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Question 1 - IMA 08-P2-24 - Manufacturing Input Variances - Materials and Labor

After performing a thorough study of Michigan Company’s operations, an independent consultant determined that the
firm’s labor standards were probably too tight. Which one of the following facts would be inconsistent with the
consultant’s conclusion?

A. A review of performance reports revealed the presence of many unfavorable efficiency variances.
B. Production supervisors found several significant fluctuations in manufacturing volume, with short-term increases in
output being followed by rapid, sustained declines.
C. Management noted that minimal incentive bonuses have been paid in recent periods.
D. Michigan's budgeting process was well-defined and based on a bottom-up philosophy.

Question 2 - IMA 08-P2-246 - Manufacturing Input Variances - Overhead

Harper Company's performance report indicated the following information for the past month.
Actual total overhead $1,600,000
Budgeted fixed overhead 1,500,000
Applied fixed overhead at $3 per labor hour 1,200,000
Applied variable overhead at $.50 per labor hour 200,000

Actual labor hours 430,000

Harper's total overhead spending variance for the month was

A. $115,000 favorable
B. $185,000 unfavorable.
C. $100,000 favorable.
D. $200,000 unfavorable.

Question 3 - IMA 08-P2-228 - Variance Analysis Concepts

The following performance report was prepared for Dale Manufacturing for the month of April.
Actual Static
Results Budget Variance
Sales units 100,000 80,000 20,000 F

Sales dollars $190,000 $160,000 $30,000 F

Variable costs 125,000 96,000 29,000 U
Fixed costs 45,000 40,000 5,000 U
-------------- ------------- ------------
Operating income $20,000 $24,000 $4,000 U

Using a flexible budget, Dale's total sales-volume variance is

A. $20,000 unfavorable.
B. $4,000 unfavorable.
C. $6,000 favorable.
D. $16,000 favorable.

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Question 4 - CMA 695 3-27 - Sales and Market Variances

Clear Plus, Inc. manufactures and sells boxes of pocket protectors. The static master budget and the actual results for
May appear below.

Static
Actuals Budget
Unit sales 12,000 10,000

Sales $132,000 $100,000

Variable costs of sales 70,800 60,000

Contribution margin 61,200 40,000

Fixed costs 32,000 30,000

Operating income $ 29,200 $ 10,000

Which one of the following statements concerning Clear Plus, Inc.'s actual results for May is correct?

A. The sales volume variance is $8,000 favorable.

B. The flexible budget variance is $8,000 favorable.
C. The flexible budget variable cost variance is $10,800 unfavorable.
D. The sales price variance is $32,000 favorable.

Question 5 - CIA 593 IV-16 - Responsibility Centers and Reporting Segments

Which of the following is the most significant disadvantage of a cost-based transfer price?

A. Imposes market effects on company operations.

B. May not promote long-term efficiencies.
C. Requires externally developed information.
D. Requires internally developed information.

Question 6 - CMA 693 3-20 - Manufacturing Input Variances - Overhead

Tiny Tykes Corporation had the following activity relating to its fixed and variable overhead for the month of July.

Actual costs
Fixed overhead $120,000
Variable overhead 80,000
Flexible budget
Variable overhead 90,000
Applied
Fixed overhead 125,000
Variable overhead spending variance 2,000F

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Production volume variance 5,000U

The fixed overhead efficiency variance is

A. $3,000 unfavorable.
B. $3,000 favorable.
C. $5,000 favorable.
D. Never a meaningful variance.

Question 7 - CMA 1291 3-8 - Responsibility Centers and Reporting Segments

A segment of an organization is referred to as a profit center if it has

A. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply.
B. Authority to make decisions over the most significant costs of operations including the power to choose the sources of
supply.
C. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply and significant control over the amount of invested capital.
D. Authority to provide specialized support to other units within the organization.

Question 8 - CMA 692 3-18 - Manufacturing Input Variances - Materials and Labor

Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost.
Jackson has established the following standards for the prime costs of one unit of product.

