Which of the following statements is correct with regard to production variances?

Which of the following statements is correct with regard to production variances?

Direct material variances are concerned only with the purchasing functions of a company's manufacturing operations.

The sum of a favorable direct material cost variance and a favorable direct material efficiency variance always equals the total direct material variance, which will be favorable.

The standard quantity is used to determine the direct materials cost variance.

Use of laborers with high hourly wage rates for production activities requiring only low hourly wage rate laborers would always result in an unfavorable labor efficiency variance.

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Question 2

1 pts

Which of the following statements is NOT correct?

Costs spent to avoid producing poor quality goods are considered internal failure costs.

Costs spent to detect poor-quality goods are considered appraisal costs.

Internal failure costs occur when the company detects and corrects poor-quality goods or services before delivery to customers.

Costs incurred after the company sells poor-quality goods to the customer are considered external failure costs.

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Question 3

1 pts

Company A uses activity based costing in its manufacturing operations. The company produces two products: Product 1 and Product 2. The annual production and sales of Product 1 is 300 units and of Product 2 is 1,000 units. There are three manufacturing activity cost pools: order processing, driven by number of orders processed; machining, driven by machine hours logged; and inspection, driven by inspection hours logged. The estimated costs and activity levels are as follows: 

Activity Cost Pool

Estimated Cost

Product 1

Product 2

Order processing

$7,356

200 orders

200 orders

Machining

$30,555

1,400 m hrs

700 m hrs

Inspection

$16,169

90 I hrs

300 I hrs

The manufacturing overhead cost per unit of Product 1 is closest to:

$41.60

$69.00

$92.60

$12.44

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Question 4

1 pts

Company A's flexible budget cost formula for supplies includes a variable overhead cost of $2.94 per unit of output. The company's flexible budget performance report for last month showed a $4,998 favorable variance for supplies. During that month, 11,900 units were produced. Budgeted activity for the month was 12,300 units. The actual overhead costs incurred for supplies per unit of output must have been closest to ________.

$2.52

$2.94

$2.03

$4.25

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Question 5

1 pts

A company has provided a sales budget for its first five months (January, February, March, April, and May) of operations. The production budget is based on the sales budget. The company has a policy that each month's ending inventory of finished product should equal 20% of the next month's unit sales. The direct materials purchases budget is based on the production budget. The company's policy for each month's ending inventory of raw materials is that it should equal 15% of the next month's production needs for raw materials. Given this information, the company can prepare raw materials purchases budgets for how many months?

two

three

five

four

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Question 6

1 pts

Which of the following statements fails to explain why all businesses should prepare budgets?

Managers determine the proper allocation of available resources to meet a company's goals through the use of budgets.

Calculations and reports comparing actual results to budgeted results enable the control of operations.

Budgets facilitate goal congruence by communicating a company's goals to others.

Budgets qualitatively express a company's strategic plans.

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Question 7

1 pts

Company A currently sells Product A1. If the company purchases a new piece of equipment, it can produce Product A2 instead of A1. The company has prepared the following analysis for each option:

Sales Price

Variable Costs

Fixed Costs

Product A1

$1.00 per unit

$0.25 per unit

$18,000

Product A2

$2.00 per unit

$0.30 per unit

$54,000

Assume that under either option, Company A will sell 50,000 units of product. What will be Company A's increase or decrease in profit for the year if it choose to sell Product A2 instead of Product A1?

$38,500 decrease

$11,500 increase

$11,000 increase

$17,500 increase

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Question 8

1 pts

Company A is considering the purchase of a new piece of equipment costing $150,000. The equipment is expected to generate annual cash revenues of $40,000, annual cash expenses of $5,000, and annual depreciation expense of $15,000 for each of the next 10 years; at the end of its useful life, the equipment will have a salvage value of $0. Company A uses the payback method as a screening tool for capital expenditures (no project with a payback greater than two years will be considered). Given this information, which of the following statements is true?

The equipment purchase should be considered because the payback period is less than two years.

The equipment purchase should not be considered because the payback period is greater than two years.

Since the annual cash flows are even, the payback period cannot be calculated with the information given.

The payback method is not a valid screening tool for capital expenditures.

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Question 9

1 pts

Company A is considering two alternative investment proposals with the following data:

 Proposal X

Proposal Y

Investment

$620,000

$400,000

Useful life

8 years

8 years

Estimated annual net flow

$130,000

$80,000

Residual value

$60,000

$0

Depreciation method

Straight-line

Straight-line

Required rate of return

14%

10%

What is the accounting rate of return for Proposal Y?

20.0%

16.0%

13%

15.0%

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Question 10

1 pts

The following data was gathered from various sources:

Standard cost of direct material

$16 per yard

Actual cost of direct material

$14 per yard

Given budgeted output of 18,000 units and actual output of 20,000 units, the direct materials cost variance is ________.

$36,000 favorable

$40,000 favorable

$36,000 unfavorable

$40,000 unfavorable

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Question 11

1 pts

Company A uses standard costs for its manufacturing operations. The standard variable overhead rate is $5 per direct labor hour and the standard input ratio is 0.12 direct labor hours per unit. During the period, Company A logged 150 hours of direct labor time during the production of 1,200 units of product. Given actual variable overhead costs of $705, calculate the company's total variable overhead variance.

$45 favorable

$45 unfavorable

$15 unfavorable

$15 favorable

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Question 12

1 pts

Which of the following will result in an unfavorable direct materials cost variance?

The actual cost per unit of direct materials exceeds the standard cost of direct materials.

The actual cost per unit of direct materials is less than the standard cost of direct materials.

The actual quantity of direct materials used per unit is less than the standard quantity of direct materials allowed per unit.

The actual quantity of direct materials used per unit exceeds the standard quantity of direct materials allowed per unit.

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Question 13

1 pts

Company A anticipates the following beginning and ending inventory levels for the first quarter of 2011:

 January 1

March 31

Raw materials inventory

20,000 pounds

25,000 pounds

Finished goods inventory

5,000 units

7,000 units

Each unit requires five pounds of raw material. If each pound of raw material costs $2.00 from the supplier and the budgeted dollar amount of raw material purchases for the first quarter is $230,000, how many units are budgeted to be sold during the first quarter of 2011?

25,000 units

12,000 units

20,000 units

22,000 units

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Question 14

1 pts

The following information is from Company A's financial records:

Month

Sales

Purchases

July

$180,000

$105,000

August

165,000

120,000

September

150,000

90,000

October

195,000

135,000

All sales are made on account. Collections from customers are normally 70 percent in the month of sale, 20 percent in the month following the sale, and 9 percent in the second month following the sale. The balance is expected to be uncollectible. 

All purchases are on account. Management takes full advantage of the 2% discount allowed on purchases paid by the tenth of the following month. Purchases for November are budgeted at $150,000, and sales for November are budgeted at $165,000.

Cash disbursements for expenses are expected to be $36,000 for the month of November. The company's cash balance on November 1 was $55,000.What is the expected cash balance on November 30?

$79,000

$54,700

$34,000

$15,000

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Question 15

1 pts

The production team for Company A recently prepared a manufacturing cost budget for an output of 50,000 units, as follows:

Direct materials

$100,000

Direct labor

50,000

Variable overhead

75,000

Fixed overhead

100,000

Actual costs incurred during the production of 60,000 units were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Company A evaluates performance by the use of a flexible budget, determine the dollar amount of the variance and if the variance is favorable or unfavorable.

$42,000 favorable

$42,000 unfavorable

$3,000 favorable

$3,000 unfavorable