Free Practice Questions for Saylor BUS105 Exam

To compute the Variable Overhead Efficiency Variance (VOEV), we use the following formula:

VOEV = (Actual Hours – Standard Hours Allowed) × Variable Overhead Rate

Step 1: Determine Actual Hours Worked

Actual Hours = 104,000 (from payroll records)

Step 2: Determine Standard Hours Allowed

Standard time per box = 0.10 hours

Units produced (sold) = 800,000 boxes

Standard Hours Allowed = 800,000 × 0.10 = 80,000 hours

Step 3: Variable Overhead Rate = $2.00/hour

Step 4: Apply the formula:

VOEV = (104,000 – 80,000) × $2.00

= 24,000 × $2.00 = $48,000 Unfavorable

Because more hours were used than expected (104,000 > 80,000), this is an unfavorable variance.

Answer: D

This is an ethical dilemma. The correct course of action is to refer to the company’s ethical policy or code of conduct for handling such situations. According to the IMA (Institute of Management Accountants) Statement of Ethical Professional Practice, the first step when facing an ethical conflict is:

“Follow the organization’s established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, consider discussing the issue with an immediate supervisor.”

Comprehensive and Detailed Explanation:

Managerial accounting focuses on internal decision-making tools, such as budgeting, forecasting, and performance evaluation. A capital budget is a tool for planning long-term investments and is a key example of managerial accounting.

The other options (balance sheet, cash flow, liabilities) are financial accounting tools used for external reporting.

Answer: A

Return on Investment (ROI) is a performance measure used to assess how effectively a division is using its assets to generate operating income. ROI = Operating Income / Average Operating Assets. According to Saylor Academy BUS105, Unit 11.2 – Measuring Performance:

“ROI provides a way to evaluate how well managers use the assets at their disposal to generate profits.”

All components used in the denominator (cash, accounts receivable, property, plant, and equipment, and inventory) are operating assets, so they are valid for ROI calculation.

Activity-Based Management (ABM) uses data from Activity-Based Costing (ABC) to improve operational efficiency and reduce costs by identifying and managing activities that add value.

Relocating the packaging department closer to shipping improves workflow, reduces non-value-added activities (like transportation time), and is an example of a decision driven by ABM.

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We are analyzing variable overhead variances — specifically the spending variance and the efficiency variance.

From the data:

Actual Variable Overhead Cost = $12,000

Actual Quantity at Standard Rate = $12,500

Standard Variable Overhead Cost (Flexible Budget) = $13,500

Let’s define and calculate both variances.

Step 1: Variable Overhead Spending Variance

This compares the actual overhead cost to what the cost should have been at actual usage:

Spending Variance = Actual Overhead – (Actual Quantity × Standard Rate)

= $12,000 − $12,500

= −$500 → This is a $500 favorable variance

Why favorable? Because the company spent $500 less than expected for the actual quantity used.

Step 2: Variable Overhead Efficiency Variance

This compares the cost of actual usage at standard rate to the cost under the flexible budget (which is based on expected quantity of activity):

Efficiency Variance = (Actual Quantity at Standard Rate) − (Flexible Budget Amount)

= $12,500 − $13,500

= −$1,000 → This is a $1,000 unfavorable efficiency variance

But the question asks which of the following best represents the excerpted activity data.

Let’s look at the answer choices:

A. There is a $500 favorable spending variance — correct

B. There is a $1,000 favorable spending variance — incorrect (the variance was favorable but only $500)

C. There is a $500 unfavorable efficiency variance — incorrect (efficiency variance is $1,000)

D. There is a $1,000 unfavorable efficiency variance — true but not the “best” answer if only one is allowed

The question specifically refers to “indirect materials,” and since the actual overhead cost was $12,000 compared to $12,500 expected (at actual quantity), the best choice is:

Answer: A

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In differential analysis (also known as incremental analysis), only costs that differ between alternatives (i.e., relevant costs) are considered. Irrelevant costs—those that do not change as a result of the decision—are excluded.

Rent expenses are typically fixed and would not change whether a particular client is dropped or retained. Therefore, rent expenses are irrelevant to the decision and should be excluded from the analysis.

Relevant costs include:

Consulting fees (B) → Variable costs associated with servicing clients.

Wages payable (C) → May vary depending on staffing levels needed for client workload.

Project management costs (D) → If these are client-specific, they would vary and be relevant.

Saylor Academy – Managerial Accounting (BUS105), Unit 7:

“Relevant costs are those that differ between alternatives. Costs that remain the same regardless of the alternative chosen are irrelevant and should not be considered in the decision.”

(Source: Saylor.org – BUS105: Managerial Accounting, Unit 7, Section 7.1: Relevant Revenues and Costs)

Therefore, rent expenses (A) are the correct answer as they are fixed and irrelevant to this client-based decision.

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Comprehensive and Detailed Explanation:

Centralized operations allow tighter control over costs, pricing, and operations. When cost control is critical—such as during revenue downturns—centralization can improve efficiency and oversight.

According to Saylor BUS105:

“Centralized structures are more effective for companies needing tighter financial control, particularly during times of financial constraint.”

Answer: C

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The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a period, and it is calculated using the following formula:

Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory

Step 1: Identify the values:

Cost of Goods Sold (COGS) = $1,525,000

Beginning Inventory (Year 1 ending) = $300,000

Ending Inventory (Year 2) = $350,000

Step 2: Compute Average Inventory:

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

= ($300,000 + $350,000) ÷ 2 = $650,000 ÷ 2 = $325,000

Step 3: Compute Inventory Turnover Ratio:

Inventory Turnover = COGS ÷ Average Inventory

= $1,525,000 ÷ $325,000 ≈ 4.692 → Rounded to one decimal = 4.7

Therefore:

Answer: C

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