Standard Standard Standard

Quantity Price Cost
Direct materials 5 pounds $3.60/pound $18.00
Direct labor 1.25 hours 12.00/hour 15.00
$33.00

During May, Jackson purchased 125,000 pounds of direct materials at a total cost of $475,000. The total factory wages
for May were $364,000, 90% of which were for direct labor. Jackson manufactured 22,000 units of product during May
using 108,000 pounds of direct materials and 28,000 direct labor hours.

The purchase price variance for the direct materials acquired by Jackson Industries during May is

A. $28,000 favorable.
B. $25,000 unfavorable.
C. $21,600 unfavorable.
D. $21,600 favorable.

Question 9 - CMA 1289 4-3 - Manufacturing Input Variances - Overhead

A fixed overhead volume variance based on standard direct labor hours measures

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A. Deviation from standard direct labor hour capacity.

B. Fixed overhead use.
C. Deviation from the normal, or denominator, level of direct labor hours.
D. Fixed overhead efficiency.

Question 10 - CIA 1188 IV-23 - Responsibility Centers and Reporting Segments

The price that one division of a company charges another division for goods or services provided is called the

A. Transfer price.
B. Outlay price.
C. Market price.
D. Distress price.

Question 11 - CMA 697 3-22 - Manufacturing Input Variances - Materials and Labor

The controller for Durham Skates is reviewing the production cost report for July. An analysis of direct materials costs
reflects an unfavorable flexible budget variance of $25. The plant manager believes this is excellent performance on a
flexible budget for 5,000 units of direct materials. However, the production supervisor is not pleased with this result
because he claims to have saved $1,200 in materials cost on actual production using 4,900 units of direct materials. The
standard materials cost is $12 per unit. Actual materials used for the month amounted to $60,025.

The actual average cost per unit for materials was

A. $12.01
B. $12.00
C. $12.25
D. $12.24

Question 12 - CIA 592 IV-18 - Manufacturing Input Variances - Materials and Labor

The following is a standard cost variance analysis report on direct labor cost for a division of a manufacturing company.

Actual Hours at Actual Hours at Standard Hours at

Job Actual Wages Standard Wages Standard Wages
213 $3,243 $3,700 $3,100
215 15,345 15,675 15,000
217 6,754 7,000 6,600
219 19,788 18,755 19,250
221 3,370 3,470 2,650
Totals $48,500 $48,600 $46,600

What is the total flexible budget direct labor variance for the division?

A. $1,900 favorable.
B. $100 favorable.

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C. $2,000 unfavorable.
D. $1,900 unfavorable.

Question 13 - CIA 594 III-44 - Responsibility Centers and Reporting Segments

A firm prepared a segmented income statement that included the following data for its suburban marketing segment:

Fixed costs controllable by the suburban marketing segment manager $150,000

Fixed suburban marketing costs controllable by corporate management $250,000
Fixed manufacturing costs allocated to the suburban marketing segment $110,000
Variable manufacturing costs $200,000
Variable selling costs $100,000
Variable administrative costs $130,000
Net sales $950,000

The best measure of the economic performance of the suburban marketing segment is:

A. $120,000
B. $10,000
C. $370,000
D. $520,000

Question 14 - CMA 696 3-28 - Responsibility Centers and Reporting Segments

Parkside Inc. has several divisions that operate as decentralized profit centers. Parkside's Entertainment Division
manufactures video arcade equipment using the products of two of Parkside's other divisions. The Plastics Division
manufactures plastic components, one type that is made exclusively for the Entertainment Division, while other less
complex components are sold to outside markets. The products of the Video Cards Division are sold in a competitive
market; however, one video card model is also used by the Entertainment Division. The actual costs per unit used by the
Entertainment Division are presented below.

Plastic Video
Components Cards
Direct material $1.25 $2.40
Direct labor 2.35 3.00
Variable overhead 1.00 1.50
Fixed overhead .40 2.25
Total cost $5.00 $9.15

The Plastics Division sells its commercial products at full cost plus a 25% markup and believes the proprietary plastic
component made for the Entertainment Division would sell for $6.25 per unit on the open market. The market price of
the video card used by the Entertainment Division is $10.98 per unit.

Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of $5.60 per plastic
component with the Entertainment Division. This price will

A. Demotivate the Plastics Division causing mediocre performance.

B. Motivate both divisions as estimated profits are shared.

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C. Encourage the Entertainment Division to seek an outside source for plastic components.
D. Cause the Plastics Division to reduce the number of commercial plastic components it manufactures.

Question 15 - CIA 1191 IV-18 - Responsibility Centers and Reporting Segments

A company plans to implement a bonus plan based on segment performance. In addition, the company plans to convert
to a responsibility accounting system for segment reporting. The following costs, which have been included in the
segment performance reports that have been prepared under the current system, are being reviewed to determine if
they should be included in the responsibility accounting segment reports:

I. Corporate administrative costs allocated on the basis of net segment sales.

II. Personnel costs assigned on the basis of the number of employees in each segment.

III. Fixed computer facility costs divided equally among each segment.

IV. Variable computer operational costs charged to each segment based on actual hours used times a predetermined
standard rate; any variable cost efficiency or inefficiency remains in the computer department.

Of these four cost items, the only item that could logically be included in the segment performance reports prepared on
a responsibility accounting basis would be the

A. Personnel costs.
B. Corporate administrative costs.
C. Variable computer operational costs.
D. Fixed computer facility costs.

Question 16 - CMA 1290 3-8 - Manufacturing Input Variances - Overhead

Franklin Glass Works' production budget for the year ended November 30 was based on 200,000 units. Each unit
requires two standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and the
fixed overhead rate was estimated to be $3.00 per unit. Both fixed and variable overhead are assigned to the product on
the basis of direct labor hours. The actual data for the year ended November 30 are presented as follows.

Actual production in units 198,000

Actual direct labor hours 440,000
Actual variable overhead $352,000
Actual fixed overhead $575,000

Franklin's fixed overhead spending variance for the year is

A. $19,000 favorable.
B. $25,000 unfavorable.
C. $25,000 favorable.
D. $5,750 favorable.

Question 17 - CIA 592 IV-19 - Responsibility Centers and Reporting Segments

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Division Z of a company produces a component that it currently sells to outside customers for $20 per unit. At its current
level of production, which is 60% of capacity, Division Z's fixed cost of producing this component is $5 per unit and its
variable cost is $12 per unit. Division Y of the same company would like to purchase this component from Division Z for
$10. Division Z has enough excess capacity to fill Division Y's requirements. The managers of both divisions are
compensated based upon reported profits. Which of the following transfer prices will maximize total company profits and
be most equitable to the managers of Division Y and Division Z?

A. $12 per unit.

B. $20 per unit.
C. $18 per unit.
D. $22 per unit.

Question 18 - CIA 1193 IV-18 - Responsibility Centers and Reporting Segments

One department of an organization, Final Assembly, is purchasing subcomponents from another department, Materials
Fabrication. The price that will be charged to Final Assembly by Materials Fabrication is to be determined. Outside
market prices for the subcomponents are available. Which of the following is the most correct statement regarding a
market-based transfer price?

A. Marginal production cost transfer prices provide incentives to use otherwise idle capacity.
B. Market transfer prices provide an incentive to use otherwise idle capacity.
C. Overall long term competitiveness is enhanced with a market-based transfer price.
D. Corporate politics is more of a factor in a market-based transfer price than with other methods.

