ACCT 2302 Summer II, 2007 Exam 3 Chapter 10-13: Answer: C Level: Easy LO: 2

ACCT 2302 Summer II, 2007
Exam 3 Chapter 10-13
1.Which of the following would produce a materials price variance?

A) an excess quantity of materials used.
B) an excess number of direct labor-hours worked in completing a job.
C) shipping materials to the plant by air freight rather than by truck.
D) breakage of materials in production.
Answer: C Level: Easy LO: 2
2.The standard price per unit of materials is used in the calculation of which of the following variances?
Materials
Materials price quantity
variance variance
A) No No
B) No Yes
C) Yes No
D) Yes Yes
Answer: D Level: Medium LO: 2 Source: CPA, adapted
3.In a certain standard costing system direct labor-hours are used as the base for applying variable manufacturing
overhead costs. The standard direct labor rate is twice the variable manufacturing overhead rate. Last
period the labor efficiency variance was unfavorable. From this information one can conclude that last
period the variable overhead efficiency variance was:
A) unfavorable and half the labor efficiency variance.
B) favorable and half the labor efficiency variance.
C) unfavorable and twice the labor efficiency variance.
D) favorable and twice the labor efficiency variance.
Answer: A Level: Medium LO: 4
4.Which of the following statements is a good description of the variances that should be investigated under the
management by exception concept?
A) all variances should be investigated.
B) only unfavorable variances should be investigated.
C) a small random sample of all variances should be investigated.
D) unusually large favorable and unfavorable variances should be investigated.
Answer: D Level: Medium LO: 8
5.The following materials standards have been established for a particular raw material used in the company's
sole product:
Standard quantity per unit of output........................ 1.0 pound

Standard price.......................................................... $16.60 per pound
The following data pertain to operations concerning the product for the last month:
Actual materials purchased..................................... 2,200 pounds

Actual cost of materials purchased......................... $34,650
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Actual materials used in production........................ 1,900 pounds
Actual output........................................................... 2,100 units
What is the materials quantity variance for the month?

A) $3,320 F
B) $3,150 F
C) $4,980 U
D) $4,725 U
Answer: A Level: Easy LO: 2
6.The following materials standards have been established for a particular raw material used in the company's
sole product:
Standard quantity per unit of output........................ 0.1 pound

Standard price.......................................................... $18.20 per pound
The following data pertain to operations for the last month:
Actual materials purchased..................................... 5,700 pounds

Actual cost of materials purchased......................... $100,320
Actual materials used in production........................ 5,600 pounds
What is the materials price variance for the month?

A) $1,820 U
B) $1,760 U
C) $3,420 F
D) $352 U
7.The following labor standards have been established for a particular product:
Standard labor-hours per unit of output............................. 8.0 hours

Standard labor rate............................................................. $13.10 per hour
Actual hours worked...................... 4,000 hours

Actual total labor cost.................... $53,000
Actual output.................................. 400 units
What is the labor efficiency variance for the month?

A) $10,600 U
B) $11,080 U
C) $11,080 F
D) $10,480 U
Answer: D Level: Easy LO: 3
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8.The following labor standards have been established for a particular product:
Standard labor-hours per unit of output............................. 2.4 hours

Standard labor rate............................................................. $15.45 per hour
Actual hours worked...................... 5,400 hours

Actual total labor cost.................... $85,860
Actual output.................................. 2,200 units
What is the labor rate variance for the month?

A) $1,908 U
B) $2,430 U
C) $4,284 U
D) $4,284 F
Answer: B Level: Easy LO: 3
9.The direct labor standards for a particular product are:
4 hours of direct labor @ $12.00 per direct labor-hour = $48.00
During October, 3,350 units of this product were made, which was 150 units less than budgeted. The
labor cost incurred was $159,786 and 13,450 direct labor-hours were worked. The direct labor variances
for the month were:
Labor Rate Variance Labor Efficiency Variance

