MAS MCQs

Performance
MCQs
Contains: in a random basis
Gleim Book
Gleim CD
IMA - Retired 2005
IMA - Retired 2008
By: Mohamed “hengoo” to dvd4arab.com members

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(256 questions)
[1] Gleim #: 7.6.118 -- Source: Publisher

Using the three-variance method for analyzing factory overhead, which of the following is used to compute the spending
variance?
Budget Budget
Actual Allowance Allowance
Factory Based on Based on
Overhead Actual Input Standard Input
A. No No No
B. Yes Yes Yes
C. Yes No Yes
D. No Yes Yes
[Fact Pattern #1]

A company manufactures one product and has a standard cost system. In April the company had the following experience:
Direct Materials Direct Labor

Actual $/unit of input (lbs. & hrs.) $28 $18
Standard price/unit of input $24 $20
Standard inputs allowed per unit of output 10 4
Actual units of input 190,000 78,000
Actual units of output 20,000 20,000
[2] Gleim #: 7.4.51 -- Source: CIA 594 III-72
(Refers to Fact Pattern #1)

The direct materials price variance for April is
A. $240,000 unfavorable.
B. $156,000 favorable.
C. $760,000 unfavorable.
D. $760,000 favorable.
[Fact Pattern #2]

Franklin Glass Works’ production budget for the year ended November 30 was based on 200,000 units. Each unit requires two
standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and the fixed overhead rate was
estimated to be $3.00 per unit. Both fixed and variable overhead are assigned to the product on the basis of direct labor hours. The
actual data for the year ended November 30 are presented as follows.
Actual production in units 198,000

Actual direct labor hours 440,000
Actual variable overhead $352,000
Actual fixed overhead $575,000
Copyright 2008 Gleim Publications, Inc. Page 1

Printed for Mohammad Al-Sharafi
(256 questions)
[3] Gleim #: 7.6.93 -- Source: CMA 1290 3-5

The standard hours allowed for actual production for the year ended November 30 total
A. 247,500
B. 400,000
C. 396,000
D. 495,000
In a responsibility accounting system, a feedback report that focuses on the difference between budgeted amounts and actual
amounts is an example of
A. Management by exception.
B. Ignoring other variables for which the budgeted goals were met.
C. Granting rewards to successful managers.
D. Assessing blame.
[Fact Pattern #3]
Clear Plus, Inc. manufactures and sells boxes of pocket

protectors. The static master budget and the actual results for Actuals Static Budget
May appear in the opposite column. Unit sales 12,000 10,000
Sales $132,000 $100,000
Variable costs of sales (70,800) (60,000)
Contribution margin 61,200 40,000
Fixed costs (32,000) (30,000)
Operating income $ 29,200 $ 10,000
[5] Gleim #: 7.8.150 -- Source: CMA 695 3-26

The operating income for Clear Plus, Inc. using a flexible budget for May is
A. $12,000
B. $19,200
C. $18,000
D. $30,000

(256 questions)
[Fact Pattern #4]

Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has
established the following standards for the prime costs of one unit of product.
Standard Standard Standard

Quantity Price Cost
Direct materials 5 pounds $ 3.60/pound $18.00
Direct labor 1.25 hours $12.00/hour 15.00
$33.00
During May, Jackson purchased 125,000 pounds of direct materials at a total cost of $475,000. The total factory wages for May
were $364,000, 90% of which were for direct labor. Jackson manufactured 22,000 units of product during May using 108,000
pounds of direct materials and 28,000 direct labor hours.
[6] Gleim #: 7.4.44 -- Source: CMA 692 3-20

The direct labor price (rate) variance for May is
D. $6,000 unfavorable.
[7] Gleim #: 7.3.30 -- Source: CIA 582 IV-22
Which of the following is least likely to cause an unfavorable materials quantity (usage) variance?
A. Scheduling of substantial overtime.

B. Machinery that has not been maintained properly.
C. Labor that possesses skills equal to those required by the standards.
D. Materials that do not meet specifications.
Division Z of a company produces a component that it currently sells to outside customers for $20 per unit. At its current
level of production, which is 60% of capacity, Division Z’s fixed cost of producing this component is $5 per unit and its
variable cost is $12 per unit. Division Y of the same company would like to purchase this component from Division Z for
$10. Division Z has enough excess capacity to fill Division Y’s requirements. The managers of both divisions are
compensated based upon reported profits. Which of the following transfer prices will maximize total company profits and be
most equitable to the managers of Division Y and Division Z?
A. $20 per unit.

B. $12 per unit.
C. $18 per unit.
D. $22 per unit.

(256 questions)

Using the two-variance method for analyzing overhead, which of the following variances contains both variable and fixed
overhead elements?
Controllable
(Budget) Volume Efficiency
Variance Variance Variance
A. Yes Yes Yes
B. Yes No No
C. No No No
D. Yes Yes No
Division A of a company is currently operating at 50% capacity. It produces a single product and sells all its production to
outside customers for $13 per unit. Variable costs are $7 per unit, and fixed costs are $6 per unit at the current production
level. Division B, which currently purchases this product from an outside supplier for $12 per unit, would like to purchase
the product from Division A. Division A will operate at 80% capacity to meet outside customers’ and Division B’s demand.
What is the minimum price that Division A should charge Division B for this product?
A. $9.60 per unit.

B. $12.00 per unit.
C. $7.00 per unit.
D. $13.00 per unit.
Full-cost price is
A. The price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.
B. The price representing the cash outflows of the supplying division plus the contribution to the supplying division from
an outside sale.
C. The price usually set by an absorption-costing calculation.
D. The price on the open market.
[12] Gleim #: 7.6.98 -- Source: CMA 1290 3-10

Franklin’s fixed overhead volume variance for the year is
C. $19,000 favorable.

(256 questions)
[Fact Pattern #5]
Folsom Fashions sells a line of women’s dresses. Folsom’s

performance report for November follows. Actual Budget
The company uses a flexible budget to analyze its Dresses sold 5,000 6,000
performance and to measure the effect on operating income Sales $235,000 $300,000
of the various factors affecting the difference between Variable costs (145,000) (180,000)
budgeted and actual operating income. Contribution margin (CM) 90,000 120,000
Fixed costs (84,000) (80,000)
Operating income $ 6,000 $ 40,000
[13] Gleim #: 7.8.149 -- Source: CMA 1291 3-18

What additional information is needed for Folsom to calculate the dollar impact of a change in market share on operating
income for November?
A. Folsom’s budgeted market share, the budgeted total market size, and average market selling price.
B. Folsom’s budgeted market share and the actual total market size.
C. Folsom’s budgeted market share and the budgeted total market size.
D. Folsom’s actual market share and the actual total market size.
[Fact Pattern #6]

The following are the relevant data for calculating sales variances for Fortuna Co., which sells its sole product in two countries:
Gallia Helvetica Total

Budgeted selling price per unit $6.00 $10.00 --
Budgeted variable cost per unit (3.00) (7.50) --
Budgeted contribution margin per unit $3.00 $ 2.50 --
Budgeted unit sales 300 200 500

Budgeted mix percentage 60% 40% 100%
Actual units sold 260 260 520
Actual selling price per unit $6.00 $ 9.50 NA

The sales volume variance for the two countries is
A. $120 U.
B. $30 F.
C. $150 U.
D. $130 U.

(256 questions)
[15] Gleim #: 8.1.4 -- Source: CMA 1291 3-10

A segment of an organization is referred to as a service center if it has
A. Responsibility for developing markets and selling the output of the organization.
B. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply.
C. Authority to provide specialized support to other units within the organization.
D. Responsibility for combining the raw materials, direct labor, and other factors of production into a final output.
[Fact Pattern #7]
Parkside, Inc. has several divisions that operate as The actual costs per unit used by the Entertainment
decentralized profit centers. Parkside’s Entertainment Division Division are presented below.
manufactures video arcade equipment using the products of
two of Parkside’s other divisions. The Plastics Division Plastic Video
manufactures plastic components, one type that is made Components Cards
exclusively for the Entertainment Division, while other less Direct material $1.25 $2.40
complex components are sold to outside markets. The products Direct labor 2.35 3.00
of the Video Cards Division are sold in a competitive market; Variable overhead 1.00 1.50
however, one video card model is also used by the Fixed overhead .40 2.25
Entertainment Division. Total cost $5.00 $9.15
The Plastics Division sells its commercial products at full

cost plus a 25% markup and believes the proprietary
plastic component made for the Entertainment Division
would sell for $6.25 per unit on the open market. The
market price of the video card used by the Entertainment
Division is $10.98 per unit.
[16] Gleim #: 8.4.57 -- Source: CMA 696 3-28

Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of $5.60 per plastic component
with the Entertainment Division. This price will
A. Encourage the Entertainment Division to seek an outside source for plastic components.
B. Demotivate the Plastics Division causing mediocre performance.
C. Motivate both divisions as estimated profits are shared.
D. Cause the Plastics Division to reduce the number of commercial plastic components it manufactures.

(256 questions)
[17] Gleim #: 8.1.11 -- Source: CMA 1296 3-16

Rockford Manufacturing Corporation uses a responsibility accounting system in its operations. Which one of the following
items is least likely to appear in a performance report for a manager of one of Rockford’s assembly lines?
A. Direct labor.
B. Repairs and maintenance.
C. Materials.
D. Depreciation on the manufacturing facility.
The proposed transfer price is based upon the outlay cost. Outlay cost plus opportunity cost is
A. The retail price.

B. The price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.
C. The price representing the cash outflows of the supplying division plus the contribution to the supplying division from
an outside sale.
D. The price usually set by an absorption-costing calculation.
The following is a standard cost variance analysis report on direct labor cost for a division of a manufacturing company.
Standard
Actual Hours Actual Hours Hours at
at Actual at Standard Standard
Job Wages Wages Wages
213 $ 3,243 $ 3,700 $ 3,100
215 15,345 15,675 15,000
217 6,754 7,000 6,600
219 19,788 18,755 19,250
221 3,370 3,470 2,650
Totals $48,500 $48,600 $46,600
What is the total static budget direct labor variance for the division?
A. $100 favorable.
B. $1,900 unfavorable.
D. $100 unfavorable.

(256 questions)
[20] Gleim #: 8.4.44 -- Source: CMA 692 3-14

The most fundamental responsibility center affected by the use of market-based transfer prices is a(n)
A. Investment center.
B. Production center.
C. Profit center.
D. Cost center.
River Company uses a standard-cost accounting system. It applies overhead based on direct labor hours. The following
overhead costs and production data are available for March:
Standard fixed overhead rate per DLH $1.50

Standard variable overhead rate per DLH $5.00
Budgeted monthly DLH 30,000
Actual DLH worked 28,000
Standard DLH allowed for actual production 27,500
Overall overhead variance -- favorable $2,500
What is the applied factory overhead for March?
A. $137,500
B. $178,750
C. $182,000
D. $176,250
[22] Gleim #: 7.5.68 -- Source: CMA 1295 3-8
The efficiency variance for either direct labor or materials can be divided into
A. Volume variance and mix variance.

B. Yield variance and mix variance.
C. Spending variance and yield variance.
D. Yield variance and price variance.

(256 questions)

The following data relate to Tray Co.’s manufacturing operations:
Standard direct labor hours per unit 3

Number of units produced 8,000
Standard variable overhead per standard
direct labor hour $2
Tray’s variable overhead efficiency variance is
A. $0
B. $3,000 F.
C. $2,000 F.
D. $1,000 U.
The format for internal reports in a responsibility accounting system is prescribed by
A. Generally accepted accounting principles.

B. Management.
C. The American Institute of Certified Public Accountants.
D. The Financial Accounting Standards Board.
[25] Gleim #: 8.2.34 -- Source: CMA 693 3-29
Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its
allocation methods?
A. To allocate depreciation of forklifts used by workers at its central warehouse, Shahlimar Electronics uses
predetermined amounts calculated on the basis of the long-term average use of the services provided.
B. Rainier Industrial does not allow its service departments to pass on their cost overruns to the production departments.
C. Tashkent Auto’s MIS is operated out of headquarters and serves its various divisions. Tashkent’s allocation of the
MIS-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their MIS needs.
D. Manhattan Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its
headquarters building. It also uses ROI to evaluate the divisional performances.
[26] Gleim #: 7.8.146 -- Source: CMA 1291 3-15

Folsom’s sales price variance for November is

(256 questions)

The sales quantity variance for the two countries is
A. $156 U.
B. $100 F.
C. $30 F.
D. $56 F.
[Fact Pattern #8]

Nanjones Company manufactures a line of products distributed nationally through wholesalers. Presented below are planned
manufacturing data for the year and actual data for November of the current year. The company applies overhead based on planned
machine hours using a predetermined annual rate.
Planning Data Data for

Annual November November
Fixed overhead $1,200,000 $100,000 Direct labor hours (actual) 4,200
Variable overhead $2,400,000 $220,000 Direct labor hours (plan based on output) 4,000
Direct labor hours 48,000 4,000 Machine hours (actual) 21,600
Machine hours 240,000 22,000 Machine hours (plan based on output) 21,000
Fixed overhead $101,200
Variable overhead $214,000
[28] Gleim #: 7.6.88 -- Source: CMA 1292 3-19

Nanjones’ fixed overhead volume variance for November was
A. $10,000 favorable.
[29] Gleim #: 8.5.89 -- Source: CMA 1292 3-24
Managerial performance can be measured in many different ways, including return on investment (ROI) and residual income.
A good reason for using residual income instead of ROI is that
A. ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage.
B. Residual income is well understood and often used in the financial press.
C. Goal congruence is more likely to be promoted by using residual income.
D. Residual income can be computed without regard to identifying an investment base.

(256 questions)
[30] Gleim #: 7.6.80 -- Source: CMA 1295 3-7

The variance in an absorption costing system that measures the departure from the denominator level of activity that was
used to set the fixed overhead rate is the
A. Spending variance.
B. Efficiency variance.
C. Flexible budget variance.
D. Production volume variance.
[31] Gleim #: 7.8.154 -- Source: CMA 687 4-16
The following information is available for the Mitchelville Products Company for the month of July.
Master
Budget Actual
Units 4,000 3,800
Sales revenue $60,000 $53,200
Variable manufacturing costs 16,000 19,000
Fixed manufacturing costs 15,000 16,000
Variable selling and administrative
expense 8,000 7,600
Fixed selling and administrative
expense 9,000 10,000
The contribution margin volume variance for the month of July would be
A. $400 unfavorable.
C. $200 favorable.
[Fact Pattern #9]
Water Control Systems, Inc. manufactures water pumps and The following information is available for the month of
uses a standard cost system. The standard overhead costs per November:
water pump are based on direct labor hours and are as follows:
22,000 pumps were produced although 25,000 had been
Variable overhead (4 hours at $8 per hour) $32 scheduled for production.
Fixed overhead (4 hours at $5* per hour) 20 94,000 direct labor hours were worked at a total cost of
Total overhead cost per unit $52 $940,000.
The standard direct labor rate is $9 per hour.
* Based on a capacity of 100,000 direct labor hours per month. The standard direct labor time per unit is four hours.
Variable overhead costs were $740,000.
Fixed overhead costs were $540,000.

(256 questions)
[32] Gleim #: 7.7.133 -- Source: CMA 1294 3-30

Water Control’s direct labor efficiency variance for November was
Responsibility costs motivate managers of responsibility centers to act in the organization’s interest. The attribute that would
be least persuasive in deciding to allocate costs to responsibility centers is that they
A. Are helpful in measuring support used by the responsibility center.

B. Are limited to staff services, such as consulting or internal audit.
C. Are used in product pricing.
D. Can be influenced by actions of the center’s manager.
[34] Gleim #: 7.6.78 -- Source: CMA 1295 3-4
Variable overhead is applied on the basis of standard direct labor hours. If, for a given period, the direct labor efficiency
variance is unfavorable, the variable overhead efficiency variance will be
A. Zero.
B. Favorable.
C. Unfavorable.
D. The same amount as the direct labor efficiency variance.
[35] Gleim #: 7.7.131 -- Source: CMA 1294 3-29

Water Control’s direct labor price variance for November was

(256 questions)

The Eastern division sells goods internally to the Western division of the same company. The quoted external price in
industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to transport the
goods to Western. Eastern’s actual market cost per ton to buy the direct materials to make the transferred product is $100.
Actual per ton direct labor is $50. Other actual costs of storage and handling are $40. The company president selects a $220
transfer price. This is an example of
A. Cost plus 20% transfer pricing.

B. Market-based transfer pricing.
C. Negotiated transfer pricing.
D. Cost-based transfer pricing.
[37] Gleim #: 7.3.25 -- Source: CMA 1296 3-21
David Rogers, purchasing manager at Fairway Manufacturing Corporation, was able to acquire a large quantity of direct
materials from a new supplier at a discounted price. Marion Conner, inventory supervisor, is concerned because the
warehouse has become crowded and some things had to be rearranged. Brian Jones, vice president of production, is
concerned about the quality of the discounted materials. However, the Engineering Department tested the new materials and
indicated that they are of acceptable quality. At the end of the month, Fairway experienced a favorable direct materials usage
variance, a favorable direct labor usage variance, and a favorable direct materials price variance. The usage variances were
solely the result of a higher yield from the new material. The favorable direct materials price variance is considered the
responsibility of the
A. Engineering manager.
B. Purchasing manager.
C. Inventory supervisor.
D. Vice president of production.
[Fact Pattern #10]

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of 8% for any project to be undertaken
by her company. The company is decentralized, and leaves investment decisions up to the discretion of the division managers as
long as the 8% return is expected to be realized. Michael Sanders, manager of the Cosmetics Division, has had a return on
investment of 14% for his division for the past 3 years and expects the division to have the same return in the coming year. Sanders
has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%.
[38] Gleim #: 8.5.88 -- Source: CMA 693 3-11

If the Deed Corporation evaluates managerial performance using return on investment, what will be the preference for taking
on the proposed cosmetics line by Edith Carolina and Michael Sanders?
Carolina Sanders
A. Accept Reject
B. Reject Reject
C. Accept Accept
D. Reject Accept

(256 questions)

A company plans to implement a bonus plan based on segment performance. In addition, the company plans to convert to a
responsibility accounting system for segment reporting. The following costs, which have been included in the segment
performance reports that have been prepared under the current system, are being reviewed to determine if they should be
included in the responsibility accounting segment reports:
I. Corporate administrative costs allocated on the basis of net segment sales.

II. Personnel costs assigned on the basis of the number of employees in each segment.
III. Fixed computer facility costs divided equally among each segment.
IV. Variable computer operational costs charged to each segment based on actual hours used times a predetermined
standard rate; any variable cost efficiency or inefficiency remains in the computer department.
Of these four cost items, the only item that could logically be included in the segment performance reports prepared on a
responsibility accounting basis would be the
A. Corporate administrative costs.

B. Fixed computer facility costs.
C. Variable computer operational costs.
D. Personnel costs.
[40] Gleim #: 8.5.87 -- Source: CMA 693 3-12

If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum required
rate of return, what will be the preference for taking on the proposed cosmetics line by Edith Carolina and Michael Sanders?
Carolina Sanders
A. Accept Reject
B. Reject Accept
C. Accept Accept
D. Reject Reject
In a responsibility accounting system, managers are accountable for
A. Variable costs but not for fixed costs.

B. Costs over which they have significant influence.
C. Product costs but not for period costs.
D. Incremental costs.
Which of the following standard costing variances is the most controllable by a production manager?
A. Overhead efficiency.
B. Labor efficiency.
C. Materials usage.
D. Overhead volume.

(256 questions)
Data regarding Mill Company’s direct materials costs is as follows:
Actual unit cost $2.00

Standard unit cost 2.20
Actual quantity purchased and used 28,000 units
Standard units of materials per unit
of finished goods 3 units
Actual output of finished goods 9,000 units
What is the direct materials price variance?
[44] Gleim #: 7.4.49 -- Source: CPA 1186 II-21
Tub Co. uses a standard cost system. The following information pertains to direct labor for product B for the month of
October:
Standard hours allowed for

actual production 2,000
Actual rate paid per hour $8.40
Standard rate per hour $8.00
Labor efficiency variance $1,600 U
What were the actual hours worked?
A. 1,800
B. 1,810
C. 2,190
D. 2,200
[45] Gleim #: 8.1.29 -- Source: CMA 0205 2-43
Which one of the following best identifies a profit center?
A. A new car sales division for a large local auto agency.

B. A large toy company.
C. The Information Technology Department of a large consumer products company.
D. The Production Operations Department of a small job-order machine shop company.

(256 questions)
[46] Gleim #: 7.8.145 -- Source: CMA 1291 3-14

The effect of the sales quantity variance on Folsom’s contribution margin for November is
[47] Gleim #: 8.1.8 -- Source: CMA 1295 3-5
Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n)
A. Profit center.
B. Operating unit.
C. Division.
D. Revenue center.

The direct materials efficiency variance for April is
[49] Gleim #: 7.8.151 -- Source: CMA 695 3-27

Which one of the following statements concerning Clear Plus, Inc.’s actual results for May is correct?
A. The sales price variance is $32,000 favorable.

B. The flexible budget variable cost variance is $10,800 unfavorable.
C. The flexible budget variance is $8,000 favorable.
D. The sales volume variance is $8,000 favorable.

(256 questions)

The following data are available for July:
Budget Actual
Sales 40,000 units 42,000 units
Selling price $6 per unit $5.70 per unit
Variable cost $3.50 per unit $3.40 per unit
What is the sales quantity variance for July?
[Fact Pattern #11]
Tamsin Company’s standard direct labor rates in effect for the The wage rates for each labor class increased January 1
fiscal year ending June 30 and standard hours allowed for the under the terms of a new union contract. The standard wage
output in April are rates were not revised. The actual direct labor hours (DLH)
and the actual direct labor rates for April were as follows:
Standard DL Standard DLH
Rate per Hour Allowed for Output Actual Rate Actual DLH
Labor class III $8.00 500 Labor class III $8.50 550
Labor class II 7.00 500 Labor class II 7.50 650
Labor class I 5.00 500 Labor class I 5.40 375

What is the direct labor mix variance (rounded) for Tamsin?
A. $66.67
B. $50.00
C. $320.00
D. $500.00
[Fact Pattern #12]

Dori Castings, a job-order shop, uses a full-absorption, standard-cost system to account for its production costs. The O/H costs are
applied on a direct-labor-hour basis.

(256 questions)
[52] Gleim #: 7.6.99 -- Source: CMA 1284 4-1

Dori’s choice of a production volume as a denominator for calculating its factory O/H rate has
A. No effect on the fixed factory O/H production volume variance.

B. An effect on the variable factory O/H rate for applying costs to production.
C. No effect on the overall (net) fixed factory O/H variance.
D. No effect on the fixed factory O/H budget variance.
[53] Gleim #: 7.6.105 -- Source: CMA 0205 2-42
Lee Manufacturing uses a standard cost system with overhead applied based upon direct labor hours. The manufacturing
budget for the production of 5,000 units for the month of May included the following information:
Direct labor (10,000 hours at $15 per hour) $150,000

Variable overhead 30,000
Fixed overhead 80,000
During May, 6,000 units were produced and the fixed overhead budget variance was $2,000 favorable. Fixed overhead
during May was
A. Overapplied by $16,000.
B. Underapplied by $16,000.
C. Overapplied by $18,000.
D. Underapplied by $2,000.
[54] Gleim #: 8.4.55 -- Source: CMA 696 3-26

A per-unit transfer price from the Video Cards Division to the Entertainment Division at full cost, $9.15, would
A. Encourage the Entertainment Division to purchase video cards from an outside source.
B. Satisfy the Video Cards Division’s profit desire by allowing recovery of opportunity costs.
C. Provide no profit incentive for the Video Cards Division to control or reduce costs.
D. Allow evaluation of both divisions on a competitive basis.
[55] Gleim #: 7.4.39 -- Source: CMA 693 3-15
The flexible budget for the month of May was for 9,000 units with direct materials at $15 per unit. Direct labor was budgeted
at 45 minutes per unit for a total of $81,000. Actual output for the month was 8,500 units with $127,500 in direct materials
and $77,775 in direct labor expense. The direct labor standard of 45 minutes was maintained throughout the month. Variance
analysis of the performance for the month of May shows a(n)
A. Unfavorable direct labor price variance of $1,275.

B. Favorable direct materials usage variance of $7,500.
C. Unfavorable direct labor efficiency variance of $1,275.
D. Favorable direct labor efficiency variance of $1,275.

(256 questions)
[Fact Pattern #13]

An organization that specializes in reviewing and editing technical magazine articles sets the following standards for evaluating the
performance of the professional staff:
Annual budgeted fixed costs for normal capacity level of 10,000

articles reviewed and edited $600,000
Standard professional hours per 10 articles 200 hours
Flexible budget of standard labor costs to process 10,000 articles $10,000,000
The following data apply to the 9,500 articles that were actually reviewed and edited during the current year.
Total hours used by professional staff 192,000 hours

Flexible costs $9,120,000
Total cost $9,738,000
[56] Gleim #: 7.4.40 -- Source: CMA 692 3-15

Using a flexible budget, the total cost planned for the review and editing of 9,500 articles should be
A. $10,100,000
B. $10,070,000
C. $10,570,000
D. $9,500,000
[57] Gleim #: 8.1.9 -- Source: CMA 694 3-24
Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the
organization into responsibility centers. Which one of the following organizational segments is most like an independent
business?
A. Revenue center.
B. Investment center.
C. Profit center.
D. Cost center.
To properly motivate divisional management, the divisional ROIs should be
A. Lower in more profitable divisions in which motivation is unnecessary.

B. Equal.
C. Greater in the less profitable divisions to motivate those divisions to achieve higher ROIs.
D. Different based upon strategic goals of the firm.

(256 questions)
[59] Gleim #: 7.3.27 -- Source: CMA 1287 4-30

Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one
unit of Teragram include six pounds of materials at $.30 per pound. Actual production in November was 3,100 units of
Teragram. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials
quantity variance of $120. Based on these variances, one could conclude that
A. More materials were used than were purchased.

B. The actual cost of materials was less than the standard cost.
C. More materials were purchased than were used.
D. The actual usage of materials was less than the standard allowed.
[60] Gleim #: 8.5.68 -- Source: CMA 697 3-29
Listed below is selected financial information for the Western Division of the Hinzel Company for last year.
Amount
Account (thousands)
Average working capital $ 625
General and administrative expenses 75
Net sales 4,000
Average plant and equipment 1,775
Cost of goods sold 3,525
If Hinzel treats the Western Division as an investment center for performance measurement purposes, what is the return on
investment (ROI) for last year?
A. 22.54%
B. 16.67%
C. 19.79%
D. 34.78%
The following information relates to Cinder Co.’s Northeast Division:
Sales $600,000
Variable costs 360,000
Traceable fixed costs 60,000
Average invested capital 120,000
Imputed interest rate 8%
Cinder’s residual income was
A. $230,400
B. $170,400
C. $180,000
D. $189,600

(256 questions)
[62] Gleim #: 7.2.8 -- Source: CMA 1295 3-24

Based on past experience, a company has developed the following budget formula for estimating its shipping expenses. The
company’s shipments average 12 lbs. per shipment:
Shipping costs = $16,000 + ($0.50 × lbs. shipped)
The planned activity and actual activity regarding orders and shipments for the current month are given in the following
schedule:
Plan Actual
Sales orders 800 780
Shipments 800 820
Units shipped 8,000 9,000
Sales $120,000 $144,000
Total pounds shipped 9,600 12,300
The actual shipping costs for the month amounted to $21,000. The appropriate monthly flexible budget allowance for
shipping costs for the purpose of performance evaluation would be
A. $20,800
B. $20,680
C. $22,150
D. $20,920
The sales volume variance is partly a function of the unit contribution margin (UCM). For a single-product company, it is
A. The difference between actual and master budget sales volume, times actual UCM.
B. The difference between flexible budget and master budget sales volume, times actual UCM.
C. The difference between flexible budget and actual sales volume, times master budget UCM.
D. The difference between flexible budget and master budget sales volume, times master budget UCM.
[64] Gleim #: 8.2.39 -- Source: CMA 692 3-13
Ordinarily, the most appropriate basis on which to evaluate the performance of a division manager is the division’s
A. Gross profit.
B. Net revenue minus controllable division costs.
C. Net income minus the division’s fixed costs.
D. Contribution margin.

(256 questions)
[65] Gleim #: 7.6.102 -- Source: CMA 1273 4-13

Which of these variances is least significant for cost control?
A. Labor price variance.

B. Materials quantity variance.
C. Variable O/H spending variance.
D. Fixed O/H volume variance.
Which of the following is the best example of why an employee may resist modifying his/her performance to meet the goals
set by a control system?
A. The employee believes that the control system sets the standard of performance too high.
B. People tend to avoid pleasant situations.
C. The control system establishes a standard of performance that the employee considers relevant to what (s)he regards
as their primary job objective.
D. The control system highlights the things that the employee does well.
The sales mix variance
A. Will be an unfavorable 5% whenever a 5% decrease occurs in a company’s overall sales volume.

B. Equals the difference between the budgeted weighted-average materials unit costs for the actual and planned mixes,
times the actual materials input.
C. Will be favorable when a company sells fewer products bearing unit contribution margins higher than average.
D. Measures the effect of the deviation from the budgeted weighted-average contribution margin per unit associated with
a change in the quantities of products in the mix.
Franklin Company’s gross profit for Year 2 and Year 1 was as follows:
Year 2 Year 1
Sales $ 950,400 $ 960,000
Cost of goods sold (556,800) (576,000)
Gross profit $ 393,600 $ 384,000
Assuming that Year 2 selling prices were 15% lower than Year 1 selling prices, what was the decrease in gross profit caused
by the selling price change?
A. $167,718
B. $142,560
C. $144,000
D. $134,400

(256 questions)
[69] Gleim #: 7.4.38 -- Source: CMA 694 3-22

Under a standard cost system, direct labor price variances are usually not attributable to
A. The assignment of different skill levels of workers than planned.

B. The use of a single average standard rate.
C. Labor rate predictions.
D. Union contracts approved before the budgeting cycle.
[70] Gleim #: 7.3.28 -- Source: CMA 694 3-20
Under a standard cost system, the materials price variances are usually the responsibility of the
A. Production manager.
B. Cost accounting manager.
C. Sales manager.
D. Purchasing manager.
[Fact Pattern #14]
Ardmore Enterprises uses a standard cost system in its small The budgeted variable overhead rate is $3 per direct labor
appliance division. The standard cost of manufacturing one hour, and the budgeted fixed overhead is $27,000 per month.
unit of Zeb is as follows: During May, Ardmore produced 1,650 units of Zeb compared
with a normal capacity of 1,800 units. The actual cost per
Direct materials -- 60 pounds at $1.50 per pound $ 90 unit was as follows:
Direct labor -- 3 hours at $12 per hour 36
Overhead -- 3 hours at $8 per hour 24 Direct materials (purchased and used) --
Total standard cost per unit $150 58 pounds at $1.65 per pound $ 95.70
Direct labor -- 3.1 hours at $12 per hour 37.20
Overhead -- $39,930 per 1,650 units 24.20
Total actual cost per unit $157.10
[71] Gleim #: 7.7.127 -- Source: CMA 696 3-1

Ardmore’s direct labor rate variance for May is
B. $0

(256 questions)
[Fact Pattern #15]

A manufacturer of radios purchases components from subcontractors for assembly into complete radios. Each radio requires three
units each of Part X, which has a standard cost of $2.90 per unit. During June, the company had the following experience with
respect to Part X:
Units
Purchases ($36,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000

During June, the company incurred a materials efficiency variance of
[Fact Pattern #16]

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has
established the following standards for the prime costs of one unit of product.
Standard Standard Standard

Quantity Price Cost
Direct materials 8 pounds $1.80 per pound $14.40
Direct labor .25 hour $8.00 per hour 2.00
$16.40
During November, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for
November were $42,000, 90% of which were for direct labor. Arrow manufactured 19,000 units of product during November using
142,500 pounds of direct materials and 5,000 direct labor hours.
[73] Gleim #: 7.4.46 -- Source: CMA 1291 3-2

The direct materials usage (quantity) variance for November is

(256 questions)
[Fact Pattern #17]
Funtime, Inc. manufactures video game machines. Funtime prepares monthly performance reports based on
Market saturation and technological innovations have standard costs. Presented below is the contribution report for
caused pricing pressures, which have resulted in May when production and sales both reached 2,200 units.
declining profits. To stem the slide in profits until new
products can be introduced, an incentive program has Funtime, Inc.
been developed to reward production managers who Contribution Report
contribute to an increase in the number of units For the Month of May
produced and effect cost reductions. Budget Actual Variance
The managers have responded to the pressure of Units 2,000 2,200 200 F
improving manufacturing in several ways. The video Revenue $400,000 $440,000 $40,000 F
game machines are put together by the Assembly Group
Variable costs
which requires parts from both the Printed Circuit
Direct materials 180,000 220,400 40,400 U
Boards (PCB) and the Reading Heads (RH) groups. To
Direct labor 80,000 93,460 13,460 U
attain increased production levels, the PCB and RH
Variable overhead 18,000 18,800 800 U
groups commenced rejecting parts that previously
would have been tested and modified to meet Total variable costs 278,000 332,660 54,660 U
manufacturing standards. Preventive maintenance on Contribution margin $122,000 $107,340 $14,660 U
machines used in the production of these parts has been
postponed with only emergency repair work being Funtime’s top management was surprised by the unfavorable
performed to keep production lines moving. contribution to overall corporate profits despite the increased
sales in May. Jack Rath, cost accountant, was assigned to
The more aggressive Assembly Group production identify the reasons for the unfavorable contribution results as
supervisors have pressured maintenance personnel to well as the individuals or groups responsible. After review,
attend to their machines at the expense of other groups. Rath prepared the Usage Report presented below.
This has resulted in machine downtime in the PCB and
RH groups that, when coupled with demands for
accelerated parts delivery by the Assembly Group, has Funtime, Inc.
led to more frequent parts rejections and increased Usage Report
friction among departments. For the Month of May
Cost Item Quantity Actual Cost
Funtime operates under a standard cost system. The
Direct materials
standard costs for video game machines are as follows:
Housing units 2,200 units $ 44,000
Printed circuit boards 4,700 units 75,200
Standard Cost per Unit Reading heads 9,200 units 101,200
Cost Item Quantity Cost Total Direct labor
Assembly 3,900 hours 31,200
Direct Materials
Printed circuit boards 2,400 hours 23,760
Housing unit 1 $20 $ 20
Reading heads 3,500 hours 38,500
Printed circuit boards 2 15 30
Variable overhead 9,900 hours 18,800
Reading heads 4 10 40
Direct labor hours Total variable cost $332,660
Assembly group 2 8 16
PCB group 1 9 9 Rath reported that the PCB and RH groups supported the
RH group 1.5 10 15 increased production levels but experienced abnormal
Variable overhead hours 4.5 2 9 machine downtime, causing the idling of workers that
Total standard cost per unit $139 required the use of overtime to keep up with the accelerated
demand for parts. The idle time was charged to direct labor.
Rath also reported that the production managers of these two
groups resorted to parts rejections, as opposed to testing and
modification procedures formerly applied. Rath determined
that the Assembly Group met management’s objectives by
increasing production while using lower than standard hours.

