Question

1) Which of the following statements is true?

A) Organizations all have the same set of budgets

B) Budgets should not be used as part of performance evaluation.

C) Budgets are a quantitative expression of an organization’s goals and objectives.

D) Organizations are all required to budget

2) A total labor variance is best defined as the difference between total:

A) actual cost and the standard cost for the standard hours allowed to produce the output that was made

B) standard cost for the actual quantity of hours worked and the standard cost for the standard hours allowed to produce the output that was made

C) actual cost and the standard cost for the actual quantity of hours worked

3) A materials price variance would not be caused by:

A) not taking a quantity discount

B) ordering from a new supplier who is located farther from our factory resulting in higher freight charges

C) requiring laborers to work overtime

D) ordering the wrong quality of materials

Answer 1

1) C) Budgets are a quantitative expression of an organization’s goals and objectives.

Explaination C) Budget tells us that what a company wants to achieve financially or where it projects to be in future.

A) Every organisation has a different type of budget based on the type of industry they are in and their functioning

B) Budgets should be used to determine the variance in actual and budgeted performance of the organisation.

D) All organisation are not compulsorily bound to make a bugdet.They May operate without even making a budget.

2) C) actual cost and the standard cost for the actual quantity of hours worked

Explaination C) this gives us the variance in total cost for the actual quantity

A)this uses the standard hours to produce actual output but we need actual hrs for actual output.So, it will not give us actual variance in the cost.

B) this also uses standard cost for the standard hours allowed and hence will not compare the standard cost for actual output.Therefore, not give us the actual cost variance.

3) C) requiring laborers to work overtime

Explaination C) Material variance cannot be caused by labourers working overtime as it will only affect the direct labour wages paid to them and this will not have any affect over the price of the material.

A) Quantity discount is directly related with material price, so it will cause a material price variance.

B) Higher freight will also affect the material price and hence the material price variance would be caused.

D) Ordering wrong quantity will cause either higher or lower inventory charges and ordering cost therefore it will also cause material price variance.