Variance analysis is a very important tool for financial analyses. As soon as the variance is computed, the exact reasons are for the variance are clear.

Question 1Variance analysis is a very important tool for financial analyses. As soon as the variance is computed, the exact reasons are for the variance are clear.

 

Answers:            

 

True

 

 False

 

Question 2Wilson is a cost analyst, and he has just received a standard cost report for October 2018. Wilson notes that the report shows a negative variance for materials – the annotation is 2,388 pounds used, 2,154 pounds standard. This illustrates what is called an unfavorable rate variance.

 

Answers:            

 

True

 

 False

 

Question 3Standards are the cost system that estimates costs incurred and time used and compares to actual costs.

 

Answers:            

 

 True

 

False

 

Question 4The Institute of Management Accountants (IMA) has promulgated an ethics code for management accountants called The Statement of Ethical Practice, which has four standards of ethical conduct. Which of the following is NOT one of those standards?

 

Answers:            

 

A. Competence

 

B. Credibility

 

C. Continuing Education

 

D. Integrity

 

E. Confidentiality

 

Question 5Doc Jones owns Doc’s coffee shop, and his accountant has told him that his total fixed costs to run his business in a very nice upscale business-oriented neighborhood, excluding his salary, are $15,000 per month. Doc is in competition with a Seattle’s coffee shop just down the block. Consequently, his prices are about the same as theirs. He has calculated that the average cup of coffee cost him $1.87 cents, which includes the coffee, the cup and condiments, such as sugar, sweetener, creams, napkins, and stir sticks.

 

His average selling price is $4.85 per cup. He currently sells 8,000 cups of coffee per month. Doc has figured that if he lowers his price by $1.00 per cup, he would increase his sales to 11,000 cups per month and make more money. The amount he would increase his earnings is:

 

Answers:            

 

A. Not enough information to answer the question.

 

B. $13,451

 

C. Doc would earn the same.

 

D. $4,289

 

E. Doc would earn less.

 

Question 6Activity-Based-Costing (ABC) is a cost allocation system that is designed to allocate overhead costs to activities and then assigns those costs to products. Which of the following is NOT associated with ABC?

 

Answers:            

 

A. Cost objects

 

B. Activity center

 

C. Full absorption

 

D. Cost driver

 

Question 7The use of a standard cost system is a great employee motivator because each negative variance causes the employee to work harder, especially if management is very diligent about follow-up punitive measures.

 

Answers:            

 

True

 

 False

 

Question 8Cost allocation is in the process of spreading or assigning indirect costs to a finished product. Assume that the cost of an overhead item is $100. There are 3 products that benefit from this overhead item and during this period 10 units of A, 20 units of B, and 70 units of C are produced.

 

If the allocation of the overhead expense is based on units of production, which product will absorb the most of the $100?

 

Answers:            

 

A. Product A

 

B. Product B

 

C. Product C

 

D. All products will receive the same amount of overhead (called “fair share”)

 

Question 9Susie owns a belt store and her fixed costs are $2500 per month. She sells each of her belts for $30 and they each cost her $10 each to buy. How many belts does Susie have to sell to break even?

 

Answers:            

 

A. 1,250

 

B. 125

 

C. 25

 

D. 140

 

Question 10Jane’s New Cosmetics is considering opening a new store and has determined that total monthly fixed costs will be $23,500. Jane’s average contribution margin rate is 32.4%. Her breakeven for the projected new store would be approximately:

 

Answers:            

 

A. $72,530 per month

 

B. $82,600 per month

 

C. $1,400,000 per year.

 

D. None of the above.

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