(256 questions)

What is Funtime’s total direct materials quantity variance?
[Fact Pattern #18]

Patie Company uses a standard FIFO, process-cost system to account for its only product, Mituea. Patie has found that direct
machine hours (DMH) provide the best estimate of the application of O/H. Four (4) standard direct machine hours are allowed for
each unit. Using simple linear regression analysis in the form y = a + b(DMH), given that (a) equals fixed costs and (b) equals
variable costs, Patie has developed the following O/H budget for a normal activity level of 100,000 direct machine hours:
ITEM (y) a b
Supplies $ 0.50
Indirect Labor $ 54,750 6.50
Depreciation -- Plant and Equipment 27,000
Property Taxes and Insurance 32,300
Repairs and Maintenance 14,550 1.25
Utilities 3,400 4.75
Total O/H $132,000 $13.00
Actual fixed O/H incurred was $133,250, and actual variable O/H was $1,225,000. Patie produced 23,500 equivalent units during
the year using 98,700 direct machine hours.

What is the total O/H variance?
[76] Gleim #: 7.6.85 -- Source: CMA 1292 3-16

Nanjones’ total amount of overhead applied to production for November was
A. $300,000
B. $320,000
C. $316,200
D. $315,000

(256 questions)
[77] Gleim #: 7.7.129 -- Source: CMA 1294 3-26

Water Control’s fixed overhead spending variance for November was
Which of the following factors should not be considered when deciding whether to investigate a variance?
A. Magnitude of the variance.

B. Whether the variance is favorable or unfavorable.
C. Trend of the variances over time.
D. Likelihood that an investigation will eliminate future occurrences of the variance.
Actual and budgeted information about the sales of a product are presented for June as follows.
Actual Budget
Units 8,000 10,000
Sales Revenue $92,000 $105,000
The sales price variance for June was
[80] Gleim #: 8.1.3 -- Source: CMA 695 3-28
In responsibility accounting, a center’s performance is measured by controllable costs. Controllable costs are best described
as including
A. Those costs about which the manager is knowledgeable and informed.

B. Direct material and direct labor only.
C. Only discretionary costs.
D. Only those costs that the manager can influence in the current time period.

(256 questions)
[81] Gleim #: 8.2.37 -- Source: CMA Sample Q3-2

Consider the following information for Richardson Company for the prior year.
The company produced 1,000 units and sold 900 units, both as budgeted.
There were no beginning or ending work-in-process inventories and no beginning finished goods inventory.
Budgeted and actual fixed costs were equal, all variable manufacturing costs were affected by production volume
only, and all variable selling costs were affected by sales volume only.
Budgeted per unit revenues and costs were as follows:
Per unit
Sales price $100
Direct materials 30
Direct labor 20
Other variable manufacturing costs 10
Fixed selling costs 5
Variable selling costs 12
Fixed selling costs ($33,600 total) 4
Fixed administrative costs ($1,800 total) 2
The contribution margin earned by Richardson for the prior year was
A. $28,000
B. $35,000
C. $25,200
D. $31,500
On a balanced scorecard, which of the following would not be an example of a customer satisfaction measure?
A. Market share.
B. Economic value added.
C. Customer retention.
D. Response time.
The market size variance is partly a function of the unit contribution margin (UCM). It equals
A. Budgeted market share percentage × (actual market size in units – budgeted market size in units) × budgeted
weighted-average UCM.
B. (Actual market share percentage – budgeted market share percentage) × actual market size in units × budgeted
C. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for actual mix).
D. (Actual units – master budget units) × budgeted weighted-average UCM for the planned mix.

(256 questions)
[84] Gleim #: 8.1.18 -- Source: CMA 1291 3-8

A segment of an organization is referred to as a profit center if it has
A. Authority to make decisions over the most significant costs of operations including the power to choose the sources of
supply.
B. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply and significant control over the amount of invested capital.
C. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply.
D. Authority to provide specialized support to other units within the organization.
Companies with decentralized, autonomous divisions that sell their goods and services internally to other divisions of the
company as well as externally in competitive markets have to establish transfer prices for the goods and services transferred
internally among divisions. Generally, upper management has established such operating criteria for managing the divisions
as goal congruence, subunit autonomy, and a sustained high level of management effort. An approach consistent with the
above criteria would be to set the transfer price equal to the
A. Additional outlay cost per unit incurred to the point of transfer plus the opportunity cost per unit to the supplying
division.
B. Variable cost per unit incurred to the point of transfer.
C. Full cost per unit incurred to the point of transfer plus a percentage markup on the full cost per unit.
D. Additional outlay cost per unit incurred to the point of transfer plus the opportunity cost per unit to the buying
division.
Which of the following is not true of responsibility accounting?
A. Managers should only be held accountable for factors over which they have significant influence.
B. The focus of cost center managers will normally be more narrow than that of profit center managers.
C. When a responsibility account system exists, operations of the business are organized into separate areas controlled by
individual managers.
D. Every factor that affects a firm’s financial performance ultimately is controllable by someone, even if that someone is
the person at the top of the firm.
[Fact Pattern #19]

ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of direct materials in inventory
were purchased for $105,000, and two units of direct materials are required to produce one unit of final product. In November, the
company produced 12,000 units of product. The standard allowed for materials was $60,000, and the unfavorable quantity variance
was $2,500.

(256 questions)
[87] Gleim #: 7.3.23 -- Source: CMA 1293 3-24

ChemKing’s direct materials price variance for the units used in November was
A manager prepared the following table by which to analyze labor costs for the month:
Actual Hours at Actual Hours at Standard Hours at

Actual Rate Standard Rate Standard Rate
$10,000 $9,800 $8,820
What variance was $980?
A. Labor efficiency variance.

B. Labor spending variance.
C. Labor rate variance.
D. Volume variance.
Pane Company’s direct labor costs for April are as follows:
Standard direct labor hours 42,000

Total direct labor payroll $247,200
Direct labor efficiency variance -- favorable $ 3,840
What is Pane’s direct labor rate variance?

(256 questions)
[90] Gleim #: 7.4.36 -- Source: CMA 1294 3-25

An unfavorable direct labor efficiency variance could be caused by a(n)
A. Unfavorable variable overhead spending variance.

B. Unfavorable fixed overhead volume variance.
C. Favorable variable overhead spending variance.
D. Unfavorable direct materials usage variance.
Which of the following management practices involves concentrating on areas that deserve attention and placing less
attention on areas operating as expected?
A. Management by exception.
B. Management by objectives.
C. Benchmarking.
D. Responsibility accounting.
A possible short-term problem in controlling overhead costs would be detected by which of the following variances?
A. Both the fixed overhead spending variance and the volume variance.
B. The volume variance but not the fixed overhead spending variance.
C. The spending variance but not the volume variance.
D. Both the variable overhead spending variance and the volume variance.
[93] Gleim #: 7.4.37 -- Source: CMA 1296 3-24
The inventory control supervisor at Wilson Manufacturing Corporation reported that a large quantity of a part purchased for a
special order that was never completed remains in stock. The order was not completed because the customer defaulted on the
order. The part is not used in any of Wilson’s regular products. After consulting with Wilson’s engineers, the vice president
of production approved the substitution of the purchased part for a regular part in a new product. Wilson’s engineers
indicated that the purchased part could be substituted providing it was modified. The units manufactured using the
substituted part required additional direct labor hours resulting in an unfavorable direct labor efficiency variance in the
Production Department. The unfavorable direct labor efficiency variance resulting from the substitution of the purchased part
in inventory is best assigned to the
A. Production manager.
B. Vice president of production.
C. Inventory supervisor.
D. Sales manager.

(256 questions)

The sales quantity variance is partly a function of the unit contribution margin (UCM). It equals
A. (Actual market share percentage-budgeted market share percentage) × actual market size in units × budgeted
B. Budgeted market share percentage × (actual market size in units – budgeted market size in units) × budgeted
C. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for actual mix).
D. (Actual units – master budget units) × budgeted weighted-average UCM for the planned mix.
Which of the following techniques would be best for evaluating the management performance of a department that is
operated as a cost center?
A. Return on investment ratio.

B. Payback method.
C. Variance analysis.
D. Return on assets ratio.

What is Funtime’s total direct materials price variance?
[97] Gleim #: 7.7.126 -- Source: CMA 696 3-23

Ardmore’s direct materials price variance for May is

(256 questions)
[98] Gleim #: 7.4.43 -- Source: CMA 692 3-19

The direct materials usage (quantity) variance for May is
[99] Gleim #: 7.6.104 -- Source: CMA 0205 2-41
Baltimore Products has an estimated practical capacity of 90,000 machine hours, and each unit requires two machine hours.
The following data apply to a recent accounting period:

Actual fixed overhead $442,000
Actual machine hours worked 88,000
Actual finished units produced 42,000
Budgeted variable overhead at
90,000 machine hours $200,000
Budgeted fixed overhead $450,000
Of the following factors, Baltimore’s production volume variance is most likely to have been caused by
A. A newly imposed initiative to reduce finished goods inventory levels.

B. Temporary employment of workers with lower skill levels than originally anticipated.
C. Acceptance of an unexpected sales order.
D. A wage hike granted to a production supervisor.
[100] Gleim #: 8.1.22 -- Source: CMA 1294 3-22
If a manufacturing company uses responsibility accounting, which one of the following items is least likely to appear in a
performance report for a manager of an assembly line?
A. Equipment depreciation.
B. Materials.
C. Repairs and maintenance.
D. Supervisory salaries.

(256 questions)
[101] Gleim #: 8.5.84 -- Source: CMA 695 3-20

REB Service Co. is a computer service center. For the month, REB had the following operating statistics:
Sales $450,000
Operating income 25,000
Net profit after taxes 8,000
Total assets 500,000
Shareholders’ equity 200,000
Cost of capital 6%
Based on the above information, which one of the following statements is true? REB has a
A. Residual income of $(22,000).

B. Residual income of $(5,000).
C. Return on investment of 4%.
D. Return on investment of 1.6%.
[102] Gleim #: 7.6.79 -- Source: CMA 1289 4-1
Variable overhead is applied on the basis of standard direct labor hours. If, for a given period, the direct labor efficiency
variance is unfavorable, the variable overhead efficiency variance will be
A. Unfavorable.
B. Indeterminable because it is not related to the labor efficiency variance.
C. Favorable.
D. The same amount as the labor efficiency variance.
[103] Gleim #: 8.5.66 -- Source: CMA 1292 3-21
A firm earning a profit can increase its return on investment by
A. Increasing sales revenues and operating expenses by the same percentage.

B. Increasing sales revenue and operating expenses by the same dollar amount.
C. Increasing investment and operating expenses by the same dollar amount.
D. Decreasing sales revenues and operating expenses by the same percentage.
[104] Gleim #: 7.4.45 -- Source: CMA 692 3-21

The direct labor usage (efficiency) variance for May is

(256 questions)

Which department is typically responsible for a materials price variance?
A. Production.
B. Sales.
C. Engineering.
D. Purchasing.
An organization employs a system of internal reporting that furnishes departmental managers with revenue and cost
information on only those items that are subject to their control. Items not subject to the manager’s control are not included in
the performance reports. This method of accounting is known as
A. Responsibility accounting.
B. Contribution margin reporting.
C. Segment reporting.
D. Absorption cost accounting.
The proposed transfer price is a cost-plus price. Variable-cost-plus price is
A. The price otherwise paid by an outsider, recorded by the selling division but not the buying division.
B. The price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.
C. The price representing the cash outflows of the supplying division plus the contribution to the supplying division from
an outside sale.
D. The price on the open market.
[108] Gleim #: 7.2.7 -- Source: CMA 1293 3-25
A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of
$4.00 and a fixed cost per unit of $2.00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred
cost of $515,000. The firm’s manufacturing cost variance was

(256 questions)
[109] Gleim #: 7.6.97 -- Source: CMA 1290 3-9

The fixed overhead applied to Franklin’s production for the year is
A. $575,000
B. $600,000
C. $484,200
D. $594,000
Cara Williams, a supervisor, controls her department’s costs. The following data relate to her department for the month of
June:
Variable factory overhead

Budgeted based on actual input $100,000
Actual 106,250
Fixed factory overhead

Budgeted $31,250
Actual 33,750
What was the department’s total spending variance for June?
A. $2,500 U.
B. $3,750 F.
C. $6,250 U.
D. $8,750 U.
[111] Gleim #: 7.4.48 -- Source: CMA 1291 3-4

The direct labor usage (efficiency) variance for November is

(256 questions)

Common costs are
A. Indirect costs.
B. Controllable costs.
C. Current costs.
D. Direct costs.
[113] Gleim #: 8.5.67 -- Source: CMA 693 3-27
Which one of the following statements pertaining to the return on investment (ROI) as a performance measurement is false?
A. The use of ROI may lead managers to reject capital investment projects that can be justified by using discounted cash
flow models.
B. The use of ROI can make it undesirable for a skillful manager to take on troubleshooting assignments such as those
involving turning around unprofitable divisions.
C. When the average age of assets differs substantially across segments of a business, the use of ROI may not be
appropriate.
D. ROI relies on financial measures that are capable of being independently verified, while other forms of performance
measures are subject to manipulation.
[114] Gleim #: 7.6.100 -- Source: CMA 1284 4-2

A production volume variance will exist for Dori in a month when
A. Actual direct labor hours differ from standard allowed direct labor hours.
B. The fixed factory O/H applied on the basis of standard allowed direct labor hours differs from actual fixed factory
O/H.
C. Production volume differs from sales volume.
D. The fixed factory O/H applied on the basis of standard allowed direct labor hours differs from the budgeted fixed
factory O/H.

What is the standard O/H rate?
A. $1.32 per DMH

B. $13.00 per DMH.
C. $14.32 per DMH.
D. $13.76 per DMH.

(256 questions)
[116] Gleim #: 8.1.21 -- Source: CMA 694 3-28

DigitalTech uses an accounting system that charges costs to the manager who has the authority to make decisions incurring
the costs. For example, if a sales manager authorizes a rush order that results in additional manufacturing costs, these
additional costs are charged to the sales manager. This type of accounting system is known as
A. Responsibility accounting.
B. Contribution accounting.
C. Transfer-pricing accounting.
D. Functional accounting.
[117] Gleim #: 8.1.10 -- Source: CMA 1293 3-21
A successful responsibility accounting reporting system is dependent upon
A. Identification of the management level at which all costs are controllable.

B. The correct allocation of controllable variable costs.
C. A reasonable separation of costs into their fixed and variable components since fixed costs are not controllable and
must be eliminated from the responsibility report.
D. The proper delegation of responsibility and authority.
The labor mix and labor yield variances together equal the
A. Labor rate variance.

B. Labor efficiency variance.
C. Sum of the labor efficiency and overhead efficiency variances.
D. Total labor variance.
[119] Gleim #: 7.6.77 -- Source: CMA 1289 4-6
If overhead is applied on the basis of units of output, the variable overhead efficiency variance will be
A. Zero.
B. Favorable, if output exceeds the budgeted level.
C. Unfavorable, if output is less than the budgeted level.
D. A function of the direct labor efficiency variance.

(256 questions)

Daniel Corporation’s direct labor costs for June were as follows:

Standard direct labor hours 33,600
Direct labor rate variance -- favorable $6,720
Standard direct labor rate per hour $5.04
Compute Daniel’s total direct labor payroll for the month of June.
A. $154,880
B. $154,560
C. $168,000
D. $167,680
Samuel Company provided the following data for June production activity. Samuel uses a two-way analysis of overhead
variances.
Actual variable factory overhead incurred $294,000

Variable factory overhead rate per DLH $6.00
Standard DLH allowed 49,500
Actual DLH 48,000
The budget (controllable) variance for June, assuming that budgeted fixed overhead costs equal actual fixed costs, is
The sales mix variance is partly a function of the unit contribution margin (UCM). It equals
A. (Actual market share percentage – budgeted market share percentage) × actual market size in units × budgeted
B. (Actual units – master budget units) × budgeted weighted-average UCM for planned mix.
C. Budgeted market share percentage × (actual market size in units – budgeted market size in units) × budgeted
D. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for actual mix).

(256 questions)
[123] Gleim #: 7.3.11 -- Source: CMA 694 3-23

A favorable materials price variance coupled with an unfavorable materials usage variance most likely results from
A. Product mix production changes.

B. The purchase of lower than standard quality materials.
C. Machine efficiency problems.
D. The purchase and use of higher-than-standard quality materials.
[124] Gleim #: 8.5.69 -- Source: CMA 694 3-29
One approach to measuring divisional performance is return on investment. Return on investment is expressed as operating
income
A. Divided by the current year’s capital expenditures plus cost of capital.

B. Divided by fixed assets.
C. Divided by total assets.
D. Minus imputed interest charged for invested capital.
[125] Gleim #: 8.1.19 -- Source: CMA 1291 3-9
A segment of an organization is referred to as an investment center if it has
A. Authority to provide specialized support to other units within the organization.

B. Authority to make decisions over the most significant costs of operations including the power to choose the sources of
supply.
C. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply.
D. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and
sources of supply and significant control over the amount of invested capital.
[126] Gleim #: 7.3.20 -- Source: CMA 1295 3-11
In a standard cost system, the investigation of an unfavorable materials usage variance should begin with the
A. Purchasing manager only.

B. Production manager or the purchasing manager.
C. Plant controller only.
D. Production manager only.

(256 questions)

Normal Company produced 600 units of one of its products last year. The standard for labor hours allowed was 2 hours per
unit at a standard rate of $6 per hour. Actual hours worked amounted to 1,230 hours. The labor rate variance was $246
unfavorable, and the labor efficiency variance was $180 unfavorable. What was the actual direct labor cost for the period?
A. $7,626
B. $7,380
C. $7,200
D. $7,134
[128] Gleim #: 7.1.3 -- Source: CMA 683 4-5
A difference between standard costs used for cost control and the budgeted costs of the same manufacturing effort
A. Can exist because standard costs represent what costs should be, whereas budgeted costs are expected actual costs.
B. Can exist because budgeted costs are historical costs, whereas standard costs are based on engineering studies.
C. Can exist because budgeted costs include some slack, whereas standard costs do not.
D. Can exist because standard costs include some slack, whereas budgeted costs do not.
[129] Gleim #: 7.6.92 -- Source: CMA 1279 4-10
The fixed overhead volume variance is the
A. Measure of production inefficiency.

B. Potential cost reduction that can be achieved from better cost control.
C. Amount of the underapplied or overapplied fixed overhead costs.
D. Measure of the lost profits from the lack of sales volume.
Motivation is
A. The sharing of goals by supervisors and subordinates.

B. The extent to which individuals have the authority to make decisions.
C. The desire and the commitment to achieve a specific goal.
D. The extent of the attempt to accomplish a specific goal.
[131] Gleim #: 8.6.90 -- Source: CMA 0205 2-46
The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on
critical success factors. Which one of the following is not one of the perspectives on the business into which critical success
factors are commonly grouped in the balanced scorecard?
A. Financial performance.
B. Employee innovation and learning.
C. Competitor business strategies.
D. Internal business processes.

(256 questions)
[132] Gleim #: 8.1.30 -- Source: CMA 0205 2-44
Characteristics of a responsibility accounting system include all of the following except that
A. Responsibility for performance according to budget must be linked to the appropriate authority.
B. Each level of management is responsible for its department’s operations and employees.
C. Cost centers are responsible for revenues as well as common costs.
D. The system should encourage employee involvement and participation.
On a balanced scorecard, which is more of an internal process measure than an external-based measure?
A. Profitability.
B. Cycle time.
C. Customer satisfaction.
D. Market share.
[134] Gleim #: 7.8.147 -- Source: CMA 1291 3-16

Folsom’s variable cost flexible budget variance for November is
[135] Gleim #: 7.7.125 -- Source: CMA 696 3-22

Ardmore’s total direct materials quantity variance for May is

(256 questions)
[136] Gleim #: 7.3.29 -- Source: CIA 1187 II-10

When items are transferred from stores to production, an accountant debits work-in-process and credits materials accounts.
During production, a materials quantity variance may occur. The materials quantity variance is debited for an unfavorable
variance and credited for a favorable variance. The intent of variance entries is to provide
A. Accountability for materials lost during production.

B. Information for use in controlling the cost of production.
C. A means of safeguarding assets in the custody of the system.
D. Compliance with GAAP.
[Fact Pattern #20]
Mack Fuels produces a gasoline additive. The standard costs The quantities purchased and used during the current period are
and input for a 500-liter batch of the additive are presented shown below. A total of 140 batches were made during the
below. current period.
Standard Standard Quantity Total Quantity

Input Quantity Cost Purchased Purchase Used
Chemical in Liters per Liter Total Cost Chemical (Liters) Price (Liters)
Echol 200 $.200 $ 40.00 Echol 25,000 $ 5,365 26,600
Protex 100 .425 42.50 Protex 13,000 6,240 12,880
Benz 250 .150 37.50 Benz 40,000 5,840 37,800
CT-40 50 .300 15.00 CT-40 7,500 2,220 7,140
Totals 600 $135.00 Totals 85,500 $19,665 84,420

What is Mack’s direct materials yield variance for this operation?
A. $219.50 favorable.
B. $388.50 favorable.
C. $94.50 unfavorable.
D. $294.50 favorable.
Using the balanced scorecard approach, an organization evaluates managerial performance based on
A. Multiple financial measures only.

B. A single ultimate measure of operating results, such as residual income.
C. Multiple nonfinancial measures only.
D. Multiple financial and nonfinancial measures.

(256 questions)

Which of the following types of responsibility centers include controllable revenues in their performance reports?
Cost Investment Profit

Centers Centers Centers
A. No No No
B. Yes Yes Yes
C. No Yes Yes
D. Yes No No
Periodic internal reports used for performance evaluation purposes and based on a responsibility accounting system should
not include
A. Allocated fixed overhead.

B. Variances between actual and budgeted controllable costs.
C. An organization chart.
D. A distinction between controllable and noncontrollable costs.
Bell Co. manufactures a single product with a standard direct labor cost of 2 hours at $10.00 per hour. During November,
1,500 units were produced requiring 3,200 hours at $10.25 per hour. What was the unfavorable direct labor efficiency
variance?
A. $2,000
B. $1,250
C. $2,050
D. $1,200
[142] Gleim #: 8.1.15 -- Source: CMA 686 4-16
Micro Manufacturers uses an accounting system that charges costs to the manager who has been delegated the authority to
make the decisions incurring the costs. For example, if the sales manager accepts a rush order that requires the incurrence of
additional manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or
decline the rush order was given to the sales manager. This type of accounting system is known as
A. Reciprocal allocation.
B. Functional accounting.
C. Contribution accounting.
D. Profitability accounting.

(256 questions)
[143] Gleim #: 7.6.90 -- Source: CMA 693 3-26

Which one of the following variances is of least significance from a behavioral control perspective?
A. Fixed overhead volume variance resulting from management’s decision midway through the fiscal year to reduce its
budgeted output by 20%.
B. Favorable direct labor rate variance resulting from an inability to hire experienced workers to replace retiring
workers.
C. Unfavorable direct labor efficiency variance amounting to 10% more than the budgeted hours for the output attained.
D. Unfavorable direct materials quantity variance amounting to 20% of the quantity allowed for the output attained.
Using the two-variance method for analyzing factory overhead, which of the following is used to compute the controllable
(budget) variance?
A. A budget allowance based on actual input but not a budget allowance based on standard input.
B. A budget allowance based on standard input and a budget allowance based on applied fixed overhead.
C. A budget allowance based on standard input but not a budget allowance based on actual input.
D. Both a budget allowance based on actual input and a budget allowance based on standard input.
Which of the following is not true about international transfer prices for a multinational firm?
A. Allows firms to correctly price products in each country in which it operates.

B. Allows the firm to evaluate each division.
C. Provides each division with a profit-making orientation.
D. Allows firms to attempt to minimize worldwide taxes.
[146] Gleim #: 7.8.148 -- Source: CMA 1291 3-17

Folsom’s fixed cost variance for November is

(256 questions)

Coleman Company compiled the following information:
Actual factory overhead $22,500

Fixed overhead expenses, actual $10,800
Fixed overhead expenses, budgeted $10,500
Actual hours 5,250
Standard hours 5,700
Variable overhead rate per DLH $3.80
What is the spending variance assuming Coleman uses a three-way analysis of overhead?
[148] Gleim #: 8.2.33 -- Source: CMA 686 4-14
The segment margin of the Wire Division of Lerner Corporation should not include
A. Net sales of the Wire Division.

B. Fixed selling expenses of the Wire Division.
C. Variable selling expenses of the Wire Division.
D. The Wire Division’s fair share of the salary of Lerner Corporation’s president.
One department of an organization, Final Assembly, is purchasing subcomponents from another department, Materials
Fabrication. The price that will be charged to Final Assembly by Materials Fabrication is to be determined. Outside market
prices for the subcomponents are available. Which of the following is the most correct statement regarding a market-based
transfer price?
A. Market transfer prices provide an incentive to use otherwise idle capacity.

B. Corporate politics is more of a factor in a market-based transfer price than with other methods.
C. Marginal production cost transfer prices provide incentives to use otherwise idle capacity.
D. Overall long term competitiveness is enhanced with a market-based transfer price.
[150] Gleim #: 7.3.13 -- Source: CMA 694 3-21
Under a standard cost system, the materials efficiency variances are the responsibility of
A. Sales and industrial engineering.

B. Purchasing and sales.
C. Production and industrial engineering.
D. Purchasing and industrial engineering.

(256 questions)
[151] Gleim #: 7.3.21 -- Source: CMA 1293 3-22

ChemKing’s standard price for one unit of direct materials is
A. $2.00
B. $5.00
C. $3.00
D. $2.50
[152] Gleim #: 8.5.80 -- Source: CMA 0205 2-45
After investing in a new project, a company discovered that its residual income remained unchanged. Which one of the
following must be true about the new project?
A. The return on investment of the new project must have been less than the firm’s cost of capital.
B. The net present value of the new project must have been negative.
C. The net present value of the new project must have been positive.
D. The return on investment of the new project must have been equal to the firm’s cost of capital.
Overtime conditions and pay were recently set by the human resources department. The production department has just
received a request for a rush order from the sales department. The production department protests that additional overtime
costs will be incurred as a result of the order. The sales department argues that the order is from an important customer. The
production department processes the order. To control costs, which department should never be charged with the overtime
costs generated as a result of the rush order?
A. Production department.
B. Human resources department.
C. Sales department.
D. Shared by production department and sales department.
[154] Gleim #: 8.1.5 -- Source: CMA 693 3-14
The least complex segment or area of responsibility for which costs are allocated is a(n)
A. Cost center.
B. Profit center.
C. Investment center.
D. Contribution center.

(256 questions)

Fleece Company uses a standard-costing system in relation to its manufacture of scarves. Each finished scarf contains 1.5
yards of direct materials. However, a 25% direct materials spoilage, which is calculated based on input quantities, occurs
during the manufacturing process. The cost of the direct materials is $2.00 per yard. The standard direct materials cost per
unit of finished product is
A. $4.00
B. $3.00
C. $2.25
D. $3.75
The materials yield variance equals
A. (Inputs allowed – inputs used) × (budgeted specific materials prices – budgeted weighted-average materials price).
B. (Inputs allowed – inputs used) × (budgeted specific labor rate – budgeted weighted-average labor rate).
C. (Inputs allowed – inputs used) × budgeted average materials price.
D. (Inputs allowed – inputs used) × budgeted weighted-average labor rate.
To monitor total cost, total revenue, and net profit based upon production levels, a manager should use
A. Standard costing but not flexible budgeting.

B. Static budgeting but not standard costing.
C. Static budgeting and standard costing.
D. Both flexible budgeting and standard costing.
Garland Company uses a standard cost system. The standard for each finished unit of product allows for 3 pounds of plastic
at $0.72 per pound. During December, Garland bought 4,500 pounds of plastic at $0.75 per pound, and used 4,100 pounds in
the production of 1,300 finished units of product. What is the materials purchase price variance for the month of December?
B. $150 unfavorable.
C. $135 unfavorable.
D. $123 unfavorable.

(256 questions)
[159] Gleim #: 8.4.56 -- Source: CMA 696 3-27

Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside source at $8.70
per unit. The Video Cards Division, having excess capacity, agrees to lower its transfer price to $8.70 per unit. This action
would
A. Subvert the profit goals of the Video Cards Division while optimizing the profit goals of the Entertainment Division.
B. Allow evaluation of both divisions on the same basis.
C. Optimize the overall profit goals of Parkside, Inc.
D. Optimize the profit goals of the Entertainment Division while subverting the profit goals of Parkside, Inc.
[160] Gleim #: 8.2.35 -- Source: CMA 1292 3-22
When using a contribution margin format for internal reporting purposes, the major distinction between segment manager
performance and segment performance is
A. Direct fixed costs controllable by the segment manager.

B. Unallocated fixed costs.
C. Direct variable costs of producing the product.
D. Direct fixed costs controllable by others.

What is Funtime’s variable overhead spending variance?
The materials mix variance equals
A. (Inputs allowed – inputs used) × (budgeted specific materials prices – budgeted weighted-average materials price).
B. (Inputs allowed – inputs used) × budgeted weighted-average materials price.
C. (Inputs allowed – inputs used) × (actual specific materials prices – budgeted weighted-average materials price).
D. (Inputs allowed – inputs used) × budgeted weighted-average labor rate.

(256 questions)

What is Funtime’s variable overhead efficiency variance?
D. $0
[164] Gleim #: 7.8.163 -- Source: CMA 0205 2-40
Teaneck, Inc. sells two products, Product E and Product F, and had the following data for last month:
Product E Product F
Budget Actual Budget Actual
Unit sales 5,500 6,000 4,500 6,000
Unit contribution margin $4.50 $4.80 $10.00 $10.50
The company’s sales mix variance is
Charlie’s Service Co. is a service center. For the month of June, Charlie’s had the following operating statistics:
Sales $750,000
Operating income 25,000
Net profit after taxes 8,000
Total assets available 500,000
Shareholders’ equity 200,000
Cost of capital 6%
Charlie’s has a
A. Residual income of $(20,000).

B. Residual income of $(5,000).
C. Return on investment of 3.33%.
D. Return on investment of 6%.

(256 questions)
[166] Gleim #: 7.3.26 -- Source: CMA 695 3-25

Price variances and efficiency variances can be key to the performance measurement within a company. In evaluating the
performance within a company, a materials efficiency variance can be caused by all of the following except the
A. Performance of the workers using the material.

B. Sales volume of the product.
C. Actions of the purchasing department.
D. Design of the product.
[167] Gleim #: 7.6.84 -- Source: CMA 1292 3-15

The predetermined overhead application rate for Nanjones Company is
A. $25.00
B. $10.00
C. $15.00
D. $5.00
[Fact Pattern #21]

Tiny Tykes Corporation had the following activity relating to its fixed and variable overhead for the month of July:
Actual costs
Fixed overhead $120,000
Flexible budget
(Actual output achieved × budgeted rate)
Applied
(Standard input allowed for actual
output achieved × budgeted rate)
Fixed overhead 125,000
Variable overhead spending variance 2,000 F
Production volume variance 5,000 U
[168] Gleim #: 7.6.83 -- Source: CMA 693 3-20

Tiny Tykes’ fixed overhead efficiency variance is
D. Never a meaningful variance.

(256 questions)
[169] Gleim #: 7.6.96 -- Source: CMA 1290 3-8

Franklin’s fixed overhead spending variance for the year is
[170] Gleim #: 7.6.101 -- Source: CMA 1284 4-4

The amount of fixed factory O/H that Dori will apply to finished production is the
A. Standard allowed direct labor hours for the actual units of finished output times the standard fixed factory O/H rate
per direct labor hour.
B. Actual fixed factory O/H cost per direct labor hour times the standard allowed direct labor hours.
C. Standard units of output for the actual direct labor hours worked times the standard fixed factory O/H rate per unit of
output.
D. Actual direct labor hours times the standard fixed factory O/H rate per direct labor hour.
The following exhibit reflects a summary of performance for a single item of a retail store’s inventory for April.
Flexible Static
Actual Budget Flexible (Master)
Results Variances Budget Budget
Sales (units) 11,000 -- 11,000 12,000
Revenue (sales) $208,000 $12,000 U $220,000 $240,000
Variable costs 121,000 11,000 U 110,000 120,000
Contribution Margin $ 87,000 $23,000 U $110,000 $120,000
Fixed costs 72,000 -- 72,000 72,000
Operating Income $ 15,000 $23,000 U $ 38,000 $ 48,000
The sales volume variance is
A. $1,000 F.
B. $10,000 U.
C. $12,000 U.
D. $11,000 F.

(256 questions)
[172] Gleim #: 7.4.42 -- Source: CMA 692 3-17

The labor efficiency variance for the year is
The following forecasted information is available for a manufacturing division for next year:
Amount
Category (thousands)
Working capital $ 1,800
Revenue 30,000
Plant and equipment 17,200
To establish a standard of performance for the division’s manager using the residual income approach, four scenarios are
being considered.
Target
Imputed Interest Residual Income
1 15% $2,000,000
2 12% 1,500,000
3 18% 1,250,000
4 10% 2,500,000
Which scenario assumes the lowest maximum cost?
A. Scenario 1.
B. Scenario 3.
C. Scenario 4.
D. Scenario 2.
Transfer pricing should encourage goal congruence and managerial effort. In a decentralized organization, it should also
encourage autonomous decision making. Managerial effort is the
A. Extent of the attempt to accomplish a specific goal.

B. Desire and the commitment to achieve a specific goal.
C. Sharing of goals by supervisors and subordinates.
D. Extent to which individuals have the authority to make decisions.

(256 questions)

When calculating variances from standard costs, the difference between budgeted fixed overhead and the amount applied
yields a
A. Price variance.
B. Mix variance.
C. Combined price-quantity variance.
D. Volume variance.
In evaluating an investment center, top management should concentrate on
A. Net income.
B. Dollar sales.
C. Profit percentages.
D. Return on investment.
[177] Gleim #: 8.5.77 -- Source: CMA 681 4-2
The imputed interest rate used in the residual income approach for performance measurement and evaluation can best be
characterized as the
A. Average return on investment that has been earned by the company over a particular period.
B. Target return on investment set by management.
C. Marginal after-tax cost of new equity capital.
D. Historical weighted average cost of capital for the company.
Which type of variance will reflect overtime premiums when the overall volume of work is greater than expected?
A. Overhead.
B. Labor efficiency.
C. Yield.
D. Materials quantity.
[179] Gleim #: 8.1.17 -- Source: CMA 691 3-30
In a highly decentralized organization, the best option for measuring the performance of subunits is the establishment of
A. Marketing centers.
B. Cost centers.
C. Product centers.
D. Revenue centers.

