A202 Exam 3 Quick Checks

Capital budgeting is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

True

The payback period is the amount of time for the investment to generate enough net cash flow to return the initial cost of investment.

True

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return, the asset should be acquired.

True

Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment involves a long-term commitment, and the decision could be difficult or impossible to reverse.

true

The payback period method, unlike the net present value method, does not ignore cash flows after the point of cost recovery.

False

Suver Corporation has a standard costing system. The following data are available for June:

 Actual quantity of direct materials purchased  60,000 Pounds

Standard Price of direct materials $2.00 per pound

Material price variance $6,000 unfavorable

Material quantity variance $3,000 Favorable

Hint: use this formula to solve:

AQ\*(AP-SP)

6000=60000(x-2)

2\.10 per pound

Waste on the production line will result in an unfavorable materials price variance.

False

The materials price variance is computed based on the amount of materials purchased during the period.

True

If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U).

True

The production department should generally be responsible for materials price variances that resulted from:

rush orders arising from poor scheduling.

Standard costs can be used by management to assess the reasonableness of actual costs incurred.

True

One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.

True

Standard costs are used in the calculation of:

Price and quantity variances

Identify the situation below that will result in a favorable variance.

Actual revenue is higher than budgeted revenue

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity) is called a(n):

Flexible budget performance report

Standard costs are preset costs for delivering a product or service under normal conditions.

True

A cost variance is the difference between actual cost and standard cost.

True

A cost variance is the difference between actual cost and standard cost.

Price Variance

Which of the following is not part of the flow of events in variance analysis:

Working to ensure all variance are favorable

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The sales expected if the company produces and sells 16,000 units is:48,000/12,000=4\*16,000

64000