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cost accounting test bank chapter 7

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Cost Accounting, 15e (Horngren/Datar/Rajan)

Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management Control

Objective 7.1

1) A master budget is ________.

A) a budget which starts from a zero base

B) developed for a period for a planned output C) developed at the end of a period D) a type of flexible budget Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) Management by exception is a practice whereby managers focus more closely on ________. A) a static budget

B) areas that are not operating as anticipated C) activity-based costing

D) exceptional decision-making models Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

3) A variance is ________.

A) the difference between actual fixed cost per unit and standard variable cost per unit B) the standard units of inputs for one output

C) the difference between an actual result and a budgeted performance

D) the difference between actual variable cost per unit and standard fixed cost per unit Answer: C

Diff: 1

Objective: 1

AACSB: Analytical thinking

4) An unfavorable variance indicates that ________. A) the actual costs are less than the budgeted costs B) the actual revenues exceed the budgeted revenues C) the actual units sold are less than the budgeted units

D) the budgeted contribution margin is more than the actual amount Answer: C

Diff: 2

Objective: 1

AACSB: Analytical thinking

5) A favorable variance indicates that ________. A) budgeted costs are less than actual costs B) actual revenues exceed budgeted revenues

C) actual operating income is less than the budgeted amount D) budgeted contribution margin is more than the actual amount Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

Answer the following questions using the information below:

Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit. Actual Budgeted Units sold 41,000 units 40,000 units Variable costs $1,000 $156,000 Fixed costs $46,000 $48,000

6) What is the static-budget variance of revenues? A) $18,000 favorable B) $18,000 unfavorable C) $6,000 favorable D) $4,000 unfavorable Answer: A

Explanation: A) Static-budget variance of revenues = (41,000 units × $18) - (40,000 units × $18) = $18,000 F

Diff: 2

Objective: 1

AACSB: Application of knowledge

7) What is the static-budget variance of variable costs? A) $2,000 favorable B) $8,000 unfavorable C) $4,000 favorable D) $6,000 unfavorable Answer: B

Explanation: B) Static-budget variance of variable costs = $1,000 − $156,000 = $8,000 U

Diff: 2

Objective: 1

AACSB: Application of knowledge

8) What is the static-budget variance of operating income? A) $10,000 favorable B) $10,000 unfavorable C) $12,000 favorable D) $12,000 unfavorable Answer: C

Explanation: C) Actual Static Static-budget Results Budget Variance Units sold 41,000 40,000 Revenues $738,000 $720,000 $18,000 F Variable costs 1,000 156,000 8,000 U Contribution margin $574,000 $5,000 10,000 F Fixed costs 46,000 48,000 2,000 F Operating income $528,000 $516,000 $12,000 F

Diff: 3

Objective: 1

AACSB: Application of knowledge

Answer the following questions using the information below:

Contrafic Corporation used the following data to evaluate its current operating system. The company sells items for $21 each and used a budgeted selling price of $21 per unit. Actual Budgeted Units sold 180,000 units 185,000 units Variable costs $1,080,000 $1,295,000 Fixed costs $ 800,000 $ 775,000

9) What is the static-budget variance of revenues? A) $105,000 favorable B) $105,000 unfavorable C) $8,000 favorable D) $8,000 unfavorable Answer: B

Explanation: B) Static-budget variance of revenues = (180,000 units × $21) − (185,000 units × $21) = $105,000 U

Diff: 2

Objective: 1

AACSB: Application of knowledge

10) What is the static-budget variance of variable costs? A) $25,000 favorable B) $25,000 unfavorable C) $215,000 favorable D) $215,000 unfavorable Answer: C

Explanation: C) Static-budget variance of variable costs = $1,080,000 − $1,295,000 = $215,000 F

Diff: 2

Objective: 1

AACSB: Application of knowledge

11) What is the static-budget variance of operating income? A) $85,000 favorable B) $90,000 unfavorable C) $110,000 favorable D) $105,000 unfavorable Answer: A

Explanation: A) Actual Static Static-budget Results Budget Variance Units sold 180,000 185,000 Revenues $3,780,000 $3,885,000 $(105,000) U Variable costs 1,080,000 1,295,000 (215,000) F Contribution margin $2,700,000 $2,590,000 110,000 F Fixed costs 800,000 775,000 25,000 U Operating income $1,900,000 $1,815,000 $85,000 F

Diff: 3

Objective: 1

AACSB: Application of knowledge

Answer the following questions using the information below:

Coroid Corporation used the following data to evaluate their current operating system. The company sells items for $11 each and had used a budgeted selling price of $12 per unit. Actual Budgeted Units sold 280,000 units 275,000 units Variable costs $900,000 $885,000 Fixed costs $ 55,000 $ 52,000

12) What is the static-budget variance of revenues? A) $55,000 favorable B) $220,000 favorable C) $220,000 unfavorable D) $55,000 unfavorable Answer: C

Explanation: C) Static-budget variance of revenues = (280,000 units × $11) − (275,000 units × $12) = $220,000 U

Diff: 2

Objective: 1

AACSB: Application of knowledge

13) What is the static-budget variance of variable costs? A) $12,000 favorable B) $12,000 unfavorable C) $15,000 favorable D) $15,000 unfavorable Answer: D

Explanation: D) Static-budget variance of variable costs = $900,000 − $885,000 = $15,000 U

Diff: 2

Objective: 1

AACSB: Application of knowledge

14) What is the static-budget variance of operating income? A) $238,000 favorable B) $238,000 unfavorable C) $235,000 favorable D) $235,000 unfavorable Answer: B

Explanation: B) Actual Static Static-budget Results Budget Variance Units sold 280,000 275,000 Revenues $3,080,000 $3,300,000 $(220,000) U Variable costs 900,000 885,000 (15,000) U Contribution margin $2,180,000 $2,415,000 235,000 U Fixed costs 55,000 52,000 3,000 U Operating income $2,125,000 $2,363,000 $238,000 U

Diff: 3

Objective: 1

AACSB: Application of knowledge

15) Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million.

A) The static-budget variance for operating income is $3 million favorable. B) The static-budget variance for operating income is $3 million unfavorable. C) The flexible-budget variance for operating income is $3 million favorable. D) The flexible-budget variance for operating income is $3 million unfavorable. Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

16) A master budget is called a static budget because it is developed around a single planned output level.

Answer: TRUE

Diff: 1

Objective: 1

AACSB: Analytical thinking

17) When considered in isolation, a favorable variance decreases operating income relative to the budgeted amount. Answer: FALSE

Explanation: When considered in isolation, a favorable variance increases operating income relative to the budgeted amount.

Diff: 2

Objective: 1

AACSB: Application of knowledge

18) A variance is the difference between the actual cost for the current and expected (or budgeted) performance. Answer: TRUE

Diff: 2

Objective: 1

AACSB: Analytical thinking

19) A favorable variance results when actual costs exceed budgeted costs. Answer: FALSE

Explanation: An unfavorable variance results when actual costs exceed budgeted costs.

Diff: 2

Objective: 1

AACSB: Analytical thinking

20) Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated. Answer: TRUE

Diff: 1

Objective: 1

AACSB: Analytical thinking

21) A favorable variance indicates that budgeted costs are less than actual costs. Answer: FALSE

Explanation: A favorable variance indicates that budgeted costs are greater than actual costs.

Diff: 2

Objective: 1

AACSB: Analytical thinking

22) A favorable variance should be ignored by management. Answer: FALSE

Explanation: Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances.

Diff: 1

Objective: 1

AACSB: Analytical thinking

23) Variances are used for evaluating performance and for motivating managers. Answer: TRUE

Diff: 2

Objective: 1

AACSB: Analytical thinking

24) Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income. Answer: TRUE

Diff: 2

Objective: 1

AACSB: Analytical thinking

25) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.

Answer: A static budget is one based on the level of output planned at the start of the budget period. A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period. The only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output.

A static budget variance is the difference between the actual results and the corresponding budgeted

amounts in the static budget. A flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on the actual output in the budget period.

Diff: 2

Objective: 1

AACSB: Analytical thinking

Objective 7.2

1) The flexible budget contains ________. A) budgeted amounts for actual output B) budgeted amounts for planned output C) actual costs for actual output D) actual costs for planned output Answer: A

Diff: 1

Objective: 2

AACSB: Analytical thinking

2) Which of the following items will be same for a flexible budget and a master budget? A) total variable cost B) total fixed costs

C) total contribution margin D) total revenues Answer: B

Diff: 2

Objective: 2

AACSB: Analytical thinking

3) A flexible budget ________.