(256 questions)
[Fact Pattern #22]

Mountain View Hospital (MVH) has adopted a standard cost accounting system for evaluation and control of nursing labor.
Diagnosis Related Groups (DRGs), instituted by the U.S. government for health insurance reimbursement, are used as the output
measure in the standard cost system. A DRG is a patient classification scheme in which hospitals are regarded as multiproduct
firms with inpatient treatment procedures related to the numbers and types of patient ailments treated. MVH has developed
standard nursing times for the treatment of each DRG classification, and nursing labor hours are assumed to vary with the number
of DRGs treated within a time period. The nursing unit on the fourth floor treats patients with four DRG classifications. The unit is
staffed with registered nurses (RNs), licensed practical nurses (LPNs), and aides. The standard nursing hours and salary rates and
actual numbers of patients for the month of May were as follows.
DRG No. of Standard Hours per DRG Total Standard Hours

Classification Patients RN LPN Aide RN LPN Aide
1 250 6 4 5 1,500 1,000 1,250
2 90 26 16 10 2,340 1,440 900
3 240 10 5 4 2,400 1,200 960
4 140 12 7 10 1,680 980 1,400
7,920 4,620 4,510
Standard Hourly Rates

RN $12.00
LPN 8.00
Aide 6.00
The results of operations during May for the fourth floor nursing unit are presented below:
RN LPN Aide
Actual hours 8,150 4,300 4,400
Actual salary $100,245 $35,260 $25,300
Actual hourly rate $12.30 $8.20 $5.75
Because MVH does not have data to calculate variances by DRG, it uses a flexible budgeting approach to calculate labor variances
for each reporting period by labor classification (RN, LPN, Aide). Labor mix and labor yield variances are also calculated because
one labor input can be substituted for another. The variances are used by nursing supervisors and hospital administration to
evaluate the performance of nurses.

What is the direct labor static budget variance?

(256 questions)

A carpet manufacturer maintains a retail division consisting of stores stocking its brand and other brands, and a
manufacturing division that makes carpets and pads. An outside market exists for carpet padding material in which all
padding produced can be sold. The proper transfer price for padding transferred from the manufacturing division to the retail
division is
A. Variable manufacturing division production cost plus allocated fixed factory overhead.
B. Variable manufacturing division production cost plus variable selling and administrative cost.
C. The market price at which the retail division could purchase padding.
D. Variable manufacturing division production cost.
[182] Gleim #: 8.5.78 -- Source: CMA 697 3-30
James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual
income method. Webb is reviewing the following forecasted information for his division for next year:
Amount
Category (thousands)
Working capital $ 1,800
Revenue 30,000
Plant and equipment 17,200
If the imputed interest charge is 15% and Webb wants to achieve a residual income target of $2,000,000, what will costs
have to be in order to achieve the target?
A. $25,690,000
B. $10,800,000
C. $25,150,000
D. $9,000,000
[183] Gleim #: 7.3.12 -- Source: CMA 1289 4-4
A favorable materials price variance coupled with an unfavorable material usage variance would most likely result from
A. Labor efficiency problems.

B. The purchase and use of higher than standard quality material.
C. The purchase and use of lower than standard quality material.
D. Labor mix problems.

(256 questions)

What is the direct labor yield variance (rounded) for Tamsin?
A. $515
B. $500
C. $820
D. $320
[185] Gleim #: 7.6.82 -- Source: CMA 693 3-19

If the budgeted rate for applying variable overhead was $20 per direct labor hour, how efficient or inefficient was Tiny Tykes
Corporation in terms of using direct labor hours as an activity base?
A. 400 direct labor hours efficient.

B. 100 direct labor hours inefficient.
C. 400 direct labor hours inefficient.
D. 100 direct labor hours efficient.
In which of the following variances is the standard unit cost used in the calculations?
A. The direct labor price variance but not the direct labor efficiency variance.
B. The direct labor efficiency variance but not the direct labor rate variance.
C. The direct materials usage variance but not the direct materials price variance.
D. Both the direct materials usage variance and the direct materials price variance.
[187] Gleim #: 7.7.130 -- Source: CMA 1294 3-27

Water Control’s variable overhead spending variance for November was

(256 questions)
[188] Gleim #: 8.5.79 -- Source: CMA 1291 3-5

The basic objective of the residual income approach to performance measurement and evaluation is to have a division
maximize its
A. Income in excess of a desired minimum return.

B. Cash flows.
C. Return on investment rate.
D. Imputed interest rate charge.
The price that one division of a company charges another division for goods or services provided is called the
A. Market price.
B. Transfer price.
C. Outlay price.
D. Distress price.
[190] Gleim #: 7.3.22 -- Source: CMA 1293 3-23

ChemKing’s units of direct materials used to produce November output totaled
A. 23,000 units.
B. 25,000 units.
C. 12,000 units.
D. 12,500 units.
Anderson Company prepared the following information using a flexible budget system.
Percentage of total capacity

75% 90%
Direct labor hours 30,000 36,000
Variable factory overhead $52,500 $63,000
Fixed factory overhead $144,000 $144,000
Total factory overhead rate per DLH $6.55 $5.75
Anderson operated at 75% of capacity during the year. However, Anderson applied factory overhead based on 90% of
capacity. If actual factory overhead was equal to the factory overhead budgeted for 75% of capacity, what is the amount of
overhead variance for the year?
A. $24,000 overabsorbed.
B. $28,500 underabsorbed.
C. $24,000 underabsorbed.
D. $28,500 overabsorbed.

(256 questions)
[192] Gleim #: 7.6.103 -- Source: CMA 687 4-17
Selo Imports uses flexible budgeting for the control of costs. The company’s annual master budget includes $324,000 for
fixed production supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to be incurred
uniformly through the year. During September, 15,750 units were produced and production supervisory salaries incurred
were $28,000. A performance report for September should reflect a budget variance of
A. $350 Unfavorable.
B. $1,000 Favorable.
C. $1,000 Unfavorable.
D. $350 Favorable.
[193] Gleim #: 8.4.53 -- Source: CMA 694 3-30
An appropriate transfer price between two divisions of The Stark Company can be determined from the following data:
Fabricating Division:
Market price of subassembly $50
Variable cost of subassembly $20
Excess capacity (in units) 1,000
Assembling Division:
Number of units needed 900
What is the natural bargaining range for the two divisions?
A. Between $50 and $70.

B. Any amount less than $50.
C. Between $20 and $50.
D. $50 is the only acceptable price.
[194] Gleim #: 7.3.24 -- Source: CMA 1294 3-24
Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standard
specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual production in November was
3,100 units of Titactium. The accountant computed a favorable direct materials purchase price variance of $380 and an
unfavorable direct materials quantity variance of $120. Based on these variances, one could conclude that
A. The actual usage of materials was less than the standard allowed.
B. The actual cost of materials was less than the standard cost.
C. More materials were purchased than were used.
D. More materials were used than were purchased.

(256 questions)
[195] Gleim #: 8.1.2 -- Source: CMA 691 3-28

The basic purpose of a responsibility accounting system is
A. Variance analysis.
B. Authority.
C. Motivation.
D. Budgeting.
[196] Gleim #: 7.8.139 -- Source: CMA 693 3-16
In analyzing company operations, the controller of the Jason Corporation found a $250,000 favorable flexible-budget revenue
variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly
explained by
A. Changes in unit selling prices.

B. The total sales volume variance.
C. The total static budget variance.
D. The total flexible budget variance.
Which one of the following will not improve return on investment if other factors are constant?
A. Increasing selling prices.

B. Increasing sales volume while holding fixed expenses constant.
C. None of the answers is correct.
D. Decreasing expenses or assets.
[198] Gleim #: 7.6.94 -- Source: CMA 1290 3-6

Franklin’s variable overhead efficiency variance for the year is
[199] Gleim #: 7.8.138 -- Source: CMA 1295 3-3
The variance that arises solely because the quantity actually sold differs from the quantity budgeted to be sold is
A. Master budget increment.

B. Sales mix variance.
C. Static budget variance.
D. Sales volume variance.

(256 questions)

What is the labor yield variance?
A. $460 favorable.
Making segment disclosures is an advantage to a company because it
A. Provides competitors with comparative information on the company’s performance.

B. Eliminates the interdependence of segments.
C. Facilitates evaluation of company management by providing data on particular segments.
D. Masks the effect of intersegment transfers.
[202] Gleim #: 7.6.87 -- Source: CMA 1292 3-18

Nanjones’ variable overhead spending variance for November was
[203] Gleim #: 7.6.81 -- Source: CMA 695 3-30
The production volume variance is due to
A. Efficient or inefficient use of variable overhead.

B. Difference from the planned level of the base used for overhead allocation and the actual level achieved.
C. Excessive application of direct labor hours over the standard amounts for the output level actually achieved.
D. Inefficient or efficient use of direct labor hours.

(256 questions)

Lake’s direct labor costs for the month of May are as follows:
Standard direct labor hours allowed 12,500

Actual direct labor rate $8.25
Direct labor rate variance -- favorable $5,600
What was Lake’s standard direct labor rate in May?
A. $8.81
B. $8.25
C. $7.80
D. $7.69
[205] Gleim #: 7.1.2 -- Source: CMA 1296 3-23
The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to
A. Trace the variances to finished goods so that the inventory can be properly valued at year-end.
B. Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing
operations.
C. Determine the proper cost of the products produced so that selling prices can be adjusted accordingly.
D. Pinpoint fault for operating problems in the organization.
[206] Gleim #: 7.2.5 -- Source: CMA 1295 3-6
The difference between the actual amounts and the flexible budget amounts for the actual output achieved is the
A. Sales volume variance.

B. Flexible budget variance.
C. Production volume variance.
D. Standard cost variance.
[207] Gleim #: 8.5.74 -- Source: CMA 1291 3-7
Which one of the following items would most likely not be incorporated into the calculation of a division’s investment base
when using the residual income approach for performance measurement and evaluation?
A. Division inventories when division management exercises control over the inventory levels.
B. Division accounts payable when division management exercises control over the amount of short-term credit used.
C. Land being held by the division as a site for a new plant.
D. Fixed assets employed in division operations.

(256 questions)
[208] Gleim #: 7.6.91 -- Source: CMA 1289 4-3

A fixed overhead volume variance based on standard direct labor hours measures
A. Deviation from the normal, or denominator, level of direct labor hours.

B. Deviation from standard direct labor hour capacity.
C. Fixed overhead efficiency.
D. Fixed overhead use.

(256 questions)
[Fact Pattern #23]
Funtime, Inc. manufactures video game machines. Funtime prepares monthly performance reports based on
Market saturation and technological innovations have standard costs. Presented below is the contribution report for
caused pricing pressures, which have resulted in May when production and sales both reached 2,200 units.
declining profits. To stem the slide in profits until new
products can be introduced, an incentive program has Funtime, Inc.
been developed to reward production managers who Contribution Report
contribute to an increase in the number of units For the Month of May
produced and effect cost reductions. Budget Actual Variance
The managers have responded to the pressure of Units 2,000 2,200 200 F
improving manufacturing in several ways. The video Revenue $400,000 $440,000 $40,000 F
game machines are put together by the Assembly Group
Variable costs
which requires parts from both the Printed Circuit
Direct materials 180,000 220,400 40,400 U
Boards (PCB) and the Reading Heads (RH) groups. To
Direct labor 80,000 93,460 13,460 U
attain increased production levels, the PCB and RH
Variable overhead 18,000 18,800 800 U
groups commenced rejecting parts that previously
would have been tested and modified to meet Total variable costs 278,000 332,660 54,660 U
manufacturing standards. Preventive maintenance on Contribution margin $122,000 $107,340 $14,660 U
machines used in the production of these parts has been
postponed with only emergency repair work being Funtime’s top management was surprised by the unfavorable
performed to keep production lines moving. contribution to overall corporate profits despite the increased
sales in May. Jack Rath, cost accountant, was assigned to
The more aggressive Assembly Group production identify the reasons for the unfavorable contribution results as
supervisors have pressured maintenance personnel to well as the individuals or groups responsible. After review,
attend to their machines at the expense of other groups. Rath prepared the Usage Report presented below.
This has resulted in machine downtime in the PCB and
RH groups that, when coupled with demands for
accelerated parts delivery by the Assembly Group, has Funtime, Inc.
led to more frequent parts rejections and increased Usage Report
friction among departments. For the Month of May
Cost Item Quantity Actual Cost
Funtime operates under a standard cost system. The
Direct materials
standard costs for video game machines are as follows:
Housing units 2,200 units $ 44,000
Printed circuit boards 4,700 units 75,200
Standard Cost per Unit Reading heads 9,200 units 101,200
Cost Item Quantity Cost Total Direct labor
Assembly 3,900 hours 31,200
Direct Materials
Printed circuit boards 2,400 hours 23,760
Housing unit 1 $20 $ 20
Reading heads 3,500 hours 38,500
Printed circuit boards 2 15 30
Variable overhead 9,900 hours 18,800
Reading heads 4 10 40
Direct labor hours Total variable cost $332,660
Assembly group 2 8 16
PCB group 1 9 9 Rath reported that the PCB and RH groups supported the
RH group 1.5 10 15 increased production levels but experienced abnormal
Variable overhead hours 4.5 2 9 machine downtime, causing the idling of workers that
Total standard cost per unit $139 required the use of overtime to keep up with the accelerated
demand for parts. The idle time was charged to direct labor.
Rath also reported that the production managers of these two
groups resorted to parts rejections, as opposed to testing and
modification procedures formerly applied. Rath determined
that the Assembly Group met management’s objectives by
increasing production while using lower than standard hours.

(256 questions)

What is Funtime’s contribution margin volume variance?

What is Mack’s direct materials mix variance for this operation?
A. $219.50 favorable.
B. $294 favorable.
C. $94.50 unfavorable.
D. $388.50 favorable.
[211] Gleim #: 7.4.47 -- Source: CMA 1291 3-3

The direct labor price (rate) variance for November is
[Fact Pattern #24]

One of the items produced by a manufacturer of lawn and garden tools is a chain saw. The direct labor standard for assembling and
testing a chain saw is 2.5 hours at $8 per hour. Budgeted production for October was 1,200 units. Actual production during the
month was 1,000 units, and direct labor cost was $27,840 for 3,200 hours.

Using a two-variance system, what is the direct labor efficiency variance?

(256 questions)

What is the labor mix variance?
[Fact Pattern #25]

The controller for Durham Skates is reviewing the production cost report for July. An analysis of direct materials costs reflects an
unfavorable flexible budget variance of $25. The plant manager believes this is excellent performance on a flexible budget for
5,000 units of direct materials. However, the production supervisor is not pleased with this result because she claims to have saved
$1,200 in materials cost on actual production using 4,900 units of direct materials. The standard materials cost is $12 per unit.
Actual materials used for the month amounted to $60,025.
[214] Gleim #: 7.3.19 -- Source: CMA 697 3-23

If Durham’s direct materials variance is investigated further, it will reflect a price variance of
B. Zero.
[215] Gleim #: 8.5.70 -- Source: CIA
Return on investment (ROI) is a very popular measure employed to evaluate the performance of corporate segments because
it incorporates all of the major ingredients of profitability (revenue, cost, investment) into a single measure. Under which one
of the following combinations of actions regarding a segment’s revenues, costs, and investment would a segment’s ROI
always increase?
Revenues Costs Assets

A. Increase Increase Increase
B. Increase Decrease Increase
C. Increase Decrease Decrease
D. Decrease Decrease Decrease

(256 questions)
[216] Gleim #: 7.7.128 -- Source: CMA 696 3-25

Ardmore’s flexible budget overhead variance for May is
The total budgeted direct labor cost of a company for the month was set at $75,000 when 5,000 units were planned to be
produced. The following standard cost, stated in terms of direct labor hours (DLH), was used to develop the budget for direct
labor cost:
1.25 DLH × $12.00/DLH = $15.00/unit produced

The actual operating results for the month were as follows:
Actual units produced 5,200
Actual direct labor hours worked 6,600
Actual direct labor cost $77,220
The direct labor efficiency variance for the month would be
[218] Gleim #: 7.6.86 -- Source: CMA 1292 3-17

Nanjones’ amount of over- or underapplied variable manufacturing overhead for November was
A. $6,000 overapplied.
B. $4,000 underapplied.
C. $20,000 overapplied.
D. $6,000 underapplied.

(256 questions)

Harris Co.’s income statement for profit center No. 12 for August includes
Contribution margin $84,000

Manager’s salary 24,000
Depreciation on accommodations 9,600
Allocated corporate expenses 6,000
The profit center’s manager is most likely able to control which of the following?
A. $68,400
B. $60,000
C. $44,400
D. $84,000
The receipt of raw materials used in the manufacture of products and the shipping of finished goods to customers is under the
control of the warehouse supervisor. The warehouse supervisor’s time is spent approximately 60% on receiving activities and
40% on shipping activities. Separate staffs are employed for the receiving and shipping operations. The labor-related costs
for the warehousing function are as follows:
Warehouse supervisor’s salary $ 40,000

Receiving clerks’ wages 75,000
Shipping clerks’ wages 55,000
Employee benefit costs (30% of wage and salary costs) 51,000
$221,000
The company employs a responsibility accounting system for performance reporting purposes. The costs are classified on the
report as period or product costs. The total labor-related costs that would be listed on the responsibility accounting
performance report as product costs under the control of the warehouse supervisor for the warehousing function would be
A. $128,700
B. $130,000
C. $97,500
D. $169,000
When comparing the residual income of several investment centers, the validity of comparisons may be destroyed by
A. None of the answers is correct.

B. Peculiarities of each investment center.
C. Common amounts of invested capital for each investment center.
D. Consistent use of an imputed interest rate.

(256 questions)

The direct labor rate variance for April is
Bolt Co. uses a standard-cost system. Bolt’s direct labor information for July is as follows:
Standard hours allowed for actual production 3,000

Actual rate paid per hour $9.35
Standard rate per hour $8.50
Labor efficiency variance $1,870 U
The actual hours worked equaled
A. 3,200
B. 2,800
C. 2,780
D. 3,220

The amount that will be shown on a static budget for Part X usage during the month of June is
A. $27,000
B. $36,000
C. $29,000
D. $26,100
[225] Gleim #: 7.8.141 -- Source: CMA 695 3-29
For a company that produces more than one product, the sales volume variance can be divided into which two of the
following additional variances?
A. Sales price variance and flexible budget variance.

B. Sales mix variance and sales price variance.
C. Sales mix variance and production volume variance.
D. Sales quantity variance and sales mix variance.

(256 questions)

Coach Corporation is considering which capacity measure is appropriate to use as the denominator level of activity when
applying fixed overhead to units produced. Assume that Coach selects direct labor hours as the cost driver and the following
additional data are available from the prior year:
Hours
Standard direct labor hours for normal capacity 200,000
Standard direct labor hours allowed for units produced in the
prior year 210,000
Standard direct labor hours for the master budget capacity 220,000
Which of the following capacity measures for the denominator-level of activity would have resulted in an unfavorable volume
variance?
A. Neither normal capacity nor master budget capacity.

B. Both normal capacity and master budget capacity.
C. Normal capacity only.
D. Master budget capacity only.
[227] Gleim #: 7.3.17 -- Source: CMA 1295 3-25
Which one of the following variances is most controllable by the production control supervisor?
A. Variable overhead spending variance.

B. Fixed overhead budget variance.
C. Materials usage variance.
D. Materials price variance.
[228] Gleim #: 8.5.76 -- Source: CMA 694 3-18
The imputed interest rate used in the residual income approach to performance evaluation can best be described as the
A. Average return on investments for the company over the last several years.
B. Historical weighted-average cost of capital for the company.
C. Target return on investment set by the company’s management.
D. Average lending rate for the year being evaluated.

(256 questions)
[Fact Pattern #26]

Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into a complete
radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit. During May, Blaster
experienced the following with respect to Part XBEZ52.
Units
Purchases ($18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000
[229] Gleim #: 7.3.14 -- Source: CMA 695 3-23

During May, Blaster, Inc. incurred a purchase price variance of
B. $500 favorable.
D. $450 favorable.
Margolos, Inc. ends the month with a volume variance of $6,360 unfavorable. If budgeted fixed O/H was $480,000, O/H was
applied on the basis of 32,000 budgeted machine hours, and budgeted variable O/H was $170,000, what were the actual
number of machine hours (AH) for the month?
A. 31,576
B. 32,425
C. 32,318
D. 32,000
[231] Gleim #: 8.1.20 -- Source: CMA 694 3-27
The Stonebrook Company uses a performance reporting system that reflects the company’s decentralization of decision
making. The departmental performance reports show actual costs incurred during the period against budgeted costs. Any
variances from the budget are assigned to the individual department manager who controls the costs. Stonebrook is using a
type of system called
A. Activity-based budgeting.
B. Transfer-pricing accounting.
C. Responsibility accounting.
D. Flexible budgeting.

(256 questions)
[232] Gleim #: 8.5.86 -- Source: CMA 697 3-24

Residual income is a better measure for performance evaluation of an investment center manager than return on investment
because
A. The arguments about the implicit cost of interest are eliminated.

B. Only the gross book value of assets needs to be calculated.
C. The problems associated with measuring the asset base are eliminated.
D. Desirable investment decisions will not be neglected by high-return divisions.
A firm prepared a segmented income statement that included the following data for its suburban marketing segment:
Fixed costs controllable by the suburban marketing segment manager $150,000

Fixed suburban marketing costs controllable by corporate management 250,000
Fixed manufacturing costs allocated to the suburban marketing segment 110,000
Variable manufacturing costs 200,000
Variable selling costs 100,000
Variable administrative costs 130,000
Net sales 950,000
The best measure of the economic performance of the suburban marketing segment is:
A. $370,000
B. $120,000
C. $520,000
D. $10,000
[234] Gleim #: 8.1.12 -- Source: CMA 1294 3-21
Sherman Company uses a performance reporting system that reflects the company’s decentralization of decision making. The
departmental performance report shows one line of data for each subordinate who reports to the group vice president. The
data presented show the actual costs incurred during the period, the budgeted costs, and all variances from budget for that
subordinate’s department. Sherman is using a type of system called
A. Contribution accounting.
B. Flexible budgeting.
C. Cost-benefit accounting.

(256 questions)
[235] Gleim #: 7.3.18 -- Source: CMA 697 3-22

Durham’s actual average cost per unit for materials was
A. $12.01
B. $12.25
C. $12.00
D. $12.24
Watson Company uses a predetermined factory overhead application rate based on direct labor cost. Watson’s budgeted
factory overhead was $756,000 based on a budgeted volume of 60,000 direct labor hours, at a standard direct labor rate of
$7.20 per hour. Actual factory overhead amounted to $775,000 with actual direct labor cost of $450,000 for the year ended
December 31. How much was Watson’s overapplied factory overhead?
A. $12,500
B. $19,000
C. $18,000
D. $37,000
A limitation of transfer prices based on actual cost is that they
A. Can lead to suboptimal decisions for the company as a whole.

B. Lack clarity and administrative convenience.
C. Must be adjusted by some markup.
D. Charge inefficiencies to the department that is transferring the goods.
[238] Gleim #: 8.5.75 -- Source: CMA 1296 3-2
The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center
is known as
A. Return on assets.
B. Return on investment.
C. Residual income.
D. Operating income.

(256 questions)

The market share variance is partly a function of the unit contribution margin (UCM). It equals
A. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for actual mix).
B. Budgeted market share percentage × (actual market size in units – budgeted market size in units) × budgeted
C. (Actual units – master budget units) × budgeted weighted-average UCM for the planned mix.
D. (Actual market share percentage – budgeted market share percentage) × actual market size in units × budgeted
[240] Gleim #: 8.1.16 -- Source: CMA 689 4-25
The Hersh Company uses a performance reporting system that reflects the company’s decentralization of decision making.
The departmental performance report shows one line of data for each subordinate who reports to the group vice president.
The data presented show the actual costs incurred during the period, the budgeted costs, and all variances from budget for
that subordinate’s department. The Hersh Company is using a type of system called
A. Flexible budgeting.
B. Contribution accounting.
C. Cost-benefit accounting.
Wheeler Company uses a standard-cost system. Wheeler prepared the following budget using normal capacity for the month
of May:
Direct labor hours 36,000

Variable factory overhead $72,000
Fixed factory overhead $162,000
Actual results were as follows:
Direct labor hours worked 33,000

Total factory overhead $220,500
Standard DLH allowed for capacity attained 31,500
What is the budget (controllable) variance for May using the two-way analysis of overhead variances?

(256 questions)

The sales mix variance for the two countries is
A. $150 F.
B. $26 U.
C. $56 F.
D. $156 U.
[243] Gleim #: 7.6.95 -- Source: CMA 1290 3-7

Franklin’s variable overhead spending variance for the year is
[244] Gleim #: 8.1.1 -- Source: CMA 1294 3-20
Fairmount, Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make
the decisions incurring the costs. For example, if the sales manager accepts a rush order that will result in higher-than-normal
manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the
rush order was given to the sales manager. This type of accounting system is known as
A. Reciprocal allocation.
B. Functional accounting.
C. Responsibility accounting.
D. Transfer price accounting.
Variable-cost-plus price is
A. The price on the open market.

an outside sale.
C. The price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.
D. The price usually set by an absorption costing calculation.

(256 questions)
[246] Gleim #: 8.4.48 -- Source: CMA 1296 3-17

In theory, the optimal method for establishing a transfer price is
A. Incremental cost.
B. Budgeted cost with or without a markup.
C. Flexible budget cost.
D. Market price.
Managers are most likely to accept allocations of common costs based on
A. Ability to bear.
B. Cause and effect.
C. Fairness.
D. Benefits received.
Goal congruence is
A. The desire and the commitment to achieve a specific goal.

B. The sharing of goals by supervisors and subordinates.
C. The extent to which individuals have the authority to make decisions.
D. The extent of the attempt to accomplish a specific goal.

Using a two-variance system, what was the direct labor rate variance for October?
[250] Gleim #: 7.3.15 -- Source: CMA 695 3-24

During May, Blaster, Inc. incurred a materials efficiency variance of

(256 questions)

The labor yield variance equals
A. (Inputs allowed – inputs used) × budgeted weighted-average labor rate.

B. (Inputs allowed – inputs used) × (budgeted specific labor rate – budgeted weighted-average labor rate).
C. (Inputs allowed – inputs used) × budgeted weighted-average materials price.
D. (Inputs allowed – inputs used) × (budgeted specific materials prices – budgeted weighted-average materials price).
Outlay cost plus opportunity cost is
A. The price usually set by an absorption-costing calculation.

an outside sale.
C. The retail price.
D. The price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.
[253] Gleim #: 7.7.132 -- Source: CMA 1294 3-28

Water Control’s variable overhead efficiency variance for November was

How much O/H should be applied to production?
A. $1,358,250
B. $1,413,384
C. $1,432,000
D. $1,346,080
[255] Gleim #: 7.4.41 -- Source: CMA 692 3-16

The fixed cost spending variance for the year is

(256 questions)
A large corporation allocates the costs of its headquarters staff to its decentralized divisions. The best reason for this
allocation is to
A. Discourage any use of central support services.

B. Remind divisional managers that common costs exist.
C. More accurately measure divisional operating results.
D. Improve divisional management’s morale.

Answer Explanations
(256 questions)
Answer (A) is incorrect because A budget allowance based on actual input and the actual factory overhead are used in the
computation of the spending variance. A budget allowance based on standard input is used to calculate the efficiency
variance in a three-way analysis.
Answer (B) is correct. In three-way analysis, the spending variance is the difference between actual total overhead and the
sum of the budgeted (lump-sum) fixed overhead and the variable overhead budgeted for the actual input at the standard rate.
It combines the variable overhead spending and the fixed overhead budget (spending) variances used in four-way analysis.
Answer (C) is incorrect because A budget allowance based on actual input and the actual factory overhead are used in the
Answer (D) is incorrect because A budget allowance based on actual input and the actual factory overhead are used in the
Answer (A) is incorrect because The direct materials efficiency variance is $240,000.
Answer (B) is incorrect because The direct labor rate variance is $156,000.
Answer (C) is correct. The direct materials price variance equals the actual quantity used in production times the standard
price minus the actual price. The variance is $760,000 unfavorable [190,000 × ($24 – $28)]. The variance is unfavorable
because the actual price exceeded the standard price.
Answer (D) is incorrect because The variance is unfavorable.
[3] Gleim #: 7.6.93 -- Source: CMA 1290 3-5
Answer (A) is incorrect because Total standard hours allowed equal actual production multiplied times the standard hours
allowed per unit.
Answer (B) is incorrect because The total standard hours allowed at a production level of 200,000 units is 400,000.
Answer (C) is correct. Two standard hours are allowed for each unit of production. Given actual production of 198,000
units, total standard hours allowed equal 396,000 (2 × 198,000).
Answer (D) is incorrect because Total standard hours allowed equal actual production multiplied times the standard hours
allowed per unit.

Answer Explanations
(256 questions)
Answer (A) is correct. A responsibility accounting system should have certain controls that provide for feedback reports
indicating deviations from expectations. Management may then focus on those deviations (exceptions) for either
reinforcement or correction.
Answer (B) is incorrect because Feedback reports concentrate on deviations, but not to the total exclusion of other budgeted
variables.
Answer (C) is incorrect because The responsibility accounting system should not be used exclusively to give rewards.
Answer (D) is incorrect because The responsibility accounting system should not be used exclusively to assess blame.
[5] Gleim #: 7.8.150 -- Source: CMA 695 3-26
Answer (A) is incorrect because Assuming that all costs are variable results in $12,000.
Answer (B) is incorrect because The amount of $19,200 is based on actual variable costs.
Answer (C) is correct. A flexible budget is prepared after the budget period has ended and actual sales and costs are known.
Assuming that unit sales price ($100,000 ÷ 10,000 units = $10) and variable costs of sales ($60,000 ÷ 10,000 unit = $6) and
total fixed costs ($30,000) do not change, a flexible budget may be prepared for the actual sales level (12,000 units). Hence,
the budgeted contribution margin (sales – variable costs of sales) equals $48,000 [(12,000 units × $10) – (12,000 units ×
$6)]. The operating income is therefore $18,000 ($48,000 CM – $30,000 FC).
Answer (D) is incorrect because The amount of $30,000 is based on actual sales revenues.
[6] Gleim #: 7.4.44 -- Source: CMA 692 3-20
Answer (A) is incorrect because The variance is favorable. The actual labor rate was less than the standard rate.
Answer (B) is correct. The direct labor rate variance equals the actual quantity of hours worked times the difference
between the standard and actual labor rates. Total direct labor cost was $327,600 ($364,000 × 90%), and the actual unit
direct labor cost was $11.70 ($327,600 ÷ 28,000 hours). Thus, the variance is $8,400 favorable [28,000 hours × ($12.00 –
$11.70)].
Answer (C) is incorrect because The variance is favorable. The actual labor rate was less than the standard rate.
Answer (D) is incorrect because The labor efficiency variance is $6,000, not the labor rate variance.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Scheduling of substantial overtime can lead to reduced quality and the need for more
material to produce units to replace those units of unacceptable quality.
Answer (B) is incorrect because Machinery that has not been maintained properly is more likely to ruin units of production
and therefore require more materials to complete production.
Answer (C) is correct. An efficiency, or usage, variance for materials occurs when usage differs from the standard.
Unfavorable variances occur when actual usage is greater than standard. Labor whose skill is commensurate with materials
usage standards should achieve standard materials usage; that is, little or no variance should arise.
Answer (D) is incorrect because If materials do not meet specifications, more will be used and an unfavorable quantity
(usage) variance will result.
Answer (A) is incorrect because At $20 per unit, Division Y may be indifferent as to whether it purchases internally or
externally. Buying from an outside source for $20 per unit is contrary to the company’s interests given idle capacity available
for the component’s manufacture and an incremental unit cost of $20.
Answer (B) is incorrect because The amount of $12 per unit merely allows Division Z to recover its unit variable cost.
Answer (C) is correct. A unit price of $18 is less than Division Y’s cost of purchase from an outside supplier but exceeds
Division Z’s production cost. Accordingly, both Y and Z benefit.
Answer (D) is incorrect because At $22 per unit, Division Y would have incentive to purchase from an external supplier
(i.e., market price is $20).
Answer (A) is incorrect because The volume variance consists of fixed overhead only, and the efficiency variance, which
consists of variable overhead only, is not isolated in two-way analysis.
Answer (B) is correct. In two-way analysis, the total overhead variance (fixed + variable) is composed of the volume
variance (total fixed overhead cost budgeted – fixed overhead applied based on standard input allowed for the actual output)
and the controllable (budget) variance (the difference between the total actual overhead and the volume variance).
Consequently, the controllable (budget) variance contains both fixed and variable elements.
Answer (C) is incorrect because The volume variance consists of fixed overhead only, and the efficiency variance, which
consists of variable overhead only, is not isolated in two-way analysis.
Answer (D) is incorrect because The volume variance consists of fixed overhead only.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The minimum that should be charged is $7.00. Since Division A has idle capacity, the
minimum transfer price should recover variable costs ($7.00).
Answer (B) is incorrect because Division A should not include any fixed costs in their transfer price because Division A has
idle capacity.
Answer (C) is correct. From the seller’s perspective, the price should reflect at least its incremental cash outflow (outlay
cost) plus the contribution from an outside sale (opportunity cost). Because A has idle capacity, the opportunity cost is $0.
Thus, the minimum price Division A should charge Division B is $7.00.
Answer (D) is incorrect because Since Division A has idle capacity, the minimum transfer price should recover Division A’s
variable (outlay) costs.
Answer (A) is incorrect because The variable-cost-plus price is the price set by charging for variable costs plus a lump sum
or an additional markup, but less than full markup.
Answer (B) is incorrect because The outlay cost plus opportunity cost is the price representing the cash outflows of the
supplying division plus the contribution to the supplying division from an outside sale.
Answer (C) is correct. Full-cost price is the price usually set by an absorption-costing calculation and includes materials,
labor, and a full allocation of manufacturing overhead. This full-cost price may lead to dysfunctional behavior by the
supplying and receiving divisions, e.g., purchasing from outside sources at a slightly lower price that is substantially above
the variable costs of internal production.
Answer (D) is incorrect because The market price is the price on the open market.

