Multiple choice

The following Information applies to questions 1 and 2. 

Abita Manufacturing has prepared the following flexible budget for October and it is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. 

           ------------Variances------------- 

     Flexible Budget     Price/Rate     Use/Efficiency 

Material A     $20,000     $1,000 F     $3,000 U 

Material B     30,000     500 U     1,500 F 

Direct labor     40,000     500 U     2,500 F 

1. The most likely explanation of the above variances for Material A is that: 

a lower price than expected was paid for Material A 

higher quality raw materials were used than were planned 

the company used a new supplier 

d. Material A used during October was $2,000 less than expected 

2. The most likely explanation of the above direct labor variances is that: 

the average wage rate paid to employees was less than expected 

employees did not work as efficiently as expected to accomplish the job 

the company may have assigned more experienced employees this month than originally planned 

management may have a problem with budget slack and may be using lax standards for both labor wage rates and expected efficiency 

3. The purchase of long-term assets results in all of the following except: 

the creation of committed resources 

the creation of unit-related costs 

additional risk for the organization 

reduced organizational flexibility 

4. The cost of capital: 

reflects the perceived level of risk that investors require 

is used to calculate the accounting rate of return 

is used to calculate the future value of 

is another term for the rate of return