Test Bank Chapter 10 Variance Analysis And Standard Costing

CHAPTER 10

VARIANCE ANALYSIS AND STANDARD COSTING

CHAPTER LEARNING OBJECTIVES

1. Explain how organizational objectives are furthered with the combination of budgeting and variance analysis.

2. Demonstrate the purpose of flexible budgets.

3. Discuss the purpose of standard costing and its relationship with variance analysis.

4. Calculate the direct materials and direct labor production variances with accompanying journal entries.

5. Calculate the variable-MOH and fixed-MOH production variances with accompanying journal entries.

1. Interpret sales results by calculating sales variances.

Current count is:

Knowledge: 69

Comprehension: 21

Application: 54

Analysis: 0

Evaluation: 0

Synthesis: 0

Total: 144

Number and percentage of questions:

Easy: 34 questions, 24 percent (target of 25%)

Medium: 96 questions, 66 percent (target of 65%)

Hard: 14 questions, 10 percent (target of 10%)

Question types:

Multiple Choice: 95

Brief Exercises: 27

Exercises: 3

Problems: 0

Short Answer: 19

MULTIPLE CHOICE QUESTIONS

1. Which of the following spotlights which factors contribute to differences between budgeted and actual outcomes?
2. Breakeven analysis
3. Cost behavior analysis
4. Variance analysis
5. Benchmarking analysis

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA:

Business Acumen & Operations: Operational Knowledge.

Solution: Variance analysis spotlights which factors contribute to differences between budgeted and actual outcomes.

1. An organization uses a combination of budgeting and variance analysis as effective tools for
2. planning and control.
3. performance evaluation and troubleshooting.
4. motivation and benchmarking.
5. motivation and benchmarking, planning and control, and performance evaluation and control.

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: An organization uses a combination of budgeting and variance analysis as effective tools for motivation and benchmarking, planning and control, and performance evaluation and troubleshooting.

1. Once set, ____________ numbers become the benchmark for comparison purposes.
2. actual
3. budgeted
4. industry
5. prior year

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement Analysis and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: Once set, budgeted numbers become the benchmark for comparison purposes.

1. Long-range planning happens _____________ the current year’s budget is set.
2. before
3. after
4. at the same time as
5. every time that

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: IMA: Business Acumen & Operations: Operational Knowledge.

Solution: Long-range planning happens before the current year’s budget is set.

1. To ensure that operational plans are enacted, _____________ are put into place to prevent deviations from budgeted numbers and to detect when spending goes off course.
2. high standards
3. benchmarking activities
4. variance projections
5. control activities

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: To ensure that operational plans are enacted, control activities are put into place to prevent deviations from budgeted numbers and to detect when spending goes off course.

1. Approved budgets become ___________.
2. uncontrollable.
3. standards.
4. benchmarks.
5. control activities.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: Approved budgets become benchmarks.

1. The logical, systematic identification of the source of problems to fix them and avoid their recurrence is called
2. benchmarking.
3. targeting.
4. troubleshooting.
5. budgeting.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge, Strategy, Planning & Performance: Strategic Cost Management.

Solution: The logical, systematic identification of the source of problems to fix them and avoid their recurrence.is called troubleshooting.

1. In budgeting, when realities change, old assumptions and their benchmarks
2. are never adjusted, since the budget was created based on these assumptions.
3. must be adjusted to reflect better information, so that actual performance is more on target.
4. can be changed to reflect better information, but the changes are not required.
5. may or may not be changed, based on the discretion of management.

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: In budgeting, when realities change, old assumptions and their benchmarks must be adjusted to reflect better information, so that actual performance is more on target.

1. When an employee overspends on a business expense where a specific guideline has been set, the spending above the guideline is called a
   1. cost override.
2. corrective-action activity.
3. ethical violation.
4. variance.

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement Analysis and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: When an employee overspends on a business expense where a specific guideline has been set, the spending above the guideline is called a variance.

1. Which of the following depicts how organizations use budgets and variance analysis to attain their goals?
2. Troubleshoot and Plan → Benchmark and Control → Evaluate Performance and Motivate
3. Motivate and Benchmark → Plan and Control → Evaluate Performance and Troubleshoot
4. Plan and Control → Evaluate Performance and Benchmark → Motivate and Troubleshoot
5. Plan and Control → Evaluate Performance and Troubleshoot → Motivate and Benchmark

Ans: B, LO 1, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The following depicts how organizations use budgets and variance analysis to attain their goals: Motivate and Benchmark → Plan and Control → Evaluate Performance and Troubleshoot.

1. When management sets expectations that are high, achievable, and clearly communicated
2. unfavorable variances will always result.
3. employees will normally work to reach the high standards if they feel the company is committed to their success.
4. poor employee performance evaluations will happen, and workers miss out on expected incentives.
5. flexibility and creativity for employees is stifled.

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: When management sets expectations that are high, achievable, and clearly communicated, employees will normally work to reach the high standards if they feel the company is committed to their success.

1. Which of the following statements is true regarding budgets?
2. Actual numbers should never be compared to budgets, since budgets are simply estimates.
3. Variances resulting from comparison of actual and budgeted amounts will always require management to take corrective action.
4. Management should set expectations high and unattainable so that employees will be motivated to reach the goals set.
5. Managers use variance analysis to compare actual outcomes to the budget to evaluate performance and solve issues that caused the variances.

Ans: D, LO 1, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The statement which is true is that “Managers use variance analysis to compare actual outcomes to the budget to evaluate performance and solve issues that caused the variances.

1. How does a company track its progress toward reaching its goals as created in a budget?
2. Sensitivity analysis
3. Variance analysis
4. Regression analysis
5. Breakeven analysis

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge, Strategy, Planning & Performance – Strategic Cost Management.

Solution: A company tracks it progress towards reaching its goals as created in a budget by using variance analysis.

1. Which of the following is performed once the current budget is created?
2. Variance analysis
3. Troubleshooting
4. Operational plans
5. Performance evaluation

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: Once the current budget is created, operational plans are begun.

1. In order to achieve its goals, a company should
2. set its goals at the highest level in order to motivate employees to reach the goals
3. enact its budgeted plan and set regular evaluations of actual versus budgeted numbers to track its progress towards these goals.
4. evaluate only the accuracy of the budget assumptions used to create the budget.
5. constantly change assumptions used in creating the budget when actual events occur contrary to the budget assumptions.

Ans B: LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: In order to achieve its goals, a company should enact a budgeted plan and set regular evaluations of actual versus budgeted numbers to track its progress towards these goals.

1. A comprehensive, organization-wide budget that requires inputs from many sources

throughout the company is a(n)

1. cash budget.
2. operational budget.
3. master budget.
4. financial budget.

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A comprehensive, organization-wide budget that requires inputs from many sources throughout the company is a master budget.

1. Which of the following is used to coordinate a company’s plans and to allocate resources

accordingly?

1. Master budget
2. Variance analysis
3. Operational plans
4. Troubleshooting

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A master budget is used to coordinate a company’s plans and to allocate resources accordingly.

1. The correct equation for a Master Budget Variance is
2. (Budgeted volume x Actual price) – (Actual volume x Budgeted price).
3. (Budgeted volume x Actual price) + (Actual volume x Budgeted price).
4. (Budgeted volume x Budgeted price) – (Actual volume x Actual price).
5. (Budgeted volume x Budgeted price) + (Actual volume x Actual price).

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The correct equation for a Master Budget Variance is (Budgeted volume x Budgeted price) – (Actual volume x Actual price).

1. Corner Cupcakes has the following budgeted amounts for the current month: budgeted sales

in units of 3,500 at a budgeted unit selling price of $5. Actual amounts for the month were as follows: 4,000 units at a unit selling price of $4.80. What is the sales activity variance for Corner Cupcakes for the current month?

1. $2,400 unfavorable
2. $2,400 favorable
3. $2,500 unfavorable
4. $2,500 favorable

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Sales Activity Variance = (Budgeted volume x Budgeted price) – (Actual volume x Budgeted price) = (3,500 x $5) – (4,000 x $5) = $2,500 favorable

1. When should a flexible budget be used instead of the master budget?
2. When actual sales volume equals the master budget sales volume
3. When actual sales volume approximates the master budget sales volume
4. When actual sales volume differs from the master budget sales volume
5. When the actual sales revenue differs from the master budget sales revenue

Ans C: LO 2, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A flexible budget should be used instead of the master budget when the actual sales volume differs from the master budget sales volume.

1. When computing variances related to a flexible budget, a favorable (F) variance causes a(n)
2. decrease in operating income compared to the master budget.
3. increase in operating income compared to the master budget.
4. decrease in sales revenue compared to the master budget.
5. increase in sales revenue compared to the master budget.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: When computing variances related to a flexible budget, a favorable (F) variance causes an increase in operating income compared to the master budget.