A) is another name for management by exception B) is developed at the end of the period C) is based on the budgeted level of output D) provides favorable operating results Answer: B

Diff: 1

Objective: 2

AACSB: Analytical thinking

4) Which of the following elements are used in calculating revenue in a flexible budget? A) budgeted selling price and actual quantity of output B) actual selling price and budgeted quantity of output C) budgeted selling price and budgeted quantity of output D) actual selling price and actual quantity of output Answer: A

Diff: 2

Objective: 2

AACSB: Analytical thinking

5) An unfavorable flexible-budget variance for variable costs may be the result of ________. A) using more input quantities than were budgeted B) paying lower prices for inputs than were budgeted C) selling output at a higher selling price than budgeted D) selling less quantity compared to the budgeted Answer: A

Diff: 3

Objective: 2

AACSB: Analytical thinking

6) In a flexible budget ________.

A) variable costs are calculated proportionately for the budgeted level of sales B) fixed costs are calculated proportionately for the actual level of sales C) fixed costs are kept at the same level of static budget D) variable costs are kept at the same level of static budget Answer: C

Diff: 2

Objective: 2

AACSB: Analytical thinking

7) Which of the following information is needed to prepare a flexible budget? A) actual units sold B) actual variable cost

C) actual selling price per unit D) actual fixed cost Answer: A

Diff: 3

Objective: 2

AACSB: Analytical thinking

8) Which of the following is true of flexible budget?

A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit. B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit. C) It calculates revenues by multiplying budgeted units by actual selling price per unit.

D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.

Answer: A

Diff: 2

Objective: 2

AACSB: Analytical thinking

9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________.

A) $600 more than the master budget

B) $600 less than for the planned level of activity

C) $600 more than standard for the achieved level of activity D) $600 less than standard for the achieved level of activity Answer: D

Diff: 2

Objective: 2

AACSB: Analytical thinking

Answer the following questions using the information below:

Domose Inc. planned to use $150 of material per unit but actually used $147 of material per unit, and planned to make 1,100 units but actually made 900 units.

10) The flexible-budget amount for materials is ________. A) $165,000 B) $135,000 C) $161,700 D) $132,300 Answer: B

Explanation: B) 900 units × $150 = $135,000

Diff: 2

Objective: 2

AACSB: Application of knowledge

11) The flexible-budget variance for materials is ________. A) $2,700 favorable B) $2,700 unfavorable C) $3,300 unfavorable D) $3,300 favorable Answer: A

Explanation: A) ($147 − $150) × 900 = $2,700 F

Diff: 2

Objective: 2

AACSB: Application of knowledge

12) The sales-volume variance for materials is ________. A) $2,700 favorable B) $29,400 unfavorable C) $30,000 unfavorable D) $2,700 unfavorable Answer: C

Explanation: C) (900 − 1,100) × $150 = $30,000 U

Diff: 2

Objective: 2

AACSB: Application of knowledge

13) Dynozz Corporation currently produces cardboard boxes in an automated process. Expected production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing

overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible budget for 10,000 and 15,000 units, respectively? A) $15,000; $22,500 B) $15,000; $17,500 C) $20,000; $22,500 D) $20,000; $17,500 Answer: C

Explanation: C) 10,000 units 15,000 units Materials ($0.50) $ 5,000 $7,500 Machinery 15,000 15,000 Flexible Budgets $20,000 $22,500 Diff: 2

Objective: 2

AACSB: Application of knowledge

Answer the following questions using the information below:

Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per unit, and planned to make 1,500 units but actually made 1,800 units.

14) The flexible-budget amount for materials is ________. A) $18,000 B) $19,500 C) $21,600 D) $23,400 Answer: C

Explanation: C) 1,800 units × $12 = $21,600

Diff: 2

Objective: 2

AACSB: Application of knowledge

15) The flexible-budget variance for materials is ________. A) $1,500 favorable B) $1,800 unfavorable C) $1,500 unfavorable D) $1,800 favorable Answer: B

Explanation: B) ($13 − $12) × 1,800 = $1,800 U

Diff: 2

Objective: 2

AACSB: Application of knowledge

16) The sales-volume variance for materials is ________. A) $3,600 favorable B) $3,900 unfavorable C) $3,600 unfavorable D) $3,900 favorable Answer: A

Explanation: A) (1,800 − 1,500) × $12 = $3,600 F

Diff: 2

Objective: 2

AACSB: Application of knowledge

Answer the following questions using the information below:

Aurous Incorporated planned to use $35 of material per unit but actually used $34 of material per unit, and planned to make 1,500 units but actually made 1,300 units.

17) The flexible-budget amount for materials is ________. A) $45,500 B) $52,500 C) $51,000 D) $44,200 Answer: A

Explanation: A) 1,300 units × $35 = $45,500

Diff: 2

Objective: 2

AACSB: Application of knowledge

18) The flexible-budget variance for materials is ________. A) $1,500 favorable B) $1,500 unfavorable C) $1,300 unfavorable D) $1,300 favorable Answer: D

Explanation: D) ($34 − $35) × 1,300 = $1,300 F

Diff: 2

Objective: 2

AACSB: Application of knowledge

19) The sales-volume variance for materials is ________. A) $7,000 favorable B) $7,000 unfavorable C) $6,800 unfavorable D) $6,800 favorable Answer: B

Explanation: B) (1,300 − 1,500) × $35 = $7,000 U

Diff: 2

Objective: 2

AACSB: Application of knowledge

20) Lunicious Corporation currently produces baseball caps in an automated process. Expected production per month is 15,000 units, direct material costs are $3.50 per unit, and manufacturing

overhead costs are $40,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible budget for 12,000 and 15,000 units, respectively? A) $74,000; $92,500 B) $74,000; $84,500 C) $82,000; $92,500 D) $82,000; $84,500 Answer: C

Explanation: C) 12,000 units 15,000 units Materials ($3.00) $42,000 $52,500 Machinery 40,000 40,000 Flexible Budget $82,000 $92,500

Diff: 2

Objective: 2

AACSB: Application of knowledge

Answer the following questions using the information below:

The actual information pertains to the month of September. As a part of the budgeting process, Twilith Fencing Company developed the following static budget for September. Twilith is in the process of preparing the flexible budget and understanding the results. Actual Flexible Static Results Budget Budget Sales volume (in units) 12,000 15,000

Sales revenues $600,000 $ $750,000 Variable costs 307,200 $ ________ 360,000

Contribution margin 292,800 $ 390,000

Fixed costs 274,800 $ ________ 270,000 Operating profit $ 18,000 $ $ 120,000

21) The flexible budget will report ________ for variable costs. A) $245,760 B) $360,000 C) $288,000 D) $384,000 Answer: C

Explanation: C) 12,000 units × $360,000 / 15,000 = $288,000

Diff: 2

Objective: 2

AACSB: Application of knowledge

22) The flexible budget will report ________ for the fixed costs. A) $343,500 B) $270,000 C) $274,800 D) $216,000 Answer: B

Explanation: B) $270,000, given in the static budget

Diff: 2

Objective: 2

AACSB: Analytical thinking

23) The flexible-budget variance for variable costs is ________. A) $19,200 unfavorable B) $61,440 unfavorable C) $52,800 favorable D) $76,800 favorable Answer: A

Explanation: A) $307,200 − (12,000 × $360,000/15,000) = $19,200 U

Diff: 2

Objective: 2

AACSB: Application of knowledge

24) The only difference between the static budget and flexible budget is that the static budget is prepared using planned output. Answer: TRUE

Diff: 2

Objective: 2

AACSB: Analytical thinking

25) A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume variance.

Answer: FALSE

Explanation: A static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance.

Diff: 2

Objective: 2

AACSB: Analytical thinking

26) A flexible budget is calculated at the end of the budget period. Answer: TRUE

Diff: 1

Objective: 2

AACSB: Analytical thinking

27) A sales-volume variance may be the result of quality problems leading to customer dissatisfaction. Answer: TRUE

Diff: 2

Objective: 2

AACSB: Analytical thinking

28) Failure of a firm's managers to execute the sales plans may create a favorable sales-volume variance. Answer: FALSE

Explanation: Failure of a firm's managers to execute the sales plans may create an unfavorable sales-volume variance.

Diff: 2

Objective: 2

AACSB: Analytical thinking

29) An unfavorable variance is conclusive evidence of poor performance. Answer: FALSE

Explanation: An unfavorable variance suggests further investigation, not conclusive evidence of poor performance.