A) $1,614 U $600 U
B) $1,614 U $600 F
C) $1,614 F $600 U
D) $1,614 F $600 F
Answer: C Level: Medium LO: 3 Source: CIMA, adapted
10.The standard cost card of a particular product specifies that it requires 4.5 direct labor-hours at $12.80 per
direct labor-hour. During March, 2,300 units of the product were produced and direct labor wages of
$128,300 were incurred. A total of 11,700 direct labor-hours were worked. The direct labor variances
for the month were:
Labor Rate
Variance Labor Efficiency Variance
A
) $4,180 F $14,804 U
B) $4,180 F $17,280 U
C) $21,460 F $14,804 U
D
) $21,460 F $17,280 U
Answer: D Level: Easy LO: 3 Source: CIMA, adapted
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11.The following standards for variable manufacturing overhead have been established for a company that
makes only one product:
Standard hours per unit of output............................ 5.6 hours

Standard variable overhead rate.............................. $19.15 per hour
Actual hours............................................................ 5,100 hours

Actual total variable overhead cost......................... $99,195
What is the variable overhead efficiency variance for the month?

A) $20,299 F
B) $18,769 F
C) $1,848 F
D) $20,617 F
12.The following standards for variable manufacturing overhead have been established for a company that
makes only one product:
Standard hours per unit of output............................ 2.8 hours

Standard variable overhead rate.............................. $16.30 per hour
Actual hours............................................................ 7,600 hours

Actual total variable overhead cost......................... $127,300
What is the variable overhead spending variance for the month?

A) $3,420 U
B) $3,150 F
C) $10,050 U
D) $13,200 U
Use the following to answer questions 13-15:
Stench Foods Company uses a standard cost system to collect costs related to the production of its garlic
flavored yogurt. The garlic (materials) standards for each container of yogurt produced are 0.8 ounces of crushed
garlic at a standard cost of $2.30 per ounce.
During the month of June, Stench purchased 75,000 ounces of crushed garlic at a total cost of $171,000. Stench
used 64,000 of these ounces to produce 71,500 containers of yogurt.
13.What is Stench's materials price variance for the month of June?

A) $1,500 favorable
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B) $15,640 unfavorable
C) $17,250 favorable
D) $23,800 favorable
14.What is Stench's materials quantity variance for the month of June?

A) $1,500 favorable
D) $23,800 favorable
Answer: B Level: Medium LO: 2
15.Assume that it takes 15 minutes of labor time to crush enough garlic to fill one container of yogurt. Because
the smell of the garlic can be unbearable, workers are given (and they take it!) 10 minutes of break time
every hour (i.e., 50 minutes of work, 10 minutes of break). How many minutes should Stench use as a
standard quantity of labor time per container of yogurt?
A) 18.0
B) 16.2
C) 17.0
D) 17.5
Use the following to answer questions 16-19:
The Collins Company uses standard costing and has established the following direct material and direct labor
standards for each unit of the single product it makes:
Direct materials................... 4 gallons at $8 per gallon

Direct labor.......................... 1 hour at $16 per hour
During July, the company made 6,000 units of product and incurred the following costs:
Direct materials purchased.................... 26,800 gallons at $8.20 per gallon

Direct materials used............................. 25,200 gallons
Direct labor used................................... 5,600 hours at $15.30 per hour
16.The material price variance for July was:

A) $5,360 favorable
C) $5,040 favorable
D) $5,040 unfavorable
17.The materials quantity variance for July was:

A) $22,960 unfavorable
C) $9,600 unfavorable
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18.The labor rate variance for July was:

C) $1,120 favorable
D) $3,920 favorable
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19.The labor efficiency variance for July was:
A) $6,400 favorable
B) $89,600 favorable
D) $6,120 favorable
20.A major disadvantage of static budgets is:

A) the difficulty in developing such budgets due to the high cost of gathering the necessary
information.
B) the cost behavior pattern of manufacturing overhead, which is primarily fixed.
C) that the variances between actual and budget on a static budget result from comparing actual costs
at one level of activity to budgeted costs at a different level of activity.
D) their length and complexity.
Answer: C Level: Medium LO: 1
21.If the price a company paid for overhead items, such as utilities, decreased during the year, the company
would probably report a(n):
A) favorable efficiency variance.
B) favorable spending variance.
C) unfavorable efficiency variance.
D) unfavorable spending variance.
22.Papenfuss Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's
guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget
for the most recent month appears below:
Activity level.............................................. 86 guests