1. The variance that highlights the difference between actual sales volume and the master budget

sales volume is the

1. MOH volume variance.
2. Master budget variance.
3. Flexible budget variance.
4. Sales activity variance.

Ans: D, LO 2, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The variance that highlights the difference between actual sales volume and the master budget sales volume is the sales activity variance.

1. Which of the following costs will transfer from the master budget to the flexible budget unchanged assuming an operating capacity within the relevant range?
2. Fixed costs
3. Direct labor
4. Direct materials
5. Variable manufacturing overhead (MOH)

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Fixed costs will transfer from the master budget to the flexible budget unchanged assuming an operating capacity within the relevant range.

1. Fern’s Florist has a Flexible Budget Variance of $15, favorable and a Sales Activity Variance of

$25, unfavorable. What is Fern’s Florist’s Master Budget Variance?

1. $10 favorable
2. $10 unfavorable
3. $40 unfavorable
4. Cannot be determined; not enough information given.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Master Budget Variance = Flexible Budget Variance, $15, favorable - Sales Activity Variance, $25, unfavorable = $10 unfavorable.

1. Which of the following variances holds the volume constant between actual and flexible

budget, and highlights the price difference between actual and budget?

1. Flexible budget variance
2. Master budget variance
3. Sales activity variance
4. Manufacturing overhead (MOH) efficiency variance

Ans: A, LO 2, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The Flexible Budget Variance holds the volume constant between actual and flexible budget and highlights the price difference between actual and budget.

1. Cubana Candles produces and sells custom candles. Last month it had the following product

sales volume and pricing data:

What is the flexible budget variance for Cubana Candles?

1. $10 favorable
2. $10 unfavorable
3. $20 favorable
4. $20 unfavorable

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Flexible budget variance = (Actual volume x Budgeted price) – (Actual volume x Actual price) = (20 x $9) – (20 x $10) = $20 favorable.

1. Cubana Candles produces and sells custom candles. Last month it had the following product

sales volume and pricing data:

What is the master budget variance for Cubana Candles?

1. $30 favorable
2. $30 unfavorable
3. $65 favorable
4. $65 unfavorable

Ans: C, LO 2, Bloom: AP Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement Analysis and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Master budget variance = (Budgeted volume x Budgeted price) – (Actual volume x Actual price) = (15 x $9) – (20 x $10) = $65 favorable.

1. Cubana Candles produces and sells custom candles. Last month it had the following product

sales volume and pricing data:

What is the sales activity variance for Cubana Candles?

1. $45 favorable
2. $45 unfavorable
3. $60 favorable
4. $60 unfavorable

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Sales activity variance = (Budgeted volume x Budgeted price) – (Actual volume x Budgeted price) = (15 x $9) – (20 x $9) = $45 favorable.

1. Texas Tad’s T-shirt Warehouse has a Flexible Budget Variance of $175, favorable and a

Sales Activity Variance of $75, favorable. What is Texas Tad’s Master Budget Variance?

1. $100 favorable
2. $250 favorable
3. $250 unfavorable
4. Cannot be determined; not enough information given.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Master Budget Variance = Flexible Budget Variance, $150, favorable + Sales Activity Variance, $75, favorable = $250 favorable.

1. Cosmo Cookie Creations had the following variable cost data for the past month:

What is Cosmo Cookie’s Flexible Budget Variance and Sales Activity Variance?

1. $600, unfavorable and $300, favorable
2. $600, unfavorable and $300, unfavorable
3. $600, favorable and $300, favorable
4. $600, favorable and $300, unfavorable

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis

Solution: Flexible Budget Variance = Actual – Flexible Budget = $4,600 - $5,200 = $600, favorable and Sales Activity Variance = Flexible Budget – Master Budget = $5,200 - $5,500 = $300, favorable.

1. Standard costing uses _________ costs set at the _________ level as product costs in the

general ledger.

1. actual; unit
2. budgeted; unit
3. actual; total
4. budgeted; total

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge.

Solution: Standard costing uses budgeted costs set at the unit level as product costs in the general ledger.

1. Companies using standard costing have ________ controls over production costs.
2. tight
3. flexible
4. weak
5. variable

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge.

Solution: Companies using standard costing have tight controls over production costs.

1. Which of the following shows the required quantities and current prices of manufacturing costs

for each input: direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead?

1. Bill of materials
2. Standard cost card
3. Variance analysis
4. Job cost sheet

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge.

Solution: A standard cost card shows the required quantities and current prices of manufacturing costs for each input: direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead

1. Which of the following standards are firm, yet attainable unit benchmarks that allow for the realities of life?
2. Ideal
3. Theoretical
4. Practical
5. Idyllic

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge.

Solution: Practical standards are firm, yet attainable unit benchmarks that allow for the realities of life.

1. Roja Winery has the standard cost data for the production of each bottle of red wine below.

What is the standard cost per unit for one bottle of red wind for Roja Winery?

1. $11.39
2. $13.64
3. $14.64
4. $15.39

Ans: D, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: (Direct Materials + Direct Labor + Variable MOH + Fixed MOH = Standard Cost per Unit) = [(.42 kg x $6.00) = (21 ltr x $40) + (.21 kg x $.44) + (.04 kg x $2) + (1 x $.25) + (1 x $.05) + (.25 x $9) + (.25 x $4) + (.25 x $3)] = $15.39

1. When assigning costs for direct materials, direct labor, and manufacturing overhead to

production, the costs should be recorded as

1. actual costs incurred.
2. standard costs.
3. estimated costs.
4. total budgeted costs.

Ans: B, LO 3, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: When assigning costs for direct materials, direct labor, and manufacturing overhead to production, the costs should be recorded as standard costs.

1. When a unit of product is completed, the correct accounting entry to record this is to
2. debit Work In Process (WIP) Inventory and credit Finished Goods (FG) Inventory
3. debit Finished Goods (FG) Inventory and credit Work In Process (WIP) Inventory
4. debit Work In Process (WIP) Inventory and credit Raw Materials Inventory
5. debit Finished Goods (FG) Inventory and credit Raw Materials Inventory

Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: CC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: When a unit of good is completed, the correct accounting entry to record this is to debit Finished Goods (FG) Inventory and credit Work In Process (WIP) Inventory.

1. Which of the following would not appear as a debit entry in the Work In Process (WIP) Inventory account when manufacturing a unit of product?
2. Cost of goods manufactured (COGM)
3. Direct materials (DM) used
4. Direct labor (DL) used
5. Variable manufacturing overhead (MOH) assigned

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The only item that will not appear as a debit entry in the Work In Process (WIP) Inventory account is the Cost of Goods Manufactured (COGM).

1. Which of the following standards have no tolerance for machine breakdowns or employee

breaks?

1. Practical standards
2. Realistic standards
3. Ideal standards
4. Firm, yet attainable standards

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Ideal standards have no tolerance for machine breakdowns or employee breaks.

1. Which of the following standards would be best suited to a futuristic production facility comprised of robots and drones, but lacking people?
2. Firm, yet attainable standards
3. Ideal standards
4. Realistic standards
5. Practical standards

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Ideal standards would be best suited to a futuristic production facility comprised of robots and drones, but lacking people.

1. Standards should be reviewed and updated
2. throughout the year, every time conditions and assumptions change.
3. only if variances are significant and indicate a change is required.
4. at the end of each period, once variances are known.
5. at the beginning of each year, in anticipation of what the variances will be for the year.

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Standards should be reviewed and updated at the end of each period, once variances are known.

1. Which of the following statements regarding standard costing is not correct?
2. Establishing and maintaining standard costs and the efficient process to sustain cost stability requires great attention to detail.
3. A key benefit of standard costing is that using variance analysis one year helps inform planning and budgeting for the next year.
4. At the beginning of the period, before variances are known, management reviews standards that are in place for that period and considers updating them.
5. Setting standards for direct materials, direct labor and manufacturing overhead is an iterative process.

Ans: C, LO 3, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA:

Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The statement that is not correct is, “At the beginning of the period, before variances are known, management reviews

standards that are in place for that period and considers updating them.

1. When goods are completed and transferred from Work In Process Inventory (WIP) to Finished Goods (FG) Inventory, the costs in the transfer accounting entry are
2. incurred costs.
3. standard costs.
4. assigned costs.
5. actual costs.

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis

Solution: When goods are completed and transferred from Work In Process (WIP) Inventory to Finished Goods (FG) Inventory, the costs in the transfer accounting entry are standard costs.

1. Which of the following factors would not be considered when setting a direct labor standard?
2. Mix of skilled and unskilled workers
3. Observation of production workers in action
4. Setting up approved suppliers
5. Timing of production workers to manufacture a unit of product

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: All of the responses given are factors considered when setting a direct labor standard except setting up approved suppliers.