Answer Explanations
(256 questions)
[12] Gleim #: 7.6.98 -- Source: CMA 1290 3-10
Answer (A) is correct. The fixed overhead volume variance results when production varies from the denominator amount.
The denominator amount is the level of production used to determine the standard cost per unit. Because production was
expected to be 200,000 units (the denominator level), but actual production was only 198,000 units, an unfavorable volume
variance of 2,000 units occurred. Thus, 2,000 units were not charged with $3 per unit of overhead, and the volume variance
in dollars was $6,000U (2,000 units × $3). This underapplication of fixed overhead is unfavorable because it indicates an
underuse of facilities; that is, activity was less than budgeted. Unlike other variances, this variance does not measure
deviations from expected costs but rather the departure from the expected use of productive capacity.
Answer (B) is incorrect because The fixed overhead volume variance is unfavorable because actual activity is less than
budgeted.
Answer (C) is incorrect because The fixed overhead volume variance is unfavorable because actual activity is less than
budgeted.
Answer (D) is incorrect because The fixed overhead volume variance equals the difference between the budgeted fixed
factory overhead and the product of the budgeted application rate and the standard input allowed for the actual output.
[13] Gleim #: 7.8.149 -- Source: CMA 1291 3-18
Answer (A) is incorrect because Folsom will need to know the actual total market size.
Answer (B) is correct. A change in market share reflects a change in relative competitiveness. To isolate the effect on
operating income of an increase or a decrease in market share, the company must know its budgeted and actual market
shares, the actual size of the market for November, and the budgeted weighted-average unit contribution margin. Such
computations may help Folsom to determine whether its decline in sales resulted from a loss of competitiveness or a
shrinkage of the market.
Answer (C) is incorrect because Folsom will need to know the actual total market size.
Answer (D) is incorrect because Folsom will need to know the budgeted market share.
Answer (A) is incorrect because The sales volume variance for sales in Gallia is $120 U.
Answer (B) is correct. The sales volume variance in Gallia is $120 U [$3.00 budgeted UCM × (260 actual units sold – 300
budgeted unit sales)]. The sales volume variance in Helvetica is $150 F [$2.50 budgeted UCM × (260 actual units sold –
200 budgeted unit sales)]. Thus, the two-country sales volume variance is $30 F ($150 F – $120 U).
Answer (C) is incorrect because The sales volume variance for sales in Helvetica is $150 F.
Answer (D) is incorrect because The two-country sales price variance is $130 U.

Answer Explanations
(256 questions)
[15] Gleim #: 8.1.4 -- Source: CMA 1291 3-10
Answer (A) is incorrect because A service center has no responsibility for developing markets or selling.
Answer (B) is incorrect because A profit center can choose its markets and sources of supply.
Answer (C) is correct. A service center exists primarily and sometimes solely to provide specialized support to other units
within the organization. Service centers are usually operated as cost centers.
Answer (D) is incorrect because A production center is engaged in manufacturing.
[16] Gleim #: 8.4.57 -- Source: CMA 696 3-28
Answer (A) is incorrect because The market price charged by outside sources is higher than the negotiated price.
Answer (B) is incorrect because Given idle capacity, selling at any amount in excess of variable cost should motivate the
selling division.
Answer (C) is correct. Given that the Plastics Division (the seller) has excess capacity, transfers within the company entail
no opportunity cost. Accordingly, the transfer at the negotiated price will improve the performance measures of the
transferor. Purchasing internally at below the market price also benefits the transferee, so the motivational purpose of
transfer pricing is achieved. The goal congruence purpose is also achieved because the internal transaction benefits the
company.
Answer (D) is incorrect because This arrangement creates no disincentive for the selling division. It will make a profit on
every unit transferred.
[17] Gleim #: 8.1.11 -- Source: CMA 1296 3-16
Answer (A) is incorrect because Direct labor is controllable by the production manager.
Answer (B) is incorrect because Repairs and maintenance are controllable by the production manager.
Answer (C) is incorrect because Materials are controllable by the production manager.
Answer (D) is correct. A well-designed responsibility accounting system establishes responsibility centers within an
organization. In a responsibility accounting system, managerial performance should be evaluated only on the basis of those
factors directly regulated (or at least capable of being significantly influenced) by the manager. Thus, a manager of an
assembly line is responsible for direct labor, materials, repairs and maintenance, and supervisory salaries. The manager is
not responsible for depreciation on the manufacturing facility. (S)he is not in a position to control or influence capital
budgeting decisions.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The retail price is the definition of the market price, assuming an arm’s-length transaction.
Answer (B) is incorrect because The variable-cost-plus price is the price set by charging for variable costs plus a lump sum
Answer (C) is correct. At this price, the supplying division is indifferent as to whether it sells internally or externally.
Outlay cost plus opportunity cost therefore represents a minimum acceptable price for a seller. However, no transfer price
formula is appropriate in all circumstances.
Answer (D) is incorrect because Full cost is the price usually set by an absorption-costing calculation.
Answer (A) is incorrect because The direct labor rate variance is $100 F ($48,500 – $48,600).
Answer (B) is correct. The total static budget direct labor variance equals the difference between total actual direct labor
cost and standard direct labor cost (standard hours × standard rate). It combines the direct labor rate and efficiency
variances. For this company, the variance is $1,900 U ($46,600 standard wages at standard hours – $48,500 actual wages at
actual hours).
Answer (C) is incorrect because The total labor variance is unfavorable.
Answer (D) is incorrect because The total labor variance is $1,900 U.
[20] Gleim #: 8.4.44 -- Source: CMA 692 3-14
Answer (A) is incorrect because An investment center is not as fundamental as a profit center.
Answer (B) is incorrect because A production center may be a cost center, a profit center, or even an investment center.
Transfer prices are not used in a cost center. Transfer prices are used to compute profitability, but a cost center is
responsible only for cost control.
Answer (C) is correct. Transfer prices are often used by profit centers and investment centers. Profit centers are the more
fundamental of these two centers because investment centers are responsible not only for revenues and costs but also for
invested capital.
Answer (D) is incorrect because Transfer prices are not used in a cost center.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Standard variable overhead applied equals $137,500.
Answer (B) is correct. The applied factory overhead equals the standard input allowed for actual output multiplied by the
total standard overhead rate per hour.
27,500 × ($5.00 VOH + $1.50 FOH) = $178,750
Answer (C) is incorrect because The amount of $182,000 is based on the actual DLH worked.
Answer (D) is incorrect because Subtracting the $2,500 overhead variance results in $176,250.
[22] Gleim #: 7.5.68 -- Source: CMA 1295 3-8
Answer (A) is incorrect because A volume variance is based on fixed costs, and an efficiency variance is based on variable
costs.
Answer (B) is correct. A direct labor or materials efficiency variance is calculated by multiplying the difference between
standard and actual usage times the standard cost per unit of input. The efficiency variances can be divided into yield and
mix variances. These variances are calculated only when the production process involves combining several materials or
classes of labor in varying proportions (when substitutions are allowable in combining resources).
Answer (C) is incorrect because A spending variance is not the same as an efficiency variance.
Answer (D) is incorrect because A price variance is not the same as an efficiency variance.
Answer (A) is incorrect because An unfavorable variable overhead efficiency variance exists.
Answer (B) is incorrect because The difference between actual variable overhead and the product of the standard rate and
the actual input (the variable overhead spending variance) is $3,000. This variance is favorable.
Answer (C) is incorrect because The total variable overhead variance (actual overhead minus the overhead rate applied to
the standard hours) is $2,000.
Answer (D) is correct. The variable overhead efficiency variance equals the standard variable overhead rate times the
difference between the actual input and the standard input allowed for the actual output. The standard rate for variable
overhead is $2 per direct labor hour. Actual direct labor hours are 24,500. Standard labor hours are 24,000 (8,000 units × 3
hours per unit). Thus, the variable overhead efficiency variance is $1,000 [2 × (24,500 – 24,000)]. The variance is
unfavorable because actual hours exceeded standard hours.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Generally accepted accounting principles concern external financial reporting, not internal
reporting.
Answer (B) is correct. The responsibility for internal reports is management’s. Management may direct the accountant to
provide a report in any format deemed suitable for the decision process. The accountant should work closely with
management to make these reports an effective communication device regarding the firm and its decisions.
Answer (C) is incorrect because The American Institute of Certified Public Accountants is concerned with external financial
reporting, not internal reporting.
Answer (D) is incorrect because The Financial Accounting Standards Board is concerned with external financial reporting,
not internal reporting.
[25] Gleim #: 8.2.34 -- Source: CMA 693 3-29
Answer (A) is incorrect because Allocating depreciation on the basis of long-term average use is a reasonable basis of
allocation. This basis is controllable by the division managers and reflects a causal relationship.
Answer (B) is incorrect because A service department’s cost overruns may not be attributable to any activities of production
departments.
Answer (C) is incorrect because Market-based allocations of costs of services are reasonable applications of the cause-and-
effect principle.
Answer (D) is correct. Managerial performance ordinarily should be evaluated only on the basis of those factors controllable
by the manager. If a manager is allocated costs that (s)he cannot control, dysfunctional motivation can result. In the case of
allocations, a cause-and-effect basis should be used. Allocating the costs of upkeep on a headquarters building on the basis
of sales revenue is arbitrary because cost may have no relationship to divisional sales revenues. Consequently, divisional
ROI is reduced by a cost over which a division manager has no control. Furthermore, the divisions with the greatest sales are
penalized by receiving the greatest allocation.

Answer Explanations
(256 questions)
[26] Gleim #: 7.8.146 -- Source: CMA 1291 3-15
Answer (A) is incorrect because The sales quantity variance is $20,000.
Answer (B) is correct. The sales price variance is the actual number of units sold (5,000), times the difference between
budgeted selling price ($300,000 ÷ 6,000) and actual selling price ($235,000 ÷ 5,000).
$50 - $47 x 5,000 = $15,000 U
Answer (C) is incorrect because The difference between actual and budgeted unit sales times the actual unit CM equals
$18,000.
Answer (D) is incorrect because The difference between the actual and budgeted contribution margins is $30,000.
Answer (A) is incorrect because The sales mix variance in Gallia is $156 U.
Answer (B) is incorrect because The combined sales price and sales volume variance is $100 F.
Answer (C) is incorrect because The two-country sales volume variance is $30 F.
Answer (D) is correct. The sales quantity variance in Gallia is $36 F {[(520 actual total units sold × .6 budgeted percentage)
– 300 budgeted unit sales] × $3 budgeted UCM}. The sales quantity variance in Helvetica is $20 F {[(520 actual total units
sold × .4 budgeted percentage) – 200 budgeted unit sales] × $2.50 budgeted UCM}. Thus, the multiple-country sales
quantity variance is $56 F ($36 F + $20 F).
[28] Gleim #: 7.6.88 -- Source: CMA 1292 3-19
Answer (A) is incorrect because The amount of $10,000 is based on 22,000 planned machine hours.
Answer (B) is incorrect because The variance was favorable.
Answer (C) is correct. The fixed overhead volume (production volume or idle capacity) variance is the difference between
budgeted fixed costs and the product of the standard fixed overhead cost per unit of input and the standard units of input
allowed for the actual output. Budgeted fixed costs for the month were $100,000. The standard cost of actual output was
$105,000 [21,000 machine hours planned for actual output × ($1,200,000 planned annual FOH ÷ 240,000 planned annual
machine hours) FOH application rate]. Hence, the fixed overhead volume variance was $5,000 favorable. It was favorable
because the budget for fixed overhead was less than the amount applied to jobs. An overapplication of fixed overhead
suggests that output exceeded expectations.
Answer (D) is incorrect because The variance was favorable.

Answer Explanations
(256 questions)
[29] Gleim #: 8.5.89 -- Source: CMA 1292 3-24
Answer (A) is incorrect because Both measures consider the same items.
Answer (B) is incorrect because ROI and residual income calculations generally require the use of unpublished financial
information.
Answer (C) is correct. Residual income is a significant refinement of the return on investment concept because it forces
business unit managers to consider the opportunity cost of capital. The rate used is usually the weighted average cost of
capital. Residual income may be preferable to ROI because an entity will benefit from expansion as long as residual income
is earned. Using only ROI, managers might be tempted to reject expansion that lowered ROI, even though residual income
would increase. Thus, the residual income method promotes the congruence of a manager’s goals with those of the overall
entity. Actions that tend to benefit the company will also tend to improve the measure of the manager’s performance.
Answer (D) is incorrect because An investment base is need to calculate residual income.
[30] Gleim #: 7.6.80 -- Source: CMA 1295 3-7
Answer (A) is incorrect because The fixed overhead spending variance is the difference between actual fixed costs and
budgeted costs.
Answer (B) is incorrect because The efficiency variance is applicable to variable overhead.
Answer (C) is incorrect because The flexible budget variance is the difference between actual and budgeted amounts in a
flexible budget.
Answer (D) is correct. A denominator level of activity must be used to establish the standard cost (application rate) for
fixed overhead. The production volume variance is the difference between budgeted fixed costs and the standard cost per
unit of input times the standard units of input allowed for the actual production.

Answer Explanations
(256 questions)
[31] Gleim #: 7.8.154 -- Source: CMA 687 4-16
Answer (A) is incorrect because The difference between budgeted and actual variable selling and administrative costs is
$400.
Answer (B) is incorrect because The difference between budgeted and actual revenue is $6,800.
Answer (C) is incorrect because The difference between budgeted and actual units is 200 units.
Answer (D) is correct. The volume variance isolates the effect of selling more or less units than budgeted. It equals
budgeted unit contribution margin (UCM) times the difference between budgeted and actual units sold. Given expected
sales of 4,000 units and revenue of $60,000, unit price is $15. Variable costs are $16,000 for manufacturing and $8,000 for
selling, and unit variable cost is $6 ($24,000 ÷ 4,000 units). The UCM is $9 ($15 – $6). Since actual sales were 200 units
less than budgeted (4,000 – 3,800), the lost contribution margin was $1,800 (200 × $9). This variance is unfavorable
because actual sales were less than budgeted.
[32] Gleim #: 7.7.133 -- Source: CMA 1294 3-30
Answer (A) is correct. The direct labor efficiency variance equals the difference between standard and actual hours times
the standard rate. Hence, the variance is $54,000 unfavorable {[(22,000 units × 4 standard hours per unit) – 94,000 hours] ×
$9}. The variance is unfavorable because the actual hours exceeded the standard hours.
Answer (B) is incorrect because The variance of $108,000 favorable is based on the difference between standard and
capacity hours.
Answer (C) is incorrect because The variance of $60,000 favorable is based on the actual rate and the difference between
actual hours and capacity.
Answer (D) is incorrect because The variance of $120,000 favorable is based on the actual rate and the difference between
standard hours and capacity.

Answer Explanations
(256 questions)
Answer (A) is incorrect because It provides justification for allocating cost to responsibility centers.
Answer (B) is correct. Responsibility costs are designed to motivate managers of a responsibility center to act in the best
interest of the organization. Therefore, the costs should be allocated only if they (1) can be influenced by the actions of the
center’s management, (2) are helpful in measuring support given to the responsibility center, (3) improve comparability, or
(4) are used in product pricing. Whether the costs are from staff, line, or other services has no bearing on whether they
should be allocated. Furthermore, some organizations encourage the use of services such as consulting or internal audit by
not charging their costs to responsibility centers. See SMA 4B, Allocation of Service and Administrative Cost.
Answer (C) is incorrect because It provides justification for allocating cost to responsibility centers.
Answer (D) is incorrect because It provides justification for allocating cost to responsibility centers.
[34] Gleim #: 7.6.78 -- Source: CMA 1295 3-4
Answer (A) is incorrect because Both efficiency variances are based on the same number of hours worked. Thus, if one is
unfavorable, the other will also be unfavorable.
Answer (B) is incorrect because Both efficiency variances are based on the same number of hours worked. Thus, if one is
unfavorable, the other will also be unfavorable.
Answer (C) is correct. If variable overhead is applied to production on the basis of direct labor hours, both the variable
overhead efficiency variance and the direct labor efficiency variance will be calculated on the basis of the same number of
hours. If the direct labor efficiency variance is unfavorable, the overhead efficiency variance will also be unfavorable
because both variances are based on the difference between standard and actual direct labor hours worked.
Answer (D) is incorrect because The amount of the variances will be different depending on the amount of the costs
anticipated and actually paid.
[35] Gleim #: 7.7.131 -- Source: CMA 1294 3-29
Answer (A) is incorrect because The total direct labor variance is $148,000 unfavorable.
Answer (B) is correct. The direct labor price variance equals actual labor hours times the difference between standard and
actual labor rates. The actual direct labor cost was $940,000 for 94,000 hours, or $10 per hour. The standard rate was $9 per
hour. Thus, the variance is $94,000 unfavorable [94,000 hours × ($9 – $10)].
Answer (C) is incorrect because The actual rate times the difference between capacity and actual hours equals $60,000
favorable.
Answer (D) is incorrect because The direct labor efficiency variance is $54,000 unfavorable.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Cost plus 20% would be $252 ($210 × 1.20).
Answer (B) is correct. A transfer price is the price charged by one segment of an organization for a product or service
supplied to another segment of the same organization. The three basic criteria that the transfer pricing system in a
decentralized company should satisfy are to (1) provide information allowing central management to evaluate divisions with
respect to total company profit and each division’s contribution to profit, (2) stimulate each manager’s efficiency without
losing each division’s autonomy, and (3) motivate each divisional manager to achieve his/her own profit goal in a manner
contributing to the company’s success. Because the $220 transfer price selected is based on the quoted external price
(market), it is an example of market-based transfer pricing.
Answer (C) is incorrect because No negotiations took place.
Answer (D) is incorrect because The cost-based price would be $210 ($100 + $50 + $40 + $20).
[37] Gleim #: 7.3.25 -- Source: CMA 1296 3-21
Answer (A) is incorrect because The engineering manager is concerned only with the quality of the materials.
Answer (B) is correct. A direct materials price variance is the actual quantity used times the difference between the
standard and actual prices. It is normally considered the responsibility of the purchasing manager because no one else has an
opportunity to influence the price. In this case, the purchasing manager obtained the discount that led to the favorable price
variance.
Answer (C) is incorrect because An inventory supervisor has no influence over the price paid for materials.
Answer (D) is incorrect because The vice president receives the materials without knowing the price.
[38] Gleim #: 8.5.88 -- Source: CMA 693 3-11
Answer (A) is correct. A company with an 8% ROI threshold should obviously accept a project yielding 12% because the
company’s overall ROI would increase. The manager being evaluated on the basis of ROI who is already earning 14% will
be unwilling to accept a 12% return on a new project because the overall ROI for the division would decline slightly. This
absence of goal congruence suggests a weakness in ROI-based performance evaluation.
Answer (B) is incorrect because Carolina would accept a project yielding a return greater than 8%, and Sanders would reject
a return yielding less than 14%.
Answer (C) is incorrect because Carolina would accept a project yielding a return greater than 8%, and Sanders would reject
Answer (D) is incorrect because Carolina would accept a project yielding a return greater than 8%, and Sanders would reject

Answer Explanations
(256 questions)
Answer (A) is incorrect because Corporate administrative costs should be excluded from the performance report. The
segments have no control over their incurrence or the allocation basis. The allocation depends upon the segment sales
(controllable) as well as the sales of other segments (uncontrollable).
Answer (B) is incorrect because The segments have no control over fixed computer facility costs, and the equal assignment
is arbitrary and bears no relation to usage.
Answer (C) is correct. The variable computer cost can be included. The segments are charged for actual usage, which is
under each segment’s control. The predetermined standard rate is set at the beginning of the year and is known by the
segment managers. Moreover, the efficiencies and inefficiencies of the computer department are not passed on to the
segments. Both procedures promote a degree of control by the segments.
Answer (D) is incorrect because The segments have no control over the incurrence of personnel costs or the method of
assignment, which depends upon the number of employees in the segment (controllable) in proportion to the total number of
employees in all segments (not controllable).
[40] Gleim #: 8.5.87 -- Source: CMA 693 3-12
Answer (A) is incorrect because Both Sanders and Carolina would accept the project.
Answer (B) is incorrect because Both Sanders and Carolina would accept the project.
business unit managers to consider the opportunity cost of capital. The rate is usually the weighted-average cost of capital.
Some entities prefer to measure managerial performance in terms of the amount of residual income rather than the
percentage ROI. The principle is that the entity is expected to benefit from expansion as long as residual income is earned.
Using a percentage ROI approach, expansion might be rejected if it lowered ROI, even though residual income would
increase. Using residual income, both Carolina and Sanders would accept the new project because residual income will
increase if a 12% return is earned when the target ROI is only 8%.
Answer (D) is incorrect because Both Sanders and Carolina would accept the project.

Answer Explanations
(256 questions)
Answer (A) is incorrect because All variable costs may not be controllable, but some, if not all, fixed costs might be
controllable.
Answer (B) is correct. The most desirable measure for evaluating a departmental manager is one that holds the manager
responsible for the revenues and expenses (s)he can control. Controllability is the basic concept of responsibility accounting.
Answer (C) is incorrect because Not all budgeted costs are controllable by managers.
Answer (D) is incorrect because All product costs may not be controllable, but some, if not all, period costs might be
controllable.
Answer (A) is incorrect because Overhead variances are by definition affected by activities outside the production area.
Answer (B) is incorrect because The efficiency of employees affects the labor efficiency variance.
Answer (C) is correct. The materials usage variance is typically influenced most by activities within the production
department. It is the variance most controllable by a production manager.
Answer (D) is incorrect because The overhead volume variance measures the effect of not operating at the budgeted activity
level. It is the least controllable by a production manager.
Answer (A) is incorrect because The direct materials price variance is found by multiplying the actual quantity (28,000)
times the difference between the AP ($2.00) and the SP ($2.20).
Answer (B) is correct. The direct materials price variance is found by multiplying the difference between the actual price
(AP) of direct materials and the standard price (SP) per unit by the actual quantity (AQ).
AQ × (AP – SP) = MPV

28,000 × ($2.00 – $2.20) = $5,600 favorable
Answer (C) is incorrect because The direct materials price variance is found by multiplying the actual quantity (28,000)
times the difference between the AP ($2.00) and the SP ($2.20).
Answer (D) is incorrect because The usage variance is $2,200 unfavorable.

Answer Explanations
(256 questions)
[44] Gleim #: 7.4.49 -- Source: CPA 1186 II-21
Answer (A) is incorrect because The 200-hour difference between AH and SH should be added to, not subtracted from, the
standard hours allowed.
Answer (B) is incorrect because The difference between AH and SH must be determined using the standard rate per hour.
The efficiency variance was also incorrectly treated as favorable and subtracted from the SH.
Answer (C) is incorrect because The difference between AH and SH must be determined using the standard rate per hour.
Answer (D) is correct. The standard hours allowed equaled 2,000, and the labor efficiency variance was $1,600
unfavorable; i.e., actual hours exceeded standard hours. The labor efficiency variance equals the standard rate ($8 per hour)
times the excess hours. Given that the variance is $1,600, 200 excess hours ($1,600 ÷ $8) must have been worked. Thus,
2,200 actual hours (2,000 standard + 200 excess) were worked.
[45] Gleim #: 8.1.29 -- Source: CMA 0205 2-43
Answer (A) is correct. Management of a profit center is responsible for revenues and expenses but not invested capital. Of
the four responsibility centers listed, a new car sales division for a large local auto agency is the only one that fits this
description.
Answer (B) is incorrect because A company taken as a whole is an investment center.
Answer (C) is incorrect because An information technology department of a larger organization is a cost center.
Answer (D) is incorrect because The production operations department of a machine shop company is a revenue center.
[46] Gleim #: 7.8.145 -- Source: CMA 1291 3-14
Answer (A) is correct. The sales quantity variance is the difference between the actual and budgeted units, times the
budgeted unit CM.
Answer (B) is incorrect because The difference between the actual and budgeted contribution margins is $30,000.
Answer (C) is incorrect because The sales price variance is $15,000.
Answer (D) is incorrect because The difference between actual and budgeted unit sales times the actual unit CM equals
$18,000.

Answer Explanations
(256 questions)
[47] Gleim #: 8.1.8 -- Source: CMA 1295 3-5
Answer (A) is correct. A profit center is responsible for both revenues and costs, whereas a cost center is responsible only
for costs.
Answer (B) is incorrect because An operating unit can be organized as any type of center.
Answer (C) is incorrect because A division can be any type of responsibility center.
Answer (D) is incorrect because A revenue center is responsible only for revenues, not costs.
Answer (A) is correct. The direct materials efficiency variance equals the standard quantity minus the actual quantity, times
standard price. The variance is $240,000 favorable {[(10 × 20,000) – 190,000] × $24}. The variance is favorable because the
actual quantity was less than the standard quantity allowed for the actual output.
Answer (B) is incorrect because The direct labor rate variance is $156,000 favorable.
Answer (C) is incorrect because The variance is favorable.
Answer (D) is incorrect because The direct materials price variance is $760,000.
[49] Gleim #: 7.8.151 -- Source: CMA 695 3-27
Answer (A) is incorrect because The sales price variance is $12,000 [$132,000 actual sales – (12,000 units sold × $10)].
Answer (B) is incorrect because The total projected variable costs at the actual sales level equal $72,000 (12,000 units ×
$6). Thus, the variable cost variance is $1,200 favorable ($72,000 – $70,800 actual).
Answer (C) is incorrect because The flexible budget variance is $11,200 favorable ($29,200 actual operating income –
$18,000 flexible budget operating income).
Answer (D) is correct. The sales volume variance is the change in contribution margin caused by the difference between the
actual and budgeted volume. It equals the budgeted unit contribution margin times the difference between actual and
expected volume, or $8,000 [(12,000 – 10,000) × ($10 – $6)]. The sales volume variance is favorable because actual sales
exceeded budgeted sales.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The budgeted selling price and budgeted variable cost must be used to determine the sales
quantity variance, not the actual selling price and actual variable cost.
Answer (B) is incorrect because The sales quantity variance is found by multiplying the 2,000 unit difference between actual
and budgeted sales by the $2.50 budgeted contribution margin.
Answer (C) is incorrect because The budgeted variable cost must be subtracted from the selling price before multiplying by
the 2,000 difference in units actually sold from budgeted sales.
Answer (D) is correct. The sales quantity variance is the difference between the actual volume and the budgeted volume in
units, times the budgeted weighted-average contribution margin for all units.
= (Actual Volume – Budgeted Volume) × (Selling Price – Unit Variable Cost)

= (42,000 – 40,000) × ($6 – $3.50)
= $5,000 F
Answer (A) is incorrect because The variance for labor class III only is $66.67 [($8 – $6.67) × (550 DLH – 500 DLH)].
Answer (B) is incorrect because The variance for labor class II only is $50.00 [($7 – $6.67) × (650 DLH – 500 DLH)].
Answer (C) is correct. The direct labor mix variance is the actual labor inputs, times the difference between the budgeted
weighted-average rates for the actual and planned mixes. The budgeted weighted-average rate for the planned mix is $6.67
{[(500 × $8) + (500 × $7) + (500 × $5)] ÷ 1,500 standard DLH}. The budgeted weighted-average rate for the actual mix is
$6.873 [(550 × $8) + (650 × $7) + (375 × $5) ÷ 1,575 actual DLH]. Thus, the direct labor mix variance is $320 [($6.873 –
6.67) × 1,575].
Answer (D) is incorrect because The direct labor yield variance is $500.

Answer Explanations
(256 questions)
[52] Gleim #: 7.6.99 -- Source: CMA 1284 4-1
Answer (A) is incorrect because The fixed factory O/H production volume variance is the difference between budgeted fixed
O/H and fixed O/H applied based on the predetermined rate.
Answer (B) is incorrect because By definition, the total variable factory O/H varies with the activity level, but total fixed
O/H and unit variable O/H do not.
Answer (C) is incorrect because The overall (net) fixed factory O/H variance is the difference between the actual fixed O/H
and the fixed O/H applied based on the predetermined rate.
Answer (D) is correct. The use of a production volume as the denominator in calculating the factory O/H rate has no effect
on the fixed factory O/H budget variance. This variance is the difference between actual fixed costs and budgeted (lump
sum) fixed costs.
[53] Gleim #: 7.6.105 -- Source: CMA 0205 2-42
Answer (A) is incorrect because The production-volume variance is $16,000 overapplied.
Answer (B) is incorrect because Reversing the proper order of subtraction results in $16,000 underapplied.
Answer (C) is correct. First, the actual production level for the month was 6,000 units of output. Second, the standard
number of labor hours consumed per unit of output is 2 (10,000 budgeted direct labor hours ÷ 5,000 budgeted units output).
Third, since fixed overhead for the month was budgeted at $80,000 and it is to be applied in proportion to 10,000 budgeted
direct labor hours, the application rate is $8 per direct labor hour ($80,000 ÷ 10,000). Thus, the amount of fixed overhead
applied for the month was $96,000 = (6,000 × $8 × 2). The fixed overhead budget variance was $2,000 favorable, which
means the actual fixed overhead incurred for the month was $78,000 ($80,000 – $2,000). Thus, fixed overhead was
overapplied by $18,000 ($96,000 – $78,000).
Answer (D) is incorrect because Misinterpreting the $2,000 favorable budget (spending) variance results in $2,000
underapplied.
[54] Gleim #: 8.4.55 -- Source: CMA 696 3-26
Answer (A) is incorrect because A full-cost transfer is favorable to the buyer. It is lower than the market price.
Answer (B) is incorrect because Transfers at full cost do not allow for a seller’s profit.
Answer (C) is correct. A transfer price is the amount one segment of an organization charges another segment for a product.
The selling division should be allowed to recover its incremental cost plus the opportunity cost of the transfer. Hence, in a
competitive market, the seller should be able to charge the market price. Using full cost as a transfer price provides no
incentive to the seller to control production costs.
Answer (D) is incorrect because Evaluating the seller is difficult if it can pass along all costs to the buyer.

Answer Explanations
(256 questions)
[55] Gleim #: 7.4.39 -- Source: CMA 693 3-15
Answer (A) is correct. The static budget for direct materials is $127,500 (8,500 units × $15). Thus, no variance arose with
respect to direct materials. Because direct labor for 9,000 units was budgeted at $81,000, the unit direct labor cost is $9.
Thus, the direct labor budget for 8,500 units is $76,500, and the total direct labor variance is $1,275 ($77,775 – $76,500).
Because the actual cost is greater than the budgeted amounts, the $1,275 variance is unfavorable. Given that the actual time
per unit (45 minutes) was the same as that budgeted, no direct labor efficiency variance was incurred. Hence, the entire
$1,275 unfavorable variance must be attributable to the direct labor rate (or price) variance.
Answer (B) is incorrect because No direct materials variance occurred. The actual cost was equal to the budgeted cost for
direct materials.
Answer (C) is incorrect because No direct labor efficiency variance occurred. Budgeted hours were identical to actual hours
for 8,500 units.
Answer (D) is incorrect because No direct labor efficiency variance occurred. Budgeted hours were identical to actual hours
for 8,500 units.
[56] Gleim #: 7.4.40 -- Source: CMA 692 3-15
Answer (A) is correct. The flexible budget provides for a cost of $1,000 per article ($10,000,000 ÷ 10,000 articles). Each
article should require 20 hours of labor (200 hours ÷ 10 articles). Thus, the standard labor rate is $50 per hour ($1,000 ÷ 20
hours), and total standard variable labor cost is $9,500,000 (9,500 articles × 20 hours × $50 per hour). Accordingly, total
expected costs are $10,100,000 ($9,500,000 + $600,000 FC).
Answer (B) is incorrect because This is calculated by incorrectly adjusting the fixed costs downward for production.
Answer (C) is incorrect because Labor costs will decline as production declines, but fixed costs will not. This is incorrectly
calculated by adding the standard labor costs for 10,000 articles to a reduced fixed cost calculated for 9,500 articles.
Answer (D) is incorrect because Variable labor costs only equal $9,500,000.

Answer Explanations
(256 questions)
[57] Gleim #: 8.1.9 -- Source: CMA 694 3-24
Answer (A) is incorrect because A revenue center is responsible only for revenue generation, not for costs or capital
investment.
Answer (B) is correct. An investment center is the organizational type most like an independent business because it is
responsible for its own revenues, costs incurred, and capital invested. The other types of centers do not incorporate all three
elements.
Answer (C) is incorrect because A profit center is responsible for revenues and costs but not for invested capital.
Answer (D) is incorrect because A cost center is evaluated only on the basis of costs incurred. It is not responsible for
revenues or invested capital.
Answer (A) is incorrect because Lower divisional ROIs in more profitable divisions in which motivation is unnecessary
would likely suboptimize divisional performance.
Answer (B) is incorrect because Equal goals should not be set owing to differences in competitive environment, the strategic
goals of the firm, and risk.
Answer (C) is incorrect because Using greater divisional ROIs in the less profitable divisions to motivate those divisions to
achieve higher ROIs would not necessarily improve divisional performance.
Answer (D) is correct. Each division within a firm should have an ROI based on the strategic goals of the firm consistent
with its competitive environment.
[59] Gleim #: 7.3.27 -- Source: CMA 1287 4-30
Answer (A) is incorrect because The quantity of materials purchased cannot be determined from the information given.
Answer (B) is correct. A favorable price variance indicates that the materials were purchased at a price less than standard.
The unfavorable quantity variance indicates that the quantity of materials used for actual production exceeded the standard
quantity for the good units produced.
Answer (C) is incorrect because The quantity of materials purchased cannot be determined from the information given.
Answer (D) is incorrect because The actual usage was greater than standard.

Answer Explanations
(256 questions)
[60] Gleim #: 8.5.68 -- Source: CMA 697 3-29
Answer (A) is incorrect because This percentage fails to include average working capital in total assets.
Answer (B) is correct. An investment center is responsible for revenues, expenses, and invested capital. Given average
plant and equipment of $1,775 and average working capital of $625, the average total assets is $2,400. Operating profit is
$400 ($4,000 sales – $3,525 cost of goods sold – $75 general expenses). ROI equals business unit profit divided by average
total assets. The Western Division’s is therefore 16.67% ($400 ÷ $2,400).
Answer (C) is incorrect because This percentage results from not subtracting general and administrative expenses in the
calculation of business unit profit.
Answer (D) is incorrect because This percentage results from subtracting working capital from plant and equipment in
calculating average total assets.
Answer (A) is incorrect because The traceable fixed costs must be deducted.
Answer (B) is correct. Residual income is a significant refinement of the return on investment concept because it forces
business unit managers to consider the opportunity cost of capital. Accordingly, Cinder’s residual income is $170,400
[($600,000 sales – $360,000 variable costs – $60,000 traceable fixed costs) – ($120,000 average invested capital × 8%)].
Answer (C) is incorrect because The imputed interest charge of $9,600 ($120,000 × 8%) must be deducted.
Answer (D) is incorrect because The imputed interest charge of $9,600 should be subtracted from, not added to, operating
income.
[62] Gleim #: 7.2.8 -- Source: CMA 1295 3-24
Answer (A) is incorrect because The amount of $20,800 is based on planned pounds shipped of 9,600, not actual pounds
shipped of 12,300.
Answer (B) is incorrect because The amount of $20,680 is based on the actual number of sales orders, rather than on pounds
shipped.
Answer (C) is correct. The flexible budget formula is

Shipping costs = $16,000 + ($.50 × lbs. shipped)
Therefore, to determine the flexible budget amount, multiply the actual pounds shipped (12,300) times the standard cost
($.50) to arrive at a total expected variable cost of $6,150. Adding the variable cost to $16,000 of fixed cost produces a
budget total of $22,150.
Answer (D) is incorrect because The amount of $20,920 is based on the number of shipments, not the number of pounds
shipped.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Budgeted, not actual, UCM is used to calculate this variance.
Answer (B) is incorrect because Budgeted, not actual, UCM is used to calculate this variance.
Answer (C) is incorrect because The flexible budget volume is the actual volume, resulting in a zero variance.
Answer (D) is correct. For a single-product company, the sales volume variance is the difference between the actual and
budgeted sales quantities times the budgeted UCM. If the company sells two or more products, the difference between the
actual and budgeted product mixes must be considered. In that case, the sales volume variance equals the difference between
(1) actual total unit sales times the budgeted weighted-average UCM for the actual mix and (2) budgeted total unit sales
times the budgeted weighted-average UCM for the planned mix.
[64] Gleim #: 8.2.39 -- Source: CMA 692 3-13
Answer (A) is incorrect because Not everything included in the calculation of gross profit is controllable by the manager.
Answer (B) is correct. Managerial performance should be evaluated on the basis of those factors controllable by the
manager. Managers may control revenues, costs, and/or investment in resources. A well-designed responsibility accounting
system establishes responsibility centers within the organization.
Answer (C) is incorrect because Net income is computed after deducting fixed costs.
Answer (D) is incorrect because Contribution margin ignores the fixed costs of production; managers may control some fixed
costs.
[65] Gleim #: 7.6.102 -- Source: CMA 1273 4-13
Answer (A) is incorrect because A labor price variance reflects a difference between the actual price of labor and the
budgeted price of labor, which is useful information for cost control.
Answer (B) is incorrect because The materials quantity variance is the difference between budgeted and actual materials
used during production. This is an important variance for cost control.
Answer (C) is incorrect because The difference between actual variable O/H and the product of the actual input and the
budgeted variable O/H rate is useful information for cost control.
Answer (D) is correct. The fixed O/H volume variance occurs when actual activity levels differ from anticipated levels. It is
an excellent example of cost allocation as opposed to cost control. Unlike other variances, the volume variance does not
directly reflect a difference between actual and budgeted expenditures. The economic substance of this variance lies in the
costs or benefits of capacity usage or nonusage. For example, idle capacity results in the loss of the contribution margin from
units not produced and sold.