Diff: 1

Objective: 2

AACSB: Analytical thinking

30) When actual revenues exceed budgeted revenues, a favorable variance arises. Answer: TRUE

Diff: 1

Objective: 2

AACSB: Analytical thinking

31) A favorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted. Answer: FALSE

Explanation: An unfavorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted.

Diff: 1

Objective: 2

AACSB: Analytical thinking

32) The president of the company, Gregory Peters, has come to you for help. Use the following data to prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the contribution margin at each activity level. Sales price $24 per unit Variable costs: Manufacturing $12 per unit Administrative $ 3 per unit Selling $ 1 per unit Fixed costs: Manufacturing $60,000 Administrative $20,000 Answer: Flexible Budget for Various Levels of Sales/Production Activity Units 10,000 11,000 12,000 Sales $240,000 $2,000 $288,000 Variable costs: Manufacturing 120,000 132,000 144,000 Administrative 30,000 33,000 36,000 Selling 10,000 11,000 12,000 Total variable costs 160,000 176,000 192,000 Contribution margin 80,000 88,000 96,000 Fixed costs: Manufacturing 60,000 60,000 60,000 Administrative 20,000 20,000 20,000 Operating income/(loss) $ -0- $ 8,000 $ 16,000 Diff: 3

Objective: 2

AACSB: Application of knowledge

33) Nicholas Company manufacturers TVs. Some of the company's data was misplaced. Use the following information to replace the lost data: Sales- Actual Flexible Flexible Volume Static Analysis Results Variances Budget Variances Budget Units Sold 112,500 112,500 103,125 Revenues $42,080 $1,000 F (A) $1,400 U (B) Variable Costs (C) $200 U $15,860 $2,340 F $18,200 Fixed Costs $8,280 $860 F $9,140 $9,140 Operating Income $17,740 (D) $16,080 (E) $15,140 Required:

a. What are the respective flexible-budget revenues (A)? b. What are the static-budget revenues (B)? c. What are the actual variable costs (C)?

d. What is the total flexible-budget variance (D)? e. What is the total sales-volume variance (E)? f. What is the total static-budget variance? Answer:

a. $42,080 - $1,000 = $41,080

b. $41,080 + $1,400 = $42,480

c. $15,860 + $200 = $16,060

d. $17,740 - $16,080 = $1,660 favorable

e. $16,080 - $15,140 = $940 favorable

f. $17,740 - $15,140 = $2,600 favorable

Diff: 3

Objective: 2

AACSB: Application of knowledge

Objective 7.3

1) The actual information pertains to the month of September. As part of the budgeting process, Kriger Fencing Company developed the following static budget for September. Kriger is in the process of preparing the flexible budget and understanding the results. Actual Flexible Static Results Budget Budget Sales volume (in units) 10,000 12,500

Sales revenues $500,000 $ $625,000 Variable costs 256,000 $ ________ 300,000

Contribution margin 244,000 $ 325,000

Fixed costs 229,000 $ ________ 225,000 Operating profit $ 15,000 $ $ 100,000

The primary reason for low operating profits was ________. A) the variable-cost variance B) increased fixed costs

C) a poor management accounting system D) lower sales volume than planned Answer: D

Diff: 3

Objective: 3

AACSB: Application of knowledge

Answer the following questions using the information below:

The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Paralith Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results. Actual Flexible Static Results Budget Budget Sales volume (in units) 11,000 10,000

Sales revenues $238,000 $ $230,000 Variable costs 150,000 $ ________ 180,000

Contribution margin 88,000 $ 50,000

Fixed costs 36,000 $ ________ 35,000 Operating profit $ 52,000 $ $ 15,000

2) The flexible budget will report ________ for variable costs. A) $136,3 B) $198,000 C) $30,000 D) $13,583 Answer: B

Explanation: B) 11,000 units × $180,000/10,000 = $198,000

Diff: 2

Objective: 3

AACSB: Application of knowledge

3) The flexible budget will report ________ for the fixed costs. A) $536,000

B) $35,000 Favorable C) $35,000

D) $1,000 Unfavorable Answer: C

Explanation: C) $35,000, given in the static budget

Diff: 2

Objective: 3

AACSB: Application of knowledge

4) The flexible-budget variance for variable costs is ________. A) $30,000 favorable B) $31,000 unfavorable C) $30,000 unfavorable D) $48,000 favorable Answer: D

Explanation: D) [(11,000 × $180,000/10,000)] − $150,000 = $48,000 F

Diff: 2

Objective: 3

AACSB: Application of knowledge

5) The sales-volume variance is sometimes due to ________.

A) the difference between selling price and budgeted selling price B) quality problems leading to customer dissatisfaction C) unexpected increase in manufacturing labor time

D) unexpected increase in the use of quantities of inputs of raw material Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

6) An unfavorable sales-volume variance could result from ________. A) an inappropriate assignment of labor or machines to specific jobs B) competitors taking market share

C) an inefficiency of a purchasing manager in bargaining with suppliers D) a decrease in actual selling price compared to anticipated selling price Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

7) If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance. A) production manager B) sales supervisor C) financial supervisor D) logistic manager Answer: A

Diff: 2

Objective: 3

AACSB: Analytical thinking

8) The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Paralith Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results. Actual Flexible Static Results Budget Budget Sales volume (in units) 11,000 10,000

Sales revenues $238,000 $ $230,000 Variable costs 150,000 $ ________ 180,000

Contribution margin 88,000 $ 50,000

Fixed costs 36,000 $ ________ 35,000 Operating profit $ 52,000 $ $ 15,000

The primary reason for high actual operating profits was ________. A) the variable-cost variance B) increased fixed costs

C) flexible budget variance for revenues D) lower sales volume than planned Answer: A

Explanation: A) Actual variable costs per unit were significantly less than the static budget. Actual sales revenues were only slightly greater than the static budget, and actual fixed costs were only slightly greater than the static budget.

Diff: 3

Objective: 3

AACSB: Application of knowledge

Answer the following questions using the information below:

Genent Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data: Actual Flexible Budget Flexible Sales-Volume Static Results Variances Budget Variances Budget Units sold 495,000 495,000 453,750 Revenues $185,150 $4,400 F (A) $6,160 U (B) Variable costs (C) $880 U $69,780 $10,300 F $88,080 Fixed costs $36,430 $3,770 F $40,200 0 $40,200 Operating income $78,060 (D) $70,770 (E) $66,630 9) What amounts are reported for revenues in the flexible-budget (A) and the static-budget (B), respectively?

A) $1,320; $178,990 B) $180,750; $186,910 C) $185,150; $177,920 D) $178,990; $186,910 Answer: B

Explanation: B) $185,150 − $4,400 = $180,750; $180,750 + $6,160 = $186,910

Diff: 2

Objective: 3

AACSB: Application of knowledge

10) What are the actual variable costs (C)? A) $72,800 B) $70,660 C) $62,0 D) $54,080 Answer: B

Explanation: B) $69,780 + $880 = $70,660

Diff: 2

Objective: 3

AACSB: Application of knowledge

11) What is the total flexible-budget variance (D)? A) $240 unfavorable B) $0

C) $1,360 favorable D) $7,290 favorable Answer: D

Explanation: D) $78,060 − $70,770 = $7,290

Diff: 2

Objective: 3

AACSB: Application of knowledge

12) What is the total sales-volume variance (E)? A) $14,960 unfavorable B) $7,290 unfavorable C) $4,140 favorable D) $14,960 favorable Answer: C

Explanation: C) $70,770 − $66,630 = $4,140

Diff: 2

Objective: 3

AACSB: Application of knowledge

13) What is the total static-budget variance? A) $11,430 favorable B) $7,290 favorable C) $4,140 unfavorable D) $4,140 favorable Answer: A

Explanation: A) $78,060 − $66,630 = $11,430

Diff: 2

Objective: 3

AACSB: Application of knowledge

14) A flexible-budget variance pertaining to revenues is often called a sales-volume variance. Answer: FALSE

Explanation: A flexible-budget variance for revenues is called the selling-price variance because it arises solely from the difference between the actual selling price and the budgeted selling price.

Diff: 2

Objective: 3

AACSB: Analytical thinking

15) A difference between the static-budget and the flexible-budget amounts is called the sales-volume variance.

Answer: TRUE

Diff: 1

Objective: 3

AACSB: Analytical thinking

16) Quindo Table Company manufactures tables for schools. The 2015 operating budget is based on sales of 44,000 units at $55 per table. Operating income is anticipated to be $132,000. Budgeted variable costs are $35 per unit, while fixed costs total $660,000.