Variable overhead costs:
Supplies................................................... $ 86.00
Laundry................................................... 507.40
Fixed overhead costs:
Utilities.................................................... 340.00
Salaries and wages.................................. 4,790.00
Depreciation............................................ 2,620.00
Total overhead cost..................................... $8,343.40
The Inn's variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 76 guests? Assume
that the activity levels of 86 guests and 76 guests are within the same relevant range.
A) $52,848.40
B) $8,343.40
C) $8,274.40
D) $7,373.24
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23.Hatzenbuhler Manufacturing Corporation has prepared the following overhead budget for next month.
Activity level............................................. 6,800 machine-hours

Supplies................................................. $ 22,440
Indirect labor......................................... 55,760
Fixed overhead costs:
Supervision............................................ 19,300
Utilities.................................................. 5,700
Depreciation.......................................... 7,400
Total overhead cost................................ $110,600
The company's variable overhead costs are driven by machine-hours.
What would be the total budgeted overhead cost for next month if the activity level is 6,600 machine-
hours rather than 6,800 machine-hours? Assume that the activity levels of 6,800 machine-hours and
6,600 machine-hours are within the same relevant range.
A) $107,824.00
B) $110,600.00
C) $108,300.00
D) $107,347.06

24.Sesareo Tile Installation Corporation measures its activity in terms of square feet of tile installed. Last month,
the budgeted level of activity was 1,130 square feet and the actual level of activity was 1,180 square
feet. The company's owner budgets for supply costs, a variable overhead cost, at $2.60 per square foot.
The actual supply cost last month was $2,130. In the company's flexible budget performance report for
last month, what would have been the variance for supply costs?
A) $808 F
B) $938 F
C) $90 U
D) $130 U

25.Eng Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the
budgeted level of activity was 16,800 skeins and the actual level of activity was 16,600 skeins. The
company's owner budgets for dye costs, a variable overhead cost, at $0.44 per skein. The actual dye cost
last month was $7,690. In the company's flexible budget performance report for last month, what would
have been the variance for dye costs?
A) $298 U
B) $93 F
C) $88 F
D) $386 U

26.Suski Corporation has a standard cost system in which it applies manufacturing overhead to products on the
basis of standard machine-hours (MHs). The company has provided the following data for the most
recent month:
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Budgeted level of activity...................................................... 7,400 MHs
Actual level of activity.......................................................... 7,500 MHs
Cost formula for variable overhead cost................................ $5.90 per MH
Budgeted fixed overhead cost................................................ $60,000
Actual total variable overhead............................................... $42,750
Actual total fixed overhead.................................................... $61,000
What was the variable overhead spending variance for the month?
A) $1,500 favorable
B) $590 unfavorable
C) $910 favorable

27.Masek Corporation has a standard cost system in which it applies manufacturing overhead to products on the
basis of standard machine-hours (MHs). The company has provided the following data for the most
recent month:
Budgeted level of activity.................................................................. 2,000 MHs

Actual level of activity...................................................................... 2,400 MHs
Cost formula for variable manufacturing overhead cost................... $5.90 per MH
Budgeted fixed manufacturing overhead cost................................... $50,000
Actual total variable manufacturing overhead.................................. $14,880
Actual total fixed manufacturing overhead....................................... $49,000
What was the fixed overhead budget variance for the month?
C) $2,360 favorable
D) $1,000 favorable

28.Sholette Manufacturing Corporation has a standard cost system in which it applies manufacturing overhead to
products on the basis of standard machine-hours (MHs). The company's cost formula for variable
manufacturing overhead is $5.00 per MH. During the month, the actual total variable manufacturing
overhead was $22,540 and the actual level of activity for the period was 4,600 MHs. What was the
variable overhead spending variance for the month?
A) $92 favorable
B) $92 unfavorable
C) $460 unfavorable
D) $460 favorable
29.Tropiano Electronics Corporation has a standard cost system in which it applies manufacturing overhead to
products on the basis of standard machine-hours (MHs). The company had budgeted its fixed
manufacturing overhead cost at $62,100 for the month and its level of activity at 3,200 MHs. The actual
total fixed manufacturing overhead was $61,600 for the month and the actual level of activity was 3,000
MHs. What was the fixed overhead budget variance for the month to the nearest dollar?
B) $500 favorable
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C) $500 unfavorable
D) $3,381 favorable

30.Schley Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual overhead costs for the most recent month appear below:
Original Budget Actual Costs