Answer Explanations
(256 questions)
Answer (A) is correct. The success of a control system is determined by its effectiveness in motivating people to modify
their performance. The goals of a control system may be met with resistance if they are not accepted by the employee. For
example, an employee may resist changing his/her performance when (s)he believes that the stated standard of performance
is set too high.
Answer (B) is incorrect because People tend to avoid unpleasant situations.
Answer (C) is incorrect because The goals of a control system will most likely not be accepted by an employee when the
established standards of performance are considered irrelevant to the accomplishment of what an employee regards as the
primary job objective.
Answer (D) is incorrect because Employee resistance is most likely to occur when a control procedure highlights the things
an employee does poorly, thus damaging his/her self-esteem.
Answer (A) is incorrect because The sales mix variance is unaffected by a change in overall sales volume, assuming the
proportions of products sold remain constant. However, an unfavorable sales quantity variance will arise given a 5%
decrease in overall sales volume because a 5% decrease in contribution margin will occur. This variance is computed by
holding the sales mix, budgeted prices, and budgeted costs constant. It measures the change in contribution margin caused
by a change in overall volume.
Answer (B) is incorrect because This equation defines the materials mix variance.
Answer (C) is incorrect because The variance will be unfavorable.
Answer (D) is correct. The sales mix variance is a sum of variances. For each product in the mix, the difference between
units sold and expected to be sold is multiplied by the difference between the budgeted UCM for the product and the
budgeted weighted-average UCM for all products. The results of these computations are then added to determine the mix
variance. This variance measures the effect of the change in the weighted-average UCM associated with the changes in the
quantities of items in the mix. The sales mix variance is favorable when more units with a higher than average UCM are
sold or when fewer units with a lower than average UCM are sold.

Answer Explanations
(256 questions)
Answer (A) is correct. Given a 15% decrease in prices, Year 2 sales were 85% of Year 2 sales at Year 1 prices. Hence,
Year 2 sales at Year 1 prices equal $1,118,118 ($950,400 ÷ 85%). Sales and gross profit were $167,718 ($1,118,118 –
$950,400) lower because of the decrease in prices.
Answer (B) is incorrect because Year 2 sales minus 85% of Year 2 sales equals $142,560.
Answer (C) is incorrect because The amount of $144,000 equals 15% of Year 1 sales.
Answer (D) is incorrect because Year 2 sales minus 85% of Year 1 sales equals $134,400.
[69] Gleim #: 7.4.38 -- Source: CMA 694 3-22
Answer (A) is incorrect because Assigning higher paid (and higher skilled) workers to jobs not requiring such skills leads to
an unfavorable variance.
Answer (B) is incorrect because Using a single average standard rate may lead to variances if some workers are paid more
than others and the proportions of hours worked differ from estimates.
Answer (C) is incorrect because Predictions about labor rates may have been inaccurate.
Answer (D) is correct. The direct labor price (rate) variance is the actual hours worked times the difference between the
standard rate and the actual rate paid. This difference may be attributable to (1) a change in labor rates since the
establishment of the standards, (2) using a single average standard rate despite different rates earned among different
employees, (3) assigning higher-paid workers to jobs estimated to require lower-paid workers (or vice versa), or (4) paying
hourly rates, but basing standards on piecework rates (or vice versa). The difference should not be caused by a union
contract approved before the budgeting cycle because such rates would have been incorporated into the standards.
[70] Gleim #: 7.3.28 -- Source: CMA 694 3-20
Answer (A) is incorrect because The production manager has no control over the price paid for materials.
Answer (B) is incorrect because The cost accounting manager has no control over the price paid for materials.
Answer (C) is incorrect because The sales manager has no control over the price paid for materials.
Answer (D) is correct. The materials price variance is the difference between the standard price and the actual price paid
for materials. This variance is usually the responsibility of the purchasing department. Thus, the purchasing manager has an
incentive to obtain the best price possible.

Answer Explanations
(256 questions)
[71] Gleim #: 7.7.127 -- Source: CMA 696 3-1
Answer (A) is incorrect because The amount of the direct materials quantity variance is $4,950.
Answer (B) is correct. The direct labor rate variance equals the actual hours used times the difference between the standard
and actual rates. Consequently, the direct labor rate variance is zero [1,650 units × 3.1 actual hours × ($12 per hour standard
rate – $12 per hour actual rate)].
Answer (C) is incorrect because The amount of the flexible budget overhead variance is $1,920.
Answer (D) is incorrect because The amount of the direct materials quantity variance is $4,950.
Answer (A) is incorrect because The quantity variance is based on the quantity used during the period (10,000), not the
quantity purchased (12,000).
Answer (B) is correct. At the given production level, 9,000 components (3,000 × 3) are needed. However, 10,000 were
used. Consequently, the materials efficiency (quantity or usage) variance was $2,900 unfavorable {(SQ – AQ) × SP =
[(10,000 – 9,000) × $2.90 standard cost per component]}.
Answer (C) is incorrect because The quantity variance is based on the quantity used during the period (10,000), not the
quantity purchased (12,000).
Answer (D) is incorrect because The variance was unfavorable. The actual quantity used was greater than the quantity
budgeted.
[73] Gleim #: 7.4.46 -- Source: CMA 1291 3-2
Answer (A) is incorrect because The direct materials quantity variance is favorable because the actual quantity used is less
than the standard quantity.
Answer (B) is correct. The direct materials quantity variance equals the standard price ($1.80 per pound) times the
difference between the actual and standard quantities. The actual quantity used was 142,500 pounds. The standard quantity
is 8 pounds per unit of product. Given that 19,000 units were produced, the standard quantity for the actual output was
152,000 pounds (8 lbs. × 19,000 units). Hence, the direct materials quantity variance is $17,100 [(152,000 – 142,500) ×
$1.80]. Since the actual quantity used was less than the standard quantity, the variance is favorable.
Answer (C) is incorrect because The direct materials quantity variance is favorable because the actual quantity used is less
than the standard quantity.
Answer (D) is incorrect because The direct materials quantity variance equals the standard price multiplied times the
difference between the actual and standard quantities.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Multiplying by the actual price and reversing the order of subtraction results in $9,200
favorable.
Answer (B) is incorrect because Reversing the order of subtraction results in $8,500 favorable.
Answer (C) is correct. The total direct materials quantity variance is found by multiplying the difference between the
standard quantity and actual quantity by the standard price. Standard quantities are calculated by multiplying the actual units
by the standard quantity per unit. The standard quantities are 2,200 parts (2,200 × 1) for housing units, 4,400 parts (2,200 ×
2) for printed circuit boards, and 8,800 parts (2,200 × 4) for reading heads. Thus, the total direct materials quantity variance
is
Housing units: (2,200 – 2,200) × $20 = $ 0

Printed circuit boards: (4,400 – 4,700) × $15 = 4,500 U
Reading heads: (8,800 – 9,200) × $10 = 4,000 U
$8,500 U
Answer (D) is incorrect because Multiplying by the actual price results in $9,200 unfavorable.
Answer (A) is incorrect because The variance of $73,750 favorable assumes that standard input for the actual output was
100,000 DMH and that overhead applied was therefore $1,432,000.
Answer (B) is incorrect because The applied O/H is $1,346,080, which is based on the budgeted DMH for the equivalent
units of production, not on the actual DMH. Furthermore, because the actual O/H is greater than the O/H applied, the
underapplied O/H results in an unfavorable variance.
Answer (C) is correct. The total O/H variance is the over- or underapplied O/H, that is, the difference between applied O/H
and the actual O/H. The applied O/H was determined to be $1,346,080. The actual O/H is $1,358,250 ($133,250 +
$1,225,000). Consequently, the amount of underapplied O/H is $12,170 U ($1,358,250 – $1,346,080).
Answer (D) is incorrect because The applied O/H is $1,346,080, which is based on the budgeted DMH for the equivalent
units of production, not on the actual DMH.

Answer Explanations
(256 questions)
[76] Gleim #: 7.6.85 -- Source: CMA 1292 3-16
Answer (A) is incorrect because The amount of $300,000 is based on planned direct labor hours at $75 per hour.
Answer (B) is incorrect because The total overhead applied was $315,000 based on 21,000 hours at $15 per hour.
Answer (C) is incorrect because The total overhead applied was $315,000 based on 21,000 hours at $15 per hour.
Answer (D) is correct. Overhead is applied on the basis of planned machine hours. The predetermined overhead application
rate is $15 [($1,200,000 FOH + $2,400,000 VOH) ÷ 240,000 machine hours]. Thus, total overhead applied was $315,000
(21,000 planned machine hours based on output × $15).
[77] Gleim #: 7.7.129 -- Source: CMA 1294 3-26
Answer (A) is incorrect because The difference between actual fixed overhead and the product of the standard rate and the
actual direct labor hours is $70,000 unfavorable.
Answer (B) is correct. The fixed overhead spending (budget) variance is the difference between budgeted and actual fixed
overhead. Actual fixed overhead was $540,000. Budgeted fixed overhead was $5 per hour based on a capacity of 100,000
direct labor hours per month, or $500,000. Because these costs are fixed, the budgeted fixed overhead is the same at any
level of production. Hence, the variance is $40,000 unfavorable ($500,000 – $540,000).
Answer (C) is incorrect because The difference between actual variable overhead and budgeted fixed overhead is $240,000
unfavorable.
Answer (D) is incorrect because The volume variance is $460,000 unfavorable.
Answer (A) is incorrect because Only significant variances should be investigated. Also, the benefits of each step in the
entire standard-cost process must be cost effective. Benefits should exceed costs.
Answer (B) is correct. A variance shows a deviation of actual results from the expected or budgeted results. All significant
variances should be investigated, whether favorable or unfavorable.
Answer (C) is incorrect because The trend of variances over time should be considered. A negative variance that has been
getting progressively smaller may not need investigating, whereas a variance that is increasing should be investigated
promptly.
Answer (D) is incorrect because The objective of variance investigation is pinpointing responsibility and taking corrective
action toward eliminating variances.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The sales price variance is the difference between the $11.50 actual sales price ($92,000 ÷
8,000) and the $10.50 budgeted sales price ($105,000 ÷ 10,000), times the 8,000 units sold.
Answer (B) is correct. The sales price variance is the difference between actual price and budgeted price, times actual units.
Actual price was $11.50 ($92,000 ÷ 8,000). Budgeted price was $10.50 ($105,000 ÷ 10,000). Sales price variance is
therefore $8,000 [8,000 actual units × ($11.50 – $10.50)]. The variance is favorable because actual sales price was greater
than budgeted sales price.
Answer (C) is incorrect because The sales price variance is the difference between the $11.50 actual sales price ($92,000 ÷
8,000) and the $10.50 budgeted sales price ($105,000 ÷ 10,000), times the 8,000 units sold.
Answer (D) is incorrect because The sales price variance is based on the actual units sold rather than the budgeted sales.
[80] Gleim #: 8.1.3 -- Source: CMA 695 3-28
Answer (A) is incorrect because Controllable costs are those over which a manager has control; the manager may be
informed or know about costs that (s)he cannot directly regulate or influence.
Answer (B) is incorrect because Many overhead costs are also controllable.
Answer (C) is incorrect because Controllable costs need not be discretionary. Discretionary costs are characterized by
uncertainty about the relationship between input and the value of the related output; they may or may not be controllable.
Answer (D) is correct. Control is the process of making certain that plans are achieving the desired objectives. A
controllable cost is one that is influenced by a specific responsible manager at a given level of production within a given
time span. For example, fixed costs are often not controllable in the short run.
Answer (A) is incorrect because The amount of $28,000 results from assuming the sale of 1,000 units.
Answer (B) is incorrect because The amount of $35,000 results from assuming a UCM of $35 and sales of 1,000 units.
Answer (C) is correct. The CM equals revenues minus all variable costs expensed. Given no WIP and no beginning finished
goods, the CM was $25,200 [900 units × ($100 – $30 – $20 – $10 – $12)]. The variable costs of producing the units not sold
are included in ending inventory rather than in the CM. The fixed costs are also excluded from computation of the CM.
Answer (D) is incorrect because The amount of $31,500 results from assuming a UCM of $35. This computation includes
fixed unit selling costs of $5 but excludes the $12 per unit variable selling costs.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Market share is a customer satisfaction measure.
Answer (B) is correct. Customer satisfaction measures include market share, retention, response time, delivery
performance, number of defects, and lead time. Economic value added, or EVA®, is a profitability measure.
Answer (C) is incorrect because Customer retention is a customer satisfaction measure.
Answer (D) is incorrect because Response time is a customer satisfaction measure.
Answer (A) is correct. The components of the sales quantity variance are the market size variance and the market share
variance. The market size variance gives an indication of the change in contribution margin caused by a change in the market
size. The market size and market share variances are relevant to industries in which total level of sales and market share are
known, e.g., the automobile industry. The market size variance measures the effect of changes in an industry’s sales on an
individual company, and the market share variance analyzes the impact of a change in market share.
Answer (B) is incorrect because This equation defines the market share variance.
Answer (C) is incorrect because This equation defines the sales mix variance.
Answer (D) is incorrect because This equation defines the sales quantity variance.
[84] Gleim #: 8.1.18 -- Source: CMA 1291 3-8
Answer (A) is incorrect because A cost center manager has control over all significant costs but not of revenues or
investments.
Answer (B) is incorrect because An investment center, not a profit center, has control over invested capital.
Answer (C) is correct. A profit center is responsible for both revenues and expenses. For example, the perfume department
in a department store is a profit center. The manager of a profit center usually has the authority to make decisions affecting
the major determinants of profit, including the power to choose markets (revenue sources) and suppliers (costs).
Answer (D) is incorrect because A service center supports other organizational units.

Answer Explanations
(256 questions)
Answer (A) is correct. The outlay costs represent cash outflows related to the production and transfer of goods/services. The
opportunity costs are the maximum contribution forgone by the supplying division if the goods/services are sold internally.
An opportunity cost will exist if the supplier has no idle capacity and an external market exists. Thus, this guideline should
promote goal congruence (actions of the divisional manager benefit the company and the division), a sustained high level of
managerial effort (exertion toward a goal), and subunit autonomy (freedom in decision making). The guideline will vary
depending on whether an external market exists and whether the supplier has idle capacity.
Answer (B) is incorrect because If the supplying division recovers only its variable production costs, it becomes a cost center
for internal transfers. The supplying division will earn no return on internal sales, which could lead to suboptimization.
Answer (C) is incorrect because The full cost may not represent the outlay cost incurred to the point of transfer, and a
markup is an arbitrary percentage. The result may be suboptimization. For example, the buyer may purchase at a lower price
from an outside supplier even though the price exceeds the company’s outlay cost.
Answer (D) is incorrect because The opportunity cost of the buying division is irrelevant.
Answer (A) is incorrect because Responsibility accounting holds managers responsible only for what they can control.
Answer (B) is incorrect because A cost center manager is concerned with costs only, whereas a profit center manager is
concerned with costs and revenues.
Answer (C) is incorrect because This is the essence of responsibility accounting. Each manager is held accountable for
factors under his/her control.
Answer (D) is correct. Responsibility accounting stresses that managers are responsible only for factors under their control.
For this purpose, the operations of the business are organized into responsibility centers. Costs are classified as controllable
and uncontrollable. This implies that some revenues and costs can be changed through effective management. Management
may then focus on deviations for either reinforcement or correction. Thus, the statement that every factor is ultimately
controllable by someone is not a premise of responsibility accounting.

Answer Explanations
(256 questions)
[87] Gleim #: 7.3.23 -- Source: CMA 1293 3-24
Answer (A) is incorrect because The price variance is $12,500, or $.50 per unit.
Answer (B) is incorrect because The price variance is $12,500, or $.50 per unit.
Answer (C) is incorrect because The direct materials quantity variance is $2,500 unfavorable.
Answer (D) is correct. Actual usage and the standard price were 25,000 units and $2.50, respectively. Actual price was
$3.00 ($105,000 total cost ÷ 35,000 units purchased). Consequently, the direct materials price variance is $12,500
unfavorable {AQ × (SP – AP) = [25,000 units × ($2.50 – $3.00)]}.
Answer (A) is correct. The labor efficiency variance is $980 ($9,800 – $8,820). It is the difference between actual and
standard hours multiplied by the standard labor rate.
Answer (B) is incorrect because The term “spending variance” is usually applied to overhead variances.
Answer (C) is incorrect because The labor rate variance is $200. It is the difference between the actual and standard rates
time the actual hours.
Answer (D) is incorrect because The volume variance is the difference between budgeted fixed overhead and the amount
applied based on the standard input allowed for the actual output.
Answer (A) is incorrect because Multiplying $1.20 by standard hours (42,000) results in $50,400.
Answer (B) is incorrect because The variance is unfavorable.
Answer (C) is correct. The direct labor rate variance is determined by multiplying the actual hours worked by the difference
between the standard and actual rates. The standard rate equals the direct labor efficiency variance divided by the difference
between the standard and actual hours. The actual rate equals the total direct labor payroll divided by the actual hours.
$3,840 ÷ (41,200 – 42,000) = $ 4.80 SR

$247,200 ÷ 41,200 = 6.00 AR
$ 1.20 diff.
× 41,200 AH
DL rate variance = $ 49,440 U
Answer (D) is incorrect because The amount of $44,496 was determined using an actual rate of $5.88.

Answer Explanations
(256 questions)
[90] Gleim #: 7.4.36 -- Source: CMA 1294 3-25
Answer (A) is incorrect because The variable overhead spending variance may be affected by, but does not affect, a direct
labor efficiency variance. It equals the difference between actual variable overhead, which includes indirect but not direct
labor, and the variable overhead applied based on the standard rate and the actual activity level, which may or may not be
measured in direct labor hours. Thus, the effect of an unfavorable direct labor efficiency variance is to decrease an
unfavorable variable overhead spending variance or to increase a favorable variable overhead spending variance.
Answer (B) is incorrect because The fixed overhead volume variance does not affect, and is not affected by, a direct labor
efficiency variance. It equals the difference between budgeted fixed overhead and the fixed overhead applied based on the
standard rate and the standard input (e.g., direct labor) allowed for the actual output.
Answer (C) is incorrect because The variable overhead spending variance may be affected by, but does not affect, a direct
labor efficiency variance. It equals the difference between actual variable overhead, which includes indirect but not direct
labor, and the variable overhead applied based on the standard rate and the actual activity level, which may or may not be
measured in direct labor hours. Thus, the effect of an unfavorable direct labor efficiency variance is to decrease an
unfavorable variable overhead spending variance or to increase a favorable variable overhead spending variance.
Answer (D) is correct. An unfavorable direct labor efficiency variance indicates that actual hours exceeded standard hours.
Too many hours may have been used because of inefficiency on the part of employees, excessive coffee breaks, machine
down-time, inadequate materials, or materials of poor quality that required excessive rework. An unfavorable direct
materials usage variance might be related to an unfavorable labor efficiency variance. Working on a greater quantity of direct
materials may require more direct labor time.
Answer (A) is correct. Management by exception gives significant attention only to those areas in which material deviations
from expectations occur. Consequently, management focuses resources where the greatest returns from supervisory effort
may be achieved.
Answer (B) is incorrect because In MBO, a manager and his/her subordinates jointly formulate the subordinates’ objectives
and the plans for attaining them.
Answer (C) is incorrect because Benchmarking is the practice of identifying, studying, and building upon the best practices
in the industry or in the world.
Answer (D) is incorrect because In a responsibility accounting system, managers are evaluated only on the basis of factors
they control.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The spending variance, not the volume variance, is useful in detecting short-term problems
in the control of overhead costs.
Answer (B) is incorrect because The spending variance, not the volume variance, is useful in detecting short-term problems
Answer (C) is correct. The volume variance is the difference between total budgeted fixed overhead and total fixed
overhead absorbed (applied). It is a measure of the use of capacity, not of the difference between budgeted and actual costs.
However, the spending variance is the difference between actual overhead incurred and the flexible budget amount for the
actual input. In four-way analysis of overhead variances, the spending variance is divided into fixed and variable
components. Consequently, the components of the spending variance, not the volume variance, are useful in detecting short-
term problems in the control of overhead costs.
Answer (D) is incorrect because The spending variance, not the volume variance, is useful in detecting short-term problems
[93] Gleim #: 7.4.37 -- Source: CMA 1296 3-24
Answer (A) is incorrect because The production manager did not make the substitution decision.
Answer (B) is correct. An unfavorable direct labor efficiency variance is normally charged to the production manager, the
person with the most control over the amount and kinds of direct labor used. However, that individual is not responsible.
(S)he was told to use the nonconforming part that required extra labor time. Thus, the variance should be charged to the vice
president of production, the individual who most influenced the incurrence of the cost.
Answer (C) is incorrect because The inventory supervisor did not make the substitution decision.
Answer (D) is incorrect because The sales manager did not make the substitution decision.
Answer (A) is incorrect because This equation defines the market share variance.
Answer (B) is incorrect because This equation defines the market size variance.
Answer (C) is incorrect because This equation defines the sales mix variance.
Answer (D) is correct. The sales volume variance equals the difference between the flexible budget contribution margin for
the actual volume and that included in the master budget. Its components are the sales quantity and sales mix variances. The
sales quantity variance focuses on the firm’s aggregate results. It assumes a constant product mix and an average
contribution margin for the composite unit. It equals the difference between actual and budgeted unit total sales, times the
budgeted weighted-average UCM for the planned mix.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Return on investment cannot be computed for a cost center. The manager is not responsible
for revenue (return) or the assets available.
Answer (B) is incorrect because The payback method is a means of evaluating alternative investment proposals.
Answer (C) is correct. A cost center is a responsibility center that is responsible for costs only. Of the alternatives given,
variance analysis is the only one that can be used in a cost center. Variance analysis involves comparing actual costs with
predicted or standard costs.
Answer (D) is incorrect because Return on assets cannot be computed for a cost center. The manager is not responsible for
revenue (return) or the assets available.
Answer (A) is correct. The total direct materials price variance is found by multiplying the difference between the standard
price and the actual price by the actual quantity. The actual price is calculated by dividing actual cost by actual quantity.
Thus, the actual prices are $20 per unit ($44,000 ÷ 2,200) for housing units, $16 per unit ($75,200 ÷ 4,700) for printed
circuit boards, and $11 per unit ($101,200 ÷ 9,200) for reading heads. Thus, total direct materials price variance is
Housing units: 2,200 × ($20 – $20) = $ 0

Printed circuit boards: 4,700 × ($15 – $16) = 4,700 U
Reading heads: 9,200 × ($10 – $11) = 9,200 U
$13,900 U
Answer (B) is incorrect because Using the standard cost per unit for each direct material results in $346,500 unfavorable.
Answer (C) is incorrect because Using the standard cost per unit for each direct material and reversing the order of
subtraction results in $346,500 favorable.
Answer (D) is incorrect because The price variance is unfavorable when the actual price is greater than the standard price.

Answer Explanations
(256 questions)
[97] Gleim #: 7.7.126 -- Source: CMA 696 3-23
Answer (A) is incorrect because The price variance is unfavorable. The actual price is greater than the standard price.
Answer (B) is incorrect because The variance of $14,850 is based on the standard unit quantity, not the actual quantity.
Answer (C) is incorrect because The variance of $14,850 is based on the standard unit quantity, not the actual quantity.
Answer (D) is correct. The direct materials price variance equals the actual quantity used times the difference between the
standard and actual price per unit. Thus, the unfavorable direct materials price variance is $14,355 [1,650 units × 58 actual
pounds × ($1.50 standard price – $1.65 actual price)].
[98] Gleim #: 7.4.43 -- Source: CMA 692 3-19
Answer (A) is incorrect because The variance is favorable.
Answer (B) is incorrect because The variance is favorable. Actual usage was less than the standard.
Answer (C) is correct. This variance equals the standard unit cost times the difference between the actual quantity used and
the standard quantity for good production. Consequently, the variance is $7,200 favorable {[(5 pounds × 22,000 units) –
108,000 pounds used] × $3.60}.
Answer (D) is incorrect because The variance is calculated by multiplying the quantity difference times the standard unit
cost of $3.60, not the actual unit cost.
[99] Gleim #: 7.6.104 -- Source: CMA 0205 2-41
Answer (A) is correct. Fixed overhead was budgeted based on a practical capacity of 90,000 machine hours. Because the
actual hours used were 88,000, fixed overhead was underapplied, and an unfavorable production-volume variance resulted.
The only one of the four actions that would result in fewer machine hours than were budgeted being consumed is the
initiative to reduce finished goods inventory levels.
Answer (B) is incorrect because Worker wages are a variable cost and would thus affect the variable, not the fixed, overhead
variance.
Answer (C) is incorrect because An unexpected sales order would result in more machine hours than were budgeted, not
fewer. In other words, an unexpected order would result in a variable volume variance.
Answer (D) is incorrect because A wage hike to a production supervisor is a variable cost and would thus affect the variable,
not the fixed, variance.

Answer Explanations
(256 questions)
[100] Gleim #: 8.1.22 -- Source: CMA 1294 3-22
Answer (A) is correct. Responsibility accounting holds managers responsible only for factors under their control. The
depreciation of equipment will probably not appear on the performance report of an assembly-line manager because the
manager usually has no control over the investment in the equipment.
Answer (B) is incorrect because The manager of an assembly line is likely to be responsible for the materials, which is to
some degree controllable by the manager.
Answer (C) is incorrect because The manager of an assembly line is likely to be responsible for the repairs and maintenance,
which is to some degree controllable by the manager.
Answer (D) is incorrect because The manager of an assembly line is likely to be responsible for the salaries of supervisors,
which is to some degree controllable by the manager.
[101] Gleim #: 8.5.84 -- Source: CMA 695 3-20
Answer (A) is incorrect because The amount of $(22,000) equals the difference between net profit after taxes and targeted
income.
Answer (B) is correct. Return on investment is commonly calculated by dividing business unit profit by total assets
available. Residual income is a significant refinement of the return on investment concept because it forces business unit
managers to consider the opportunity cost of capital. The rate used is ordinarily the weighted-average cost of capital.
Because REB has assets of $500,000 and a cost of capital of 6%, it must earn $30,000 on those assets to cover the cost of
capital. Given that operating income was only $25,000, it had a negative residual income of $5,000.
Answer (C) is incorrect because Although the firm’s return on equity investment was 4%, its return on all funds invested
was 5% ($25,000 pretax operating income ÷ $500,000).
Answer (D) is incorrect because ROI is commonly based on before-tax income.
[102] Gleim #: 7.6.79 -- Source: CMA 1289 4-1
Answer (A) is correct. The calculation of the variable overhead efficiency variance is similar to that of the direct labor
efficiency variance in that both measure the effect of the difference between actual and standard hours. Assuming overhead
is applied on the basis of direct labor hours, both variance calculations will be based on the same number of hours. Thus, if
the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance will also be unfavorable.
Answer (B) is incorrect because The efficiency variances are directly correlated.
Answer (C) is incorrect because The efficiency variances are directly correlated.
Answer (D) is incorrect because The amount of the variance is dependent upon the actual costs incurred.

Answer Explanations
(256 questions)
[103] Gleim #: 8.5.66 -- Source: CMA 1292 3-21
Answer (A) is correct. ROI equals business unit profit divided by average total assets. If a company is already profitable,
increasing sales and expenses by the same percentage will increase ROI. For example, if a company has sales of $100 and
expenses of $80, its operating income is $20. Given average total assets of $100, ROI is 20% ($20 ÷ $100). If sales and
expenses both increase 10% to $110 and $88, respectively, operating income increases to $22. ROI will then be 22% ($22 ÷
$100).
Answer (B) is incorrect because Increasing sales and expenses by the same dollar amount will not change income or ROI.
Answer (C) is incorrect because Increasing investment and operating expenses by the same dollar amount will lower ROI.
The higher investment increases the denominator, and the increased expenses reduce the numerator.
Answer (D) is incorrect because Decreasing revenues and expenses by the same percentage will reduce income and lower
ROI.
[104] Gleim #: 7.4.45 -- Source: CMA 692 3-21
Answer (A) is incorrect because The labor efficiency variance is calculated using the standard labor rate, not the actual labor
rate.
Answer (B) is incorrect because The variance is unfavorable. More hours were worked than allowed by the standards.
Answer (C) is correct. The direct labor efficiency variance equals the standard unit cost times the difference between actual
hours and standard hours. Accordingly, the variance is $6,000 unfavorable {[28,000 hours – (1.25 hours × 22,000 units)] ×
$12}.
Answer (A) is incorrect because Production is responsible for materials usage.
Answer (B) is incorrect because Sales has responsibility for marketing, not purchasing.
Answer (C) is incorrect because Engineering is responsible for design, engineering, and quality standards.
Answer (D) is correct. Responsibility for variances should bear some relationship to the decision and control processes
used. Materials price prices should be the responsibility of purchasing management.

Answer Explanations
(256 questions)
Answer (A) is correct. Responsibility accounting stresses that managers should only be held responsible for factors under
their control. To achieve this objective, the operations of the business are broken down into responsibility centers. Costs are
classified as controllable and noncontrollable to assign responsibility. The assignment of responsibility implies that some
revenues and costs can be changed through effective management. A responsibility accounting system should have certain
controls that provide for feedback reports indicating deviations from expectations. Management may then focus on those
deviations for either reinforcement or correction.
Answer (B) is incorrect because Contribution margin reporting separates costs by behavior; variable costs are listed first
followed by fixed costs. Some responsibility accounting systems use a contribution margin reporting format, but contribution
margin reporting alone can include costs not controllable by a manager.
Answer (C) is incorrect because Segment reporting is preparation of performance reports by reportable segments. Segment
reports often include allocated costs that are not controllable by managers.
Answer (D) is incorrect because Absorption cost accounting is characterized by its treatment of fixed manufacturing
overhead as a product cost.
Answer (A) is incorrect because Different prices recorded by the buying and selling divisions is characteristic of a dual-
pricing policy.
Answer (B) is correct. The variable-cost-plus price is the price set by charging for variable cost plus either a lump sum or
an additional markup but less than the full markup price. This permits top management to enter the decision process and
dictate that a division transfer at variable cost plus some appropriate amount.
Answer (C) is incorrect because Outlay cost plus opportunity cost is the price representing the cash outflows of the supplying
division plus the contribution to the supplying division from an outside sale.
Answer (D) is incorrect because The price on the open market is the definition of the market price.

Answer Explanations
(256 questions)
[108] Gleim #: 7.2.7 -- Source: CMA 1293 3-25
Answer (B) is incorrect because The variance is favorable.
Answer (C) is incorrect because The amount of $85,000 favorable is based on a production level of 100,000 units.
Answer (D) is correct. The company planned to produce 100,000 units at $6 each ($4 variable + $2 fixed cost), or a total of
$600,000, consisting of $400,000 of variable costs and $200,000 of fixed costs. Total production was only 80,000 units at a
total cost of $515,000. The flexible budget for a production level of 80,000 units includes variable costs of $320,000 (80,000
units × $4). Fixed costs would remain at $200,000. Thus, the total flexible budget costs are $520,000. Given that actual
costs were only $515,000, the variance is $5,000 favorable.
[109] Gleim #: 7.6.97 -- Source: CMA 1290 3-9
Answer (A) is incorrect because The actual fixed overhead for the year is $575,000.
Answer (B) is incorrect because The budgeted fixed overhead at an estimated production of 200,000 units is $600,000.
Answer (C) is incorrect because The fixed overhead applied equals the budgeted fixed overhead rate multiplied times the
actual units of production.
Answer (D) is correct. Fixed overhead is applied at the rate of $3 per unit. The amount applied given actual production is
$594,000 ($3 × 198,000 units).
Answer (A) is incorrect because The difference between the actual and budgeted fixed overhead is $2,500.
Answer (B) is incorrect because The difference between the fixed and variable components of the variance is $3,750.
Answer (C) is incorrect because The difference between the actual and budgeted variable overhead is $6,250.
Answer (D) is correct. The spending variance is the difference between the actual total overhead and the sum of budgeted
fixed overhead and the variable overhead budgeted for the actual input. The total actual overhead is $140,000 ($106,250 +
$33,750). The sum of budgeted fixed overhead and variable overhead budgeted for the actual input is $131,250 ($100,000 +
$31,250). Thus, the total spending variance is $8,750 ($140,000 – $131,250). The variance is unfavorable because the actual
overhead exceeds the budgeted overhead.

Answer Explanations
(256 questions)
[111] Gleim #: 7.4.48 -- Source: CMA 1291 3-4
Answer (A) is incorrect because The direct labor efficiency variance equals the standard labor rate times the difference
between actual and standard hours.
Answer (B) is incorrect because The direct labor efficiency variance equals the standard labor rate times the difference
Answer (C) is correct. The direct labor efficiency variance equals the standard labor rate times the difference between
actual and standard hours. Because each unit requires .25 hours of labor, the standard hours allowed for November would
have been 4,750 (.25 × 19,000 units of output). Accordingly, the variance is $2,000 [(4,750 standard hrs. – 5,000 actual hrs.)
× $8.00 standard rate]. This variance is unfavorable because the actual hours exceeded the standard hours.
Answer (D) is incorrect because The direct labor efficiency variance equals the standard labor rate times the difference
Answer (A) is correct. Common costs are the cost of products, activities, facilities, services, or operations shared by two or
more cost objects. They are indirect costs because they cannot be traced to a particular cost object in an economically
feasible manner. Hence, they must be allocated.
Answer (B) is incorrect because Controllable costs can be influenced by a particular manager.
Answer (C) is incorrect because Current cost is an attribute used to measure assets.
Answer (D) is incorrect because Direct costs can be traced to a particular cost object in an economically feasible manner.
[113] Gleim #: 8.5.67 -- Source: CMA 693 3-27
Answer (A) is incorrect because Managers may reject projects that are profitable (a return greater than the cost of capital),
but would decrease ROI. For example, the managers of a segment with a 15% ROI may not want to invest in a new project
with a 10% ROI, even though the cost of capital might be only 8%.
Answer (B) is incorrect because The use of ROI does not reflect the relative difficulty of tasks undertaken by managers.
Answer (C) is incorrect because ROI can be misleading when the quality of the investment base differs among segments.
Answer (D) is correct. Return on investment is the key performance measure in an investment center. ROI is a rate
computed by dividing a business unit’s profits by its average total assets. ROI is therefore subject to the numerous possible
manipulations of the income and investment amounts. For example, a manager may choose not to invest in a project that will
yield less than the desired rate of return, or (s)he may defer necessary expenses.

