Question

1. Standard costs embody targets. The targets should:
   A. be very easy to achieve so everyone gets rewarded
   B. reflect ideal performance so the company can measure efficiency losses
   C. be used to evaluate performance and assign blame
   D. reflect a particular management team's goals
   
2. What is the typical treatment of small year-end balances in the variance accounts?
   A. Recalculate all standard costs, and adjust to the actual basis for external financial reporting purposes
   B. Close to cost of goods of sold
   C. Prorate the direct material and labor variances across cost of goods sold, work in process and finished goods inventories
   D. Prorate the variances across the raw materials, work in process, and finished goods inventories
   
3. Which of these is true?
   A. Budgeted fixed factory overhead = Budgeted overhead per unit × actual volume
   B. Budgeted fixed factory overhead = Budgeted overhead per unit × standard volume
   C. Budgeted factory overhead = (Budgeted fixed overhead per unit × budgeted volume) + actual variable overhead
   D. Budgeted factory overhead = Budgeted fixed overhead + (budgeted variable overhead x budgeted volume)
   
4. Which of the following is not a type of overhead variance?
   A. Overhead spending variance
   B. Overhead wage variance
   C. Overhead efficiency variance
   D. Overhead volume variance

Answer 1

1. Easily achievable targets will set a lower benchmark indicating a low level of productivity. Blaming someone not meeting the standard will create a negative impact on the person. Standards are not set keeping in consideration of the requirement of a particular team management. It is set to control cost and improve efficiency, productivity, etc.

Answer: B

2. Material and labor variance is first transferred to WIP inventory. WIP inventory is transferred to finished goods once it is completed from production. The finished goods are converted to cost of goods sold at the time of sale.

Answer: C

3. The budgeted overhead does not include any components of actuals. So option A and C are incorrect. Budgeted fixed factory overhead include only budgeted fixed overhead and not budgeted overhead (fixed + variable). So option B is incorrect.

Answer: D

4. There are standard cost set to identify both fixed and variable variance on overhead spending, efficiency and volume. But there is not concept of overhead wage variance under overhead variance. Direct wages are not overhead. Indirect wages are calculated under labor variance.

Answer: B

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