Page 1 of 2 | MANAGEMENT ADVISORY SERVICES Handouts No.

06

VARIANCE ANALYSIS- CONSULTATION HO

RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA

Production Cost Variance Analysis

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

DRILLS
1. A favorable price variance for direct materials indicates that:
A. a lower price than planned was paid for materials
B. a higher price than planned was paid for materials
C. less material was used during production than planned for actual output
D. more material was used during production than planned for actual output

2. A favorable efficiency variance for direct manufacturing labor indicates that:

A. a lower wage rate than planned was paid for direct labor
B. a higher wage rate than planned was paid for direct labor
C. less direct manufacturing labor-hours were used during production than planned for actual output
D. more direct manufacturing labor-hours were used during production than planned for actual output

3. An unfavorable price variance for direct materials might indicate:

A. that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods
B. congestion due to scheduling problems
C. that the purchasing manager skillfully negotiated a better purchase price
D. that the market had an unexpected oversupply of those materials

4. A favorable efficiency variance for direct materials might indicate:

A. that lower-quality materials were purchased C. poor design of products or processes
B. an overskilled workforce D. a lower-priced supplier was used

5. A favorable price variance for direct manufacturing labor might indicate that:
A. employees were paid more than planned C. underskilled employees are being hired
B. budgeted price standards are too tight D. an efficient labor force

6. An unfavorable efficiency variance for direct manufacturing labor might indicate that:
A. work was efficiently scheduled C. budgeted time standards are too lax
B. machines were not properly maintained D. more higher-skilled workers were scheduled than planned

7. The most likely explanation of the above direct manufacturing labor variances is that:
A. the average wage rate paid to employees was less than expected
B. employees did not work as efficiently as expected to accomplish the job
C. the company may have assigned more experienced employees this month than originally planned
D. management may have a problem with budget slack and might be using lax standards for both labor-wage rates and
expected efficiency

8. Which of these variances is least significant for cost control?

A. Fixed O/H volume variance. C. Materials quantity variance.
B. Variable O/H spending variance. D. Labor price variance.

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 Page 2 of 2 | MANAGEMENT ADVISORY SERVICES Handouts No. 06

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

PRODUCTION COST VARIANCE ANALYSIS

9. A fixed overhead volume variance based on standard direct labor hours measures:
A. Fixed overhead use. B. Deviation from standard direct labor hour capacity.
C. Fixed overhead efficiency. D. Deviation from the normal, or denominator, level of direct labor hours.

10. The variance in an absorption costing system that measures the departure from the denominator level of activity that
was used to set the fixed overhead rate is the
A. Spending variance. C. Efficiency variance.
B. Production volume variance. D. Flexible budget variance.

11. Of the following pairs of variances found in a flexible budget report, which pair is most likely to be related?
A. Labor rate variance and variable overhead efficiency variance.
B. Labor efficiency variance and fixed overhead volume variance.
C. Material usage variance and labor efficiency variance.
D. Material price variance and variable overhead efficiency variance.

12. A company has a fixed overhead volume variance that is P10,000 unfavorable. The most likely cause for this variance
is that
A. less was produced than planned.
B. the production supervisory salaries were greater than planned.
C. the production supervisory salaries were less than planned.
D. more was produced than planned.

13. A standard costing system is most often used by a firm in conjunction with
A. Flexible budgets. C. Target (hurdle) rates of return.
B. Participative management programs. D. Management by objectives.

14. When using a flexible budgeting system, the computation for the variable overhead spending variance is the
difference between
A. actual variable overhead and the previously budgeted amount.
B. the previously budgeted amount and actual inputs times the budgeted rate.
C. the amount applied to work-in-process and actual variable overhead.
D. actual variable overhead and actual inputs times the budgeted rate.

15. Dori Castings, a job-order shop, uses a full-absorption, standard-cost system to account for its production costs. The
O/H costs are applied on a direct-labor-hour basis. A production volume variance will exist for Dori in a month when
A. Production volume differs from sales volume.
B. The fixed factory O/H applied on the basis of standard allowed direct labor hours differs from actual fixed factory O/H.
C. Actual direct labor hours differ from standard allowed direct labor hours.
D. The fixed factory O/H applied on the basis of standard allowed direct labor hours differs from the budgeted fixed factory
O/H.

16. When compared with ideal standards, practical standards:

A. Serve as a better motivating target for manufacturing personnel.
B. Result in a less desirable basis for the development of budgets.
C. Incorporate very generous allowances for spoilage and worker inefficiencies.
D. Produce lower per-unit product costs.

17. Highlight Inc. uses a standard cost system and applies factory overhead to products on the basis of direct labor hours.
If the firm recently reported a favorable direct labor efficiency variance, then the
A. variable overhead efficiency variance must be favorable.
B. direct labor rate variance must be unfavorable.
C. variable overhead spending variance must be favorable.
D. fixed overhead volume variance must be unfavorable.
--- END OF HANDOUTS ---

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.realexcellenceonline.com.ph REAL EXCELLENCE ONLINE CPA REVIEW
(074) 665 6774 0916 840 0661 [email protected] MAY 2022 CPA REVIEW SEASON