Answer Explanations
(256 questions)
[114] Gleim #: 7.6.100 -- Source: CMA 1284 4-2
Answer (A) is incorrect because The difference between actual direct labor hours and standard direct labor hours allowed is
the basis of the variable O/H efficiency variance.
Answer (B) is incorrect because The difference between fixed factory O/H applied on the basis of standard allowed direct
labor hours and the budgeted fixed factory O/H defines the total fixed O/H variance.
Answer (C) is incorrect because Sales volume is irrelevant.
Answer (D) is correct. A fixed O/H production volume variance is the difference between the budgeted fixed factory O/H
and the O/H applied based on a predetermined rate and standard direct labor hours allowed for the actual output.
Answer (A) is incorrect because The fixed O/H rate per machine hour is $1.32 per DMH. The standard O/H rate per
machine hour includes the variable rate per DMH.
Answer (B) is incorrect because The variable O/H rate per machine hour is $13.00 per DMH. The standard O/H rate also
includes the fixed O/H rate.
Answer (C) is correct. The total O/H equation is
y = $132,000 + $13(DMH)
This equation is derived by summing individual O/H items. The fixed portion needs to be converted to a rate by dividing it
by normal capacity. Thus, the fixed O/H rate is $1.32 ($132,000 ÷ 100,000). To calculate the total O/H rate, the fixed rate is
added to the variable rate. Hence, the total O/H rate per DMH is $14.32 ($1.32 + $13.00).
Answer (D) is incorrect because The actual total O/H rate (total actual cost ÷ actual hours) is $13.76 per DMH.

Answer Explanations
(256 questions)
[116] Gleim #: 8.1.21 -- Source: CMA 694 3-28
Answer (A) is correct. A well-designed responsibility accounting system establishes responsibility centers within an
organization. Managerial performance should be evaluated only on the basis of those factors controllable by the manager.
Managers may control revenues, costs, and/or investment activities. The responsibility system should induce management
performance that adheres to overall company objectives. Charging the costs of a rush order to the sales manager who
authorized the job creates an incentive for that individual to minimize such costs.
Answer (B) is incorrect because Contribution accounting emphasizes variable costs and their relationship with revenues, but
disassociates fixed costs from the departments responsible.
Answer (C) is incorrect because A transfer-pricing system charges one segment of an organization for goods and services
that are provided by another segment within the organization.
Answer (D) is incorrect because Functional accounting accumulates costs and assets for each service provided or function
performed, without necessarily assigning responsibility for such costs.
[117] Gleim #: 8.1.10 -- Source: CMA 1293 3-21
Answer (A) is incorrect because Knowledge about the incurrence of a cost rather than controllability may in practice be an
appropriate basis for delegation of responsibility.
Answer (B) is incorrect because Fixed costs may also be controllable, and some costs not controllable may need to be
assigned.
Answer (C) is incorrect because Fixed costs can be controllable.
Answer (D) is correct. Managerial performance should ideally be evaluated only on the basis of those factors controllable by
the manager. Managers may control revenues, costs, and/or investments in resources. However, controllability is not an
absolute. More than one manager may be able to influence a cost, and managers may be accountable for some costs they do
not control. In practice, given the difficulties of determining the locus of controllability, responsibility may be assigned on
the basis of knowledge about the incurrence of a cost rather than the ability to control it. Accordingly, a successful system is
dependent upon the proper delegation of responsibility and the commensurate authority.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The labor rate variance is the variance of price of the labor.
Answer (B) is correct. Labor mix and labor yield variances are the components of the total labor efficiency variance. For
example, if the labor yield variance was $500 U and the labor mix variance was $320 U, the total labor efficiency variance
would be $820 U.
Answer (C) is incorrect because The efficiency variance is not labor variances.
Answer (D) is incorrect because The total labor variance equals the labor efficiency and the labor rate variances.
[119] Gleim #: 7.6.77 -- Source: CMA 1289 4-6
Answer (A) is correct. The variable overhead efficiency variance equals the product of the variable overhead application
rate and the difference between the standard input for the actual output and the actual input. Hence, the variance will be zero
if variable overhead is applied on the basis of units of output because the difference between actual and standard input
cannot be recognized.
Answer (B) is incorrect because The variance will be zero.
Answer (C) is incorrect because The variance will be zero.
Answer (D) is incorrect because The correlation between the variable overhead and direct labor efficiency variances occurs
only when overhead is applied on the basis of direct labor.
Answer (A) is incorrect because The total $6,720 DL rate variance, not the DL rate variance per standard hour times the
actual DL hours, should be subtracted in the calculation.
Answer (B) is correct. When the actual direct labor rate is unknown, the total direct labor payroll can be found by
multiplying the actual hours by the standard rate, then subtracting the favorable labor variance.
(32,000 × $5.04) – $6,720 = $154,560
Answer (C) is incorrect because The $6,720 DL rate variance is favorable, and should therefore be subtracted from, not
added to, the standard payroll for the hours worked.
Answer (D) is incorrect because The total $6,720 DL rate variance, not the DL rate variance per standard hour times the
actual DL hours, should be used in calculating the payroll. Furthermore, a favorable DL rate variance should be subtracted
from, not added to, the standard DL costs allowed for hours worked.

Answer Explanations
(256 questions)
Answer (A) is correct. Two-variance analysis considers only budget (controllable) and volume variances. When actual and
budgeted fixed overhead are equal, the budget (controllable) variance equals the difference between actual variable overhead
and standard hours allowed times the variable overhead rate per hour. Thus, the variance is $3,000 favorable [(49,500 × $6)
– $294,000]. A favorable variance results when actual is less than standard.
Answer (B) is incorrect because The difference between standard and actual DLH, times the variable overhead rate per hour,
is $9,000.
Answer (C) is incorrect because Using actual DLH results in $6,000.
Answer (D) is incorrect because The difference between standard and actual DLH, times the variable overhead rate per
hour, is $9,000.
Answer (A) is incorrect because This equation defines the market share variance.
Answer (B) is incorrect because This equation defines the sales quantity variance.
Answer (C) is incorrect because This equation defines the market size variance.
Answer (D) is correct. The sales mix variance may be viewed as a sum of variances. For each product in the mix, the
difference between actual units sold and its budgeted percentage of the actual total unit sales is multiplied by the budgeted
UCM for the product. The results are added to determine the mix variance. An alternative is to multiply total actual units
sold by the difference between the budgeted weighted-average UCM for the planned mix and that for the actual mix.
[123] Gleim #: 7.3.11 -- Source: CMA 694 3-23
Answer (A) is incorrect because A change in product mix does not explain the price variance.
Answer (B) is correct. A favorable materials price variance is the result of paying less than the standard price for materials.
An unfavorable materials usage variance is the result of using an excessive quantity of materials. If a purchasing manager
were to buy substandard materials to achieve a favorable price variance, an unfavorable quantity variance could result from
using an excessive amount of poor quality materials.
Answer (C) is incorrect because Machine efficiency problems do not explain the price variance.
Answer (D) is incorrect because Materials of higher-than-standard quality are more likely to cause an unfavorable price
variance and a favorable quantity variance.

Answer Explanations
(256 questions)
[124] Gleim #: 8.5.69 -- Source: CMA 694 3-29
Answer (A) is incorrect because ROI is based on all assets, not just current investment expenditures.
Answer (B) is incorrect because The denominator would not be limited to fixed assets.
Answer (C) is correct. ROI is calculated by dividing a business unit’s operating income by average total assets. It is a key
performance measure of an investment center. Total assets available is the measure that assumes the manager will use all
assets without regard to financing.
Answer (D) is incorrect because The calculation of ROI does not adjust for imputed interest on invested capital.
[125] Gleim #: 8.1.19 -- Source: CMA 1291 3-9
Answer (A) is incorrect because A service center supports other organizational units.
Answer (B) is incorrect because An investment center also has authority over revenues and invested capital.
Answer (C) is incorrect because An investment center has authority not only over costs and revenues, but also capital
invested.
Answer (D) is correct. An investment center is responsible for revenues, expenses, and invested capital. Return on
investment is usually the key performance measure of an investment center.
[126] Gleim #: 7.3.20 -- Source: CMA 1295 3-11
Answer (A) is incorrect because Both the purchasing manager and the production manager could be at fault.
Answer (B) is correct. An unfavorable materials quantity variance is usually caused by waste, shrinkage, or theft.
Alternatively, an unfavorable variance could be attributable to the purchasing department’s not buying the proper quality of
materials in an attempt to achieve a favorable material price variance. Thus, either the production manager or the purchasing
manager could be responsible for a material usage variance.
Answer (C) is incorrect because The plant controller is at too high a level for an investigation of a materials usage variance.
Answer (D) is incorrect because Both the purchasing manager and the production manager could be at fault.

Answer Explanations
(256 questions)
Answer (A) is correct. The standard direct labor cost for 1,230 actual hours at $6 per hour equals $7,380. The rate variance
of $246 was unfavorable, which means that the actual cost was $246 higher than the standard cost, or $7,626 ($7,380 +
$246).
Answer (B) is incorrect because The standard cost for actual hours is $7,380. It does not adjust for the unfavorable rate
variance.
Answer (C) is incorrect because The amount of $7,200 is based on the efficiency variance rather than the rate variance.
Answer (D) is incorrect because The amount of $7,134 assumes a favorable rate variance.
[128] Gleim #: 7.1.3 -- Source: CMA 683 4-5
Answer (A) is correct. In the long run, these costs should be the same. In the short run, however, they may differ because
standard costs represent what costs should be, whereas budgeted costs are expected actual costs. Budgeted costs may vary
widely from standard costs in certain months, but, for an annual budget period, the amounts should be similar.
Answer (B) is incorrect because Standard costs are not necessarily determined by engineering studies.
Answer (C) is incorrect because Standard costs are usually based on currently attainable standards applicable when a
process is under control. They are set without regard to variances or slack.
Answer (D) is incorrect because Budgeted costs include expected deviations from the standards.
[129] Gleim #: 7.6.92 -- Source: CMA 1279 4-10
Answer (A) is incorrect because The volume variance concerns output levels rather than the efficiency of production.
Answer (B) is incorrect because The fixed overhead volume variance is calculated on the assumption that fixed costs are
constant.
Answer (C) is correct. The fixed overhead volume variance is the difference between budgeted fixed costs and actual
overhead applied, which equals the budgeted fixed overhead rate times the standard input allowed for the actual output. It is
solely a measure of capacity usage and does not signify that fixed costs were more or less than budgeted.
Answer (D) is incorrect because The fixed overhead volume variance concerns the application of fixed cost to product and
does not encompass revenue or sales concepts in any way.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Goal congruence is the sharing of goals by supervisors and subordinates.
Answer (B) is incorrect because Autonomy is the extent to which individuals have the authority to make decisions.
Answer (C) is correct. Motivation is the desire to attain a specific goal (goal congruence) and the commitment to
accomplish the goal (managerial effort). Managerial motivation is therefore a combination of managerial effort and goal
congruence.
Answer (D) is incorrect because Managerial effort is the extent of the attempt to accomplish a specific goal.
[131] Gleim #: 8.6.90 -- Source: CMA 0205 2-46
Answer (A) is incorrect because Financial performance measures are among the tools used in a typical balanced scorecard.
Answer (B) is incorrect because Employee innovation and learning is one of the perspectives on the business commonly used
in a balanced scorecard.
Answer (C) is correct. A typical balanced scorecard classifies critical success factors and measures into one of four
perspectives on the business: financial, customer satisfaction, internal business processes, and learning and growth.
Answer (D) is incorrect because A typical balanced scorecard contains critical success factors and measures focused on
internal business processes.
[132] Gleim #: 8.1.30 -- Source: CMA 0205 2-44
Answer (A) is incorrect because Linking authority to responsibility through the budget is a sound principle of responsibility
accounting.
Answer (B) is incorrect because Responsibility accounting is based on each level of management being responsible for its
department’s operations and employees.
Answer (C) is correct. Management of a cost center is, by definition, only responsible for costs. To make management
answerable for revenues as well undercuts the purpose of sound responsibility accounting.
Answer (D) is incorrect because Any well-designed responsibility accounting system should encourage employee
involvement and participation.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Profitability is a measure that includes external considerations.
Answer (B) is correct. Cycle time is the manufacturing time to complete an order. Thus, cycle time is strictly related to
internal processes. Profitability is a combination of internal and external considerations. Customer satisfaction and market
share are related to how customers perceive a product and how competitors react.
Answer (C) is incorrect because Customer satisfaction is a measure that includes external considerations.
Answer (D) is incorrect because Market share is a measure that includes external considerations.
[134] Gleim #: 7.8.147 -- Source: CMA 1291 3-16
Answer (B) is incorrect because The amount of the fixed cost variance is $4,000.
Answer (C) is correct. The variable cost flexible budget variance is equal to the difference between actual variable costs
and the product of the actual quantity sold and the budgeted unit variable cost ($180,000 ÷ 6,000 = $30).
Answer (D) is incorrect because The amount of the fixed cost variance is $4,000.
[135] Gleim #: 7.7.125 -- Source: CMA 696 3-22
Answer (A) is incorrect because A favorable variance exists. The standard amount for the actual output exceeded the actual
amount.
Answer (B) is correct. The direct materials quantity variance equals the difference between the standard and actual
quantities times the standard price. Hence, the favorable direct materials quantity variance is $4,950 [1,650 units × (60
standard pounds – 58 actual pounds) × $1.50 standard].
Answer (C) is incorrect because The amount of the direct materials price variance is $14,355.
Answer (D) is incorrect because The amount of the direct materials price variance is $14,355.

Answer Explanations
(256 questions)
[136] Gleim #: 7.3.29 -- Source: CIA 1187 II-10
Answer (A) is incorrect because Accountability is adequately established by the inventory entries.
Answer (B) is correct. One step in the control process is measurement of actual results against standards. For example, the
standard quantity of materials for a given output is established prior to production. If the actual materials usage exceeds the
standard, the variance is unfavorable and corrective action may be needed.
Answer (C) is incorrect because Variance entries cannot safeguard assets, they can only provide information for use in
controlling the cost of production.
Answer (D) is incorrect because Internal cost accounting information need not comply with GAAP.
Answer (A) is incorrect because The variance of $219.50 favorable is based on the actual mix of purchases.
Answer (B) is incorrect because The direct materials mix variance is $388.50 favorable.
Answer (C) is correct. The direct materials yield variance equals the difference between the actual input and the standard
input allowed for the actual output times the budgeted weighted-average standard cost per input unit at the standard mix.
The standard input for the actual output was 84,000 liters (140 batches × 600 liters per batch). The standard mix budgeted
weighted-average standard unit cost is $.225 per liter ($135 total cost ÷ 600 liters). Thus, the yield variance is $94.50
unfavorable [(84,000 liters allowed – 84,420 liters used) × $.225].
Answer (D) is incorrect because The direct materials quantity variance is $294.50 favorable.
Answer (A) is incorrect because The balanced scorecard approach uses financial and nonfinancial measures.
Answer (B) is incorrect because The balanced scorecard approach uses multiple measures.
Answer (C) is incorrect because The balanced scorecard approach uses financial and nonfinancial measures.
Answer (D) is correct. The trend in managerial performance evaluation is the balanced scorecard approach. Multiple
measures of performance permit a determination as to whether a manager is achieving certain objectives at the expense of
others that may be equally or more important. These measures may be financial or nonfinancial and usually include items in
four categories: profitability; customer satisfaction; innovation; and efficiency, quality, and time.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Investment centers and profit centers are responsible for revenues.
Answer (B) is incorrect because A cost center is not responsible for revenues.
Answer (C) is correct. In investment centers, managers are responsible for all activities, including costs, revenues, and
investments. An investment center is a profit center with significant control over the amount of capital invested. This control
extends to investments such as receivables and property, plant, and equipment, as well as entry into new markets. A cost
center, for example, a production department, is responsible for costs only. A profit center, for example, the appliance
department in a retail store, is responsible for both revenues and expenses.
Answer (D) is incorrect because The performance reports of an investment center and a profit center but not a cost center
include controllable revenues.
Answer (A) is correct. Allocated fixed overhead should not be included in internal reports based on a responsibility
accounting system because it cannot be controlled by a manager of a responsibility center.
Answer (B) is incorrect because A main purpose of internal reports is to show the variance between actual and budgeted
controllable costs so corrective action can be taken when and where needed.
Answer (C) is incorrect because The organizational chart, which outlines the authority-responsibility chain of a company, is
an integral part of the responsibility accounting system.
Answer (D) is incorrect because In responsibility accounting, managers are only held responsible for costs they have the
authority to control.
Answer (A) is correct. The direct labor efficiency variance equals the difference between the standard and actual amounts of
labor hours times the standard rate. The standard rate is $10 per hour. The actual amount of labor hours is 3,200 hours. The
standard amount of labor hours is 3,000 (2 hours × 1,500 units). Thus, the direct labor efficiency variance is $2,000 [(3,000
– 3,200) × $10]. The variance is unfavorable because more labor hours were used than the standard.
Answer (B) is incorrect because The difference between the direct labor efficiency variance and the product of the cost
difference ($.25) and the standard hours allowed is $1,250.
Answer (C) is incorrect because The amount of $2,050 uses the actual labor price.
Answer (D) is incorrect because The difference between the labor efficiency and rate variances is $1,200.

Answer Explanations
(256 questions)
[142] Gleim #: 8.1.15 -- Source: CMA 686 4-16
Answer (A) is incorrect because Reciprocal allocation is a method of allocating service department costs to producing
departments.
Answer (B) is incorrect because A functional accounting system is one in which costs are accumulated by the nature of the
function performed.
Answer (C) is incorrect because Contribution accounting is a system in which costs are divided according to whether they
are fixed or variable.
Answer (D) is correct. Profitability accounting is accounting for profit centers. When sales managers have the authority and
responsibility to control costs, they are a profit center.
[143] Gleim #: 7.6.90 -- Source: CMA 693 3-26
Answer (A) is correct. Most variances are of significance to someone who is responsible for that variance. However, a fixed
overhead volume variance is often not the responsibility of anyone other than top management. The fixed overhead volume
variance equals the difference between budgeted fixed overhead and the amount applied (standard input allowed for the
actual output × standard rate). It can be caused by economic downturns, labor strife, bad weather, or a change in planned
output. Thus, a fixed overhead volume variance resulting from a top management decision to reduce output has fewer
behavioral implications than other variances.
Answer (B) is incorrect because A favorable direct labor rate variance related to hiring is a concern of the human resources
function. The favorable rate variance might be more than offset by an unfavorable direct labor efficiency variance or a direct
materials quantity variance (if waste occurred).
Answer (C) is incorrect because An unfavorable direct labor efficiency variance reflects upon production workers who have
used too many hours.
Answer (D) is incorrect because An unfavorable direct materials quantity variance affects production management and
possibly the purchasing function. It may indicate an inefficient use of materials or the use of poor quality materials.

Answer Explanations
(256 questions)
Answer (A) is incorrect because A budget allowance based on actual input is not used in the computation of the controllable
variance.
Answer (B) is incorrect because A budget allowance based on applied fixed overhead is used to determine the volume
variance.
Answer (C) is correct. In two-way analysis, the total overhead variance (fixed + variable) is composed of the volume
variance (total fixed overhead cost budgeted – fixed overhead applied based on standard input allowed for the actual output)
and the controllable (budget) variance (the difference between the total actual overhead and the volume variance). Hence,
the controllable (budget) variance is the sum of 1) the difference between actual and budgeted fixed overhead and 2) the
difference between actual variable overhead and the variable overhead budgeted based on the standard input allowed for the
actual output.
Answer (D) is incorrect because A budget allowance based on actual input is not used in the computation of the controllable
variance.
Answer (A) is correct. The calculation of transfer prices in the international arena must be systematic. A scheme for
calculating transfer prices for a firm may correctly price the firm’s product in Country A but not in Country B. The product
may be overpriced in Country B, causing sales to be lower than anticipated; or, the product may be underpriced in Country
B, and the authorities may allege that the firm is dumping its product there.
Answer (B) is incorrect because Properly chosen transfer prices allocate revenues and expenses to divisions in various
countries. These numbers are used as part of the input for the performance evaluation of each division.
Answer (C) is incorrect because Transfer prices motivate division managers to buy parts and products (from either internal
or external suppliers) at the lowest possible prices and to sell their products (to either internal or external customers) at the
highest possible prices. Hence, each division has a profit making orientation.
Answer (D) is incorrect because Properly chosen transfer prices allow firms to attempt to minimize worldwide taxes by
producing various parts of the products in different countries and strategically transferring the parts at various systematically
calculated prices.

Answer Explanations
(256 questions)
[146] Gleim #: 7.8.148 -- Source: CMA 1291 3-17
Answer (A) is correct. The fixed cost variance equals the difference between actual fixed costs and budgeted fixed costs.
Answer (C) is incorrect because The variable cost variance is $5,000.
Answer (D) is incorrect because The variable cost variance is $5,000.
Answer (A) is correct. Three-way analysis of variance combines the fixed overhead budget (spending) and variable
overhead spending variances of four-way analysis of variance. It includes spending, efficiency, and volume variances. The
spending variance is the difference between the actual overhead incurred and the budgeted overhead for the actual input.
Budgeted overhead [$10,500 + (5,250 × $3.80)] $ 30,450

Actual overhead (22,500)
$ 7,950 F
Answer (B) is incorrect because The amount of $9,660 is based on standard, not actual, hours.
Answer (C) is incorrect because Using actual fixed overhead to calculate budgeted overhead results in $8,250.
Answer (D) is incorrect because The spending variance is favorable.
[148] Gleim #: 8.2.33 -- Source: CMA 686 4-14
Answer (A) is incorrect because Sales of the division would appear on the statement.
Answer (B) is incorrect because The division’s fixed selling expenses are separable fixed costs.
Answer (C) is incorrect because Variable costs of the division are included.
Answer (D) is correct. Segment margin is the contribution margin for a segment of a business minus fixed costs. It is a
measure of long-run profitability. Thus, an allocation of the corporate officers’ salaries should not be included in segment
margin because they are neither variable costs nor fixed costs that can be rationally allocated to the segment. Other items
that are often not allocated include corporate income taxes, interest, company-wide R&D expenses, and central
administration costs.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Marginal cost based transfer prices provide more of an incentive to the purchasing division
to buy internally and thus use idle facilities of the selling division than does the usually higher market-based transfer price.
Answer (B) is incorrect because Corporate politics is less of a factor than in other methods, such as a negotiated transfer
price. Market-based prices are objective.
Answer (C) is incorrect because Marginal production cost transfer prices do not relate to market-based transfer prices.
Answer (D) is correct. A transfer price is the price charged in an intercompany transaction. Market-based prices provide
market discipline because efficient internal suppliers will tend to prosper, thereby enhancing the overall long-term
competitiveness of the firm.
[150] Gleim #: 7.3.13 -- Source: CMA 694 3-21
Answer (A) is incorrect because Sales has no effect on the materials efficiency variance.
Answer (B) is incorrect because Sales has no effect on the materials efficiency variance.
Answer (C) is correct. The materials efficiency variance is the difference between actual and standard quantities used in
production, times the standard price. An unfavorable materials efficiency variance is usually caused by wastage, shrinkage,
or theft. Thus, it may be the responsibility of the production department because excess usage would occur while the
materials are in that department. In addition, industrial engineering may play a role because it is responsible for design of
the production process.
Answer (D) is incorrect because Purchasing rarely can control the materials efficiency variance.
[151] Gleim #: 7.3.21 -- Source: CMA 1293 3-22
Answer (A) is incorrect because The unit standard cost is $2.50.
Answer (B) is incorrect because The total standard cost of direct materials for each unit of finished product is $5.
Answer (C) is incorrect because The actual cost per unit of direct materials is $3.
Answer (D) is correct. Given that the company produced 12,000 units with a total standard cost for direct materials of
$60,000, the standard cost must be $5.00 ($60,000 ÷ 12,000 units) per unit of finished product. Because each unit of
finished product requires two units of direct materials, the standard unit cost for direct materials must be $2.50.

Answer Explanations
(256 questions)
[152] Gleim #: 8.5.80 -- Source: CMA 0205 2-45
Answer (A) is incorrect because A return less than the cost of capital would have decreased residual income.
Answer (B) is incorrect because A negative NPV would have decreased residual income.
Answer (C) is incorrect because A positive NPV would increase residual income.
Answer (D) is correct. Residual income is a significant refinement of the return on investment concept because it forces
business unit managers to consider the opportunity cost of capital. If residual income remained unchanged, then the return
on the project must have been the same as the firm’s cost of capital.
Answer (A) is incorrect because To control costs, the production department may be charged with the overtime costs.
Answer (B) is correct. The sales department should be responsible for the overtime costs because it can best judge whether
the additional cost of the rush order is justified. The production department also may be held responsible for the overtime
costs because charging the full overtime cost to the sales department would give the production department no incentive to
control these costs. However, the human resources department would never be charged with the overtime costs because it
has no effect on the incurrence of production overtime.
Answer (C) is incorrect because To control costs, the sales department may be charged with the overtime costs.
Answer (D) is incorrect because The sales department and the production department may be charged with the overtime
costs.
[154] Gleim #: 8.1.5 -- Source: CMA 693 3-14
Answer (A) is correct. A cost center is a responsibility center that is accountable only for costs. The cost center is the least
complex type of segment because it has no responsibility for revenues or investments.
Answer (B) is incorrect because A profit center is a segment responsible for both revenues and costs. A profit center has the
authority to make decisions concerning markets and sources of supply.
Answer (C) is incorrect because An investment center is a responsibility center that is accountable for revenues (markets),
costs (sources of supply), and invested capital.
Answer (D) is incorrect because A contribution center is responsible for revenues and variable costs, but not invested
capital.

Answer Explanations
(256 questions)
Answer (A) is correct. If 1.5 yards remain in each unit after spoilage of 25% of the direct materials input, the total per unit
input must have been 2 yards (1.5 ÷ 75%). The standard unit direct materials cost is therefore $4.00 (2 yards × $2).
Answer (B) is incorrect because The cost per unit excluding spoilage is $3.00.
Answer (C) is incorrect because The 1.5 yards of good output should be divided (not multiplied) by 75% to determine the
standard yards of material per unit.
Answer (D) is incorrect because The amount of $3.75 is found by adding 25% of the materials of the finished product as
spoilage and then multiplying by the $2.00 cost per yard [(1.5 × 1.25) × $2].
Answer (A) is incorrect because It defines the materials mix variance.
Answer (B) is incorrect because It states the definition of the labor mix variance.
Answer (C) is correct. The materials yield variance is the difference between the standard input allowed and actual input,
times the budgeted average unit price. The materials yield variance is a calculation based on the assumption that the
standard mix was maintained in producing a given output.
Answer (D) is incorrect because It describes the labor yield variance.
Answer (A) is incorrect because Standard costing and flexible budgeting are the most appropriate techniques.
Answer (B) is incorrect because Standard costing and flexible budgeting are the most appropriate techniques.
Answer (C) is incorrect because Standard costing and flexible budgeting are the most appropriate techniques.
Answer (D) is correct. A flexible budget is a set of static budgets prepared in anticipation of varying levels of activity.
Unlike a static budget, the use of a flexible budget permits effective evaluation of actual results when actual and expected
production differ. Setting cost standards facilitates preparation of a flexible budget. For example, a standard unit variable
cost is useful in determining the total variable cost for a given output.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The variance of $117 unfavorable is based on the standard input for 1,300 units.
Answer (B) is incorrect because The variance of $150 unfavorable is based on the assumption that 5,000 lbs. were
purchased.
Answer (C) is correct. The materials purchase price variance equals the quantity purchased multiplied by the difference
between the standard price and the actual price, or $135 unfavorable [4,500 lbs. × ($.75 – $.72)].
Answer (D) is incorrect because The variance of $123 unfavorable is based on the actual quantity used.
[159] Gleim #: 8.4.56 -- Source: CMA 696 3-27
Answer (A) is incorrect because The buying division is indifferent as to whether to purchase internally or externally.
Answer (B) is incorrect because The transfer is at a loss (relative to full cost) to the selling division, although the company
as a whole will benefit.
Answer (C) is correct. If the selling division has excess capacity, it should lower its transfer price to match the outside offer.
This decision optimizes the profits of the company as a whole by allowing for use of capacity that would otherwise be idle.
Answer (D) is incorrect because This action is congruent with the goals of Parkside. The use of idle capacity enhances
profits.
[160] Gleim #: 8.2.35 -- Source: CMA 1292 3-22
Answer (A) is incorrect because Direct fixed costs controllable by the segment manager affect both performance measures.
Answer (B) is incorrect because Unallocated fixed costs do not affect either performance measure.
Answer (C) is incorrect because Direct variable costs affect both performance measures.
Answer (D) is correct. The performance of the segment is judged on all costs assigned to it, but the segment manager is only
judged on costs that he or she can control. Some fixed costs are imposed on segments by the organization’s upper
management, and they are thus beyond the segment manager’s control. These direct costs controllable by others make up the
difference between segment manager performance and segment performance.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Using the budgeted variable overhead and by reversing the order of subtraction results in
$1,800 unfavorable.
Answer (B) is incorrect because Using the budgeted variable overhead results in $1,800 favorable.
Answer (C) is correct. The variable overhead spending variance is found by subtracting actual variable overhead from the
product of actual hours and the standard rate. Accordingly, the variable overhead spending variance is $1,000 favorable
[(9,900 × $2) – $18,800].
Answer (D) is incorrect because Reversing the order of subtraction results in $1,000 unfavorable.
Answer (A) is correct. Materials yield and mix variances are the components of the materials usage (quantity or efficiency)
variance. They are useful only if certain classes or types of materials can be substituted for each other. The materials mix
variance is calculated to isolate the effects of the change in the mix of materials used. Thus, it equals the sum of the products
of the difference between the amount of each class of materials actually used and the standard amount allowed times the
difference between the budgeted price for that class and the budgeted weighted-average materials cost for all materials in the
mix. Because substitutability of materials may not be possible in every situation, the materials mix variance is suitable for
analysis only when the manager has some control over the composition of the mix.
Answer (B) is incorrect because It states the definition of the materials yield variance.
Answer (C) is incorrect because The mix variance is based on budgeted prices.
Answer (D) is incorrect because It defines the labor yield variance.
Answer (A) is incorrect because Using a standard hours per unit rate of 9 hours and reversing the order of subtraction results
in $9,900 unfavorable.
Answer (B) is incorrect because Using a standard hours per unit rate of 9 hours results in $9,900 favorable.
Answer (C) is incorrect because Multiplying by the budgeted number of units, 2,000, instead of actual, 2,200, results in
$900 unfavorable.
Answer (D) is correct. The variable overhead efficiency variance is found by multiplying the difference between standard
hours and actual hours by the standard rate. The number of standard hours is calculated by multiplying the actual units by
the standard hours per unit. Thus, the number of standard hours is 9,900 ($2,200 × 4.5 hours per unit), and the variable
overhead efficiency variance is $0 [(9,900 – 9,900) × $2].

Answer Explanations
(256 questions)
[164] Gleim #: 7.8.163 -- Source: CMA 0205 2-40
Answer (A) is incorrect because The amount of $17,250 is the sales volume variance.
Answer (B) is correct. The first step is to calculate the contribution margin (CM) for a “composite” unit using budgeted mix
percentages and budgeted margins:
Product E: {[5,500 ÷ (5,500 + 4,500)] × $4.50} = $2.475

Product F: {[4,500 ÷ (5,500 + 4,500)] × $10.00} = $4.500
Composite Budget UCM $6.975
This process is repeated using actual mix percentages and budgeted margins:
Product E: {[6,000 ÷ (6,000 + 6,000)] × $4.50} = $2.250

Product F: {[6,000 ÷ (6,000 + 6,000)] × $10.00} = $5.000
Composite Actual UCM $7.250
The difference between the two is multiplied by the number of units sold to arrive at the sales mix variance [(6,000 + 6,000)
× ($7.250 actual – $6.975 budget) = (12,000 × $0.275) = $3,300 favorable].
Answer (C) is incorrect because Improperly using unweighted contribution margins results in $3,420 favorable.
Answer (D) is incorrect because The sales volume variance in units multiplied by the actual price equals $18,150 favorable;
it is not a mix variance.
Answer (A) is incorrect because The amount of $(20,000) assumes that ROI in dollars is $25,000 (operating income) and
that the targeted amount is $45,000 ($750,000 × 6% of sales).
business unit managers to consider the opportunity cost of capital. The rate used is ordinarily the weighted-average cost of
capital. Some entities measure managerial performance in terms of the amount of residual income rather than the percentage
ROI. Assuming the investment base is defined as total assets available, Charlie’s targeted amount is $30,000 ($500,000 total
assets × 6% cost of capital). Assuming that operating income of $25,000 is the ROI in dollars, residual income was $(5,000).
Answer (C) is incorrect because The return on sales was 3.33%.
Answer (D) is incorrect because This percentage is the cost of capital.

Answer Explanations
(256 questions)
[166] Gleim #: 7.3.26 -- Source: CMA 695 3-25
Answer (A) is incorrect because Worker performance is a possible cause of a materials efficiency variance.
Answer (B) is correct. An unfavorable materials quantity or usage (efficiency) variance can be caused by a number of
factors, including waste, shrinkage, theft, poor performance by production workers, nonskilled workers, or the purchase of
below-standard-quality materials by the purchasing department. Changes in product design can also affect the quantity of
materials used. Sales volume of the product should not be a contributing factor to a materials efficiency variance.
Answer (C) is incorrect because Purchasing department actions are possible causes of a materials efficiency variance.
Answer (D) is incorrect because Product design is a possible cause of a materials efficiency variance.
[167] Gleim #: 7.6.84 -- Source: CMA 1292 3-15
Answer (A) is incorrect because The fixed overhead per labor hour is $25.
Answer (B) is incorrect because The variable portion of the overhead application rate is $10.
Answer (C) is correct. The predetermined overhead application rate is $15 [($1,200,000 FOH + $2,400,000 VOH) ÷
240,000 machine hours].
Answer (D) is incorrect because The fixed overhead application rate is $5.
[168] Gleim #: 7.6.83 -- Source: CMA 693 3-20
Answer (A) is incorrect because Efficiency variances are applicable to variable costs.
Answer (B) is incorrect because Efficiency variances are applicable to variable costs.
Answer (C) is incorrect because Efficiency variances are applicable to variable costs.
Answer (D) is correct. Variable overhead variances can be subdivided into spending and efficiency components. However,
fixed overhead variances do not have an efficiency component because fixed costs, by definition, are not related to changing
levels of output. Fixed overhead variances are typically subdivided into a budget (or fixed overhead spending) variance and a
volume variance.