Actual income for 2015 was a surprising $477,000 on actual sales of 46,000 units at $57 each. Actual variable costs were $33 per unit and fixed costs totaled $627,000.

Required:

Prepare a variance analysis report with both flexible-budget and sales-volume variances. Answer: Quindo Table Company Variance Analysis Flexible Flexible Volume Actual Results Variances Budget Variances Sales-Static Units sold 46,000 46,000 44,000 Sales $2,622,000 $92,000 F $2,530,000 $110,000 F $2,420,000 Variable costs 1,518,000 92,000 F 1,610,000 70,000 U 1,540,000 Contribution margin $1,104,000 $184,000 F $920,000 $40,000 F $880,000 Fixed costs 627,000 33,000 F 660,000 0 660,000 Operating income $477,000 $217,000 F $260,000 $40,000 F $220,000 Total flexible-budget variance = $217,000 favorable. Total sales-volume variance = $40,000 favorable.

Diff: 3

Objective: 3

AACSB: Application of knowledge

Objective 7.4

1) The flexible-budget variance for direct cost inputs can be further subdivided into a ________. A) static-budget variance and a sales-volume variance B) sales-volume variance and an efficiency variance C) price variance and an efficiency variance D) static-budget variance and a price variance Answer: C

Diff: 1

Objective: 4

AACSB: Analytical thinking

2) An efficiency variance reflects the difference between ________. A) actual input quantities used last period and current period B) an actual input quantity and a budgeted input quantity

C) an actual input quantity used in a company and its main competitor's D) a standard input quantity in a company and its main competitor's Answer: B

Diff: 1

Objective: 4

AACSB: Analytical thinking

3) Which of the following is an advantage of using actual input data from past periods to develop a budget?

A) Past inefficiencies are excluded in the preparation of new budget.

B) Expected future changes are incorporated in the preparation of new budget. C) Information is available at a low cost. D) Data represents the ideal performance. Answer: C

Diff: 2

Objective: 4

AACSB: Analytical thinking

4) Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?

A) A firm's inefficiencies will be part of the data. B) They are not based on realized benchmarks.

C) The expected future changes are not included in the standards. D) The flexible-budget amounts are difficult to determine. Answer: B

Diff: 2

Objective: 4

AACSB: Analytical thinking

5) A price variance reflects the difference between ________. A) a standard input price in a company and its competitor B) an actual input price used last period and current period C) an actual input price used in a company and its competitor D) an actual input price and a budgeted input price Answer: D

Diff: 1

Objective: 4

AACSB: Analytical thinking

6) Standard cost per output unit for each variable direct cost input is calculated by multiplying ________. A) standard input allowed for one output unit by standard price per input unit B) standard input allowed for one output unit by actual price per input unit C) actual input allowed for one output unit by standard price per input unit D) actual input allowed for one output unit by actual price per input unit Answer: A

Diff: 1

Objective: 4

AACSB: Analytical thinking

7) Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit? A) $9 B) $11.25 C) $10 D) $12.5 Answer: C

Explanation: C) Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $5 × 2kg = $10

Diff: 2

Objective: 4

AACSB: Application of knowledge

8) Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor hour is $7.5 and actual labour hour per unit is 0.7 hours. What is the standard labor cost per output unit? A) $4.5 B) $4.8 C) $5.6 D) $5.25 Answer: B

Explanation: B) Standard cost per output unit = Standard labor allowed per unit × Standard labor rate = $8 × 0.6 hours = $4.8 per unit

Diff: 2

Objective: 4

AACSB: Application of knowledge

9) A standard price is the minimum price a company will have to pay for a unit of input. Answer: FALSE

Explanation: A standard price is a carefully determined price a company expects to pay for a unit of input.

Diff: 2

Objective: 4

AACSB: Analytical thinking

10) To prepare budgets based on actual data from past periods is preferred since past inefficiencies are EXCLUDED. Answer: FALSE

Explanation: A deficiency of using budgeted input quantity information based on actual quantity data from past periods is that past inefficiencies are included.

Diff: 2

Objective: 4

AACSB: Analytical thinking

11) A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence the data represents the ideal performance of a firm. Answer: FALSE

Explanation: A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence the data does not represent the ideal performance of a firm.

Diff: 2

Objective: 4

AACSB: Analytical thinking

12) A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production. Answer: TRUE

Diff: 2

Objective: 4

AACSB: Analytical thinking

13) One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do not require expected future changes to be taken into account. Answer: FALSE

Explanation: An advantage of using standard times is they aim to take into account changes expected to occur in the budget period.

Diff: 1

Objective: 4

AACSB: Analytical thinking

14) The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels. Answer: A Level 0 variance is simply the difference between actual operating income and planned operating income in the static budget.

A Level 1 variance would be any of the differences between the static budget and the actual results that make up operating income. Examples of such differences could include the following items:

Units sold (Static budget - actual) Revenues (Static budget - actual) Material costs (Static budget - actual) Direct manufacturing labor (Static budget - actual) Variable manufacturing overhead (Static budget - actual) Contribution margin (Static budget - actual) Fixed costs (Static budget - actual)

A Level 2 variance subdivides the level 0 variance (which is the total of the Level 1 variances) into a sales volume variance and a flexible-budget variance. The sales volume variance is the difference between the flexible budget amount and the corresponding static budget amount. The flexible budget variance is an actual result and the corresponding flexible budget amount based on the actual output level in the budget period. Specific examples of Level 2 variances could include any of the items shown in the list of Level 1 variances.

A Level 3 variance would include price variances that reflect the difference between the actual input price and a budgeted input price, such as the direct material price variance, the direct labor rate variance, and the variable overhead rate variance. Level 3 variances would also include efficiency variances that reflect the difference between an actual input quantity and a budgeted input quantity. Examples would include material quantity variances, labor efficiency variances, and variable overhead efficiency variances.

Diff: 3

Objective: 4

AACSB: Analytical thinking

Objective 7.5

1) Which of the following can be a reason for a favorable price variance for direct materials? A) a decrease in the price of materials due to an oversupply of materials B) an unexpected increase in the price of materials

C) less amount of material used during production than planned for actual output D) workers taking less time to produce the products Answer: A

Diff: 2

Objective: 5

AACSB: Analytical thinking

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 Answer: C

Diff: 2

Objective: 5

AACSB: Analytical thinking

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 Answer: A

Diff: 3

Objective: 5

AACSB: Analytical thinking

4) A favorable efficiency variance for direct materials might indicate that ________. A) lower-quality materials were purchased B) work is scheduled efficiently

C) there is an unexpected increase in direct labor rates D) management hired underskilled workers Answer: B

Diff: 3

Objective: 5

AACSB: Analytical thinking

5) A favorable price variance for direct manufacturing labor might indicate that ________. A) employees were paid more than planned B) unexpected increase in direct labor rates C) underskilled employees are being hired D) congestion due to scheduling problems Answer: C

Diff: 3

Objective: 5

AACSB: Analytical thinking

6) An unfavorable efficiency variance for direct manufacturing labor might indicate that ________. A) there is unexpected increase in direct labor rates B) work is scheduled inefficiently

C) lower-quality materials were purchased

D) more higher-skilled workers were scheduled than planned Answer: B

Diff: 3

Objective: 5

AACSB: Analytical thinking

Answer the following questions using the information below:

Animent Industries, Inc. (AII), developed standard costs for direct material and direct labor. In 2015, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.10 pounds $60 per pound Direct labor 0.05 hours $30 per hour

During June, AII produced and sold 20,000 containers using 1,900 pounds of direct materials at an

average cost per pound of $ and 1,000 direct manufacturing labor-hours at an average wage of $30.50 per hour.

7) June's direct material flexible-budget variance is ________. A) $7,200 unfavorable B) $600 favorable

C) $1,600 unfavorable D) $500 favorable Answer: C

Explanation: C) Flexible-budget variance = (1,900 × $) − (20,000 × 0.10 × $60) = $1,600 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

8) The direct material price variance during June is ________. A) $7,600 unfavorable B) $1,600 favorable C) $1,600 unfavorable D) $500 favorable Answer: A

Explanation: A) Direct material price variance = 1,900 × ($ − $60) = $7,600 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

9) The direct manufacturing labor price variance during June is ________. A) $500 unfavorable B) $500 favorable

C) $7,600 unfavorable D) 1,600 unfavorable Answer: A

Explanation: A) Direct manufacturing labor price variance = 1,000 dlh × ($30 − $30.50) = $500 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

10) The direct manufacturing labor efficiency variance during June is ________. A) $125 unfavorable B) $500 favorable

C) $1,600 unfavorable D) $0

Answer: D

Explanation: D) Direct manufacturing labor efficiency variance = [1,000 dlh − (20,000 × 0.05)] × $30 = $0

Diff: 2

Objective: 5

AACSB: Application of knowledge

Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2015, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container. Budgeted quantity Budgeted price Direct materials 0.30 pounds $20 per pound Direct labor 0.20 hours $12 per hour

During July, GII produced and sold 3,000 containers using 1,000 pounds of direct materials at an average cost per pound of $19 and 625 direct manufacturing labor hours at an average wage of $11.75 per hour.