1. Cost accountants work with which of the following to determine the types and quantities of direct materials inputs that will work best when setting the direct materials standard?
2. Only engineers
3. Only purchasing managers
4. Only manufacturing experts
5. Engineers, purchasing managers, and manufacturing experts.

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Cost accountants work with engineers, purchasing managers, and manufacturing experts to determine the types and the quantities of direct materials inputs that will work best when setting the direct materials standard.

1. Given that standard costs are like budgets or benchmarks at the unit-level, it is imperative to
2. follow up with variance analysis to plan for unit costs only.
3. control the unit costs only.
4. evaluate performance once the units are produced and troubleshoot why variances occurred only.
5. follow up with variance analysis to plan for unit costs, control them, and evaluate performance once the units are produced, and then, troubleshoot why variances occurred.

Ans: D, LO 4, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Given that standard costs are like budgets or benchmarks at the unit-level, it is imperative to follow up with variance analysis to plan for unit costs, control them, and evaluate performance once the units are produced, and then, troubleshoot why variance occurred.

1. A price variance compares the
2. actual cost incurred for the input (DM, DL, or variable-MOH) to the standard cost allowed for the actual input quantity.
3. actual cost incurred for the input (DM, DL, or variable-MOH) to the standard cost allowed for the standard input quantity.
4. actual quantity used of each input (DM, DL, or variable-MOH) to the standard quantity allowed for each input, at its standard cost.
5. actual quantity used of each input (DM, DL, or variable MOH) to the standard quantity allowed for each input, at its actual cost.

Ans: A, LO 4, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Price variances compare the actual cost incurred for the input (DM, DL, or variable MOH) to the standard cost allowed for the actual input quantity.

1. An efficiency variance compares the
2. actual quantity used of each input (DM, DL, or variable MOH) to the standard quantity allowed for each input, at its actual cost.
3. actual cost incurred for the input (DM, DL, or variable-MOH) to the standard cost allowed for the actual input quantity.
4. actual quantity used of each input (DM, DL, or variable-MOH) to the standard quantity allowed for each input, at its standard cost.
5. actual cost incurred for the input (DM, DL, or variable-MOH) to the standard cost allowed for the standard input quantity.

Ans: C, LO 4, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: An efficiency variance compares the actual quantity used of each input (DM, DL, or variable-MOH) to the standard quantity allowed for each input, at its standard cost.

1. Which variance helps management address what quantity of direct material (DM) inputs

should have been used in making the actual volume of units?

1. Direct material (DM) price variance
2. Direct material (DM) efficiency variance
3. Direct labor (DL) price variance
4. Direct labor (DL) efficiency variance

Ans: B, LO 4 Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The direct material (DM) efficiency variance helps management address what quantity of direct material (DM) inputs should have been used in making the actual volume of units.

1. The direct labor (DL) price variance for Vellux Manufacturers is $15,600 unfavorable. The standard number of hours worked was 10,000 and the standard rate per hour for direct labor was $14. If the actual direct labor hours were 12,000, what was the actual rate per direct labor hour?
2. $7.80
3. $12.70
4. $15.30
5. $17.50

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: DM Price Variance, $15,600 U = (AQ x AP) – (AQ x SP) = (12,000 x AP) – (12,000 x $14); AP = $15.30

1. Venda Company purchased and used 40,000 pound of materials in production. It paid $6.00 per pound for these materials. If the direct materials (DM) price variance was $50,000 favorable, what was the standard price per pound?
2. $4.25
3. $5.75
4. $7.25
5. $9.30

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IIMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Direct Materials (DM) Price Variance, $50,000 F = (AQ x AP) – (AQ x SP) = (40,000 x $6) – (40,000 x SP); SP = $7.25

1. Kidzlane has direct materials (DL) standards of 2 pounds per unit at $4 per pound for its most popular toy. Last month, 5,600 pounds of direct materials that actually cost $28,000 were used to produce 3,000 toy units. The direct materials (DM) efficiency variance for last month was
2. $1,600 unfavorable.
3. $1,600 favorable.
4. $5,600 unfavorable.
5. $5,600 favorable.

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: DM Efficiency Variance = (AQ x SP) – (SQ x SP) = (5,600 x $4) – [(3,000 x 2) x $4] = $1,600 Favorable

1. Kingston Company produces a hover board, which has standard requirements of two hours per board at a direct labor rate per hour of $18. In the last quarter, 2,000 hover boards were produced using 4,200 direct labor hours at rate of $19.00 per hour. The direct labor (DL) efficiency variance for last quarter was
2. $7,200 unfavorable.
3. $7,200 favorable.
4. $3,600 unfavorable.
5. $3,600 favorable.

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Direct Labor (DL) Efficiency Variance = (AQ x SP) – (SQ x SP); SP = (2 hrs. x $18) = $36 and SQ = 2,000 x 2 hrs. = 4,000 hrs.; DL Efficiency Variance = (4,200 x $36) – (4,000 x $36) = $7,200 Unfavorable

1. In a standard costing system, direct material (DM) price variances are recorded when goods are
2. purchased.
3. placed into production.
4. completed and transferred to finished goods inventory.
5. sold.

Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Reporting and Control: Cost Accounting.

Solution: Direct materials (DM) price variances are recorded in a standard costing system when goods are purchased.

1. For standard costing journal entries,
2. standard cost is used to record the method of payment and the actual amount is used to record the DM inventory, WIP Inventory, and FG Inventory, with the difference recognized in the variance accounts.
3. standard cost is recorded in both DM Inventory, WIP Inventory, FG Inventory, and the Cash or Accounts Receivable depending on the method of payment.
4. standard cost is recorded in both DM Inventory, WIP Inventory, FG Inventory, and the Cash or Accounts Receivable depending on the method of payment.
5. standard cost is used to record the DM inventory, WIP Inventory, and FG Inventory, actual cost is used to record the method of payment, Cash or Accounts Receivable, and the difference is recognized in the variance accounts.

Ans: D, LO 4, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management, Reporting and Control: Cost Accounting.

Solution: For standard costing journal entries, standard cost is used to record the DM inventory, WIP Inventory, and FG Inventory, actual cost is used to record the method of payment, Cash or Accounts Receivable, and the difference is recognized in the variance accounts.

1. Direct materials (DM) efficiency variances are recorded
2. when materials are purchased.
3. during production.
4. when units are sold.
5. at the same time as direct materials (DM) price variances.

Ans: B, LO 4, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Reporting

and Control: Cost Accounting.

Solution: Direct materials (DM) efficiency variances are recorded during production.

1. The direct labor (DL) price variance reflects the difference between the
2. standard direct labor cost for the actual direct labor hours used and the direct labor hours that were expected to use for the actual production.
3. actual direct labor rate and the standard direct labor rate for all of the direct labor hours used.
4. actual direct labor rate applied to the actual labor hours and the standard direct labor rate applied to the standard direct labor hours.
5. standard direct labor rate applied to the actual labor hours and the actual direct labor rate applied to the standard direct labor hours.

Ans: B, LO 3, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The direct labor (DL) price variance reflects the difference between the actual direct labor rate and the standard direct labor rate for all of the direct labor hours used.

1. A company’s direct labor (DL) efficiency variance is computed as
2. (AQ x SP) + (SQ x SP).
3. (AQ x AP) – (SQ x SP).
4. (AQ x AP) – (AQ x SP).
5. (AQ x SP) – (SQ x SP).

Ans: D, LO 4, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: A company’s direct labor (DL) variance is computed as (AQ x SP) – (SQ – SP).

1. The formula for the direct labor (DL) price variance is
2. (AQ x AP) – (AQ x SP).
3. (AQ x AP) + (AQ x SP).
4. (AQ x SP) – (SQ x SP).
5. (AQ x AP) – (SQ x SP).

Ans: A, LO 4, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Cost Management and Decision Analysis.

Solution: The formula for the direct labor (DL) price variance is (AQ x AP) – (AQ – SP)

1. The formula for the direct materials (DM) price variance is
2. (AQ_purch x AP) - (AQ_purch x SP).
3. (SQ_purch x AP) - (SQ_purch x SP).
4. (AQ_purch x AP) + (AQ_purch x SP).
5. (AQ_purch x AP) - (SQ_purch x SP).

Ans: A, LO 4, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy,

Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The formula for the direct materials (DM) price variance is (AQ_purch x AP) - (AQ_purch x SP)

1. The formula for the direct materials (DM) efficiency variance is
2. (AQ_used x AP) - (SQ x SP).
3. (AQ_used x SP) - (SQ x SP).
4. (AQ_used x SP) + (SQ x SP).
5. (AQ_used x AP) - (AQ_used x SP).

Ans: B, LO 4, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Stragtegic Cost Management Decision Analysis.

