The What Went Wrong? Feature for Chapter 8 Focuses on Wise

question 4

Multiple Choice

The What Went Wrong? feature for Chapter 8 focuses on Wise Acre Frozen Treats, a company that made organic popsicles from unrefined sweeteners. According to the feature, Wise Acre Frozen Treats failed largely because it ________.

• A) grew too quickly, which overwhelmed its cash flow
• B) was not careful enough in preparing its pro forma financial statements
• C) was not efficient in the way it utilized its assets
• D) spent too much money on marketing
• E) did not compare its financial ratios to industry peers

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Definitions:

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected, multiplied by the standard hourly wage rate.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the expected quantity, multiplied by the standard cost per unit.

Variable Overhead Efficiency Variance

The difference between the actual variable overhead incurred and the standard cost allocated for the actual production achieved.

Labor Rate Variance

The difference between the actual cost of direct labor and the expected (or budgeted) cost, based on standard rates and actual hours worked.