11) July's direct material flexible-budget variance is ________. A) $1,000 unfavorable B) $2,000 favorable C) $2,500 unfavorable D) $0

Answer: A

Explanation: A) Direct material flexible-budget variance = (1,000 × $19) − (3,000 × 0.30 × $20) = $1,000 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

12) The direct material price variance during July is ________. A) $1,100 unfavorable B) $1,100 favorable C) $1,000 unfavorable D) $2,000 unfavorable Answer: B

Explanation: B) Direct material price variance = 1,000 × ($20 − $19) = $1,000 F

Diff: 2

Objective: 5

AACSB: Application of knowledge

13) The direct material efficiency variance during July is ________. A) $1,000 unfavorable B) $1,100 favorable C) $2,000 unfavorable D) $1,000 favorable Answer: C

Explanation: C) Direct material efficiency variance = $20 × [1,000 − (3,000 × 0.30)] = $2,000 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

14) The direct manufacturing labor flexible-budget variance during July is ________. A) $375.00 unfavorable B) $131.25 favorable C) $143.75 unfavorable D) $1,000 favorable Answer: C

Explanation: C) Direct manufacturing labor flexible-budget variance = (625 × $11.75) − (3,000 × 0.20 × $12) = $143.75 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

15) The direct manufacturing labor price variance during July is ________. A) $375.00 unfavorable B) $156.25 favorable C) $243.75 favorable D) $1,000 unfavorable Answer: B

Explanation: B) Direct manufacturing labor price variance = 625 dlh × ($11.75 − $12.00) = $156.25 F

Diff: 2

Objective: 5

AACSB: Application of knowledge

16) The direct manufacturing labor efficiency variance during July is ________. A) $300.00 unfavorable B) $156.25 favorable C) $143.75 favorable D) $131.75 unfavorable Answer: A

Explanation: A) Direct manufacturing labor efficiency variance = [625 dlh − (3,000 × 0.20)] × $12 = $300 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

Demizio Valley Orchards, Inc. (DVO), developed standard costs for direct material and direct labor. In 2015, DVO estimated the following standard costs for one of their most well loved products, the DVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples. Budgeted quantity Budgeted price Direct materials 2.0 pounds $6.25 per pound Direct labor 0.20 hours $13.00 per hour

During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct materials at an average cost per pound of $6.00 and 200 direct labor hours at an average wage of $13.25 per hour.

17) September's direct material flexible-budget variance is ________. A) $100.00 unfavorable B) $150.00 favorable C) $50.00 unfavorable D) $575 favorable Answer: C

Explanation: C) Direct material flexible-budget variance = (2,300 × $6.00) − (1,100 × 2.0 × $6.25) = $50.00 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

18) The direct material price variance during September is ________. A) $575 favorable B) $575 unfavorable C) $50.00 unfavorable D) $50.00 favorable Answer: A

Explanation: A) Direct material price variance = 2,300 × ($6.00 − $6.25) = $575 F

Diff: 2

Objective: 5

AACSB: Application of knowledge

19) The direct material efficiency variance during September is ________. A) $575 favorable B) $575 unfavorable C) $625 favorable D) $625 unfavorable Answer: D

Explanation: D) Direct material efficiency variance = $6.25 × [2,300 − (1,100 × 2.0)] = $625 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

20) The direct labor flexible-budget variance during September is ________. A) $210.00 favorable B) $210.00 unfavorable C) $250.00 favorable D) $250.00 unfavorable Answer: A

Explanation: A) Direct labor flexible-budget variance = (200 × $13.25) − (1,100 × 0.20 × $13) = $210.00 F

Diff: 2

Objective: 5

AACSB: Application of knowledge

21) The direct labor price variance during September is ________. A) $260.00 unfavorable B) $280.00 favorable C) $50.00 unfavorable D) $50.00 favorable Answer: C

Explanation: C) Direct labor price variance = 200 dlh × ($13.25 − $13.00) = $50 U

Diff: 2

Objective: 5

AACSB: Application of knowledge

22) The direct labor efficiency variance during September is ________. A) $260.00 favorable B) $250.00 unfavorable C) $280.00 favorable D) $210.00 unfavorable Answer: A

Explanation: A) Direct labor efficiency variance = [200 dlh − (1,100 × 0.20)] × $13 = $260 F

Diff: 2

Objective: 5

AACSB: Application of knowledge

Answer the following questions using the information below:

These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity.

23) The best label for the formula (AQ - BQ) BP is the ________. A) efficiency variance B) price variance

C) total flexible-budget variance D) spending variance Answer: A

Diff: 2

Objective: 5

AACSB: Analytical thinking

24) The best label for the formula (AP - BP) AQ is the ________. A) efficiency variance B) price variance

C) total flexible-budget variance D) spending variance Answer: B

Diff: 2

Objective: 5

AACSB: Analytical thinking

25) The flexible-budget variance for materials is $5,000 (U). The sales-volume variance is $13,000 (U). The price variance for material is $31000 (F). The efficiency variance for direct manufacturing labor is $7,000 (F). Calculate the efficiency variance for materials. A) $36,000 favorable B) $13,000 unfavorable C) $6,000 favorable D) $36,000 unfavorable Answer: D

Explanation: D) $5,000(U) = $31,000(F) + Price variance Price variance = $5,000 + $31,000 = $36,000 (U)

Diff: 3

Objective: 5

AACSB: Application of knowledge

26) Unfavorable direct material price variances are ________. A) always credits B) always debits

C) credited to the Materials Control account

D) credited to the Accounts Payable Control account Answer: B

Diff: 1

Objective: 5

AACSB: Analytical thinking

27) Favorable direct manufacturing labor efficiency variances are ________. A) always credits B) always debits

C) debited to the Work-in-Process Control account D) debited to the Wages Payable Control account Answer: A

Diff: 1

Objective: 5

AACSB: Analytical thinking

28) These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. The best label for the formula [(AP)(AQ) - (BP)(BQ)] is the ________. A) efficiency variance. B) price variance

C) total flexible-budget variance D) spending variance Answer: C

Diff: 2

Objective: 5

AACSB: Analytical thinking

Answer the following questions using the information below:

Berman's Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Flexible Variances Budget Price Efficiency Material A $40,000 $1,000F $3,000U Material B 60,000 500U 1,500F Direct manufacturing labor 80,000 500U 2,500F

29) The most likely explanation of the above variances for Material A is that ________. A) a lower price than expected was paid for Material A

B) higher-quality raw materials were used than were planned C) the company used a higher-priced supplier

D) Material A used during September was $2,000 less than expected Answer: A

Diff: 3

Objective: 5

AACSB: Application of knowledge

30) The actual amount spent for Material B was ________. A) $58,000 B) $59,000 C) $60,000 D) $61,000 Answer: B

Explanation: B) $60,000 + $500 U - $1,500 F = $59,000

Diff: 2

Objective: 5

AACSB: Application of knowledge

31) The actual amount spent for direct manufacturing labor was ________. A) $80,000 B) $83,000 C) $82,000 D) $78,000 Answer: D

Explanation: D) $80,000 + $500 U - $2,500 F = $78,000

Diff: 2

Objective: 5

AACSB: Application of knowledge

32) 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 Answer: C

Diff: 3

Objective: 5

AACSB: Analytical thinking

Answer the following questions using the information below:

Midend's Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Flexible Variances Budget Price Efficiency Material A $25,000 $1,500U $1,800F Material B 32,000 600F 900U Material C 42,000 1,300U 900F

33) The actual amount spent for Material A was ________. A) $28,300 B) $25,300 C) $24,700 D) $21,700 Answer: C

Explanation: C) Actual amount spent for Material A = $25,000 + $1,500 U − $1,800 F = $24,700

Diff: 2

Objective: 5

AACSB: Application of knowledge

34) The actual amount spent for Material B was ________. A) $31,700 B) $30,500 C) $33,500 D) $32,300 Answer: D

Explanation: D) Actual amount spent for Material B = $32,000 − $600 F + $900 U = $32,300

Diff: 2

Objective: 5

AACSB: Application of knowledge

35) The explanation that lower-quality materials were purchased is most likely for ________. A) Material A B) Material B C) Material C

D) both Material A and C Answer: B

Diff: 3

Objective: 5

AACSB: Analytical thinking

36) The flexible-budget variance is the total of price variance and efficiency variance. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

37) The price variance is the difference between the actual price and the budgeted price of the input, multiplied by the actual quantity of input. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

38) For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the budgeted price. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

39) From the perspective of control, the direct materials price variance should be isolated at the time of sales.

