $600 U c. $200 F d. $900 U Tanner Company has a materials price standard of $3.00 per pound. One thousand pounds of materials were purchased at $3.30 a pound. The actual quantity of material used was 1,000 pounds, although the standard quantity allowed for the output was 900 pounds. 126. Tanner Company's materials price variance is a. $30 U. b. $300 U. c. $270 U. d. $300 F. 127. Tanner Company's materials quantity variance is a. $300 U. b. $300 F. c. $330 F. d. $330 U.

Practice Exam.--Page 21 128. Tanner Company's total materials variance is a. $600 U. b. $600 F. c. $630 U. d. $630 F. 129. Labor efficiency is measured by the a. materials quantity variance. b. total labor variance. c. labor quantity variance. d. labor rate variance. 130. An a. b. c. d.

unfavorable labor quantity variance may be caused by paying workers higher wages than expected. misallocation of workers. worker fatigue or carelessness. higher pay rates mandated by union contracts.

131. The investigation of materials price variance usually begins in the a. first production department. b. purchasing department. c. controller's office. d. accounts payable department. 132. The investigation of a materials quantity variance usually begins in the a. production department. b. purchasing department. c. sales department. d. controller's department. 133. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the responsibility rests with the a. sales department. b. production department. c. budget office. d. controller's department. 134. Manufacturing overhead costs are applied to work in process on the basis of a. actual hours worked. b. standard hours allowed. c. ratio of actual variable to fixed costs. d. actual overhead costs incurred. 135. If the standard hours allowed are less than the standard hours at normal capacity, a. the overhead volume variance will be unfavorable. b. variable overhead costs will be underapplied. c. the overhead controllable variance will be favorable. d. variable overhead costs will be overapplied.

Practice Exam.--Page 22 136. Which of the following statements about overhead variances is false? a. Standard hours allowed are used in calculating the controllable variance. b. Standard hours allowed are used in calculating the volume variance. c. The controllable variance pertains solely to fixed costs. d. The total overhead variance pertains to both variable and fixed costs. 137. The overhead volume variance relates only to a. variable overhead costs. b. fixed overhead costs. c. both variable and fixed overhead costs. d. all manufacturing costs. 138. The overhead controllable variance is calculated as the difference between actual overhead costs incurred and the budgeted a. overhead costs for the standard hours allowed. b. overhead costs applied to the product. c. overhead costs at the normal level of activity. d. fixed overhead costs. 139. If the standard hours allowed are less than the standard hours at normal capacity, the volume variance a. cannot be calculated. b. will be favorable. c. will be unfavorable. d. will be greater than the controllable variance. 140. The budgeted overhead costs for standard hours allowed and the overhead costs applied to product are the same amount a. for both variable and fixed overhead costs. b. only when standard hours allowed is less than normal capacity. c. for variable overhead costs. d. for fixed overhead costs. 141. Variance reports are a. external financial reports. b. SEC financial reports. c. internal reports for management. d. all of these. 142. In a. b. c. d.

using variance reports, management looks for total assets invested. significant variances. competitors' costs in comparison to the company's costs. more efficient ways of valuing inventories.

Practice Exam.--Page 23 143. If 10,000 pounds of direct materials are purchased for $7,200 on account and the standard cost is $.70 per pound, the journal entry to record the purchase is a. Raw Materials Inventory ................7,200 Accounts Payable……………………………………………………………………………….7,200 b. Work In Process Inventory ..............7,200 Accounts Payable ....-…………………..................7,000 Material Quantity Variance ......................200 c. Raw Materials Inventory ................7,200 Accounts Payable…………………………………………………………………7,000 Material Price Variance………………………………………………….200 d. Raw Materials Inventory ................7,000 Material Price Variance……………………………………….200 Accounts Payable…………………………………………………………..7,200 144. Debit balances in variance accounts represent a. unfavorable variances. b. favorable variances. c. favorable for price variances; unfavorable for quantity variances. d. favorable for quantity variances; unfavorable for price variances. 145. Which of the following is not considered an advantage of using standard costs? a. Standard costs can reduce clerical costs b. Standard costs can be useful in setting prices for finished goods. c. Standard costs can be used as a means of finding fault with performance. d. Standard costs can make employees "cost-conscious."