Solution: The formula for the direct materials (DM) efficiency variance is (AQ_used x SP) - (SQ x SP).

1. The standard price (SP) in the variable-MOH price variance is computed by total
2. actual variable-MOH divided by the actual use of the cost driver.
3. actual variable-MOH divided by the budgeted use of the cost driver.
4. budgeted variable-MOH divided by the budgeted use of the cost driver.
5. budgeted variable-MOH divided by the actual use of the cost driver.

Ans: C, LO 5, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The standard price (SP) in the variable-MOH price variance is computed by total budgeted variable-MOH divided by the budgeted use of the cost driver.

1. The correct equation for the variable-MOH price variance is
2. actual variable-MOH incurred – (SQ x SP).
3. budgeted variable-MOH – (SQ x AP).
4. budgeted variable-MOH – (AQ x SP).
5. actual variable-MOH incurred – (AQ x SP).

Ans: D, LO 3, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The correct equation for the variable-MOH price variance is actual variable-MOH incurred – (AQ x SP).

1. Which of the following would not be a key transaction-related standard costing journal entry for variable-MOH costs?
2. Actual Variable-MOH costs are recorded as debits to Variable-MOH Control account.
3. As units are completed, the applied cost is debited to WIP Inventory account and credited to Variable-MOH Control account.
4. As units are completed, the applied cost is credited to the WIP Inventory account and debited to the Variable-MOH Control account.
5. Specific variable-MOH price variances and/or efficiency variances are recognized as the Variable-MOH Control account is closed out.

Ans: C, LO 5, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The entry which is not a transaction-related standard costing journal entry for variable-MOH costs is, “As units are completed the applied cost is credited to WIP Inventory account and debited to the Variable-MOH Control account.

1. Which variance captures the difference in the standard variable-MOH cost for the actual quantity of the cost driver used, compared to the cost driver quantity expected for actual units produced?
2. Variable-MOH Efficiency Variance
3. Fixed-MOH Price Variance
4. Variable-MOH Price Variance
5. Fixed-MOH Volume Variance

Ans: A, LO 5, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The Variable-MOH Efficiency Variance captures the difference in the standard variable-MOH cost for the actual quantity of the cost driver used, compared to the cost driver quantity expected for the actual units produced.

1. A favorable Variable-MOH Price Variance means that
2. less was paid than expected for variable-MOH resources.
3. more was paid than expected for variable-MOH resources.
4. less of the cost driver related to the variable-MOH resources was used than expected.
5. more of the cost driver related to the variable-MOH resources was used than expected.

Ans: A, LO 5, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: A favorable Variable-MOH Price Variance means that less was paid than expected for variable-MOH resources.

1. Variances with overall favorable effects will carry
2. debit balances which increase operating income.
3. credit balances which decrease operating income.
4. credit balances which increase operating income.
5. debit balances which decrease operating income.

Ans: C, LO 5, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Knowledge, AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Variances with overall favorable effects will carry credit balances which increase operating income.

1. General ledger accounts for variances are classified as
2. permanent accounts.
3. temporary accounts.
4. real accounts.
5. retained earnings.

Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Knowledge, AICPA BB: Industry/Sector Perspective, AICPA FN:

Measurement, AICPA PC: Problem Solving; IMA: Strategy, Planning & Performance: Strategic Cost Management, Business Acumen & Operations: Operational Knowledge.

Solution: General ledger accounts for variances are classified as temporary accounts.

1. Because variance accounts are
2. temporary accounts, they must be closed at year-end.
3. temporary accounts, their balances will carry over from one period to the next.
4. permanent accounts, they must be closed at year-end.
5. permanent accounts, their balances will carry over from one period to the next.

Ans: A, LO: 5, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AC: Measurement, Analysis, and Interpretation, IMA: Strategy,

Planning & Performance: Strategic Cost Management

Solution: Because variance accounts are temporary accounts, they must be closed at year-end.

1. Variance accounts are closed or written off to
2. Retained Earnings.
3. Cost of Goods Sold.
4. Finished Goods (FG) Inventory.
5. Work In Process Inventory.

Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Knowledge, AICPA BB: Industry/Sector Perspective, AICPA FN:

Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management

Solution: Variance accounts are closed or written off to Cost of Goods Sold.

1. Which of the following account balances will reflect the actual cost of production at year-end in a standard costing system?
2. Work In Process Inventory
3. Raw Materials Inventory
4. Finished Goods Inventory
5. Cost of Goods Sold

Ans: D, LO 5, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The Cost of Goods Sold account balance will reflect the actual cost of production at year-end in a standard costing system.

1. Bonaventura Boots had the following variances at year-end:

What is the effect of closing these variances on the Cost of Goods Sold account at year-end?

1. Increase by $35
2. Decrease by $35
3. Increase by $715
4. Decrease by $715

Ans: A, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Unfavorable DM Price Variance + Unfavorable DM Efficiency Variance) – Favorable DL Efficiency Variance = Change to Cost of Goods Sold; ($250 U + $125 U) - $340 F = $35 increase (debit) to Cost of Goods Sold.

1. Bonaventura Boots had the following variances at year-end:

What is the journal entry to close these variances?

1. DM Price Variance.....……………….. 250

DM Efficiency Variance……………….. 125

DL Efficiency Variance……… 340

COGS………………….…….. 35

1. COGS………………………………….. 35

DL Efficiency Variance……………….. 340

DM Price Variance………….. 250

DM Efficiency Variance…….. 125

1. COGS………………………………….. 215

DM Price Variance……..…………….. 250

DL Efficiency Variance……... 340

DM Efficiency Variance…….. 125

1. COGS………………………………….. 465

DM Efficiency Variance……………….. 125

DM Price Variance………….. 250

DM Efficiency Variance…….. 340

Ans: B, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The journal entry to close the variances for Bonaventura Boots is as follows:

COGS………………………………….. 35

DL Efficiency Variance……………….. 340

DM Price Variance………….. 250

DM Efficiency Variance…….. 125

1. Dairy Delites had the following projected and incurred the following production and cost data shown below:

What is the Variable-MOH Price Variance?

1. $161 unfavorable
2. $161 favorable
3. $373 unfavorable
4. $373 favorable

Ans: C, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Actual Cost (AQ x AP) – (AQ x SP) = $2,328 – (850 hrs. x $2.30 hr.) = $2,328 - $1,955 = $373 Unfavorable.

1. Dairy Delites had the following projected and incurred the following production and cost data shown below:

What is the Variable-MOH Efficiency Variance?

1. $161 unfavorable
2. $161 favorable
3. $373 unfavorable
4. $373 favorable

Ans: A, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategya, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Variable-MOH Efficiency Variance = (AQ x SP) – (SQ x SP) = (850 x $2.30) – (780 x $2.30) = $161 unfavorable

1. Dairy Delites had the following projected and incurred the following production and cost data shown below:

What is the Fixed-MOH Price Variance?

1. $136 favorable
2. $136 unfavorable
3. $216 favorable
4. $216 unfavorable

Ans: C, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Actual Fixed-MOH Incurred – Master Budget Fixed-MOH = $2,572 – (MBQ x SP) = $2,572 – (820 hrs. x $3.40/hr.) = $2,572 - $2,788 = $216 favorable.

1. Dairy Delites had the following projected and incurred the following production and cost data shown below:

What is the Fixed-MOH Volume Variance?

1. $136 favorable
2. $136 unfavorable
3. $216 favorable
4. $216 unfavorable

Ans: B, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Fixed-MOH Volume Variance = Master Budget Fixed-MOH Cost – Fixed-MOH Applied = (MBQ x SP) – (SQ x SP) = (820 hrs. x $3.40/hr.) – (780 hrs. x $3.40/hr.) = $2,788 - $2,652 = $136 unfavorable

1. Which variance isolates and quantifies the change in sales prices?
2. Simplified Sales Activity Variance
3. Master Budget Sales Variance
4. Sales Price Variance
5. Sales Mix Variance

Ans: C, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The Sales Price Variance isolates and quantifies the change in sales prices.

1. Which of the following spotlights the change in volume between the flexible budget sales level and the master budget sales level?
2. Sales Mix Variance
3. Sales Price Variance
4. Master Budget Sales Variance
5. Simplified Sales Activity Variance

Ans: D, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Tbe simplified sales activity variance spotlights the change in volume between the flexible budget sales and the master budget sales level.

1. The master budget sales variance captures
2. only the difference between actual results and master budget values for sales price.
3. only the difference between actual results and master budget values for sales volume.
4. the difference between actual results and master budget values for both sales price and volume.
5. the difference between actual results and the flexible budget for sales.

Ans: C, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The master budget sales variance captures the difference between actual results and master budget values for both sales price and volume.

1. The total sales variance is also known as the
2. sales price variance.
3. simplified sales activity variance
4. sales mix variance.
5. master budget sales variance.