Answer: FALSE

Explanation: From the perspective of control, the direct materials price variance should be isolated at the time of purchase of materials.

Diff: 2

Objective: 5

AACSB: Analytical thinking

40) Employees logging in to production floor terminals and other modern technologies greatly facilitate the use of a standard costing system. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

41) The use of high-quality raw materials is likely to result in a favorable efficiency variance and an unfavorable price variance. Answer: TRUE

Diff: 2

Objective: 5

AACSB: Analytical thinking

42) Direct material price variance is likely to be unfavorable if the purchasing manager switched to a lower-price supplier. Answer: FALSE

Explanation: Direct material price variance is likely to be favorable if the purchasing manager switched to a lower-price supplier.

Diff: 2

Objective: 5

AACSB: Analytical thinking

43) Direct manufacturing labor efficiency variance is likely to be unfavorable if underskilled workers are put on a job. Answer: TRUE

Diff: 2

Objective: 5

AACSB: Analytical thinking

44) Madzinga's Draperies manufactures curtains. A certain window requires the following: Direct materials standard 10 square yards at $5 per yard Direct manufacturing labor standard 5 hours at $10

During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric costing $68,600. Direct labor totaled 7,600 hours for $79,800.

Required:

a. Compute the direct materials price and efficiency variances for the quarter.

b. Compute the direct manufacturing labor price and efficiency variances for the quarter. Answer:

a. Direct materials variances: Actual unit cost = $68,600/14,000 square yards = $4.90 per square yard Price variance = 14,000 × ($5.00 - $4.90) = $1,400 favorable Efficiency variance = $5.00 × [14,000 - (1,500 × 10)] = $5,000 favorable

b. Direct manufacturing labor variances: Actual labor rate = $79,800/7,600 = $10.50 per hour Price variance = 7,600 × ($10.50 - $10.00) = $3,800 unfavorable Efficiency variance = $10.00 × (7,600 - 7,500) = $1,000 unfavorable

Diff: 3

Objective: 5

AACSB: Application of knowledge

45) Wilson's Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka requires the following: Direct materials standard 2 square yards at $13.50 per yard Direct manufacturing labor standard 1.5 hours at $20.00 per hour

During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric costing $39,375. Direct labor totaled 2,100 hours for $45,150.

Required:

a. Compute the direct materials price and efficiency variances for the quarter.

b. Compute the direct manufacturing labor price and efficiency variances for the quarter. Answer:

a. Direct materials variances: Actual unit cost = $39,375/3,150 square yards = $12.50 per square yard Price variance = 3,150 × ($13.50 - $12.50) = $3,150 favorable Efficiency variance = $13.50 × [3,150 - (1,500 × 2)] = $2,025 unfavorable

b. Direct manufacturing labor variances: Actual labor rate = $45,150/2,100 = $21.50 per hour Price variance = 2,100 × ($21.50 - $20.00) = $3,150 unfavorable Efficiency variance = $20.00 × (2,100 - (1,500 × 1.5) = $3,000 favorable

Diff: 3

Objective: 5

AACSB: Application of knowledge

46) The following data for the Prender Company pertain to the production of 800 urns during August. Direct Materials (all materials purchased were used): Standard cost: $4.80 per pound of urn. Total actual cost: $4,480. Standard cost allowed for units produced was $4,800. Materials efficiency variance was $96 unfavorable. Direct Manufacturing Labor: Standard cost is 2 urns per hour at $19.20 per hour. Actual cost per hour was $19.60. Labor efficiency variance was $288 favorable.

Required:

a. What is standard direct material amount per urn? b. What is the direct material price variance?

c. What is the total actual cost of direct manufacturing labor?

d. What is the labor price variance for direct manufacturing labor? Answer:

a. Standard cost per urn = $4,800 / 800 = $6.00 per urn Standard number of pounds per urn = $6.00 / $4.80 = 1.25 pound per urn

b. Materials price variance = Total variance - efficiency variance = ($4,480 − $4,800) − $96 unfavorable = $416 favorable

c. Total standard labor cost of actual hours = ((800/2) × $19.2) − $288 favorable = $7,392 Actual hours = $7,392/19.2 = 385 hours Total actual costs = 385 × $19.60 = $7,546

d. Labor price variance = $7,546 − $7,392 = $154 unfavorable

Diff: 3

Objective: 5

AACSB: Application of knowledge

47) The following data for the Panoid Garden Supplies Company pertains to the production of 2,000 garden spades during March. The spade consists of a wooden handle and a metal forged tool that comes in contact with the ground. Direct Materials (all materials purchased were used): Standard cost: $1.00 per handle and $3.00 per metal tool. Total actual cost: $9,000. Materials flexible-budget efficiency variance was $500 unfavorable. Direct Manufacturing Labor: Standard cost is 5 garden spades per hour at $20.00 per hour. Actual cost per hour was $21.00. Labor efficiency variance was $500 favorable.

Required:

a. What is the standard direct material amount per garden spade? b. What is the standard cost allowed for all units produced? c. What is the total direct materials flexible-budget variance? d. What is the direct material flexible-budget price variance? e. What is the total actual cost of direct manufacturing labor?

f. What is the labor price variance for direct manufacturing labor? Answer:

a. Standard cost per garden spade = $1.00 (handle) + $3.00 (tool) = $4.00 per garden spade

b. Standard cost allowed for all units = 2,000 × $4.00 = $8,000 per garden spade

c. Total materials variance = $8,000 − $9,000 = $1,000 unfavorable = $1,000 unfavorable

d. Materials price variance = Total variance - efficiency variance = ($9,000 − $8,000) − $500 unfavorable = $500 unfavorable

e. Total standard labor cost of actual hours = ((2,000/5) × $20) − $500 favorable = $7,500 Actual hours = $7,500/20 = 375 hours Total actual costs = 375 × $21 = $7,875

f. Labor price variance = $7,500 − $7,875 = $375 unfavorable

Diff: 3

Objective: 5

AACSB: Application of knowledge

48) The following data for the telephone company pertain to the production of 450 rolls of telephone wire during June. Selected items are omitted because the costing records were lost in a windstorm. Direct Materials (All materials purchased were used.) Standard cost per roll: a pounds at $4.00 per pound. Total actual cost: b pounds costing $9,600. Standard cost allowed for units produced was $9,000. Materials price variance: c . Materials efficiency variance was $80 unfavorable. Direct Manufacturing Labor Standard cost is 3 hours per roll at $8.00 per hour. Actual cost per hour was $8.25. Total actual cost: d . Labor price variance: e . Labor efficiency variance was $400 unfavorable.

Required:

Compute the missing elements in the report represented by the lettered items. Answer:

a. Standard cost per roll = $9,000/450 = $20.00 Standard number of pounds per roll = $20/$4 = 5 pounds per roll

b. Actual pounds = ($9,000 + $80)/$4 = 2,270 pounds

c. Materials price variance = $9,600 - ($9,000 + $80) = $520 unfavorable

d. Total standard labor cost of actual hours = (450 × 3 × $8) + $400 = $11,200 Actual hours = $11,200/$8 = 1,400 Total actual cost = 1,400 × $8.25 = $11,550

e. Labor price variance = $11,550 - $11,200 = $350 unfavorable

Diff: 3

Objective: 5

AACSB: Application of knowledge

49) Littrell Company produces chairs and has determined the following direct cost categories and budgeted amounts: Standard Inputs Standard Cost Category for 1 output per input Direct Materials 1.00 $7.50 Direct Labor 0.30 9.00 Direct Marketing 0.50 3.00

Actual performance for the company is shown below: Actual output: (in units) 4,000 Direct Materials: Materials costs $30,225 Input purchased and used 3,900 Actual price per input $7.75 Direct Manufacturing Labor: Labor costs $11,470 Labor-hours of input 1,240 Actual price per hour $9.25 Direct Marketing Labor: Labor costs $5,880 Labor-hours of input 2,100 Actual price per hour $2.80

Required:

a. What is the combined total of the flexible-budget variances? b. What is the price variance of the direct materials?

c. What is the price variance of the direct manufacturing labor and the direct marketing labor, respectively?

d. What is the efficiency variance for direct materials?

e. What are the efficiency variances for direct manufacturing labor and direct marketing labor, respectively?