Question 19 - CIA 1191 IV-15 - Manufacturing Input Variances - Materials and Labor

The total budgeted direct labor cost of a company for the month was set at $75,000 when 5,000 units were planned to
be produced. The following standard cost, stated in terms of direct labor hours (DLH), was used to develop the budget
for direct labor cost:

1.25 DLH x $12.00/DLH = $15.00/unit produced

The actual operating results for the month were as follows:

Actual units produced 5,200

Actual direct labor hours worked 6,600
Actual direct labor cost $77,220

The direct labor efficiency variance for the month would be

A. $3,000 unfavorable.
B. $1,200 unfavorable.
C. $2,220 unfavorable.
D. $4,200 unfavorable.

Question 20 - CMA 1296 3-17 - Responsibility Centers and Reporting Segments

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In theory, the optimal method for establishing a transfer price is

A. Market price.
B. Incremental cost.
C. Flexible budget cost.
D. Budgeted cost with or without a markup.

Question 21 - CIA 1183 IV-5 - Responsibility Centers and Reporting Segments

A company has two divisions, A and B, each operated as a profit center. A charges B $35 per unit for each unit
transferred to B. Other data follow:

A's variable cost per unit $30

A's fixed costs $10,000
A's annual sales to B 5,000 units
A's sales to outsiders 50,000 units

A is planning to raise its transfer price to $50 per unit. Division B can purchase units at $40 each from outsiders, but
doing so would idle A's facilities now committed to producing units for B. Division A cannot increase its sales to outsiders.
From the perspective of the company as a whole, from whom should Division B acquire the units, assuming B's market
is unaffected?

A. Outside vendors.
B. Division A, but only until fixed costs are covered, then from outside vendors.
C. Division A, despite the increased transfer price.
D. Division A, but only at the variable cost per unit.

Question 22 - CMA 692 3-17 - Manufacturing Input Variances - Materials and Labor

An organization that specializes in reviewing and editing technical magazine articles sets the following standards for
evaluating the performance of the professional staff:
Annual budgeted fixed costs for normal capacity level of 10,000 articles reviewed and edited: $600,000
Standard professional hours per 10 articles: 200 hours
Flexible budget of standard labor costs to process 10,000 articles: $10,000,000

The following data apply to the 9,500 articles that were actually reviewed and edited during the current year:
Total hours used by professional staff: 192,000 hours
Flexible costs: $9,120,000
Total cost: 9,738,000

The labor efficiency variance for the year is

A. $100,000 unfavorable.
B. $380,000 favorable.
C. $238,000 unfavorable.
D. $500,000 favorable.

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Question 23 - CMA 1291 3-18 - Sales and Market Variances

Folsom Fashions sells a line of women's dresses. Folsom's performance report for November follows.

Actual Budget
Dresses sold 5,000 6,000
Sales $235,000 $300,000
Variable costs (145,000) (180,000)
Contribution margin $ 90,000 $120,000
Fixed costs (84,000) (80,000)
Operating income $ 6,000 $ 40,000

The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the
various factors affecting the difference between budgeted and actual operating income.

What additional information is needed for Folsom to calculate the dollar impact of a change in market share on
operating income for November?

A. Folsom's actual market share and the actual total market size.
B. Folsom's budgeted market share, the budgeted total market size, and average market selling price.
C. Folsom's budgeted market share and the actual total market size.
D. Folsom's budgeted market share and the budgeted total market size.

Question 24 - CMA 1294 3-21 - Responsibility Centers and Reporting Segments

Sherman Company uses a performance reporting system that reflects the company's decentralization of decision
making. The departmental performance report shows one line of data for each subordinate who reports to the group
vice president. The data presented show the actual costs incurred during the period, the budgeted costs, and all
variances from budget for that subordinate's department. Sherman is using a type of system called

A. Cost-benefit accounting.
B. Flexible budgeting.
C. Responsibility accounting.
D. Contribution accounting.

Question 25 - CIA 594 III-74 - Manufacturing Input Variances - Materials and Labor

A company manufactures one product and has a standard cost system. In April the company had the following
experience:

Direct Materials Direct Labor

Actual $/unit of input (lbs. & hrs.) $28 $18
Standard price/unit of input $24 $20
Standard inputs allowed per unit of output 10 4
Actual units of input 190,000 78,000
Actual units of output 20,000 20,000

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The direct labor rate variance for April is

A. $156,000 unfavorable.
B. $156,000 favorable.
C. $40,000 unfavorable.
D. $240,000 favorable.

Question 26 - CMA 1291 3-10 - Responsibility Centers and Reporting Segments

A segment of an organization is referred to as a service center if it has

A. Responsibility for combining the raw materials, direct labor, and other factors of production into a final output.
B. Authority to provide specialized support to other units within the organization.
C. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply.
D. Responsibility for developing markets and selling the output of the organization.

