Question

1. What variance captures the difference between AQ x AP and AQ x SP for direct materials?

A Materials price variance

B Materials usage variance

C Materials total variance

D None of the above

2. What variance captures the difference between AQ x SP and SQ x SP for direct labor?

A Labor rate variance

B Labor efficiency variance

C Labor total variance

D None of the above

3. Surfer Company builds custom surfboards. The actual amount of overhead incurred cannot be accurately measured until year end. Every surfboard consumes overhead activities in different proportions. Which of the following product costing methods do you recommend that Surfer Company use?

A job-order costing

B process costing

C all of the above

D none of the above

4. When attempting to compute a single product cost amount, companies should NOT try to combine

A Traditional Costing and Absorption Costing

B Traditional Costing and Activity-Based Costing

C Traditional Costing and Normal Costing

D Traditional Costing and Job-Order Costing

5. Which of the following costing methods do we always use when preparing the Master Budget?

A Actual Costing

B Normal Costing

C Standard Costing

D None of the above

6. Where in the Master Budget do we NOT use absorption costing?

A Cost of Goods Sold Budget

B Ending Inventory Budget

C Gross Margin version of the Budgeted Income Statement

D Contribution Margin version of the Budgeted Income Statement

7. Which of the following components of the Master Budget are NOT impacted by whether we choose to use traditional costing or activity-based costing?

A Direct Labor Budget

B Manufacturing Overhead Budget

C Ending Inventory Budget

D Cost of Goods Sold Budget

8. When attempting to compute a single product cost amount, companies should NOT try to combine

A Actual Costing and Variable Costing

B Actual Costing and Job Order Costing

C Actual Costing and Normal Costing

D Actual Costing and Activity-Based Costing

9. When attempting to compute a single product cost amount, companies should NOT try to combine

A Process Costing and Job-Order Costing

B Process Costing and Traditional Costing

C Process Costing and Standard Costing

D Process Costing and Variable Costing

10. Budgets are good for the organization because they help managers

A decrease reputational risk.

B protect non-value-added costs.

C monitor progress towards their goals

D encourage innovation.

Answer 1

Ans. 1 AQ stands for Actual Quantity, SP stands for Standard Price and AP stands for Actual Price

            Difference between AQ * AP and AQ *SP means for actual quantity produced we need to find difference between actual price and standard price. This is a price variance which is given by Materials Price Variance.

So the answer is A. Materials Price Variance.

Ans. 2 For Direct Labor AQ stands for Actual Quantity i.e. Actual hours worked, SP stands for Standard Price i.e. Standard Rate per hour and SQ stands for Standard Quantity i.e. Standard hours.

Now difference between AQ*SP and SQ *SP means at Standard rate per hour variance occurring due to difference in actual hours worked and standard hours. So this refers to variance occurring due to efficiency which is addressed by Labor Efficiency Variance.

So the answer is B. Labor efficiency Variance.

Ans. 3 Custom made products are generally different from each other. In current case each surfboard consumes different proportions of activity and hence cost of each surfboard should be computed separately.

In job order costing, costs are assigned to individual products or batches of products. It is used when products are sufficiently different from each other.

Here for calculating the cost of surfboards job order costing shall be used.

So the answer is A. Job Order Costing

Ans.4 Traditional costing is the allocation of factory overhead to products based on the volume of production resources consumed i.e. direct labor hours consumed or machine hours used.

Activity Based Costing is a costing system that calculates the costs of individual activities and assigns costs to products or services on the basis of the activities consumed to produce the product or provide the service.

So while computing the single product cost the companies should not combine above mentioned two costing methods.

So the answer is B. Traditional and Activity Based Costing

Ans .5 Master Budget is a budget for the future of the company that includes all other budgets such as sales budget, production budget, manufacturing budget etc.

Standard Costing records expected costs for production i.e. material cost, labor cost, overhead cost and variance for the same.

So for preparing master budget standard costing is always used.

So the answer is C. Standard Costing

Ans. 6 Under absorption Costing manufacturing overheads are allocated to product in the year in which product is sold.

A contribution margin income statement is an income statement in which all variable expenses are deducted from sales to arrive at a contribution margin, from which all fixed expenses are then subtracted to arrive at the net profit or loss for the period. Hence manufacturing overheads are expensed during the period in which they are incurred I.e. in the period in which product is manufactured.

So in Contribution Margin Income statement absorption costing is not used.

Answer is D. Contribution Margin Version of Budgeted Income Statement

Ans. 7 Traditional Costing and Activity Based Costing are different methods of allocating overhead costs to a product.

Direct Labor Budget does not contain any component of overhead costs. Hence it will not be affected whether any of the above two methods are used.

Hence the answer is A. Direct Labor Budget.

Ans. 8 Actual costing is the recording of product costs based on the following factors: Actual cost of materials, actual cost of labor, actual overhead costs incurred, allocated using the actual quantity of the allocation base experienced during the reporting period.

Normal costing records the cost of manufactured products with the actual materials costs, the actual direct labor costs, and manufacturing overhead based on a predetermined manufacturing overhead rate.

Hence Overhead costs are recorded in different manner in both the above methods. Hence these two costing methods shall not be combined while calculating the cost of a single product.

So the answer is C. Actual costing and Normal Costing.

Ans 9. Process costing is a method of assigning costs to units of production in companies producing large quantities of homogeneous products. Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture.

Job-order costing is used by firms, when the goods are produced only against special orders i.e. for calculating cost of individual products that are significantly different from each other.

Hence process costing and job order costing cannot be used together.

So the answer is A. Process Costing and Job-Order Costing

Ans. 10 Budget is a future plan for a defined period of time which includes planned sales volume, costs, expenses, revenues, liabilities, cash flows, etc.

One of the primary goals of budget is to achieve the desired output within estimated costs.

Hence budget helps in reducing unnecessary costs.

So the answer is B. protect non-value added costs.