Question

6. The materials Quantity (usage) variance should be computed:
   1. When materials are purchased
   2. When materials are used in production
   3. When only a portion of materials purchased is used
   4. Only when there is a significant difference between standard and actual price per unit for the materials
7. Which of the following statements is correct?
   1. The standard price per unit for direct materials should not include any purchase discounts as they are not usually under the control of purchasing managers
   2. The standard quanitity per unit for direct materials should not include any allowance for waste, spoilage, and other inefficiencies
   3. The standard hours per unit for direct labor should allow for normal machine downtime, leanup, and employee rest periods
   4. The standard rate per unit for direct labor should not include employee fringe benefits or employment taxes as they may vary across individual employees

8. Which of the following statements about the flexible budget is false?
   1. The flexible budget is useful for ex-post performance evaluations purposes
   2. In a flexible budget, both variables costs and fixed costs will vary across different levels of activity
   3. With a flexible budget, a manager can determine what costs should have been incurred at a given level of activity
   4. The flexible budget is a dynamic tool, in a budget can be constructed to compare to any level of actual costs within the relevant range

9. Which of the following variances would be LEAST useful in calling attention to a possible control problem in the manufacturing costs due to its ambiguity?
   1. Direct materials quantity variance
   2. Variable overhead efficiency variance
   3. Fixed overhead budget variance
   4. Direct labor rate variance

10. XYZ Corp produced 26,000 units of its only product during the last year. The standard machine hours per unit are 2.8. The original budget planned for 23,000 units of production. What are the budgeted machine hours at the original budget and the budgeted machine hours at the flexible budget respectively?

Budgeted Machine Hours	Flexible Machine Hours
A. 64,400	72,800
B. 72,800	64,400
C. 68,000	75,000
D. 75,000	68,000

Answer 1

Solution 1:

The materials Quantity (usage) variance should be computed when materials are used in production.

Hence option "B" is correct.

Solution 2:

"The standard hours per unit for direct labor should allow for normal machine downtime, lean-up, and employee rest periods".

This Statement is correct.

Hence option "C" is correct.

Solution 3:

"In a flexible budget, both variables costs and fixed costs will vary across different levels of activity".

This statement is false about the flexible budget.

Hence option "B" is correct.

Solution 4:

Fixed overhead budget variance would be LEAST useful in calling attention to a possible control problem in the manufacturing costs due to its ambiguity.

Hence option "C" is correct.

Solution 5:

Budgeted machine hours at the original budget = Original Budget units* standard machine hours per unit = 23000* 2.8 = 64,400

Budgeted machine hours at the flexible budget = Units Produced* standard machine hours per unit = 26000*2.8 = 72,800

Hence option "A" is correct.