Ans: D, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The total sales variance is also known as the master budget sales variance.

1. The sales price variance is computed as the
2. (Actual sales price per unit – Budgeted sales price per unit) x Actual volume sold.
3. (Actual volume – Budgeted volume) x Budgeted sales price.
4. (Actual sales price per unit – Budgeted sales price per unit) x Budgeted volume sold.
5. (Actual volume – Budgeted volume) x Actual sales price.

Ans: A, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The sales price variance is computed as the (Actual sales price per unit – Budgeted sales price per unit) x Actual volume sold.

1. The equation for the simplified sales activity variance is
2. (Actual volume – Budgeted volume) x Actual sales price.
3. (Actual volume – Budgeted volume) x Budgeted sales price.
4. (Actual sales price per unit – Budgeted sales price per unit) x Actual volume sold.
5. (Actual sales price per unit – Budgeted sales price per unit) x Budgeted volume sold.

Ans: B, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The equation for the simplified sales activity variance is (Actual volume – Budgeted volume) x Budgeted sales price.

1. Quest Electronics has the following sales data for the last quarter:

What is the Master Budget Variance for Quest Electronics for the quarter?

1. $1,000 favorable
2. $1,000 unfavorable
3. $6,600 favorable
4. $6,600 unfavorable

Ans: B, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Master Budget Variance = Total Actual Sales – Total Budgeted Sales = (Actual Volume x Actual Price) – (Budgeted Volume x Budgeted Price) = (2,000 x $13) – (1,800 x $15) = $26,000, Actual Sales - $27,000, Budgeted Sales = $1,000 Unfavorable.

1. Quest Electronics has the following sales data for the last quarter:

What is the Sales Price Variance for Quest Electronics for the quarter?

1. $3,600 favorable
2. $3,600 unfavorable
3. $4,000 favorable
4. $4,000 unfavorable

Ans: D, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The Sales Price Variance = (Actual sales price per unit – Budgeted sales price per unit) x Actual volume sold = ($13 - $15) x 2,000 = $4,000 unfavorable.

1. Quest Electronics has the following sales data for the last quarter:

What is the Simplified Sales Activity Variance for Quest Electronics for the quarter?

1. $3,000 favorable
2. $3,000 unfavorable
3. $4,000 favorable
4. $4,000 unfavorable

Ans: A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Simplified Sales Activity Variance = (Actual volume – Budgeted volume) x Budgeted sales price = (2,000 – 1,800) x $15 = $3,000 favorable.

1. Santini Shoe Company had the following data for its Women’s shoes and Men’s shoes for the last quarter:

What is the Total Sales Mix Variance for Santini Shoe Company for last quarter?

1. $ 884 favorable
2. $ 884 unfavorable
3. $2,208 favorable
4. $ 2,208 unfavorable

Ans: B, LO 6, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Total Sales Mix Variance = Sales Mix Variance of Women’s Shoes + Sales Mix Variance of Men’s Shoes = [(Actual Sales Mix of Women’s Shoes – Budgeted Sales Mix of Women’s Shoes) x Actual Volume of all products sold x Budgeted Unit CM Women’s] + [(Actual Sales Mix of Men’s Shoes – Budgeted Sales Mix of Men’s Shoes) x Actual Volume of all products sold x Budgeted Unit CM Men’s]; [{1,800/ (1,800 + 1,400) – 1,500 / (1,500 + 1,200)} x 3,200 x $30] + [{1,400/ (1,800 + 1,400) – 1,200 / (1,500 + 1,200)} x 3,200 x $70] = [(.5625 - .5556) x 3,200 x $30] + [(.4375 - .4444) x 3,200 x $70] = $662 + (-1,546) = $884 unfavorable

1. Santini Shoe Company had the following data for its Women’s shoes and Men’s shoes for the last quarter:

What is the Total Sales Quantity Variance for Santini Shoe Company for last quarter?

1. $884 favorable
2. $884 unfavorable
3. $23,888 favorable
4. $23,888 unfavorable

Ans: C, LO 6, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Total Sales Quantity Variance = Sales Quantity Variance of Women’s Shoes + Sales Quantity Variance of Men’s Shoes = [(Actual volume of all products sold – Budgeted volume of all products sold) x Budgeted sales mix of Women’s shoes x Budgeted Unit CM Women’s] + [(Actual volume of all products sold – Budgeted volume of all products sold) x Budgeted sales mix of Men’s shoes x Budgeted Unit CM Men’s]; [{(1,800 + 1,400) – (1,500 + 1,200)} x {1,500/ (1,500 + 1,200)} x $30] + [{(1,800 + 1,400) – (1,500 + 1,200)} x {1,200/ (1,500 + 1,200)} x $70] = $8,334 + $15,554 = $23,888 favorable

1. Century Company has the following information for the past month:

Century’s Comprehensive Sales Activity Variance is

1. $2,000 favorable.
2. $2,000 unfavorable.
3. $1,000 favorable.
4. $1,000 unfavorable.

Ans: A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Comprehensive Sales Activity Variance = Flexible Budget Contribution Margin – Master Budget Contribution Margin = [($54,000 - $23,000) – ($50,000 - $21,000)] = $31,000 - $29,000 = 2,000, favorable

1. Which of the following variances would not be inspected when determining the cause for the comprehensive sales activity variance?
2. Sales mix variance
3. Sales quantity variance
4. Market size variance
5. Sales price variance

Ans: D, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The sales price variance would not be inspected when determining the cause for the comprehensive sales activity variance.

1. Which of the following variances focuses on using the contribution margin as the basis for measuring the full impact of sales activity changes?
2. Sales price variance
3. Market share variance
4. Comprehensive sales activity variance
5. Market size variance

Ans: C, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The comprehensive sales activity variance focuses on using the contribution margin as the basis for measuring the full impact of sales activity changes.

1. Which variance explains whether actual sales meant a larger or smaller portion of the total market than the plan?
2. Market size variance
3. Market share variance
4. Sales quantity variance
5. Sales mix variance

Ans: B, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: The market share variance explains whether actual sales meant a larger or smaller portion of the total market than the plan.

1. A company’s sales quantity variance is further broken into the
2. market size variance and sales price variance.
3. market size variance and market share variance.
4. sales price variance and market share variance.
5. sales price variance and sales mix variance.

Ans: B, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A company’s sales quantity variance is further broken into the market size variance and market share variance.

1. A sales mix variance for a given product is computed as
2. (actual sales mix of the product – budgeted sales mix of the product) x actual volume of all products sold x budgeted unit contribution margin of the product.
3. (actual sales mix of the product – budgeted sales mix of the product) x budgeted volume of all products sold x budgeted unit contribution margin of the product.
4. (actual sales mix of the product – budgeted sales mix of the product) x actual volume of all products sold x actual unit contribution margin of the product.
5. (actual sales mix of the product – budgeted sales mix of the product) x budgeted volume of all products sold x actual unit contribution margin of the product.

Ans: A, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A sales mix variance for a given product is computed as (actual sales mix of the product – budgeted sales mix of the product) x actual volume of all products sold x budgeted unit contribution margin of the product

1. A sales quantity variance for a given product is computed as
2. (actual volume of all products sold – budgeted volume of all products sold) x actual sales mix of the product x budgeted unit contribution margin of the product.
3. (actual volume of all products sold – budgeted volume of all products sold) x budgeted sales mix of the product x actual unit contribution margin of the product.
4. (actual volume of all products sold – budgeted volume of all products sold) x actual sales mix of the product x actual unit contribution margin of the product.
5. (actual volume of all products sold – budgeted volume of all products sold) x budgeted sales mix of the product x budgeted unit contribution margin of the product.

Ans: D, LO 6, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A sales quantity variance for a given product is computed as (actual volume of all products sold – budgeted volume of all products sold) x budgeted sales mix of the product x budgeted unit contribution margin of the product.

BRIEF Exercises

1. Place the following activities related to budgets and variance analysis that help organizations to attain their goals in order from 1 to 7.
2. ______ Control
3. ______ Benchmark
4. ______ Evaluate Performance
5. ______ Motivate
6. ______ Variance Analysis
7. ______ Benchmark
8. ______ Plan

Ans: N/A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution:

1. ___5__ Control
2. ___3__ Benchmark
3. ___6__ Evaluate Performance
4. ___2__ Motivate
5. ___1__ Variance Analysis
6. ___7__ Troubleshoot
7. ___4__ Plan
8. Match the following term with its appropriate definition by including the correct letter in the blank next to the term.