Answer Explanations
(256 questions)
[169] Gleim #: 7.6.96 -- Source: CMA 1290 3-8
Answer (A) is incorrect because The fixed overhead spending variance is favorable since the actual amount was less than
budgeted.
Answer (B) is incorrect because The fixed overhead spending variance is calculated based on budgeted fixed overhead.
Answer (C) is correct. Actual fixed overhead was $575,000. Budgeted fixed overhead was $3 per unit at an estimated
production of 200,000 units; a total of $600,000. The difference of $25,000 is a favorable variance because the actual
amount was less than that budgeted.
Answer (D) is incorrect because The fixed overhead spending variance is the difference between the actual fixed factory
overhead and the amount budgeted.
[170] Gleim #: 7.6.101 -- Source: CMA 1284 4-4
Answer (A) is correct. Fixed factory O/H in a standard costing system is applied to the product based on the predetermined
O/H rate multiplied by the standard hours allowed for the actual output. Thus, the applied fixed factory O/H is limited to the
standard amount.
Answer (B) is incorrect because The applied fixed factory O/H is limited to the standard amount determined using the
standard O/H rate per DL hour, not the actual O/H cost per DL hour.
Answer (C) is incorrect because The O/H application is not based on units of production for the AH.
Answer (D) is incorrect because The standard hours allowed for the actual units of finished output is used, not the AH.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The sales-volume variance is the difference between the flexible-budget contribution
margin ($110,000) and the master-budget amount ($120,000). The $10,000 variance is unfavorable because the flexible-
budget amount is less than the master-budget contribution margin.
Answer (B) is correct. The sales-volume variance is the difference between the flexible-budget contribution margin and the
static (master) budget contribution margin. Its components are the sales quantity and sales mix variances. The contribution
margin is used rather than operating income because fixed costs are the same in both budgets. Unit sales price and variable
cost are held constant so as to isolate the effect of the difference in unit sales volume. Because the flexible-budget
contribution margin ($110,000) is less than the master-budget amount ($120,000), the variance ($10,000) is unfavorable.
Answer (C) is incorrect because The difference between the flexible-budget revenue ($220,000) and the actual revenue
($208,000) is $12,000. The sales-volume variance is measured as the difference between the flexible-budget contribution
margin and the master-budget contribution margin.
Answer (D) is incorrect because The difference between actual and flexible variable costs is $11,000. The sales-volume
variance is the difference between the flexible-budget contribution margin ($110,000) and the master-budget amount
($120,000). The $10,000 variance is unfavorable because the flexible-budget amount is less than the master-budget
contribution margin.
[172] Gleim #: 7.4.42 -- Source: CMA 692 3-17
Answer (A) is incorrect because The variance is unfavorable.
Answer (B) is incorrect because The difference between the standard labor cost ($9,500,000) and total actual (fixed +
variable) cost ($9,738,000) is $238,000.
Answer (C) is incorrect because The efficiency variance is based on standard hours for actual production levels--in this case,
190,000 hours.
Answer (D) is correct. The labor efficiency variance is the difference between standard and actual hours, multiplied by the
standard cost per hour. The standard labor rate is $50 per hour, and the standard time allowed for 9,500 articles is 190,000
hours (9,500 × 20). Actual hours worked totaled 192,000. Thus, an unfavorable variance of 2,000 hours occurred. The
unfavorable labor efficiency variance is therefore $100,000 (2,000 hours × $50).

Answer Explanations
(256 questions)
Answer (A) is correct. Residual income is a significant refinement of the return on investment concept because it forces
business unit managers to consider the opportunity cost of capital. It equals the excess of business unit profit over the
product of average total assets and a target rate of return. If a manager has $19,000,000 of invested capital ($17,200,000 of
plant and equipment + $1,800,000 of working capital), a 15% imputed interest charge equals $2,850,000. Adding
$2,000,000 of residual income to the imputed interest results in a target profit of $4,850,000. This profit can be achieved if
costs are $25,150,000 ($30,000,000 revenue – $4,850,000 profit).
Answer (B) is incorrect because Scenario 3 requires maximum costs of $25,330,000 to reach the target.
Answer (C) is incorrect because Scenario 4 requires maximum costs of $25,600,000 to reach the target.
Answer (D) is incorrect because Scenario 2 requires maximum costs of $26,220,000 to reach the target.
Answer (A) is correct. Managerial effort is the extent to which a manager attempts to accomplish a goal. Managerial effort
may include psychological as well as physical commitment to a goal.
Answer (B) is incorrect because Motivation is the desire and the commitment to achieve a specific goal.
Answer (C) is incorrect because Goal congruence is the sharing of goals by supervisors and subordinates.
Answer (D) is incorrect because Autonomy is the extent to which individuals have the authority to make decisions.
Answer (A) is incorrect because A price variance is the difference between the expected and actual outlays caused by a
variation in price.
Answer (B) is incorrect because A mix variance results when the actual sales or production mix differs from the budgeted
mix.
Answer (C) is incorrect because The combined price-quantity variance is the total actual outlay (actual quantity × actual
price) minus the budgeted outlay (standard price × standard quantity).
Answer (D) is correct. The volume variance is the difference between budgeted fixed overhead and the amount applied
based on the standard overhead rate and standard input for the actual output.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Net income is an after-tax amount, i.e., it only appears on the corporate, not the business
unit, income statement.
Answer (B) is incorrect because Dollar sales do not give a measure of operating performance based on resources required.
Answer (C) is incorrect because Profit percentages do not give a measure of operating performance based on resources
required.
Answer (D) is correct. Each investment center of a business should be evaluated based upon return on investment (ROI) to
judge operating performance. In essence, ROI is the business unit’s operating income stated as a percentage of average total
assets (i.e., resources deployed).
[177] Gleim #: 8.5.77 -- Source: CMA 681 4-2
Answer (A) is incorrect because Any past cost of capital or interest rate is irrelevant in the evaluation of future management
performance. What is important is the rate that could or should be earned in the present period.
Answer (B) is correct. Normally, management sets a target rate that all managers are expected to achieve. Anything above
or below this normal return will catch the attention of higher management.
Answer (C) is incorrect because Any past cost of capital or interest rate is irrelevant in the evaluation of future management
Answer (D) is incorrect because Any past cost of capital or interest rate is irrelevant in the evaluation of future management
Answer (A) is correct. Overtime premiums arising from a heavy overall volume of work rather than from the requirements
of a specific job are deemed to apply to all production. Hence, they are treated as indirect costs and assigned to overhead.
Answer (B) is incorrect because The labor efficiency variance concerns amounts of labor, not rates.
Answer (C) is incorrect because Overtime wages do not affect the yield variance.
Answer (D) is incorrect because The quantity (usage) variance is a direct materials variance that is not affected by overtime
wages.

Answer Explanations
(256 questions)
[179] Gleim #: 8.1.17 -- Source: CMA 691 3-30
Answer (A) is incorrect because Marketing centers are a functional area, not a performance center.
Answer (B) is correct. Responsibility centers may be categorized as cost centers (managers accountable for costs), revenue
centers (managers accountable for revenues), profit centers [managers accountable for revenues and costs, i.e., for markets
(revenues) and sources of supply (costs)], and investment centers (managers accountable for revenues, costs, and
investments). Cost centers is the best answer because it is the most general. All subunits have costs but may not have
revenues or investments.
Answer (C) is incorrect because It may not be feasible for a given company to organize in product centers.
Answer (D) is incorrect because Some subunits may not earn revenue.
Answer (A) is incorrect because Reversing the order of subtraction results in $1,745 favorable.
Answer (B) is correct. The static budget variance is the difference between the standard cost of labor (i.e., the total variance
to be explained) and the actual cost of labor. Based on the standard hours and rates given, the standard cost of labor is
$159,060 [(7,920 × $12.00) + (4,620 × $8.00) + (4,510 × $6.00)]. The actual cost of labor is $160,805 ($100,245 + $35,260
+ $25,300). Thus, the static budget variance is $1,745 unfavorable ($159,060 standard – $160,805 actual).
Answer (C) is incorrect because Reversing the order of subtraction for the flexible budget variance results in $2,205
favorable.
Answer (D) is incorrect because The flexible budget variance is $2,205 unfavorable.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The market price will better achieve the goals of a transfer pricing system. The selling
division would not have as strong an incentive to control costs if some variant of actual cost is used.
Answer (B) is incorrect because The market price will better achieve the goals of a transfer pricing system. The selling
division would not have as strong an incentive to control costs if some variant of actual cost is used.
Answer (C) is correct. The three basic criteria that the transfer pricing system in a decentralized company should satisfy are
to (1) provide information allowing central management to evaluate divisions with respect to total company profit and each
division’s contribution to profit, (2) stimulate each manager’s efficiency without losing each division’s autonomy, and (3)
motivate each divisional manager to achieve his/her own profit goal in a manner contributing to the company’s success. The
market price should be used as the transfer price to avoid waste and maximize efficiency in a competitive economy (an
outside market in which all padding produced can be sold). This price also measures the product’s profitability and the
division managers’ performance in a competitive environment.
Answer (D) is incorrect because The market price will better achieve the goals of a transfer pricing system. The selling
division would not have as strong an incentive to control costs if some variant of actual cost is used. The efficiency of the
purchasing division is also promoted when it must treat the selling division as if it were an independent vendor.
[182] Gleim #: 8.5.78 -- Source: CMA 697 3-30
Answer (A) is incorrect because The amount of $25,690,000 results from subtracting working capital from plant and
equipment in determining invested capital.
Answer (B) is incorrect because This level of cost would result in a residual income greater than $2,000,000.
business unit managers to consider the opportunity cost of capital. If a manager has $19,000,000 of invested capital
($17,200,000 of plant and equipment + $1,800,000 of working capital), a 15% imputed interest charge equals $2,850,000.
Adding $2,000,000 of residual income to this opportunity cost of capital results in a target profit of $4,850,000. This profit
can be achieved if costs are $25,150,000 ($30,000,000 revenue – $4,850,000 profit).
Answer (D) is incorrect because This level of cost would result in a residual income greater than $2,000,000.

Answer Explanations
(256 questions)
[183] Gleim #: 7.3.12 -- Source: CMA 1289 4-4
Answer (A) is incorrect because The efficiency variances would not cause the favorable price variance.
Answer (B) is incorrect because The purchase of higher than standard materials would lead to an unfavorable price variance.
Answer (C) is correct. A favorable price variance might indicate that cheaper materials of lower quality were purchased and
that greater usage was necessary.
Answer (D) is incorrect because Labor mix problems would cause labor variances, not material variance.
Answer (A) is incorrect because The amount of $515 is based on the budgeted weighted-average rate for the actual mix.
Answer (B) is correct. The direct labor yield variance is the difference between budgeted and actual hours times the
budgeted weighted-average rate for the planned mix. Total hours worked were 1,575 (550 + 650 + 375), standard hours
allowed equaled 1,500 (500 + 500 + 500), and the budgeted weighted-average rate for the planned mix was $6.67 {[(500 ×
$8) + (500 × $7) + (500 × $5)] ÷ 1,500 standard DLH}. Thus, the variance is $500 unfavorable ($6.67 × 75).
Answer (C) is incorrect because The direct labor efficiency variance is $820.
Answer (D) is incorrect because The direct labor mix variance is $320.
[185] Gleim #: 7.6.82 -- Source: CMA 693 3-19
Answer (A) is correct. The variable overhead spending and efficiency variances are the components of the total variable
overhead variance. Given that actual variable overhead was $80,000 and the flexible budget amount was $90,000, the total
variance is $10,000 favorable. If the overhead spending variance is $2,000 favorable, the efficiency variance must be $8,000
favorable ($10,000 total – $2,000 spending). At a rate of $20 per hour, this variance is equivalent to 400 direct labor hours
($8,000 ÷ $20).
Answer (B) is incorrect because The variances are favorable.
Answer (C) is incorrect because The variances are favorable.
Answer (D) is incorrect because The number of 100 direct labor hours are equivalent to the spending variance (100 hours ×
$20 = $2,000).

Answer Explanations
(256 questions)
Answer (A) is incorrect because Direct materials and direct labor variances are based on standard costs.
Answer (B) is incorrect because Direct materials and direct labor variances are based on standard costs.
Answer (C) is incorrect because Direct materials and direct labor variances are based on standard costs.
Answer (D) is correct. The materials price variance is calculated by multiplying the difference between actual price and
standard price by the actual units purchased. The materials usage variance is calculated by multiplying the difference
between the actual usage and the standard usage by the standard price. Thus, the standard unit cost is used to compute both
variances.
[187] Gleim #: 7.7.130 -- Source: CMA 1294 3-27
Answer (A) is incorrect because The variance of $60,000 favorable is based on 100,000 hours, not the actual hours of
94,000.
Answer (B) is correct. The variable overhead spending variance is the difference between actual variable overhead and the
variable overhead based on the standard rate and the actual activity level. Thus, the variable overhead spending variance was
$12,000 favorable [(94,000 actual hours × $8 standard rate) – $740,000 actual cost].
Answer (C) is incorrect because The variable overhead efficiency variance is $48,000 unfavorable.
Answer (D) is incorrect because The fixed overhead spending variance is $40,000 unfavorable.
[188] Gleim #: 8.5.79 -- Source: CMA 1291 3-5
Answer (A) is correct. Residual income is a significant refinement of the return on investment concept because it forces
business unit managers to consider the opportunity cost of capital. Some firms prefer to measure managerial performance in
terms of the amount of residual income rather than the percentage ROI. The principle is that the firm is expected to benefit
from expansion as long as residual income is earned. Using a percentage ROI approach, expansion might be rejected if it
lowered ROI even though residual income would increase.
Answer (B) is incorrect because The residual income method is based on accrual-basis operating income rather than cash
flows.
Answer (C) is incorrect because ROI does not have to be maximized under the residual income approach.
Answer (D) is incorrect because Maximizing the imputed interest rate charge would diminish the residual return.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Market price is an approach to determine a transfer price.
Answer (B) is correct. A transfer price is the price charged by one segment of an organization for a product or service
supplied to another segment of the same organization.
Answer (C) is incorrect because Outlay price is an approach to determine a transfer price.
Answer (D) is incorrect because Distress price is an approach to determine a transfer price.
[190] Gleim #: 7.3.22 -- Source: CMA 1293 3-23
Answer (A) is incorrect because Assuming a favorable quantity variance results in 23,000 units.
Answer (B) is correct. The company produced 12,000 units of output, each of which required two units of direct materials.
Thus, the standard input allowed for direct materials was 24,000 units at a standard cost of $2.50 each. An unfavorable
quantity variance signifies that the actual quantity used was greater than the standard input allowed. The direct materials
quantity variance equals the difference between standard and actual quantities times the standard price per unit.
Consequently, because 1,000 ($2,500 U ÷ $2.50) additional units were used, the actual total quantity must have been 25,000
units (24,000 standard + 1,000).
Answer (C) is incorrect because The number of units of finished product is 12,000.
Answer (D) is incorrect because Assuming that each unit of finished product includes only one unit of direct materials
results in 12,500 units.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The overhead variance for the year is $24,000 underabsorbed, not overabsorbed.
Answer (B) is incorrect because The amount of $28,500 assumes a fixed overhead application rate of $5.75.
Answer (C) is correct. The total overhead variance is the difference between the actual overhead and applied (absorbed)
overhead. Given that neither fixed nor variable overhead differed from budgeted amounts, the only variance was caused by
under- or overabsorption of fixed overhead. The variable overhead rate does not vary with the capacity. The fixed overhead
rate at 90% capacity is
Given that the actual capacity achieved was 75%, and that 30,000 standard hours were allowed, $120,000 (30,000 × $4.00)
of fixed overhead was applied. Thus, $24,000 ($144,000 FOH – $120,000) was underabsorbed.
Answer (D) is incorrect because The amount of $28,500 assumes a fixed overhead application rate of $5.75. Also, the
variance is not overabsorbed.
[192] Gleim #: 7.6.103 -- Source: CMA 687 4-17
Answer (A) is incorrect because Supervisor salaries are expected to be incurred uniformly through the year; thus, supervisor
salaries are based on time, not units produced.
Answer (B) is incorrect because The actual O/H ($28,000) was greater than the budgeted O/H ($324,000 ÷ 12 months =
$27,000); therefore, the variance is unfavorable.
Answer (C) is correct. The budget (spending) variance for fixed O/H equals actual minus budgeted fixed O/H. The
$324,000 cost of supervisory salaries is fixed and is incurred at $27,000 per month. Thus, the variance is the difference
between actual costs of $28,000 and the budgeted costs of $27,000, or $1,000 unfavorable.
Answer (D) is incorrect because Supervisor salaries are expected to be incurred uniformly through the year; thus, supervisor
salaries are based on time, not units produced.

Answer Explanations
(256 questions)
[193] Gleim #: 8.4.53 -- Source: CMA 694 3-30
Answer (A) is incorrect because The Assembling Division would not pay more than the market price of $50.
Answer (B) is incorrect because Fabricating will not be willing to accept less than its variable cost of $20.
Answer (C) is correct. An ideal transfer price should permit each division to operate independently and achieve its goals
while functioning in the best interest of the overall company. Transfer prices can be determined in a number of ways,
including normal market price, negotiated price, variable costs, or full absorption costs. The capacity of the Selling Division
is often a determinant of the ideal transfer price. If the Fabricating Division had no excess capacity, it would charge the
Assembling Division the regular market price. However, if the Fabricating Division has excess capacity of 1,000 units,
negotiation is possible because any transfer price greater than the variable cost of $20 would absorb some of its fixed costs
and result in increased divisional profits. Thus, any price between $20 and $50 is acceptable to the Fabricating Division.
Any price under $50 is acceptable to the Assembling Division because that is the price that would be paid to an outside
supplier.
Answer (D) is incorrect because Fabricating should be willing to accept any price between $20 and $50.
[194] Gleim #: 7.3.24 -- Source: CMA 1294 3-24
Answer (A) is incorrect because The unfavorable quantity variance indicates that more materials were used than allowed by
the standards. The direct materials quantity variance equals the standard unit price times the difference between the
standard quantity allowed for the actual output and the actual quantity used.
Answer (B) is correct. The direct materials purchase price variance may be isolated at the time of purchase or at the time of
transfer to production. It equals the actual quantity of materials purchased or transferred times the difference between the
standard and actual unit prices. Hence, a favorable direct materials purchase price variance means that materials were
purchased at a price less than the standard price.
Answer (C) is incorrect because No variance relates quantity purchased to quantity used.
Answer (D) is incorrect because No variance relates quantity purchased to quantity used.

Answer Explanations
(256 questions)
[195] Gleim #: 8.1.2 -- Source: CMA 691 3-28
Answer (A) is incorrect because Analysis of variances is an element of a responsibility accounting system, not the basic
purpose.
Answer (B) is incorrect because Authority is an element of a responsibility accounting system, not the basic purpose.
Answer (C) is correct. The basic purpose of a responsibility accounting system is to motivate management to perform in a
manner consistent with overall company objectives. The assignment of responsibility implies that some revenues and costs
can be changed through effective management. The system should have certain controls that provide for feedback reports
indicating deviations from expectations. Higher-level management may focus on those deviations for either reinforcement or
correction.
Answer (D) is incorrect because Budgeting is an element of a responsibility accounting system, not the basic purpose.
[196] Gleim #: 7.8.139 -- Source: CMA 693 3-16
Answer (A) is correct. Variance analysis can be used to judge the effectiveness of selling departments. If a firm’s sales
differ from the amount budgeted, the difference may be attributable to either the sales price variance or the sales volume
(quantity) variance. Changes in unit selling prices may account for the entire variance if the actual quantity sold is equal to
the quantity budgeted. None of the revenue variance is attributed to the sales volume variance because no such variance
exists when a flexible budget is used. The flexible budget is based on the level of sales at actual volume.
Answer (B) is incorrect because The sales volume variance represents the change in contribution margin caused by a
difference between actual and budgeted units sold. However, given a flexible budget, there is no difference between
budgeted and actual units sold. By definition, a flexible budget’s volume is identical to actual volume.
Answer (C) is incorrect because The total static budget variance includes many items other than revenue.
Answer (D) is incorrect because The total flexible budget variance includes items other than revenue.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Increasing selling prices while holding other factors constant improves return on
investment.
Answer (B) is incorrect because Increasing sales volume while holding other factors constant improves return on investment.
Answer (C) is correct. ROI equals business unit profit divided by average total assets. Increasing operating income (e.g., by
decreasing expenses or by increasing prices or sales volume) or decreasing the investment base improves ROI. Hence, any of
the actions listed increases the return on investment. Management and the accounting profession are very concerned with
classification of expenses and assets and other decisions involving the accounting for these items to achieve a proper
calculation of return on investment.
Answer (D) is incorrect because Decreasing expenses or assets while holding other factors constant improves return on
investment.
[198] Gleim #: 7.6.94 -- Source: CMA 1290 3-6
Answer (A) is correct. The variable overhead efficiency variance equals the difference between actual and standard direct
labor hours times the standard cost per hour. Fixed overhead was budgeted at $600,000 ($3 × 200,000 expected units).
Thus, total variable overhead was estimated to be $300,000 ($900,000 total OH – $600,000), and the variable overhead
application rate was $.75 per hour [$300,000 ÷ (2 hours × 200,000 units)]. Standard hours for actual production are 396,000
(198,000 units × 2). Actual hours worked were 440,000. Hence, the variable overhead efficiency variance is $33,000
[(440,000 actual hours – 396,000 standard hours for actual output) × $.75]. The variance is unfavorable because actual hours
exceed budgeted hours.
Answer (B) is incorrect because The variable overhead efficiency variance is unfavorable because the actual hours exceed
budgeted hours.
Answer (C) is incorrect because The variable overhead efficiency variance of $66,000 is calculated by incorrectly using a
variable overhead application rate of $1.50 per hour, which does not take into account that each unit of production requires 2
standard hours of labor for completion.
Answer (D) is incorrect because The variable overhead efficiency variance is unfavorable because the actual hours exceed
budgeted hours.

Answer Explanations
(256 questions)
[199] Gleim #: 7.8.138 -- Source: CMA 1295 3-3
Answer (A) is incorrect because A master budget increment is an increase in a budgeted figure on the firm’s master budget.
Answer (B) is incorrect because The sales mix variance is caused when a company’s actual sales mix is different from the
budgeted sales mix.
Answer (C) is incorrect because A static budget variance is the difference between actual costs or revenues and those
budgeted on a static budget.
Answer (D) is correct. If a firm’s sales differ from the amount budgeted, the difference could be attributable either to the
sales price variance or the sales volume variance. The sales volume variance is the change in contribution margin caused by
the difference between the actual and budgeted sales volumes.
Answer (A) is incorrect because Multiplying each labor class’s hour variance by its respective standard hourly rate results in
$460 favorable.
Answer (B) is incorrect because Multiplying by the simple average of the standard hourly rates results in $1,733 favorable.
Answer (C) is incorrect because Multiplying by the weighted-average actual hourly rate for the actual mix instead of by the
budgeted weighted-average standard rate for the standard mix results in $1,908 favorable.
Answer (D) is correct. The labor yield variance is the difference between actual and budgeted inputs, multiplied by the
budgeted weighted-average standard rate for the standard mix. Total actual hours worked were 16,850 (8,150 + 4,300 +
4,400), and standard hours allowed equaled 17,050 (7,920 + 4,620 + 4,510). The budgeted weighted-average standard rate
for the standard mix was $9.33 {[(7,920 × $12) + (4,620 × $8) + (4,510 × $6)] ÷ 17,050}. Hence, the yield variance is
$1,866 favorable [(17,050 – 16,850) × $9.33].
Answer (A) is incorrect because Providing information to competitors is a disadvantage of segment reporting.
Answer (B) is incorrect because Interdependence of segments is not affected by reporting methods.
Answer (C) is correct. Segment reporting is an aspect of responsibility accounting. It facilitates evaluation of company
management and of the quality of the economic investment in particular segments.
Answer (D) is incorrect because Masking the effects of intersegment transfers is a disadvantage of segment reporting.

Answer Explanations
(256 questions)
[202] Gleim #: 7.6.87 -- Source: CMA 1292 3-18
Answer (A) is incorrect because The amount of $6,000 is based on planned machine hours of 22,000.
Answer (B) is incorrect because The variance is favorable.
Answer (C) is incorrect because The variance is favorable.
Answer (D) is correct. The variable overhead spending variance equals the difference between actual variable overhead and
the product of the actual input and the budgeted application rate. At a variable overhead application rate (standard cost) of
$10 per machine hour ($2,400,000 ÷ 240,000 hours), the total standard cost for the 21,600 actual hours was $216,000.
Given actual costs of $214,000, the favorable variance is $2,000.
[203] Gleim #: 7.6.81 -- Source: CMA 695 3-30
Answer (A) is incorrect because The variable overhead efficiency variance relates to efficient or inefficient use of variable
overhead.
Answer (B) is correct. The production volume variance (also called an idle capacity variance) is a component of the total
overhead variance. It is the difference between budgeted fixed costs and the product of the standard fixed cost per unit of
input times the standard units of input allowed for the actual output. Thus, the production volume variance equals under- or
overapplied fixed overhead. This variance results when actual activity differs from the activity base used to calculate the
fixed overhead application rate.
Answer (C) is incorrect because The volume variance is related to overhead application, not direct labor.
Answer (D) is incorrect because The direct labor efficiency variance relates to inefficient or efficient use of direct labor
hours.

Answer Explanations
(256 questions)
Answer (A) is correct. The direct labor rate variance equals the actual hours worked times the difference between the
standard and actual rates. When the standard rate exceeds the actual rate, the variance is favorable:
AH × (SR – AR) = favorable rate variance

10,000 × (SR – $8.25) = $5,600 F
SR – $8.25 = $.56
SR = $8.81
Answer (B) is incorrect because The actual rate is $8.25.
Answer (C) is incorrect because Actual hours, not standard hours, are used to determine the SR. Furthermore, the favorable
variance should be added, not subtracted, in calculating the standard rate.
Answer (D) is incorrect because Treating the $.56 variance per unit as unfavorable and subtracting it from the AR of $8.25
results in $7.69.
[205] Gleim #: 7.1.2 -- Source: CMA 1296 3-23
Answer (A) is incorrect because Depending on a cost-benefit determination, variances either are adjustments of cost of
goods sold or are allocated among the inventory accounts and cost of goods sold. Moreover, the accounting issues are distinct
from supervisory considerations.
Answer (B) is correct. The purpose of identifying and assigning responsibility for variances is to determine who is likely to
have information that will enable management to find solutions. The constructive approach is to promote learning and
continuous improvement in manufacturing operations, not to assign blame. However, information about variances may be
useful in evaluating managers’ performance.
Answer (C) is incorrect because Selling prices are based on much more than the cost of production; for instance, competitive
pressure is also a consideration.
Answer (D) is incorrect because By itself, pinpointing fault is not an appropriate objective. Continuous improvement is the
ultimate objective.

Answer Explanations
(256 questions)
[206] Gleim #: 7.2.5 -- Source: CMA 1295 3-6
Answer (A) is incorrect because The sales volume variance is the difference between the flexible budget amount and the
static budget amount.
Answer (B) is correct. A flexible budget is prepared at the end of the budget period when the actual results are available. A
flexible budget reflects the revenues that should have been earned and costs that should have been incurred given the
achieved levels of production and sales. The difference between the flexible budget and actual figures is known as the
flexible budget variance.
Answer (C) is incorrect because The production volume variance equals under- or overapplied fixed overhead.
Answer (D) is incorrect because A standard cost variance is not necessarily based on a flexible budget.
[207] Gleim #: 8.5.74 -- Source: CMA 1291 3-7
Answer (A) is incorrect because Inventories are operating assets that contribute to profits and are controlled by the division
manager.
Answer (B) is incorrect because The level of accounts payable is an operating decision that should be considered in the
evaluation of the division manager.
Answer (C) is correct. The evaluation of an investment center is based upon the return generated by the assets employed.
These assets include plant and equipment, inventories, and receivables. Most likely, however, an asset, such as land, that is
being held by the division as a site for a new plant would not be included in the investment base because it is not currently
being used in operations. Total assets in use rather than total assets available is preferable when the investment center has
been forced to carry idle assets.
Answer (D) is incorrect because Fixed operating assets are controlled by the division manager and contribute to profits.

Answer Explanations
(256 questions)
[208] Gleim #: 7.6.91 -- Source: CMA 1289 4-3
Answer (A) is correct. The fixed overhead volume variance measures the effect of not operating at the budgeted
(denominator) activity level. It is the difference between budgeted fixed costs and the product of the standard fixed overhead
application rate and the standard activity level for the actual output. A favorable variance means that activity was greater
than expected and that fixed overhead was overapplied. It might be caused by, for example, hiring more workers to provide
an extra shift. An unfavorable volume variance means that activity was less than budgeted (overhead was underapplied), for
example, because of insufficient sales or a labor strike. Accordingly, the volume variance is usually outside the control of
production management. Moreover, unlike other variances, it does not directly reflect a difference between actual and
budgeted expenditure of resources.
Answer (B) is incorrect because The volume variance is not related to direct labor.
Answer (C) is incorrect because The volume variance is not related to overhead efficiency.
Answer (D) is incorrect because The volume variance is not related to overhead use.
Answer (A) is incorrect because The variance between budgeted and actual contribution margins is $14,660 unfavorable.
Answer (B) is correct. The contribution margin volume variance is found by multiplying budgeted unit contribution by the
difference between actual units and budgeted units. The budgeted unit contribution is $61 ($122,000 ÷ 2,000 units). Thus,
the variance is $12,200 favorable [(2,200 actual units – 2,000 budgeted units) × $61 per unit].
Answer (C) is incorrect because Multiplying by the actual unit contribution results in $9,800 favorable.
Answer (D) is incorrect because Multiplying by the actual unit contribution and reversing the order of subtraction results in
$9,800 unfavorable.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The variance of $219.50 favorable is based on the actual mix of purchases.
Answer (B) is incorrect because The materials quantity variance is $294 favorable.
Answer (C) is incorrect because The direct materials yield variance is $94.50 unfavorable.
Answer (D) is correct. The direct materials mix variance equals the difference between the budgeted weighted-average
standard unit cost for the budgeted mix and the budgeted weighted-average standard unit cost for the actual mix times the
actual total quantity used. This variance is favorable if the standard weighted-average cost for the actual mix is less than the
standard weighted-average cost for the budgeted mix. The standard mix weighted-average standard unit cost is $.225 per
liter ($135 standard total cost ÷ 600 liters). The standard cost of the actual quantity used is calculated as follows:
Middle
AQ SP Budget
Echol 26,600 × $.200 = $ 5,320
Protex 12,880 × .425 = 5,474
Benz 37,800 × .150 = 5,670
CT-40 7,140 × .300 = 2,142
Totals 84,420 $18,606
Thus, the actual mix weighted-average standard unit cost was $.220398 ($18,606 ÷ 84,420 liters used), and the mix variance
was $388.50 favorable [84,420 liters × ($.225 – $.220398)].
[211] Gleim #: 7.4.47 -- Source: CMA 1291 3-3
Answer (A) is incorrect because The labor rate variance equals the actual quantity of labor used times the difference
between the actual and standard prices for labor.
Answer (B) is incorrect because The labor rate variance equals the actual quantity of labor used times the difference
Answer (C) is incorrect because The labor rate variance equals the actual quantity of labor used times the difference
Answer (D) is correct. The direct labor rate variance equals the actual quantity of labor used times the difference between
the actual and standard prices for labor. The actual total price of labor was $42,000, 90% of which was for direct labor.
Thus, the price of direct labor was $37,800. A total of 5,000 hours of direct labor was worked. Thus, the actual hourly rate
was $7.56 ($37,800 ÷ 5,000 hrs.), and the variance is $2,200 [($8.00 – $7.56) × 5,000 hrs.]. The actual rate was less than
standard, so the variance is favorable.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The direct labor rate variance is $2,240 unfavorable.
Answer (B) is correct. The direct labor efficiency variance equals the standard hours minus the actual hours, times the
standard rate. The standard hours are the number of standard labor hours required for the actual good output achieved.
Actual labor hours equaled 3,200, standard hours were 2,500 (1,000 units of output × 2.5 hours), and the standard direct
labor rate was $8. Hence, the labor efficiency variance was $5,600 U [(2,500 standard hours – 3,200 actual hours) × $8].
Answer (C) is incorrect because The difference between actual hours and standard hours for the actual output (3,200 – 2,500
= 700) times the actual direct labor cost per hour ($8.70) equals 6,090.
Answer (A) is incorrect because Calculating the budgeted weighted-average standard rate for the actual mix using actual
rates results in $3,539.
Answer (B) is correct. The labor mix variance is the actual labor input times the difference between the budgeted weighted-
average standard rates for the actual and standard mixes. The total actual labor input was 16,850 hours (8,150 + 4,300 +
4,400). Accordingly, the budgeted weighted-average standard rate for the actual mix was $9.41 {[(8,150 × $12) + (4,300 ×
$8) + (4,400 × $6)] ÷ 16,850}. Given that the total standard labor input was 17,050 hours (7,920 + 4,620 + 4,510), the
budgeted weighted-average standard rate for the standard mix was $9.33 {[(7,920 × $12) + (4,620 × $8) + 4,510 × $6)] ÷
17,050}. Thus, the mix variance is $1,348 unfavorable [16,850 × ($9.41 – $9.33)].
Answer (C) is incorrect because The variance was unfavorable.
Answer (D) is incorrect because Calculating the budgeted weighted-average standard rate for the actual mix using actual
rates results in $3,539. Moreover, the variance is unfavorable.
[214] Gleim #: 7.3.19 -- Source: CMA 697 3-23
Answer (A) is correct. The price variance equals the actual quantity times the difference between the actual price and the
standard price. The actual price is $12.25, and the standard price is $12 (given). Thus, the price variance is $1,225
unfavorable {AQ × (SP – AP) = [4,900 units × ($12.00 standard – $12.25 actual)]}.
Answer (B) is incorrect because A price variance exists. The actual price paid was greater than the standard allowed.
Answer (C) is incorrect because The variance is unfavorable.