Answer: a. Actual Results Flexible Budget Variances Direct materials $30,225 $30,000 $225 U Direct manufacturing labor 11,470 10,800 670 U Direct marketing labor 5,880 6,000 120 F $47,575 $46,800 $775 U

b. ($7.75 - $7.50) × (3,900) = $975 unfavorable

c. Manufacturing Labor ($9.25 - $9.00) × 1,240 = $310 unfavorable Marketing Labor ($2.80 - $3.00) × 2,100 = $420 favorable

d. [3,900 - (4,000 units × 1.00)] × $7.50 = $750 favorable

e. Manufacturing Labor = [1,240 hours - (4,000 × 0.30 hours)] × $9.00 = $360 unfavorable Marketing Labor = [2,100 hours - (4,000 × 0.50 hours)] × $3.00 = $300.00 unfavorable

Diff: 3

Objective: 5

AACSB: Application of knowledge

50) Give at least three good reasons why a favorable price variance for direct materials might be reported. Answer: Any three of the following:

a. The purchasing manager skillfully negotiated a better purchase price. b. The purchasing manager changed to a lower-priced supplier.

c. The purchasing manager purchased in larger quantities resulting in quantity discounts. d. The purchasing manager changed to lower-quality materials.

e. An unexpected industry oversupply resulted in decreased prices for materials. f. Budgeted purchase prices were not carefully set.

Diff: 3

Objective: 5

AACSB: Application of knowledge

51) Give at least three good reasons why an unfavorable efficiency variance for direct manufacturing labor might be reported.

Answer: Any three of the following:

a. More lower-skilled workers were scheduled than planned. b. Work was inefficiently scheduled.

c. Machines were not properly maintained. d. Budgeted time standards were too tight.

Diff: 3

Objective: 5

AACSB: Application of knowledge

Objective 7.6

1) A purchasing manager's performance is best evaluated using the ________. A) direct materials price variance

B) direct materials flexible-budget variance

C) direct manufacturing labor flexible-budget variance

D) affect the manager's action has on total costs for the entire company Answer: D

Diff: 3

Objective: 6

AACSB: Analytical thinking

2) Which of the following is a reason for a favorable material price variance? A) the purchasing manager bargaining effectively with suppliers

B) the purchasing manager giving orders for small quantity to reduce storage cost

C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material

D) the personnel manager hiring underskilled workers Answer: A

Diff: 2

Objective: 6

AACSB: Analytical thinking

3) Efficiency is ________.

A) the degree to which a predetermined objective or target is met

B) the difference between an actual input quantity and a budgeted input quantity

C) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies

D) the relative amount of inputs used to achieve a given output level Answer: D

Diff: 1

Objective: 6

AACSB: Analytical thinking

4) Which of the following is true of variance?

A) Managers should interpret a favorable variance as \"good news\" or assume it means their subordinates performed well.

B) A variance within an acceptable range is considered to be an \"in-control occurrence\" and calls for no investigation or action by managers.

C) The purchasing manager secured a discount for buying in bulk with fewer purchase orders which results in unfavorable material price variance.

D) Managers' performance must be evaluated solely on single variance. Answer: B

Diff: 2

Objective: 6

AACSB: Analytical thinking

5) The degree to which a predetermined objective or target is met is known as ________. A) efficiency B) variance C) effectiveness D) benchmarking Answer: C

Diff: 2

Objective: 6

AACSB: Analytical thinking

6) If manufacturing machines are breaking down more than expected, this will contribute to a(n) ________.

A) favorable direct manufacturing labor price variance B) unfavorable direct manufacturing labor price variance C) favorable direct manufacturing labor efficiency variance D) unfavorable direct manufacturing labor efficiency variance Answer: D

Diff: 2

Objective: 6

AACSB: Analytical thinking

7) Which of the following statements is true about analyzing a single variance? A) It should be overemphasized to take proper decision. B) It should be evaluated in isolation from other variances. C) It can lead to different other variances. D) It should be used for quality evaluation. Answer: C

Diff: 2

Objective: 6

AACSB: Analytical thinking

8) Variance analysis should be used ________.

A) to understand why variances arise and to improve future performance B) as the sole source of information for performance evaluation C) to punish employees that do not meet standards

D) to set the standards which are very easy to achieve to encourage employees to focus on meeting standards Answer: A

Diff: 3

Objective: 6

AACSB: Analytical thinking

9) Variances should be investigated ________. A) when they are kept below a certain amount

B) when there is a small variance for critical items such as product defects C) even though the cost of investigation exceeds the benefit D) when there is an in-control occurrence Answer: B

Diff: 3

Objective: 6

AACSB: Analytical thinking

10) Cost reductions can be the result of ________. A) price increments

B) congestion due to scheduling a large number of rush orders C) producing products faster and more efficiently

D) inappropriate assignment of labor or machines to specific jobs Answer: C

Diff: 2

Objective: 6

AACSB: Analytical thinking

11) Nonfinancial performance measures ________.

A) are usually used in combination with financial measures for control purposes B) are used to evaluate overall cost efficiency C) allow managers to make informed tradeoffs

D) are often the sole basis of a manager's performance evaluations Answer: A

Diff: 2

Objective: 6

AACSB: Analytical thinking

12) Which of the following is an example of nonfinancial performance measure? A) percentage of products started and completed without requiring any rework B) direct manufacturing labor efficiency variance C) direct materials price variance

D) quantity discounts obtained on order of large quantity Answer: A

Diff: 2

Objective: 6

AACSB: Analytical thinking

13) A company has a policy \"investigate all variances exceeding $3,000 or 15% of the budgeted cost,

whichever is lower.\" There is a variance of $2,000 in repair and maintenance costs of $12,000. What does the company do in the given situation?

A) It should be ignored as it is less than $3,000.

B) It deserves more attention as it is more than 15% of total repair cost. C) It should be considered an in-control occurrence.

D) It should be investigated as all variances are equally important. Answer: B

Diff: 2

Objective: 6

AACSB: Analytical thinking

14) Which of the following is an example of financial performance measure? A) number of square yards of cloth used to produce 1,000 jackets B) direct manufacturing labor efficiency variance

C) the percentage of jackets started and completed without requiring any rework D) quality of direct material Answer: B

Diff: 2

Objective: 6

AACSB: Analytical thinking

15) Effectiveness is ________.

A) the relative amount of inputs used to achieve a given output level

B) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies

C) the degree to which a predetermined objective or target is met

D) is a practice whereby managers focus more closely on areas that are not operating as expected and less closely on areas that are Answer: C

Diff: 2

Objective: 6

AACSB: Analytical thinking

16) A favorable variance can be automatically interpreted as \"good news.\" Answer: FALSE

Explanation: A favorable variance may not be good news at all because it adversely affects other variances that increase total costs.

Diff: 1

Objective: 6

AACSB: Analytical thinking

17) Managers must not interpret variances in isolation of each other. Answer: TRUE

Diff: 1

Objective: 6

AACSB: Analytical thinking

18) If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness. Answer: FALSE

Explanation: The most common outcome when variance analysis is used for performance evaluation is that managers seek targets that are easily attainable and avoid targets that require creativity and resourcefulness.

Diff: 2

Objective: 6

AACSB: Analytical thinking

19) When using variance analysis for performance evaluation, managers often focus on effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results. Answer: TRUE

Diff: 2

Objective: 6

AACSB: Analytical thinking

20) For critical items such as product defects, a small variance may prompt investigation. Answer: TRUE

Diff: 2

Objective: 6

AACSB: Analytical thinking

21) A variance within an acceptable range is considered to be an \"in-control occurrence\" and calls for no investigation or action by managers. Answer: TRUE

Diff: 1

Objective: 6

AACSB: Analytical thinking

22) In variance analysis, if any single performance measure is underemphasized, managers will tend to make decisions that will cause the particular performance measure to look good. Answer: TRUE

Explanation: In variance analysis, if any single performance measure is overemphasized, managers will tend to make decisions that will cause the particular performance measure to look good.

Diff: 2

Objective: 6

AACSB: Analytical thinking

23) Efficiency is the relative amount of inputs used to achieve a given output level. Answer: TRUE

Diff: 1

Objective: 6

AACSB: Analytical thinking

24) A percentage of products started and completed without requiring any rework is an example of nonfinancial performance measure. Answer: TRUE

Diff: 2

Objective: 6

AACSB: Analytical thinking

25) It is best to rely totally on financial performance measures rather than using a combination of financial and nonfinancial performance measures. Answer: FALSE

Explanation: It is best to rely on a combination of financial and nonfinancial performance measures.