1. ______ Control a. schedule for production, labor purchases and
2. ______ Benchmark manufacturing overhead
3. ______ Evaluate Performance b. differences between actual and budgeted
4. ______ Motivate outcomes
5. ______ Variance Analysis c. approved budgeted numbers
6. ______ Troubleshoot d. logical, systematic identification of sources of
7. ______ Plan problems to fix them and avoid recurrence

e. assess work effort to achieve benchmarks

f. activities to prevent deviations from budget

g. inspire employees to unleash their potential

Ans: N/A, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA, FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. ___f___ Control
2. ___c___ Benchmark
3. ___e__ Evaluate Performance
4. ___g__ Motivate
5. ___b__ Variance Analysis
6. ___d__ Troubleshoot
7. ___a__ Plan
8. The manager of Power Industries reviewed the financial information for the year just completed. Sales volume came in lower than expected at 5,000 units, while it budgeted for sales of 5,500 units. Power’s variable cost per unit (comprised of DM, DL, and variable-MOH) was $20, the unit sales price expected was $45, and fixed-MOH costs totaled $110,000. Prepare a flexible budget to determine Power’s budgeted operating profit.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Flexible Budget

1. Treasured Trinkets Company has the following information:

Complete the table by computing the Flexible Budget Variances and Sales Activity Variances, indicating whether the variance is either favorable (F) or unfavorable (U).

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

​ Solution:

1. Ember Industries incurs an actual unit sales price of $6 and a budgeted unit sales price of

$5 for a butane fireplace lighter. Last week, the company actually sold 45 lighters when it budgeted to sell 50 lighters. Compute Ember’s Master Budget Variance, Flexible Budget Variance, and Sales Activity Variance. Show all computations.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution

1. Compute the indicated amount in each of the following independent scenarios:
2. Flameco, Inc. has a Master Budget Variance of $100, unfavorable and a Flexible Budget Variance of $150, favorable. What is the Sales Activity Variance for Flameco, Inc.?
3. Genero Company has a Master Budget Variance of $200, favorable and a Sales Activity Variance of $130, favorable. What is the Flexible Budget Variance for Genero Company?
4. Tenet Industries has a Flexible Budget Variance of $450, favorable and a Sales Activity Variance of $250, unfavorable. What is Master Budget Variance for Tenet Industries?

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Sales Activity Variance = Master Budget Variance +/– Flexible Budget Variance = $100, unfavorable + $150, favorable = $250, unfavorable
2. Flexible Budget Variance = Master Budget Variance +/- Sales Activity Variance = $200, favorable - $130, favorable = $70, favorable
3. Master Budget Variance = Flexible Budget Variance +/- Sales Activity Variance = $450, favorable - $250, unfavorable = $200, favorable

1. Tiny Tots Toys has the following actual and master budget information for the past month:

Compute the Flexible Budget Amounts to complete the table.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis

Solution:

^a2,800 x ($18,000/3,000) ^b2,800 x ($12,000/3,000)

1. Pancho’s Taco Stand has the following costs related to the production of each taco.

Compute the standard cost to make one taco.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Philly Rug Company produces designer rugs for clients. The standard size rug will require 3

yards of direct materials (DM), 1 hours of direct labor (DL) time, and 2 hours of machine time. MOH costs are applied based on machine hours. DM is expected to cost $8.00 per yard, DL is budgeted at $12 per hour, and cost of machine time is estimated at $3/machine hour for variable-MOH and $2/machine hour for fixed-MOH. Create a standard cost card for a standard size rug for Philly Rug Company to compute the standard cost for one unit of product.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Philly Rug Company produces designer rugs for clients. The standard size rug will require 3

yards of direct materials (DM), 1 hour of direct labor (DL) time, and 2 hours of machine time. MOH costs are applied based on machine hours. DM is expected to cost $8.00 per yard, DL is budgeted at $12 per hour, and cost of machine time is estimated at $3/machine hour for variable-MOH and $2/machine hour for fixed-MOH. The company purchased 30 yards of materials on account for $255. Production was started on 5 rugs, using 15 yards of direct materials, 6 direct labor hours at a total cost of $66, and 10 machine hours. Prepare the journal entries for the purchase of the materials and the costs incurred in production of the 5 rugs assuming Philly Rug Company uses standard costing. (Credit MOH costs to Accounts Payable)

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Aurora Sports Company is a leading helmet manufacturer. It produces a variety of different

helmet styles, but its standard bike helmet requires 1.5 lb. of direct materials (DM), .5 hours of direct labor (DL) time, and 2.5 hours of machine time. MOH costs are applied based on machine hours. DM is expected to cost $14.00 per pound, DL is budgeted at $10 per hour, and cost of machine time is estimated at $2/machine hour for variable-MOH and $4/machine hour for fixed-MOH. Create a standard cost card for a standard bike helmet for Aurora Sports Company to compute the standard cost for one unit of product.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Aurora Sports Company is a leading helmet manufacturer. It produces a variety of different

helmet styles, but its standard bike helmet requires 1.5 lb. of direct materials (DM), .5 hours of direct labor (DL) time, and 2.5 hours of machine time. MOH costs are applied based on machine hours. DM is expected to cost $14.00 per pound, DL is budgeted at $10 per hour, and cost of machine time is estimated at $2/machine hour for variable-MOH and $4/machine hour for fixed-MOH. The company purchased 30 pounds of materials on account for $450. Production was started on 15 helmets, using 24 pounds of direct materials, 9 direct labor hours at a total cost of $99, and 38 machine hours. Prepare the journal entries for the purchase of the materials and the costs incurred in production of the 15 bike helmets assuming Aurora Sports Company uses standard costing. (Credit MOH costs to Accounts Payable)

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Memorable Moments manufactures a product that uses 2.5 standard labor hours per unit at

a standard hourly rate of $12.00 per hour. If 3,000 units required 7,400 actual hours at an hourly rate of $12.40 per hour, what is the Direct Labor (DL) Price Variance and (DL) Efficiency Variance?

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Direct Labor (DL) Price Variance = (AQ x AP) – (AQ x SP)

= (7,400 hrs. x $12.40) – (7,400 hrs. x $12.00)

= $91,760 - $88,800 = $2,960, unfavorable

Direct Labor (DL) Efficiency Variance = (AQ x SP) – (SQ x SP)

= (7,400 hrs. x $12.00) – (3,000 units x 2.5 hrs./unit x $12.00)

= $88,800 - $90,000 = $1,200, favorable

1. Azure Company makes a product that requires a standard six yards of materials per unit.

The standard price per yard is $4.50. If 3,000 units required 18,500 yards of materials for production, and were purchased at a cost of $4.30 per yard, what is the Direct Materials (DM) Price Variance and (DM) Efficiency Variance?

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Direct Materials (DM) Price Variance = (AQ x AP) – (AQ x SP)

= (18,500 yds. x $4.30) – (18,500 yds. x $4.50)

= $79,550 - $83,250 = $3,700 favorable

Direct Materials (DM) Efficiency Variance = (AQ x SP) – (SQ x SP)

= (18,500 yds. x $4.50) – (3,000 units x 6 yds./unit x $4.50)

= $83,250 - $81,000 = $2,250 unfavorable

1. Mejor Medical Machines manufactures hospital equipment. The company recently

purchased materials for production, and was able to secure a bulk purchase discount with an additional prompt payment cash discount. As a result, the original purchase on account with all of the discounts was $3,900, which resulted in a Direct Materials (DM) Price Variance of $900, favorable. Record the journal entry to recognize this raw materials purchase for Mejor Medical assuming that the variance is recognized at the time of purchase.

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Mejor Medical Machines manufactures hospital equipment. The company was recently able

to purchase materials for production and secure a bulk purchase discount with an additional prompt payment cash discount. However, as the materials were transferred into production of $3,900 from DM Inventory, due to the lower quality of materials, additional calibrations were needed to achieve the original quality in the production of the equipment, and an unfavorable Direct Materials (DM) Efficiency Variance of $500 resulted. Record the journal entry to recognize this use of the direct materials into production for Mejor Medical assuming that this unfavorable variance is recognized when materials are placed into production.

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Bear Mountain Sporting Goods has the following actual and standard costs for producing a

specified quantity of camping kits:

Determine the Direct Materials (DM) Price Variance and DM Efficiency Variance for the camping kits for Bear Mountain Sporting Goods.

Ans: N/A, LO 4, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Direct Materials (DM) Price Variance = (AQ x AP) – (AQ x SP)

= (51,000 lbs. x $5.05) – (51,000 lbs. x $5.00)

= $257,550 - $255,000 = $2,550 unfavorable

Direct Materials (DM) Efficiency Variance = (AQ x SP) – (SQ x SP)

= (51,000 lbs. x $5.00) – (50,000 lbs. x $5.00)

= $255,000 - $250,000 = $5,000 unfavorable

1. Midland Mountain Sporting Goods has the following actual and standard variable-MOH

costs for producing a specified quantity of camping kits:

Determine the Variable-MOH Price Variance and Variable-MOH Efficiency Variance for the camping kits for Midland Mountain Sporting Goods.