Question 27 - CMA 695 3-24 - Manufacturing Input Variances - Materials and Labor

Blaster Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into
a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit.
During May, Blaster experienced the following with respect to Part XBEZ52.

Units
Purchases ($18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000

During May, Blaster Inc. incurred a materials efficiency variance of

A. $1,450 unfavorable.
B. $1,450 favorable.
C. $4,350 unfavorable.
D. $4,350 favorable.

Question 28 - CMA 1289 4-4 - Manufacturing Input Variances - Materials and Labor

A favorable material price variance coupled with an unfavorable material usage variance would most likely result from

A. The purchase and use of higher than standard quality material.

B. Labor efficiency problems.
C. Labor mix problems.
D. The purchase and use of lower than standard quality material.

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Question 29 - CMA 1290 3-10 - Manufacturing Input Variances - Overhead

Franklin Glass Works' production budget for the year ended November 30 was based on 200,000 units. Each unit
requires two standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and the
fixed overhead rate was estimated to be $3.00 per unit. Both fixed and variable overhead are assigned to the product on
the basis of direct labor hours. The actual data for the year ended November 30 are presented as follows.

Actual production in units 198,000

Actual direct labor hours 440,000
Actual variable overhead $352,000
Actual fixed overhead $575,000

Franklin's fixed overhead volume variance for the year is

A. $55,000 unfavorable.
B. $25,000 favorable.
C. $6,000 unfavorable.
D. $19,000 favorable.

Question 30 - CIA 1189 IV-18 - Manufacturing Input Variances - Materials and Labor

One of the items produced by a manufacturer of lawn and garden tools is a chain saw. The direct labor standard for
assembling and testing a chain saw is 2.5 hours at $8 per hour. Budgeted production for October was 1,200 units. Actual
production during the month was 1,000 units, and direct labor cost was $27,840 for 3,200 hours. Using a two-variance
system, what is the direct labor efficiency variance?

A. $5,600 unfavorable.
B. $2,240 unfavorable.
C. $5,600 favorable.
D. $6,090 favorable.

Question 31 - CMA 1279 4-11 - Introduction to Variance Analysis and Standard Costs

The best basis upon which cost standards should be set to measure controllable production inefficiencies is

A. Recent average historical performance.

B. Engineering standards based on ideal performance.
C. Normal capacity.
D. Engineering standards based on attainable performance.

Question 32 - CMA 1294 3-24 - Manufacturing Input Variances - Materials and Labor

Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standard
specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual production in November
was 3,100 units of Titactium. The accountant computed a favorable materials purchase price variance of $380 and an
unfavorable materials quantity variance of $120. Based on these variances, one could conclude that

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A. More materials were used than were purchased.

B. More materials were purchased than were used.
C. The actual cost of materials was less than the standard cost.
D. The actual usage of materials was less than the standard allowed.

Question 33 - CMA 1295 3-7 - Manufacturing Input Variances - Overhead

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. Flexible budget variance.

B. Spending variance.
C. Efficiency variance.
D. Production volume variance.

Question 34 - CMA 1294 3-25 - Manufacturing Input Variances - Materials and Labor

An unfavorable direct labor efficiency variance could be caused by a(n)

A. Unfavorable fixed overhead volume variance.

B. Unfavorable variable overhead spending variance.
C. Favorable variable overhead spending variance.
D. Unfavorable materials usage variance.

Question 35 - IMA 08-P2-23 - Introduction to Variance Analysis and Standard Costs

Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial
decision-making?

A. Company A does not differentiate between variable and fixed overhead in calculating its overhead variances.
B. Company D constantly revises standards to reflect learning curves.
C. Company C investigates only negative variances.
D. Company B uses the prior year’s average actual cost as the current year’s standard.

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