Diff: 2

Objective: 6

AACSB: Analytical thinking

26) The goal of variance analysis is for managers to understand why variances arise, to learn, and to improve future performance. Answer: TRUE

Diff: 2

Objective: 6

AACSB: Analytical thinking

27) Possible operational causes of an unfavorable direct materials efficiency variance include poor design of products or processes. Answer: TRUE

Diff: 1

Objective: 6

AACSB: Analytical thinking

28) Effectiveness is the degree to which a predetermined objective or target is met. Answer: TRUE

Diff: 1

Objective: 6

AACSB: Analytical thinking

29) Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the standard cost of material Y is $4.00 per gram. During February, 22,000 grams were purchased for $4.10 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y.

Required:

a. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager.

b. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager.

c. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption. Answer:

a. Material price variance = 22,000 × ($4.10 - $4.00) = $2,200 unfavorable

b. Material price variance = 20,000 × ($4.10 - $4.00) = $2,000 unfavorable

c. Measuring the price variance at the time of materials purchased is desirable in situations where the amount of materials purchased varies substantially from the amount used during the period. Failure to measure the price variance based on materials purchased could result in a substantial delay in determining that a price change occurred.

Also, if the purchasing manager is to be held accountable for his/her purchasing activities, it is

appropriate to have the materials price variances computed at the time of purchase so the manager can include the variances on his/her monthly report. This encourages the purchasing manager to be more

responsible for the activities under his/her control. It provides a closer relationship between responsibility and authority and becomes a relevant performance measure.

Diff: 2

Objective: 6

AACSB: Application of knowledge

30) During February the Lungren Manufacturing Company's costing system reported several variances that the production manager was surprised to see. Most of the company's monthly variances are under $125, even though they may be either favorable or unfavorable. The following information is for the manufacture of garden gates, its only product: 1. Direct materials price variance, $800 unfavorable. 2. Direct materials efficiency variance, $1,800 favorable. 3. Direct manufacturing labor price variance, $4,000 favorable. 4. Direct manufacturing labor efficiency variance, $600 unfavorable.

Required:

a. Provide the manager with some ideas as to what may have caused the price variances. b. What may have caused the efficiency variances? Answer:

a. Direct materials' unfavorable price variance may have been caused by: (1) paying a higher price than the standard for the period, (2) changing to a new vendor, or (3) buying higher-quality materials.

Direct manufacturing labor's favorable price variance may have been caused by: (1) changing the work force by hiring lower-paid employees, (2) changing the mix of skilled and unskilled workers, or (3) not giving pay raises as high as anticipated when the standards were set for the year.

b. Direct materials' favorable efficiency variance may have been caused by: (1) employees/machinery working more efficiency and having less scrap and waste materials, (2) buying better-quality materials, or (3) changing the production process.

Direct manufacturing labor's unfavorable efficiency variance may have been caused by: (1) poor working conditions, (2) changes in the production process (learning something new initially takes longer), (3) different types of direct materials to work with, or (4) poor attitudes on behalf of the workers.

Diff: 3

Objective: 6

AACSB: Analytical thinking

31) Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the company's only accountant quit on July 10 and the president is at a loss as to the company's performance for the month of June.

Materials Control 300,000 Direct Materials Price Variance 10,000 Accounts Payable Control 290,000

Work-in-Process Control 120,000 Direct Materials Efficiency Variance 8,000 Materials Control 128,000

Work-in-Process Control 850,000 Direct Manufacturing Labor Price Variance 15,000 Direct Manufacturing Labor Efficiency Variance 18,000 Wages Payable Control 847,000

Required:

a. What kind of performance did the company have for June? Explain each variance. b. Why is Direct Materials given in two entries? Answer:

a. The first entry is for materials purchases. The credit entry indicates a favorable variance. This could be an indicator that the purchasing agent did a good job or he/she bought inferior goods.

Production was not as lucky in June. The debit entry for materials efficiency indicates that more materials were used than should have been under the operating plans for the month.

For labor, the price was unfavorable, while the efficiency was favorable. This could have been caused by using higher-priced workers who were, in fact, better workers. Of course, there are many other possible causes.

b. Recoding variances for direct materials is completed with two separate entries since the price

variance is isolated at the point of purchase, while the efficiency variance is isolated at the point of use.

Diff: 3

Objective: 6

AACSB: Analytical thinking

32) Waddell Productions makes separate journal entries for all cost accounting-related activities. It uses a standard cost system for all manufacturing items. For the month of June, the following activities have taken place: Direct Manufacturing Materials Purchased $300,000 Direct Manufacturing Materials Used 250,000 Direct Materials Price Variance 10,000 unfavorable (at time of purchase) Direct Materials Efficiency Variance 15,000 favorable Direct Manufacturing Labor Price Variance 6,000 favorable Direct Manufacturing Labor Efficiency Variance 4,000 favorable Direct Manufacturing Labor Payable 170,000

Required:

Record the necessary journal entries to close the accounts for the month. Answer: Materials Control 300,000 Direct Manufacturing Materials Price Variance 10,000 Accounts Payable Control 310,000

Work-in-Process Control 265,000 Direct Materials Efficiency Variance 15,000 Materials Control 250,000

Work-in-Process Control 180,000 Direct Manufacturing Labor Price Variance 6,000 Direct Manufacturing Labor Efficiency Variance 4,000 Wages Payable Control 170,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

33) Describe the purpose of variance analysis.

Answer: Variance analysis should help the company learn about what happened and how to perform better and should not be a tool in playing the \"blame game.\"

Diff: 2

Objective: 6

AACSB: Analytical thinking

Objective 7.7

1) The process by which a company's products or services are measured relative to the best possible levels of performance is known as ________. A) efficiency

B) benchmarking

C) a standard costing system D) variance analysis Answer: B

Diff: 1

Objective: 7

AACSB: Analytical thinking

2) Benchmarking is a process ________.

A) in which overhead costs are absorbed into units of output, or 'jobs'

B) in which a firm's performance levels are compared against the best levels of performance in competing companies or in companies having similar processes

C) which is based on calculating the breakeven point and analyzing the consequences of changes in various factors calculating the breakeven point

D) in which the underlying processes of an organization is optimized using a systematic approach to achieve more efficient goals Answer: B

Diff: 2

Objective: 7

AACSB: Analytical thinking

3) Which of the following statements is true of benchmarking? A) It is a systematic approach of optimizing business processes.

B) It fails to help to improve organizational performance as benchmarking data does not provide insight into why costs or revenues differ across companies.

C) It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies.

D) It considers four major business aspects such as financial, customer, internal business processes, and learning and growth. Answer: C

Diff: 2

Objective: 7

AACSB: Analytical thinking

4) When benchmarking, management accountants are most valuable when they ________. A) present differences in the benchmarking data to management B) highlight differences in the benchmarking data to management C) provide insight into why costs or revenues differ across companies D) provide complex mathematical analysis Answer: C

Diff: 2

Objective: 7

AACSB: Analytical thinking

5) Benchmarking is the continuous process of measuring products, services, and activities against the best possible levels of performance, either inside or outside the organization. Answer: TRUE

Diff: 1

Objective: 7

AACSB: Analytical thinking

6) Benchmarking measures how well a company and its managers are doing in comparison to other organizations. Answer: TRUE

Diff: 1

Objective: 7

AACSB: Analytical thinking

7) It is difficult for firms to find appropriate benchmarks because differences can exist across companies in their strategies, inventory costing methods, depreciation methods, and so on. Answer: TRUE

Diff: 2

Objective: 7

AACSB: Analytical thinking

8) When benchmarking it is best when management accountants simply analyze the costs and allow management to provide the insight as to why the revenues and costs differ between companies. Answer: FALSE

Explanation: When benchmarking, management accountants are more valuable when they analyze the costs and also provide management with insight as to why the revenues and costs differ between companies.

Diff: 1

Objective: 7

AACSB: Analytical thinking

9) What is benchmarking, and how is it useful to a company?

Answer: Benchmarking is the continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance in competing companies or in companies having similar processes. Companies can examine aspects of their own operations in comparison to similar operations and see if they are operating at a disadvantage.

Benchmarking might provide targets and opportunities to cut costs, and might even show where they have a competitive advantage over similar companies.

Diff: 2

Objective: 7

AACSB: Analytical thinking

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