Net Present Value and Materials Price Variance

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1. The direct materials quantity standard should
     A) exclude unavoidable waste.
     B) exclude quality considerations.
     C) allow for normal spoilage.
     D) always be expressed as an ideal standard.

Use the following to answer questions 2-4:

Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds.

2. Stiner Company’s materials price variance is
     A) $100 U.
     B) $1,000 U.
     C) $900 U.
     D) $1,000 F.

= (AQ × AP) – (AQ × SP)

= (5,000 × $2.2)-(5,000 × $2)

= $1,000 U

3. Stiner Company’s materials quantity variance is
     A) $1,000 U.
     B) $1,000 F.
     C) $1,100 F.
     D) $1,100 U.

= (AQ × SP) – (SQ × SP)

= (5,000 × $2) – (4,500 × $2)

= $1,000 U

4. Stiner Company’s total materials variance is
     A) $2,000 U.
     B) $2,000 F.
     C) $2,100 U.
     D) $2,100 F.

= $1,000 + $1,000

= $2,000 U

5. Which of the following will increase the net present value of a project?      A) An increase in the initial investment.
     B) A decrease in annual cash inflows.
     C) An increase in the discount rate.
     D) A decrease in the discount rate.

6. Which of the following is true?
     A) The form, content, and frequency of variance reports vary considerably among      companies.      B) The form, content, and frequency of variance reports do not vary among      companies.      C) The form and content of variance reports vary considerably among companies, but      the frequency is always weekly.      D) The form and content of variance reports are consistent among companies, but the      frequency varies.

7. All of the following are involved in the capital budgeting evaluation process except a  company’s      A) board of directors.
     B) capital budgeting committee.
     C) officers.
     D) stockholders.

8. The primary capital budgeting method that uses discounted cash flow techniques is the      A) net present value method.
     B) cash payback technique.
     C) annual rate of return method.
     D) profitability index method.

9. What is a standard cost?
     A) The total number of units times the budgeted amount expected.      B) Any amount that appears on a budget.
     C) The total amount that appears on the budget for product costs.      D) The amount management thinks should be incurred to produce a good or service.

10. Standard costs
       A) may show past cost experience.
       B) help establish expected future costs.
       C) are the budgeted cost per unit in the present.        D) all of these.

11. The cash payback technique
       A) should be used as a final screening tool.
       B) can be the only basis for the capital budgeting decision.        C) is relatively easy to compute and understand.        D) considers the expected profitability of a project.

12. The cash payback period is computed by dividing the cost of the capital investment by the        A) annual net income.
       B) net annual cash inflow.
       C) present value of the cash inflow.
       D) present value of the net income.

13. An unfavorable materials quantity variance would occur if        A) more materials were purchased than were used.        B) actual pounds of materials used were less than the standard pounds allowed.        C) actual labor hours used were greater than the standard labor hours allowed.        D) actual pounds of materials used were greater than the standard pounds allowed.

14. The labor price variance is
       A) (AH x AR) – (SH x SR).
       B) (AH x AR) – (AH x SR).
       C) (AH x SR) – (SH x SR).
       D) (AH x SR) – (SH x AR).

15. The labor quantity variance is
       A) (AH x AR) – (SH x SR).
       B) (AH x AR) – (AH x SR).
       C) (AH x SR) – (SH x SR).
       D) (AH...
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