Answer Explanations
(256 questions)
[215] Gleim #: 8.5.70 -- Source: CIA
Answer (A) is incorrect because ROI is certain to increase only if revenue increases and costs and investment decrease.
Answer (B) is incorrect because ROI is certain to increase only if revenue increases and costs and investment decrease.
Answer (C) is correct. An increase in revenue and a decrease in costs will increase the ROI numerator. A decrease in assets
will decrease the denominator. The ROI must increase in this situation.
Answer (D) is incorrect because ROI is certain to increase only if revenue increases and costs and investment decrease.
[216] Gleim #: 7.7.128 -- Source: CMA 696 3-25
Answer (A) is incorrect because The flexible budget amount for an output of 1,800 units is $3,270.
Answer (B) is incorrect because A favorable variance exists. Actual overhead is less than the standard overhead at the actual
production level.
Answer (C) is incorrect because The flexible budget amount for an output of 1,800 units is $3,270.
Answer (D) is correct. The flexible budget overhead variance is the difference between actual overhead costs and the
flexible budget amount for the actual output. Standard total fixed costs at any level of production are $27,000. Standard
variable overhead is $9 per unit (3 labor hours × $3). Thus, total standard variable overhead is $14,850 for the actual output
(1,650 units × $9), and the total flexible budget amount is $41,850 ($27,000 FOH + $14,850 VOH). Accordingly, the
favorable flexible budget variance is $1,920 favorable ($41,850 flexible budget amount – $39,930 actual amount).
Answer (A) is correct. The direct labor efficiency variance equals the difference between the standard and actual amounts of
labor hours times the standard labor rate. The standard amount for the actual output is 6,500 direct labor hours (1.25 DLH ×
5,200 units). The efficiency variance is therefore $1,200 U [(6,500 standard hours – 6,600 actual hours) × $12].
Answer (B) is incorrect because Actual cost minus budgeted cost equals $2,220.
Answer (C) is incorrect because The amount of $4,200 equals $12 times the difference between actual hours (6,600) and the
hours budgeted for planned output (5,000 × 1.25 = 6,250).
Answer (D) is incorrect because The amount of $3,000 equals $12 times the difference between 6,500 standard hours for the
actual output and 6,250 standard hours for the budgeted output.

Answer Explanations
(256 questions)
[218] Gleim #: 7.6.86 -- Source: CMA 1292 3-17
Answer (A) is incorrect because The overhead was underapplied.
Answer (B) is correct. Variable overhead applied in November was $210,000 [21,000 planned machine hours based on
output × ($2,400,000 planned annual VOH ÷ 240,000 planned machine hours)]. Because the applied overhead was less than
actual ($214,000), underapplied variable overhead equaled $4,000.
Answer (C) is incorrect because The overhead was underapplied.
Answer (D) is incorrect because The amount of $6,000 is based on the 22,000 machine hours planned for November rather
than the planned hours for actual output.
Answer (A) is incorrect because The profit center manager does not control depreciation on accommodations ($9,600) or the
allocated corporate expenses ($6,000).
Answer (B) is incorrect because The profit center manager does not control his/her $24,000 salary.
Answer (C) is incorrect because The profit center’s manager does not control the listed period expenses and therefore does
not control the profit center’s income.
Answer (D) is correct. A profit center is a segment of a company responsible for both revenues and expenses. A profit
center has the authority to make decisions concerning markets (revenues) and sources of supplies (costs). However, the
profit center’s manager does not control his/her salary, investment and the resulting costs (e.g., depreciation of plant assets),
or expenses incurred at the corporate level. Consequently, profit center No. 12 is most likely to control the $84,000
contribution margin (sales - variable costs) but not the other items in the summarized income statement.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The amount of $128,700 equals 130% of the sum of 60% of the supervisor’s salary, and
100% of the receiving clerks wages.
Answer (B) is incorrect because The sum of the wages of the receiving and shipping clerks is $130,000.
Answer (C) is correct. The responsibility accounting report should list only the costs over which the warehousing supervisor
exercises control. The supervisor’s salary should therefore be excluded because it is controlled by the warehouse
supervisor’s superior. Moreover, only the product costs are to be considered. These exclude the shipping clerks’ wages and
fringe benefits because they are period costs (shipping is a selling expense). Thus, the only product cost under the control of
the warehouse supervisor is the receiving clerks’ wages ($75,000) and the related fringe benefits ($75,000 × .3 = $22,500),
or a total of $97,500.
Answer (D) is incorrect because The amount of $169,000 includes the shipping and receiving clerks’ wages and their
employee benefit costs. These should be treated as period costs.
Answer (A) is incorrect because Comparisons of investment centers based on residual income may be misleading because of
peculiarities of each investment center (i.e., differences in products, markets, costs, and local conditions).
business unit managers to consider the opportunity cost of capital. The theory is that earning an income greater than residual
income indicates that expansion is desirable. However, comparisons of investment centers based on residual income may be
misleading because of differences in products, markets, costs, and local conditions.
Answer (C) is incorrect because Common amounts of invested capital would eliminate a major factor causing differences in
residual income.
Answer (D) is incorrect because Use of the same imputed interest rate provides a consistent objective against which each
investment can be measured.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Multiplying the actual units of output by the difference between the actual rate and standard
rate results in $40,000.
Answer (B) is correct. The direct labor rate variance equals the actual amount of labor used times the standard rate minus
the actual rate. The variance is $156,000 favorable [78,000 × ($20 – $18)]. The variance is favorable because the actual rate
was less than the standard rate.
Answer (C) is incorrect because The direct materials efficiency variance is $240,000 favorable.
Answer (D) is incorrect because The variance was favorable.
Answer (A) is incorrect because Excess hours should be determined using the standard, not the actual, rate per hour.
Answer (B) is incorrect because The excess hours should be determined using the standard, not the actual, rate per hour, and
the result should be added to, not incorrectly subtracted from, standard hours allowed.
Answer (C) is incorrect because The 220 hour difference between AH and SH should not be subtracted from the standard
hours allowed.
Answer (D) is correct. The standard hours allowed equaled 3,000, and the labor efficiency variance was $1,870
unfavorable; that is, actual hours exceeded standard hours. The labor efficiency variance equals the standard rate ($8.50)
times the excess hours. Given that the variance is $1,870, 220 excess hours ($1,870 ÷ $8.50) must have been worked. Thus,
3,220 actual hours (3,000 standard + 220 excess) were worked.
Answer (A) is incorrect because The amount of $27,000 is based on actual unit costs incurred rather than the $2.90 standard
cost.
Answer (B) is incorrect because The amount of actual purchases for the month is $36,000.
Answer (C) is incorrect because The amount of $29,000 is based on the actual quantity used rather than the standard
quantity.
Answer (D) is correct. The 3,000 radios require three units each of Part X, a total of 9,000 units. At a standard unit cost of
$2.90, the 9,000 units will total $26,100.

Answer Explanations
(256 questions)
[225] Gleim #: 7.8.141 -- Source: CMA 695 3-29
Answer (A) is incorrect because The sales price variance is a separate variance and is not a component of the sales volume
variance.
Answer (B) is incorrect because The sales price variance is a separate variance and is not a component of the sales volume
variance.
Answer (C) is incorrect because The production volume variance is a fixed overhead variance. It is not related to the sales
volume variance.
Answer (D) is correct. The sales volume variance can be divided into the sales quantity variance and the sales mix variance.
The sales quantity variance is the change in contribution margin caused by the difference between actual and budgeted
volume, assuming that budgeted sales mix, unit variable costs, and unit sales prices are constant. Thus, it equals the sales
volume variance when the sales mix variance is zero. In a multiproduct firm, the sales mix variance is a variance caused by a
sales mix that differs from that budgeted. For example, even when the sales quantity is exactly as budgeted, an unfavorable
sales mix variance can be caused by greater sales of a low-contribution product at the expense of lower sales of a high-
contribution product.
Answer (A) is incorrect because The standard input for the actual output exceeds normal capacity. Thus, use of normal
capacity results in a favorable volume variance.
Answer (B) is incorrect because The standard input for the actual output exceeds normal capacity. Thus, use of normal
capacity results in a favorable volume variance.
Answer (C) is incorrect because Use of master budget capacity results in an unfavorable variance.
Answer (D) is correct. The volume (production volume or idle capacity) variance is the amount of under- or overapplied
fixed overhead. It is the difference between budgeted fixed overhead and the amount applied based on a predetermined rate
and the standard input allowed for actual output. It measures the use of capacity rather than specific cost outlays. The
predetermined rate equals the budgeted overhead divided by a measure of capacity. Consequently, when the standard input
allowed for actual output exceeds the budgeted capacity, fixed overhead is overapplied, and the volume variance is
favorable. If the master budget capacity is the denominator value, the volume variance is unfavorable. Conversely, when the
standard input allowed for actual output is less than the budgeted capacity, fixed overhead is underapplied, and the volume
variance is unfavorable. If the normal capacity is the denominator value, the volume variance is favorable.

Answer Explanations
(256 questions)
[227] Gleim #: 7.3.17 -- Source: CMA 1295 3-25
Answer (A) is incorrect because The variable overhead spending variance is both a quantity and a price variance. Prices paid
are not controllable by the production control supervisor.
Answer (B) is incorrect because Fixed overhead variances usually cannot be controlled by the manufacturing departments.
Answer (C) is correct. The production control supervisor has the most control over the materials usage variance. The
materials usage variance measures the excess amount of materials used over the amount specified in the standards. The
materials usage (or materials quantity) variance, when unfavorable, is often attributable to waste, shrinkage, or theft in the
production areas. The excess usage occurs under the supervision of the production department.
Answer (D) is incorrect because The materials price variance can be greatly influenced by the purchasing manager.
[228] Gleim #: 8.5.76 -- Source: CMA 694 3-18
Answer (A) is incorrect because The rate should be based on cost of capital, not investment returns of preceding years.
Answer (B) is incorrect because The current weighted-average cost of capital must be used.
business unit managers to consider the opportunity cost of capital. The rate used is sometimes a target return set by
management but is often equal to the weighted average cost of capital. Some entities prefer to measure managerial
performance in terms of the amount of residual income rather than the percentage ROI because the firm will benefit from
expansion as long as residual income is earned.
Answer (D) is incorrect because The cost of equity capital also must be incorporated into the imputed interest rate.

Answer Explanations
(256 questions)
[229] Gleim #: 7.3.14 -- Source: CMA 695 3-23
Answer (A) is incorrect because The standard quantity needed for the actual output times the $.05 unfavorable price
variance per part equals $450 unfavorable.
Answer (B) is incorrect because The variance is unfavorable. Furthermore, the variance is based on the quantity purchased,
not the quantity consumed. [Note: The materials price variance is sometimes isolated at the time of transfer to production.]
Answer (C) is correct. Blaster’s purchase price variance is calculated as follows:
Purchase price variance = AQ × (SP – AP)

= 12,000 parts × ($1.45 – $1.50)
= 12,000 × –$0.05
= $600 unfavorable
Answer (D) is incorrect because The variance is unfavorable, and $450 is the amount of the variance that relates only to the
standard input for the actual output.
Answer (A) is correct. The volume variance (VV) arises from the difference between budgeted fixed O/H and the fixed O/H
applied at the standard rate based on the standard input allowed for actual output. The O/H rate is $15 per machine hour
($480,000 ÷ 32,000).
VV = Budgeted Fixed O/H – Applied Fixed O/H

$6,360 = $480,000 – ($15 × AH)
$15 × AH = $480,000 – $6,360
AH = $473,640 ÷ $15
AH = 31,576
Answer (B) is incorrect because Assuming the volume variance was favorable results in 32,425.
Answer (C) is incorrect because The actual machine hours can be found by using the following equation: Volume Variance =
Budgeted Fixed O/H – Applied Fixed O/H. The applied fixed O/H is equal to the O/H rate multiplied by the actual hours.
The O/H rate is found by dividing the budgeted O/H ($480,000) by the budgeted hours (32,000). Actual machine hours are
31,576.
Answer (D) is incorrect because The budgeted machine hours equal 32,000.

Answer Explanations
(256 questions)
[231] Gleim #: 8.1.20 -- Source: CMA 694 3-27
Answer (A) is incorrect because Activity-based costing is a means of allocating overhead.
Answer (B) is incorrect because Transfer prices are amounts charged by one segment of an organization for goods or services
provided to another segment.
Answer (C) is correct. A well-designed responsibility accounting system establishes responsibility centers within an
organization. Managerial performance should be evaluated only on the basis of those factors controllable by the manager.
Managers may control revenues, costs, and/or investment activities. A departmental performance report showing actual costs
incurred against budgeted costs permits evaluation of a manager and the area for which (s)he is responsible.
Answer (D) is incorrect because Flexible budgeting is simply a series of budgets for varying levels of activity.
[232] Gleim #: 8.5.86 -- Source: CMA 697 3-24
Answer (A) is incorrect because Use of the residual income method requires a knowledge of the cost of capital; thus,
arguments about the implicit cost of interest may escalate with use of the residual income method.
Answer (B) is incorrect because The methods use the same asset base.
Answer (C) is incorrect because The methods use the same asset base.
Answer (D) is correct. Residual income is a significant refinement of the return on investment concept because it forces
business unit managers to consider the opportunity cost of capital. The advantage of using residual income rather than
percentage ROI is that residual income emphasizes maximizing a dollar amount instead of a percentage. Managers of
divisions with a high ROI are encouraged to accept projects with returns exceeding the cost of capital even if those projects
reduce the division’s ROI.
Answer (A) is incorrect because The amount of $370,000 measures the performance of the marketing segment manager
($950,000 – $430,000 – $150,000).
Answer (B) is correct. The best measure of the segment’s economic performance includes all costs except the fixed
manufacturing costs allocated to the segment. Thus, the best measure of economic performance is $120,000 ($950,000 –
$430,000 – $150,000 – $250,000).
Answer (C) is incorrect because The contribution margin is $520,000 ($950,000 – $430,000).
Answer (D) is incorrect because The amount of $10,000 includes the allocated costs ($950,000 – $430,000 – $150,000 –
$250,000 – $110,000).

Answer Explanations
(256 questions)
[234] Gleim #: 8.1.12 -- Source: CMA 1294 3-21
Answer (A) is incorrect because Contribution accounting is a method of control in which only variable costs are matched
with revenues.
Answer (B) is incorrect because Flexible budgeting prepares budgets for multiple levels of operations.
Answer (C) is incorrect because Cost-benefit accounting is a nonsense term referring to matching costs and benefits.
Answer (D) is correct. In a responsibility accounting system, managerial performance should be evaluated only on the basis
of those factors directly regulated (or at least capable of being significantly influenced) by the manager. For this purpose,
operations are organized into responsibility centers. Costs are classified as controllable and noncontrollable, which implies
that some revenues and costs can be changed through effective management. If a manager has authority to incur costs, a
responsibility accounting system will charge those costs to the manager’s responsibility center.
[235] Gleim #: 7.3.18 -- Source: CMA 697 3-22
Answer (A) is incorrect because The amount of $12.01 is based on the budgeted usage.
Answer (B) is correct. Dividing the actual cost of $60,025 by the 4,900 units used results in an average cost of $12.25 per
unit.
Answer (C) is incorrect because The standard cost is $12.
Answer (D) is incorrect because The $60,000 standard cost for 5,000 units divided by 4,900 units equals $12.24.
Answer (A) is correct. Overhead was budgeted at $756,000 based on a budgeted labor cost of $432,000 ($7.20 × 60,000
hours). Thus, $1.75 of overhead was applied for each $1 of labor cost ($756,000 ÷ $432,000). Given actual labor costs of
$450,000, $787,500 ($1.75 × $450,000) of overhead was applied during the period. Actual overhead was $775,000, so
$12,500 ($787,500 – $775,000) was overapplied.
Answer (B) is incorrect because The difference between budgeted overhead ($756,000) and the actual overhead ($775,000)
is $19,000.
Answer (C) is incorrect because The difference between budgeted direct labor cost at 60,000 direct labor hours and actual
direct labor cost is $18,000 ($450,000 – $432,000).
Answer (D) is incorrect because The difference between budgeted overhead and budgeted direct labor costs [$756,000 +
($7.20 × 60,000)] and actual overhead and actual direct labor costs ($775,000 + $450,000) is $37,000.

Answer Explanations
(256 questions)
Answer (A) is correct. The optimal transfer price of a selling division should be set at a point that will have the most
desirable economic effect on the firm as a whole while at the same time continuing to motivate the management of every
division to perform efficiently. Setting the transfer price based on actual costs rather than standard costs would give the
selling division little incentive to control costs.
Answer (B) is incorrect because Cost-based transfer prices provide the advantages of clarity and administrative convenience.
Answer (C) is incorrect because By definition, cost-based transfer prices are not adjusted by some markup.
Answer (D) is incorrect because Inefficiencies are charged to the buying department.
[238] Gleim #: 8.5.75 -- Source: CMA 1296 3-2
Answer (A) is incorrect because Return on assets does not subtract imputed interest on capital used from the investment
base.
Answer (B) is incorrect because Return on investment computation does not subtract imputed interest on capital used from
the investment base.
business unit managers to consider the opportunity cost of capital. The target rate is usually the weighted-average cost of
capital. The advantage of using residual income rather than ROI is that residual income emphasizes maximizing an amount
instead of a percentage. Managers are encouraged to accept projects with returns exceeding the cost of capital even if the
investments reduce the percentage ROI.
Answer (D) is incorrect because Operating income by itself does not reveal how efficiently invested capital was employed.
Answer (A) is incorrect because This equation defines the sales mix variance.
Answer (B) is incorrect because This equation defines the market size variance.
Answer (C) is incorrect because This equation defines the sales quantity variance.
Answer (D) is correct. The market share variance gives an indication of the amount of contribution margin gained (forgone)
because of a change in the market share.

Answer Explanations
(256 questions)
[240] Gleim #: 8.1.16 -- Source: CMA 689 4-25
Answer (A) is incorrect because Flexible budgeting establishes budgets for the most likely production levels. The facts do
not indicate whether a flexible budget was used.
Answer (B) is incorrect because Contribution accounting deducts variable costs from sales to calculate contribution margin.
Answer (C) is incorrect because The cost-benefit constraint on accounting information is pervasive. The benefits must at
least equal the cost.
Answer (D) is correct. Responsibility accounting stresses that managers should only be held responsible for factors under
their control. To achieve this objective, the operations of the business are broken down into responsibility centers. In a
responsibility accounting system, costs are classified as controllable and noncontrollable to assign responsibility. The
assignment of responsibility implies that some revenues and costs can be changed through effective management. The
system should have certain controls that provide for feedback reports indicating deviations from expectations. Management
may focus on those deviations for either reinforcement or correction.
Answer (A) is incorrect because The amount of $7,500 is based on the DLH worked (33,000).
Answer (B) is incorrect because The amount of $7,500 is based on the DLH worked (33,000).
Answer (C) is incorrect because The amount of $13,500 is based on normal capacity of 36,000 DLH.
Answer (D) is correct. Two-way analysis computes only two overhead variances: the budget (controllable) variance and the
volume variance. The product of the variable overhead rate and the standard direct labor hours allowed for capacity attained
is the budgeted variable overhead. The budgeted fixed overhead is then added to the budgeted variable overhead, giving the
total budgeted overhead for the standard input allowed for actual output. The difference between the actual overhead and
budgeted total overhead is the budget (controllable) variance. Actual overhead equals $220,500. Budgeted variable overhead
equals $2 per hour ($72,000 ÷ 36,000 DLH). Thus, budgeted variable overhead based on standard hours allowed equals
$63,000 ($2 × 31,500 DLH). The total budgeted overhead is $225,000 ($63,000 + $162,000 FOH). The variance is $4,500
favorable ($225,000 – $220,500) because budgeted overhead exceeds actual overhead.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The sales volume variance in Helvetica is $150 F.
Answer (B) is correct. The sales mix variance in Gallia is $156 U {[260 actual units sold – (520 actual total units sold × .6
budgeted percentage)] × $3 budgeted UCM}. The sales mix variance in Helvetica is $130 F {[260 actual units sold – (520
actual total units sold × .4 budgeted percentage)] × $2.50 budgeted UCM}. Thus, the multiple-country sales mix variance is
$26 U ($156 U – $130 F).
Answer (C) is incorrect because The two-country sales quantity variance is $56 F.
Answer (D) is incorrect because The sales mix variance in Gallia is $156 U.
[243] Gleim #: 7.6.95 -- Source: CMA 1290 3-7
Answer (A) is incorrect because The variable overhead spending variance is unfavorable because the actual cost was higher
than the standard.
Answer (B) is incorrect because The variable overhead spending variance is unfavorable because the actual cost was higher
than the standard.
Answer (C) is incorrect because The variable overhead spending variance is the difference between the actual variable
factory overhead and the product of the budgeted application rate and the actual activity level.
Answer (D) is correct. Based on the 440,000 hours actually worked and the $.75 per hour variable overhead rate, the total
standard cost for variable overhead is $330,000. The actual variable overhead totaled $352,000. The $22,000 variable
overhead spending variance is unfavorable because the actual cost was higher than the standard.
[244] Gleim #: 8.1.1 -- Source: CMA 1294 3-20
Answer (A) is incorrect because Reciprocal allocation is a means of allocating service department costs.
Answer (B) is incorrect because Functional accounting allocates costs to functions regardless of responsibility.
Answer (C) is correct. In a responsibility accounting system, managerial performance should be evaluated only on the basis
of those factors directly regulated (or at least capable of being significantly influenced) by the manager. For this purpose,
operations are organized into responsibility centers. Costs are classified as controllable and noncontrollable, which implies
that some revenues and costs can be changed through effective management. If a manager has authority to incur costs, a
responsibility accounting system will charge them to the manager’s responsibility center. However, controllability is not an
absolute basis for establishment of responsibility. More than one manager may be able to influence a cost, and responsibility
may be assigned on the basis of knowledge about the incurrence of a cost rather than the ability to control it.
Answer (D) is incorrect because Transfer price accounting is a means of charging one department for products acquired from
another department in the same organization.

Answer Explanations
(256 questions)
Answer (A) is incorrect because The price on the open market is the definition of the market price.
Answer (B) is incorrect because Outlay cost plus opportunity cost is the price representing the cash outflows of the supplying
division plus the contribution to the supplying division from an outside sale.
Answer (C) is correct. The variable-cost-plus price is the price set by charging for variable cost plus either a lump sum or
an additional markup but less than the full markup price. This permits top management to enter the decision process and
dictate that a division transfer at variable cost plus some appropriate amount.
Answer (D) is incorrect because The full-cost price is the price usually set by an absorption-costing calculation.
[246] Gleim #: 8.4.48 -- Source: CMA 1296 3-17
Answer (A) is incorrect because Using incremental cost as a transfer price provides no motivation to the seller to control
costs and no reward for selling internally when an external market exists.
Answer (B) is incorrect because Market price is preferable to a budgeted or actual cost with or without a markup (unless the
markup equals the profit earned by selling externally).
Answer (C) is incorrect because Using flexible budget cost as a transfer price provides no motivation to the seller to control
costs and no reward for selling internally when an external market exists.
Answer (D) is correct. Transfer prices are the amounts charged by one segment of an organization for goods and services it
provides to another segment within the organization. Transfer prices should promote congruence of subunit goals with those
of the organization, subunit autonomy, and managerial effort. Although no rule exists for determining the transfer price that
meets these criteria in all situations, a starting point is to calculate the sum of the additional outlay costs and the opportunity
cost to the supplier. Given no idle capacity and a competitive external market (all goods transferred internally can be sold
externally), the sum of the outlay and opportunity costs will be the market price.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Allocation using an ability-to-bear criterion punishes successful managers and rewards
underachievers.
Answer (B) is correct. The difficulty with common costs is that they are indirect costs whose allocation may be arbitrary. A
direct cause-and-effect relationship between a common cost and the actions of the cost object to which it is allocated is
desirable. Such a relationship promotes acceptance of the allocation by managers who perceive the fairness of the procedure,
but identification of cause and effect may not be feasible.
Answer (C) is incorrect because Fairness is an objective rather than a criterion. Moreover, fairness may be interpreted
differently by different managers.
Answer (D) is incorrect because The benefits-received criterion is preferable when a cause-effect relationship cannot be
feasibly identified.
Answer (A) is incorrect because Motivation is the desire and the commitment to achieve a specific goal.
Answer (B) is correct. Goal congruence is agreement on the goals of the organization and/or the segment by both
supervisors and subordinates. Performance is assumed to be optimized when there is an understanding that personal and
segmental goals be consistent with those of the organization.
Answer (C) is incorrect because Autonomy is the extent to which individuals have the authority to make decisions.
Answer (D) is incorrect because Managerial effort is the extent of the attempt to accomplish a specific goal.
Answer (A) is incorrect because The variance is unfavorable.
Answer (B) is incorrect because The direct labor efficiency variance is $5,600 unfavorable.
Answer (C) is correct. The total direct labor variance can be isolated into the rate variance and the efficiency variance. The
labor rate variance equals the actual hours worked, times the standard rate minus the actual rate. The actual rate was $8.70
($27,840 ÷ 3,200 hours). Hence, the variance is $2,240 U [3,200 × ($8.00 – $8.70)].
Answer (D) is incorrect because Actual direct labor cost ($27,840) minus the standard direct labor cost of the budgeted
production of $24,000 ($8 × 2.5 hours × 1,200 units) equals $3,840.

Answer Explanations
(256 questions)
[250] Gleim #: 7.3.15 -- Source: CMA 695 3-24
Answer (A) is correct. Standard usage was three parts per radio at $1.45 each. For a production level of 3,000 units, the
total materials needed equaled 9,000 parts, but materials actually used totaled 10,000 parts. Thus, the variance is $1,450
unfavorable {(SQ – AQ) × SP = [(9,000 standard usage – 10,000 actually used) × $1.45 standard cost per part]}.
Answer (B) is incorrect because Assuming that 12,000 parts were consumed and that the variance is favorable results in
$4,350 favorable.
Answer (C) is incorrect because The variance is unfavorable. The actual quantity used exceeded the standard input allowed.
Answer (D) is incorrect because Assuming that 12,000 parts were consumed results in $4,350 unfavorable.
Answer (A) is correct. The labor yield and labor mix variances are the components of the labor efficiency variance (all price
variances are excluded). The labor yield variance isolates the effect of using more or fewer total units of labor. The standard
weighted-average labor rate is used. Labor yield variances are based on the assumptions that various classes of labor are
used having different labor rates and that they are partially substitutable. The key to analyzing labor yield variances is that
the labor rate and the mix of labor inputs are held constant. The labor yield variance equals the difference between the
standard units allowed for the actual output and the actual units of labor used, times the standard weighted-average labor
rate.
Answer (B) is incorrect because This formula defines the labor mix variance.
Answer (C) is incorrect because The budgeted weighted-average labor rate must be used, not the budgeted weighted-average
materials price.
Answer (D) is incorrect because This formula defines the materials mix variance.
Answer (A) is incorrect because Full cost is the price usually set by an absorption-costing calculation.
Answer (B) is correct. At this price, the supplying division is indifferent as to whether it sells internally or externally.
Outlay cost plus opportunity cost therefore represents a minimum acceptable price for a seller. However, no transfer price
formula is appropriate in all circumstances.
Answer (C) is incorrect because The retail price is the definition of the market price, assuming an arm’s-length transaction.
Answer (D) is incorrect because The variable-cost-plus price is the price set by charging for variable costs plus a lump sum

Answer Explanations
(256 questions)
[253] Gleim #: 7.7.132 -- Source: CMA 1294 3-28
Answer (A) is correct. The variable overhead efficiency variance equals the standard price ($8 an hour) times the difference
between the actual hours and the standard hours allowed for the actual output. Thus, the variance is $48,000 unfavorable
{[(22,000 units produced × 4 standard hours per unit) – 94,000 actual hours] × $8}.
Answer (B) is incorrect because The variance of $96,000 unfavorable is based on the difference between standard hours
allowed for the actual output and capacity hours.
Answer (C) is incorrect because The excess of actual direct labor costs over actual variable overhead costs is $200,000
unfavorable.
Answer (D) is incorrect because The variable overhead spending variance calculated based on capacity, not actual hours, is
$60,000 favorable.
Answer (A) is incorrect because The total actual O/H is $1,358,250.
Answer (B) is incorrect because The standard O/H rate is multiplied by the 94,000 DMH allowed (not 98,700 actual DMH)
for the 23,500 equivalent units of production.
Answer (C) is incorrect because The amount of $1,432,000 is for the original 100,000 DMH budgeted, not the 94,000 DMH
budgeted for the production of 23,500 units.
Answer (D) is correct. In a standard-cost system, O/H is applied using the standard activity allowed for actual production.
The standard activity allowed is the standard activity per equivalent unit times the actual production, or 94,000 hours (4
DMH × 23,500). The O/H applied is $1,346,080 (94,000 × $14.32).
[255] Gleim #: 7.4.41 -- Source: CMA 692 3-16
Answer (A) is correct. Budgeted fixed costs are $600,000. The actual fixed costs were $618,000 ($9,738,000 total costs –
$9,120,000 flexible costs). Because actual costs were $18,000 higher than the budget, the variance is unfavorable.
Answer (C) is incorrect because The variance of $48,000 is based on a false presumption that fixed costs will be less at a
9,500 production level than a 10,000 level.

Answer Explanations
(256 questions)
Answer (A) is incorrect because Efficient use of central support services should be encouraged.
Answer (B) is correct. The allocation reminds managers that support costs exist and that the managers would incur these
costs if their operations were independent. The allocation also reminds managers that profit center earnings must cover some
amount of support costs.
Answer (C) is incorrect because An arbitrary allocation may skew operating results.
Answer (D) is incorrect because The allocation may create resentment and conflict.

Answer Key
(256 Questions)
1) B 37) B 73) B
2) C 38) A 74) C
3) C 39) C 75) C
4) A 40) C 76) D
5) C 41) B 77) B
6) B 42) C 78) B
7) C 43) B 79) B
8) C 44) D 80) D
9) B 45) A 81) C
10) C 46) A 82) B
11) C 47) A 83) A
12) A 48) A 84) C
13) B 49) D 85) A
14) B 50) D 86) D
15) C 51) C 87) D
16) C 52) D 88) A
17) D 53) C 89) C
18) C 54) C 90) D
19) B 55) A 91) A
20) C 56) A 92) C
21) B 57) B 93) B
22) B 58) D 94) D
23) D 59) B 95) C
24) B 60) B 96) A
25) D 61) B 97) D
26) B 62) C 98) C
27) D 63) D 99) A
28) C 64) B 100) A
29) C 65) D 101) B
30) D 66) A 102) A
31) D 67) D 103) A
32) A 68) A 104) C
33) B 69) D 105) D
34) C 70) D 106) A
35) B 71) B 107) B
36) B 72) B 108) D
Copyright 2008 Gleim Publications Inc. Page 1

Answer Key
(256 Questions)
109) D 145) A 181) C

110) D 146) A 182) C
111) C 147) A 183) C
112) A 148) D 184) B
113) D 149) D 185) A
114) D 150) C 186) D
115) C 151) D 187) B
116) A 152) D 188) A
117) D 153) B 189) B
118) B 154) A 190) B
119) A 155) A 191) C
120) B 156) C 192) C
121) A 157) D 193) C
122) D 158) C 194) B
123) B 159) C 195) C
124) C 160) D 196) A
125) D 161) C 197) C
126) B 162) A 198) A
127) A 163) D 199) D
128) A 164) B 200) D
129) C 165) B 201) C
130) C 166) B 202) D
131) C 167) C 203) B
132) C 168) D 204) A
133) B 169) C 205) B
134) C 170) A 206) B
135) B 171) B 207) C
136) B 172) D 208) A
137) C 173) A 209) B
138) D 174) A 210) D
139) C 175) D 211) D
140) A 176) D 212) B
141) A 177) B 213) B
142) D 178) A 214) A
143) A 179) B 215) C
144) C 180) B 216) D

Answer Key
(256 Questions)
217) A 253) A
218) B 254) D
219) D 255) A
220) C 256) B
221) B
222) B
223) D
224) D
225) D
226) D
227) C
228) C
229) C
230) A
231) C
232) D
233) B
234) D
235) B
236) A
237) A
238) C
239) D
240) D
241) D
242) B
243) D
244) C
245) C
246) D
247) B
248) B
249) C
250) A
251) A
252) B


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Performance

Contains: in a random basis

By: Mohamed “hengoo” to dvd4arab.com members

[1] Gleim #: 7.6.118 -- Source: Publisher

[Fact Pattern #1]

Direct Materials Direct Labor

[2] Gleim #: 7.4.51 -- Source: CIA 594 III-72

(Refers to Fact Pattern #1)

[Fact Pattern #2]

Actual production in units 198,000

Copyright 2008 Gleim Publications, Inc. Page 1

[3] Gleim #: 7.6.93 -- Source: CMA 1290 3-5

[4] Gleim #: 7.1.1 -- Source: Publisher

[Fact Pattern #3]

Clear Plus, Inc. manufactures and sells boxes of pocket

[5] Gleim #: 7.8.150 -- Source: CMA 695 3-26

(Refers to Fact Pattern #3)

Copyright 2008 Gleim Publications, Inc. Page 2

[Fact Pattern #4]

Standard Standard Standard

[6] Gleim #: 7.4.44 -- Source: CMA 692 3-20

(Refers to Fact Pattern #4)

[7] Gleim #: 7.3.30 -- Source: CIA 582 IV-22

A. Scheduling of substantial overtime.

[8] Gleim #: 8.4.60 -- Source: CIA 592 IV-19

A. $20 per unit.

Copyright 2008 Gleim Publications, Inc. Page 3

[9] Gleim #: 7.6.116 -- Source: Publisher

[10] Gleim #: 8.4.61 -- Source: CIA 589 IV-16

A. $9.60 per unit.

[11] Gleim #: 8.4.52 -- Source: Publisher

[12] Gleim #: 7.6.98 -- Source: CMA 1290 3-10

(Refers to Fact Pattern #2)

Copyright 2008 Gleim Publications, Inc. Page 4

[Fact Pattern #5]

Folsom Fashions sells a line of women’s dresses. Folsom’s

[13] Gleim #: 7.8.149 -- Source: CMA 1291 3-18

(Refers to Fact Pattern #5)

[Fact Pattern #6]

Gallia Helvetica Total

Budgeted unit sales 300 200 500

[14] Gleim #: 7.8.160 -- Source: Publisher

(Refers to Fact Pattern #6)

Copyright 2008 Gleim Publications, Inc. Page 5

[15] Gleim #: 8.1.4 -- Source: CMA 1291 3-10

[Fact Pattern #7]

The Plastics Division sells its commercial products at full

[16] Gleim #: 8.4.57 -- Source: CMA 696 3-28

(Refers to Fact Pattern #7)

Copyright 2008 Gleim Publications, Inc. Page 6

[17] Gleim #: 8.1.11 -- Source: CMA 1296 3-16

[18] Gleim #: 8.4.58 -- Source: Publisher

A. The retail price.

[19] Gleim #: 7.4.50 -- Source: CIA 592 IV-18

Copyright 2008 Gleim Publications, Inc. Page 7

[20] Gleim #: 8.4.44 -- Source: CMA 692 3-14

[21] Gleim #: 7.6.119 -- Source: Publisher

Standard fixed overhead rate per DLH $1.50

What is the applied factory overhead for March?

[22] Gleim #: 7.5.68 -- Source: CMA 1295 3-8

A. Volume variance and mix variance.

Copyright 2008 Gleim Publications, Inc. Page 8

[23] Gleim #: 7.6.113 -- Source: Publisher

Standard direct labor hours per unit 3