Net Present Value and Materials Price Variance
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)
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)