Supplies................................................. $ 3,840 $ 4,730
Indirect labor......................................... 22,400 25,260
Total variable overhead cost................. $26,240 $29,990
The original budget was based on 3,200 machine-hours. The company actually worked 3,510 machine-
hours during the month and the standard hours allowed for the actual output were 3,660 machine-hours.
What was the overall variable overhead efficiency variance for the month?
A) $550 favorable
C) $22 favorable
D) $1,230 favorable

31.Machain Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
The company's cost formula for variable overhead cost is $2.90 per machine-hour. The actual variable
overhead cost for the month was $15,270. The original budget for the month was based on 5,000
machine-hours. The company actually worked 5,090 machine-hours during the month. The standard
hours allowed for the actual output of the month totaled 5,200 machine-hours. What was the variable
overhead efficiency variance for the month?
A) $580 unfavorable
B) $190 unfavorable
C) $509 unfavorable
D) $319 favorable
32.Hall Company's standards call for 750 direct labor-hours to produce 500 units. During May 400 units were
produced. The company worked 650 direct labor-hours. The standard hours allowed for May production
would be:
A) 750 hours
B) 650 hours
C) 600 hours
D) 100 hours
33.If a cost is a common cost of the segments on a segmented income statement, the cost should:
A) be allocated to the segments on the basis of segment sales.
B) not be allocated to the segments.
C) excluded from the income statement.
D) treated as a product cost rather than as a period cost.
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34.Spiedino Company sells its products to both residential and commercial customers in eight sales territories. In
which of the following ways could Spiedino be segmented?
A) by product and then further segmented by type of customer.
B) by type of customer and then further segmented by sales territory.
C) by sales territory and then further segmented by product line.
D) all of the above.
35.Which of the following would not be included in operating assets in return on investment calculations?
A) Cash.
B) Accounts Receivable.
C) Equipment
D) Factory building rented to (and occupied by) another company.
36.Quinnett Corporation has two divisions: the Export Products Division and the Business Products Division.
The Export Products Division's divisional segment margin is $34,300 and the Business Products
Division's divisional segment margin is $86,700. The total amount of common fixed expenses not
traceable to the individual divisions is $95,600. What is the company's net operating income?
A) $216,600
B) $121,000
C) $25,400
D) ($121,000)
37.Gunderman Corporation has two divisions: the Alpha Division and the Charlie Division. The Alpha Division
has sales of $230,000, variable expenses of $131,100, and traceable fixed expenses of $63,300. The
Charlie Division has sales of $540,000, variable expenses of $307,800, and traceable fixed expenses of
$120,700. The total amount of common fixed expenses not traceable to the individual divisions is
$119,200. What is the company's net operating income?
A) $147,100
B) $331,100
C) $27,900
D) $211,900
38.Given the following data:
Average operating assets.......................... $250,000

Total liabilities.......................................... $100,000
Sales.......................................................... $600,000
Contribution margin.................................. $150,000
Net operating income................................ $30,000
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Return on investment (ROI) would be:
A) 5%
B) 12%
C) 25%
D) 60%
39.Last year a company had sales of $400,000, a turnover of 2.4, and a return on investment of 36%. The
company's net operating income for the year was:
A) $144,000
B) $120,000
C) $80,000
D) $60,000
40.Hal Etoesus currently works as the fry guy at Burger Breath Drive Thru but is thinking of quitting his job to
attend college full time next semester. Which of the following would be considered an opportunity cost
in this decision?
A) the cost of the textbooks
B) the cost of the cola that Hal will consume during class
C) Hal's lost wages at Burger Breath
D) both A and B above
41.Which of the following would be relevant in the decision to sell or throw out obsolete inventory?
Direct material Fixed overhead

cost assigned cost assigned
to the inventory to the inventory
A) Yes Yes
B) Yes No
C) No Yes
D) No No
42.In a make-or-buy decision, relevant costs include:

A) unavoidable fixed costs
B) avoidable fixed costs
C) fixed factory overhead costs applied to products
D) fixed selling and administrative expenses
Answer: B Level: Easy LO: 3 Source: CMA, adapted
43.In situations where management must decide between accepting or rejecting a one-time-only special order
where there is sufficient idle capacity to fill the order, which one of the following is NOT relevant in
making the decision?
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A) absorption costing unit product costs
B) variable costs
C) incremental costs
D) differential costs
Answer: A Level: Easy LO: 4 Source: CMA, adapted
44.When a multi-product factory operates at full capacity, decisions must be made about what products to
emphasize. In making such decisions, products should be ranked based on:
A) selling price per unit
B) contribution margin per unit
C) contribution margin per unit of the constraining resource
D) unit sales volume
Answer: C Level: Easy LO: 5 Source: CMA, adapted
45.Kahn Company produces and sells 8,000 units of Product X each year. Each unit of Product X sells for $10
and has a contribution margin of $6. It is estimated that if Product X is discontinued, $50,000 of the
$60,000 in fixed costs charged to Product X could be eliminated. These data indicate that if Product X
is discontinued, overall company net operating income should:
A) increase by $2,000 per year
B) decrease by $2,000 per year
C) increase by $38,000 per year
D) decrease by $38,000 per year

46.Fixed costs are sunk costs and are therefore irrelevant in decisions.
Answer: False Level: Easy LO: 1
47.A complete income statement must be prepared as part of a differential cost analysis.
Answer: False Level: Medium LO: 1
48.Future costs that do not differ between the alternatives in a decision are avoidable costs.
Answer: False Level: Medium LO: 1
49.The book value of an old machine is always considered a sunk cost in a decision.
Answer: True Level: Easy LO: 1
50.A product that does not cover its allocated share of general corporate administrative expenses should be
dropped.
Answer: False Level: Easy LO: 2
13 Ercan Sinmaz

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ACCT 2302 Summer II, 2007 Exam 3 Chapter 10-13: Answer: C Level: Easy LO: 2

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ACCT 2302 Summer II, 2007

Exam 3 Chapter 10-13

1.Which of the following would produce a materials price variance?

Answer: C Level: Easy LO: 2

Answer: D Level: Medium LO: 2 Source: CPA, adapted

Answer: A Level: Medium LO: 4

Answer: D Level: Medium LO: 8

Standard quantity per unit of output........................ 1.0 pound

Actual materials purchased..................................... 2,200 pounds

What is the materials quantity variance for the month?

Answer: A Level: Easy LO: 2

Standard quantity per unit of output........................ 0.1 pound

The following data pertain to operations for the last month:

Actual materials purchased..................................... 5,700 pounds

What is the materials price variance for the month?

Answer: C Level: Easy LO: 2

Standard labor-hours per unit of output............................. 8.0 hours

Actual hours worked...................... 4,000 hours

What is the labor efficiency variance for the month?

Answer: D Level: Easy LO: 3

Standard labor-hours per unit of output............................. 2.4 hours

Actual hours worked...................... 5,400 hours

What is the labor rate variance for the month?

Answer: B Level: Easy LO: 3

9.The direct labor standards for a particular product are:

4 hours of direct labor @ $12.00 per direct labor-hour = $48.00

Labor Rate Variance Labor Efficiency Variance

Answer: C Level: Medium LO: 3 Source: CIMA, adapted

Answer: D Level: Easy LO: 3 Source: CIMA, adapted

Standard hours per unit of output............................ 5.6 hours

The following data pertain to operations for the last month:

Actual hours............................................................ 5,100 hours

What is the variable overhead efficiency variance for the month?

Answer: A Level: Easy LO: 4

Standard hours per unit of output............................ 2.8 hours

The following data pertain to operations for the last month:

Actual hours............................................................ 7,600 hours

What is the variable overhead spending variance for the month?

Answer: A Level: Easy LO: 4

Use the following to answer questions 13-15:

13.What is Stench's materials price variance for the month of June?

Answer: A Level: Medium LO: 2

14.What is Stench's materials quantity variance for the month of June?

Answer: B Level: Medium LO: 2

Answer: A Level: Medium LO: 1

Use the following to answer questions 16-19:

Direct materials................... 4 gallons at $8 per gallon

Direct materials purchased.................... 26,800 gallons at $8.20 per gallon

16.The material price variance for July was:

Answer: B Level: Easy LO: 2

17.The materials quantity variance for July was:

Answer: C Level: Easy LO: 2

18.The labor rate variance for July was:

Answer: D Level: Easy LO: 3

Answer: A Level: Easy LO: 3

20.A major disadvantage of static budgets is:

Answer: C Level: Medium LO: 1

Answer: B Level: Medium LO: 3