Ans: N/A, LO 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Variable-MOH Price Variance = Actual Variable-MOH Incurred – (AQ x SP)

= $5,700 – (2,000 units x $3.80/hr. x .8 hr./unit)

= $5,700 - $6,080 = $380 favorable

Variable-MOH Efficiency Variance = (AQ x SP) – (SQ x SP)

= (2,000 units x $3.80/hr. x .8 hr./unit) –

(2,100 units x $3.80/hr. x .8 hr./unit)

= $6,080 - $6,384 = $304 unfavorable

1. Synergix Technologies has been working on the company’s year-end variance analysis.

Budgeted fixed-MOH costs were $153,000 for the planned 12,000 tablets to be produced. Per the standard cost sheets, fixed-MOH was applied based on DL hours and every unit required 3 DL hours. Actual fixed-MOH costs totaled $158,000 for the year corresponding to 12,400 tablets being produced. Calculate the Fixed-MOH Price Variance and Fixed-MOH Volume Variance for Synergix Technologies.

Ans: N/A, LO 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Fixed-MOH Price Variance = Actual Fixed-MOH incurred – Master Budget (AQ x SP)

= $158,000 - $153,000 = $5,000 unfavorable

Fixed MOH Volume Variance = Master Budget – Fixed-MOH Applied (SQ x SP)

= $153,000 – (12,400 units x 3 DL hrs./unit x $4.25*/ DL hr.)

= $153,000 - $158,100 = $5,100 favorable

*$153,000 ÷ 12,000 tables = $12.75 ÷ 3 DL hrs. = $4.25 per DL hr.

1. Rockhill Designs has computed the following variances at year-end:

Prepare the journal entry to close the Variable-MOH and Fixed-MOH Variances.

Ans: N/A, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Bear Mountain Sporting Goods has the following variances at year-end:

Prepare the journal entry to close the Direct Materials (DM) and Direct Labor (DL) Variances at year-end.

Ans: N/A, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Bear Mountain Sporting Goods has the following information from producing a specified

quantity of camping kits:

Prepare the journal entries to record the actual fixed-MOH costs incurred, application of fixed-MOH to production, and to recognize the Fixed-MOH Variances.

Ans: N/A, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Aztec Company has actual sales of $53,000, flexible budget sales of $52,800, and master

budget sales of $51,000. Compute the Sales Price Variance and Sales Activity Variance (simplified) for Aztec Company.

Ans: N/A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Sales Price Variance = Actual Sales – Flexible Budget Sales

= $53,000 - $52,800 = $200 favorable

Sales Activity Variance = Flexible Budget Sales – Master Budget Sales

= $52,800 - $51,000 = $1,800 favorable

1. Maya Industries has the following actual and master budget information for its two product

lines:

Compute the Sales Mix Variances for the Gadgets, Gizmos, and in Total.

Ans: N/A, LO 6, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Sales Mix Variance_Gadgets = (Actual Sales Mix_Gadgets – Budgeted Sales Mix_Gadgets) x Actual Volume of All Units Sold x Budgeted Unit CM_Gadgets

= (1,100/3,000 – 1,300/3,100) x 3,000 x $4 = (.3667 - .4194) x 3,000 x $4

= $632 Unfavorable

Sales Mix Variance_Gizmos = (Actual Sales Mix_Gizmos – Budgeted Sales Mix_Gizmos) x Actual Volume of Units Sold x Budgeted Unit CM_Gizmos

= (1,900/3,000 – 1,800/3,100) x 3,000 x $9 = (.6333 - .5806) x 3,000 x $9

= $1,423 favorable

Total Sales Mix Variance = Sales Mix Variance_Gadgets +/- Sales Mix Variance_Gizmos

$791 favorable = $632, Unfavorable - $1,432, favorable

1. Maya Industries has the following actual and master budget information for its two product

lines:

Compute the Sales Quantity Variances for the Gadgets, Gizmos, and in Total.

Ans: N/A, LO 6, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Sales Quantity Variance_Gadgets = (Actual Volume of all Products Sold – Budgeted Volume of all Products Sold) x Budgeted Sales Mix_Gadgets x Budgeted Unit CM_Gadgets

= (3,000 – 3,100) x (1,300/3,100) x $4 = 100 x .4194 x $4

= $168 Unfavorable

Sales Quantity Variance_Gizmos = ((Actual Volume of all Products Sold – Budgeted Volume of all Products Sold) x Budgeted Sales Mix_Gadgets x Budgeted Unit CM_Gizmos

= (3,000 – 3,100) x (1,800/3,100) x $9 = 100 x .5806 x $9

= $523 unfavorable

Total Sales Quantity Variance = Sales Mix Variance_Gadgets +/- Sales Mix Variance_Gizmos

$691 unfavorable = $168, unfavorable + $523, unfavorable

1. Minza, Inc. has a favorable Total Sale Mix Variance of $1,245 and a favorable Total Sales

Quantity Variance of $915. What is Minza’s Sales Activity Variance? If the Total Sales Quantity Variance of $915 was unfavorable, instead of favorable, what would the Sales Activity Variance be?

Ans: N/A, LO 6, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Sales Activity Variance = Total Sales Mix Variance +/- Total Sales Quantity Variance

$2,160 favorable = $1,245, favorable + $915, favorable

Sales Activity Variance = Total Sales Mix Variance +/- Total Sales Quantity Variance

$330 favorable = $1,245, favorable - $915, unfavorable

1. Great Plains Company has provided its financial manager the following information for the

past year:

Determine the Simplified Sales Activity Variance and the Comprehensive Sales Activity

Variance for Great Plains Company.

Ans: N/A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Simplified Sales Activity Variance = Flexible Budget Sales – Master Budget Sales

$250, favorable = $58,500 -- $58,250

Comprehensive Sales Activity Variance = Flexible Budget CM – Master Budget CM

$400, favorable = $37,900 -- $37,500

Exercises

1. Vintendo was at year-end and was disappointed based on its preliminary results.

Management expected sales volume to be 25,000 handheld video gaming units instead of the actual sales of 23,000 units. The company’s budgeted information was as shown below:

1. Prepare a master budget and a flexible budget for Vintendo.
2. Compare the flexible budget to the master budget, determining the sales activity variances for all budgeted income statement accounts, specifying amount, and whether the variance is favorable (F) or unfavorable (U).
3. When Vintendo finalizes its final results, which of the budgets, master or flexible, should it use to compare actual results to in order to determine variances?

Ans: N/A, LO 1 and 2, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Vintendo should use the flexible budget for comparison with actual results to determine variances.
2. Zapple Manufacturing has the following information on its standard cost card for one of its

current products based on expected activity of 17,000 hours:

In the past year, the following actual results were recorded:

Compute the following variances for Zapple Manufacturing for the past year:

1. DM price and efficiency variances.
2. DL price and efficiency variances.
3. Variable-MOH price and efficiency variances.
4. Fixed-MOH price and volume variances

Ans: N/A, LO 4 and 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. DM Price Variance = (AQ x AP) – (AQ x SP) = (71,750 ft. x $5.10*) – (71,750 ft. x $5) = $7,175, unfavorable

*($365,925 ÷ 71,750 ft.)

DM Efficiency Variance = (AQ x SP) – (SQ x SP) = (71,750 ft. x $5.00) – (12,000 units x 6 ft./unit x $5.00) = $1,250, favorable

1. DL Price Variance = (AQ x AP) – (AQ x SP) = (17,900 hrs. x $10.30/hr.**) – (17,900 hrs. x $10/hr.) = $5,370, unfavorable

**($184,370 ÷ 17,900 hrs.)

DL Efficiency Variance = (AQ x SP) – (SQ x SP) = (17,900 hrs. x $10/hr.) – (12,000 x 1.5 hr./unit x $10/hr.) = $1,000, favorable

1. Variable-MOH Price Variance = Actual Variable-MOH Costs incurred – (AQ x SP) = $70,000 – (17,900 hrs. x $4/hr.) = $1,600, favorable

Variable-MOH Efficiency Variance = (AQ x SP) – (SQ x SP) = (17,900 hrs. x $4/hr.) – (12,000 units x 1.5 hrs. x $4) = $400, favorable

1. Fixed-MOH Price Variance = Actual Fixed-MOH incurred – Master Budget at 17,000 hrs. = $35,000 – (17,000 hrs. x $2/hr.) = $1,000, unfavorable

Fixed-MOH Volume Variance = Master Budget at 17,000 hrs. – Fixed-MOH Applied (SQ x SP) = (17,000 x $2/hr.) – (12,000 units x 1.5 hr./unit x $2) = $2,000, favorable

