Question

1.Which of the following is true about "management by exception"?

It requires managers to investigate all favorable and unfavorable variances.

It requires the use of variance analysis.

It rarely requires the use of variance analysis.

It requires managers to calculate standard costs, but ignore actual costs.

None of the answer choices is correct.

2.Which of the following is most likely to cause an unfavorable direct materials quantity variance?

Low quality materials increased waste of materials.

High quality materials reduced waste of materials.

New production techniques reduced waste of materials.

Improved maintenance of production equipment reduced waste of materials.

None of the answer choices is correct.

3.If Ever Green Corporation has an unfavorable fixed overhead spending variance, which of the following would most likely be the reason for this variance?

Actual fixed overhead was less than predicted.

More units were actually produced than predicted.

Actual fixed overhead was more than predicted.

Fewer units were actually produced than predicted.

None of the answer choices is correct.

4.Colfax Company incurred production labor costs of $5,400 in February (payable in March) for work requiring 1,100 standard hours at a standard rate of $15 per hour; 1,200 actual direct labor hours were worked. Based on this information, which one of the following would be included in the journal entry to record the labor costs?

$16,500 credit to Work-in-process Inventory.

$1,500 credit to Labor Efficiency Variance.

$16,200 credit to Wages Payable.

$1,500 credit to Labor Rate Variance.

None of the answer choices is correct

5.If a company has a favorable materials quantity variance of $3,300, the journal entry to record the use of direct materials in production along with this related quantity variance would include:

a credit to Materials Quantity Variance.

a credit to Materials Price Variance.

a debit to Materials Quantity Variance.

a debit to Materials Price Variance.

None of the answer choices is correct.

Answer 1

Answer to first question in the list: Option-(b): It requires the use of variance analysis Reason: Option-(b) is correct because management by exception is a concept whereby managers set standards for each activity. At the end of investigating period, managers compare the actual results with the standard setforth already. Therefore, management by exception requires the use of variance analysis. Variance is nothing but the difference observed between standards setforth and actual results. In case of revenues, if actual results are higher than standards setforth, it is favorable; if actual result is less than standards, it is unfavorable. Similarly, in case of expenses, if actual result is higher than standard, it is unfavorable; if actual result is less than standard, it is favorable. Option-(a), (c) & (d) are incorrect because managers investigate variances that are significant only. That is, whether it is favorable or infavorable, managers do not concentrate on investigating those variances that are not significant. It means that the managers do not investigate all favorable and unfavorable variances but investigate only the significant variances.