1. Penn Maid Dairy Company provided the following information for the past quarter:

1. Compute the Variable-MOH price and efficiency variances.
2. Compute the Fixed-MOH price and volume variances.
3. Prepare the journal entries to record the Variable-MOH and Fixed-MOH variances.
4. Prepare the journal entries to close the Variable-MOH and Fixed-MOH variances

Ans: N/A, LO 4, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

1. Variable-MOH Price Variance = Actual Variable-MOH Costs incurred – (AQ x SP) = $16,380 – (1,300 hrs. x $12/hr.) = $780, unfavorable

Variable-MOH Efficiency Variance = (AQ x SP) – (SQ x SP) = (1,300 hrs. x $12/hr.) – (1,200 x $12) = $1,200, unfavorable

1. Fixed-MOH Price Variance = Actual Fixed-MOH incurred – Master Budget at 1,000 DLHs = $45,500 – (1,000 DLHs x $40/DLH) = $5,500, unfavorable

Fixed-MOH Volume Variance = Master Budget at 1,000 DLHs – Fixed-MOH Applied (SQ x SP) = (1,000 DLHs x $40/DLH) – (1,200 DLHs x $40) = $8,000, favorable

SHORT ANSWER

1. How do organizations use budgets to attain goals?

Solution: Organizations use the combination of budgeting and variance analysis as effective tools for motivation and benchmarking, planning and control, and performance evaluation and troubleshooting. Variance analysis is used to identify and calculate the differences between actual and budgeted outcomes, which spotlights the factors which contribute to the variances, and then lead to corrective action being taken.

Ans: N/A, LO 1, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. What is troubleshooting?

Solution: Troubleshooting involves the logical, systematic identification of the source of problems to fix them and avoid their recurrence. For variances, managers use variance analysis to identify problems, and then troubleshooting to solve the issues that caused the variances.

Ans: N/A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. How do managers use benchmarking to plan and control in order to achieve company

objectives?

Solution: Once set, budgeted numbers – whether sales, expenses or balance sheet items- become the benchmark, and actual performance will be compared to the benchmark. Once the budget is created, then detailed operational plans begin, which include planning and scheduling of production, labor, purchases, manufacturing overhead expenditures, and selling and administrative expenditures. To ensure that the operational plans are enacted, control activities are put in place to prevent deviations from the budgeted numbers and to detect overspending.

Ans: N/A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. What is a master budget, its purpose, and its three outputs?

Solution: The master budget is a comprehensive, organization-wide budget that requires inputs from many sources in the company. It is used to coordinate a company’s plans and to allocate resources accordingly. The three outputs of the master budget are the budgeted income statement, balance sheet and statement of cash flows.

Ans: N/A, LO 2, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. What is a flexible budget, and which variance relates to the flexible budget?

Solution: The flexible budget adapts the master budget data for a change in sales volume (actual vs. budgeted). It answers the question, “if actual sales volume differs from the master budget sales volume, what would the new costs and budgeted operating income look like?” The two variances that relate to the use of a flexible budget are the sales activity variance and the flexible budget variance.

Ans: N/A, LO 2, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Explain why a change in sales volume warrants the use of a flexible budget.

Solution: Whenever actual sales volume differs from the master budget sales volume, it’s not productive to compare actual results to the master budget. Since the master budget process is started with the sales forecast, once the sales volume changes from the original budgeted amount, it will cause a cascading effect not only on the revenues, but also on all variable costs.

Ans: N/A, LO 2, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. What is the key benefit of standard costing?

Solution: The key benefit of standard costing is that using variance analysis one year helps inform planning and budgeting for the next. Since management control is a process, evaluating performance and tweaking future plans keeps the cycle moving forward.

Ans: N/A, LO 3, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Companies establish standards and control them with different levels of rigor. Identify the

two levels of standards and differentiate them.

Solution: The two levels of standards are ideal standards and practical standards. Ideal standards are those that do not allow for machine breakdowns or employee breaks. Ideal standards are typically best suited for a futuristic production facility with only robots and drones with no human labor. Practical standards involve firm, yet attainable benchmarks that allow for realistic situations such as machine breakdowns, worker mistakes, and downtime. Practical standards are generally more motivating since they are attainable.

Ans: N/A, LO 3, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Describe how and when standard costs should be updated.

Solution: At the end of each period, once variance analysis has been performed and variances are known, management reviews the standards in place for the duration of that period. It is then discussed whether the same resource quantities and prices are appropriate standards to use for the next period, or if adjustments are needed. Variance analysis points management in the direction of the cause of the variances, and after identifying the causes, management looks for workable solutions using trouble shooting.

Ans: N/A, LO 3, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Describe production variances and identify three specific production variances.

Solution: Production variances entirely revolve around costs incurred in production. It is imperative that management follow up with variance analysis to plan for unit costs, control them, and then evaluate performance once units have been produced and troubleshoot why variances occurred. Production variances include (1) DM Price Variance, (2) DM Efficiency Variance, (3) DL Price Variance, (4) DL Efficiency Variance, (5) Variable-MOH Price Variance, (6) Variable-MOH Efficiency Variance, (7) Fixed-MOH Price Variance, and (8) Fixed-MOH Production Volume Variance.

Ans: N/A, LO 4, Bloom: K, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Identify what the DM Price Variance and DM Efficiency Variance reflect and what questions

each should address.

Solution: The DM Price Variance reflects the difference in the actual price and the standard price of the DM quantity purchased, and helps to answer the question, “What should we have paid for DM inputs according to standard prices, when making the actual volume of units?” The DM efficiency variance reflects the difference in the actual volume and standard volume given the standard price. It helps to answer the question, “What quantity of DM inputs should we have used in making the actual volume of units?”

Ans: N/A, LO 4, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Describe what the DL Price Variance and DL Efficiency Variance reflect and what questions

each should address.

Solution: The DL Price Variance reflects the difference between the actual DL rate and the standard labor rate for all DL hours used, and helps to answer the question, “What should have been paid for the DL cost to make the actual volume of units?” The DL Efficiency Variance captures the difference in the standard DL cost for the actual DL hours used and the DL hours that were expected to be used for actual production and helps to answer the question, “How much DL time should have been used in making the actual volume of units?”

Ans: N/A, LO 4, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Describe the three standard costing journal entries for variable-MOH costs.

Solution:

1. Actual Variable-MOH costs are recorded as debits to Variable-MOH Control, and the sources of these costs are credited (payables)
2. As units are completed, the applied cost is debited to WIP Inventory and credited to Variable-MOH Control.
3. The specific Variable-MOH price variance and/or efficiency variances are recognized as the Variable-MOH Control account is closed.

Ans: N/A, LO 5, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Identify at least two causes of variable-MOH variances.

Solution: Some of the causes of Variable-MOH variances are (1) change quality of DM input, (2) change suppliers, (3) substitute a comparable DM for the standard, (4) alter product formula, and (5) using more/less experienced workers than planned.

Ans: N/A, LO 5, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Identify at least two causes for fixed-MOH variances.

Solution: Some of the causes for fixed-MOH variances are (1) rent or buy a larger facility and/or factory equipment, (2) increase or decrease in actual production compared to plan, and (3) adjustment in actual fixed-MOH costs such as factory insurance premiums, property taxes, and fixed portion of utility costs.

Ans: N/A, LO 5, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Explain how standard costs and variances are reported.

Solution: The general ledger accounts DM Inventory, WIP Inventory, FG Inventory and Cost of Goods Sold are recorded with standard costs throughout the year. Each variance calculated is also recorded in the general ledger with its own temporary general ledger account, tracking differences between standard and actual costs. Because the variances are temporary accounts, they must be closed at year-end.

Ans: N/A, LO 5, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. Describe the Master Budget Sales Variance and what factors affect this variance.

Solution: Revenues are always the product of two factors: Sales price and volume (or sales activity, and either element can cause a variance from the master budget. The Master Budget Sales Variance captures the entire difference between actual results and master budget values, which includes both sales price and volume variations between actual sales and master budget sales. It is calculated as follows: Total actual sales – Total budgeted sales.

Ans: N/A, LO 6, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. What is the difference between the Sales Price Variance and the Sales Activity Variance?

Solution: The Sales Price Variance isolates and quantifies the result of changes in the sales price ({Actual sales price per unit – Budgeted sales price per unit} x Actual volume sold) whereas, the Sales Activity Variance reflects the difference between the actual volume and the budgeted volume at the budgeted sales price ({Actual volume – Budgeted volume} x Budgeted sales price).

Ans: N/A, LO 6, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

1. What four variances must be inspected to determine the causes for a Comprehensive Sales

Activity Variance?

Solution: The four variances to be inspected are:

1. Sales Mix Variance
2. Sales Quantity Variance
3. Market Share Variance
4. Market Size Variance

Ans: N/A, LO 6, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: AC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.