Ebook Cost Accounting A Managerial Emphasis Canadian 15Th Edition Horngren Test Bank Full Chapter PDF

Cost Accounting A Managerial
Emphasis Canadian 15th Edition

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Cost Accounting, 15e (Horngren/Datar/Rajan)
Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management Control
Objective 7.1
1) A master budget is ________.

A) a budget which starts from a zero base
B) developed for a period for a planned output
C) developed at the end of a period
D) a type of flexible budget
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking
2) Management by exception is a practice whereby managers focus more closely on ________.

A) a static budget
B) areas that are not operating as anticipated
C) activity-based costing
D) exceptional decision-making models
Answer: B
Diff: 1
Objective: 1
3) A variance is ________.
A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit
Answer: C
Diff: 1
Objective: 1
4) An unfavorable variance indicates that ________.

A) the actual costs are less than the budgeted costs
B) the actual revenues exceed the budgeted revenues
C) the actual units sold are less than the budgeted units
D) the budgeted contribution margin is more than the actual amount
Answer: C
Diff: 2
Objective: 1
1
Copyright © 2015 Pearson Education, Inc.
5) A favorable variance indicates that ________.
A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount
Answer: B
Diff: 2
Objective: 1
Answer the following questions using the information below:
Lander Corporation used the following data to evaluate their current operating system. The company
sells items for $18 each and used a budgeted selling price of $18 per unit.
Actual Budgeted
Units sold 41,000 units 40,000 units
Variable costs $164,000 $156,000
Fixed costs $46,000 $48,000
6) What is the static-budget variance of revenues?

A) $18,000 favorable
B) $18,000 unfavorable
C) $6,000 favorable
D) $4,000 unfavorable
Answer: A
Explanation: A) Static-budget variance of revenues = (41,000 units × $18) - (40,000 units × $18) = $18,000 F
Diff: 2
Objective: 1
AACSB: Application of knowledge
7) What is the static-budget variance of variable costs?

A) $2,000 favorable
C) $4,000 favorable
Answer: B
Explanation: B) Static-budget variance of variable costs = $164,000 − $156,000 = $8,000 U
Diff: 2
Objective: 1
2
8) What is the static-budget variance of operating income?
C) $12,000 favorable
Answer: C
Explanation: C) Actual Static Static-budget
Results Budget Variance
Units sold 41,000 40,000
Revenues $738,000 $720,000 $18,000 F

Variable costs 164,000 156,000 8,000 U
Contribution margin $574,000 $564,000 10,000 F
Fixed costs 46,000 48,000 2,000 F
Operating income $528,000 $516,000 $12,000 F
Diff: 3
Objective: 1
Contrafic Corporation used the following data to evaluate its current operating system. The company
sells items for $21 each and used a budgeted selling price of $21 per unit.
Actual Budgeted
Variable costs $1,080,000 $1,295,000
Fixed costs $ 800,000 $ 775,000

C) $8,000 favorable
Answer: B
Explanation: B) Static-budget variance of revenues = (180,000 units × $21) − (185,000 units × $21) =
$105,000 U
Diff: 2
Objective: 1
3
Answer: C
Explanation: C) Static-budget variance of variable costs = $1,080,000 − $1,295,000 = $215,000 F
Diff: 2
Objective: 1

Answer: A
Explanation: A) Actual Static Static-budget
Units sold 180,000 185,000
Revenues $3,780,000 $3,885,000 $(105,000) U

Variable costs 1,080,000 1,295,000 (215,000) F
Contribution margin $2,700,000 $2,590,000 110,000 F
Fixed costs 800,000 775,000 25,000 U
Operating income $1,900,000 $1,815,000 $85,000 F
Diff: 3
Objective: 1
4
Coroid Corporation used the following data to evaluate their current operating system. The company
sells items for $11 each and had used a budgeted selling price of $12 per unit.
Actual Budgeted
Variable costs $900,000 $885,000
Fixed costs $ 55,000 $ 52,000

B) $220,000 favorable
C) $220,000 unfavorable
Answer: C
Explanation: C) Static-budget variance of revenues = (280,000 units × $11) − (275,000 units × $12) =
$220,000 U
Diff: 2
Objective: 1

Answer: D
Explanation: D) Static-budget variance of variable costs = $900,000 − $885,000 = $15,000 U
Diff: 2
Objective: 1
5
Answer: B
Explanation: B) Actual Static Static-budget
Units sold 280,000 275,000
Revenues $3,080,000 $3,300,000 $(220,000) U

Variable costs 900,000 885,000 (15,000) U
Contribution margin $2,180,000 $2,415,000 235,000 U
Fixed costs 55,000 52,000 3,000 U
Operating income $2,125,000 $2,363,000 $238,000 U
Diff: 3
Objective: 1
15) Regier Company had planned for operating income of $10 million in the master budget but actually
achieved operating income of only $7 million.
A) The static-budget variance for operating income is $3 million favorable.
B) The static-budget variance for operating income is $3 million unfavorable.
C) The flexible-budget variance for operating income is $3 million favorable.
D) The flexible-budget variance for operating income is $3 million unfavorable.
Answer: B
Diff: 2
Objective: 1
16) A master budget is called a static budget because it is developed around a single planned output
level.
Answer: TRUE
Diff: 1
Objective: 1
17) When considered in isolation, a favorable variance decreases operating income relative to the
budgeted amount.
Answer: FALSE
Explanation: When considered in isolation, a favorable variance increases operating income relative to
the budgeted amount.
Diff: 2
Objective: 1
6
18) A variance is the difference between the actual cost for the current and expected (or budgeted)
performance.
Answer: TRUE
Diff: 2
Objective: 1
19) A favorable variance results when actual costs exceed budgeted costs.
Answer: FALSE
Explanation: An unfavorable variance results when actual costs exceed budgeted costs.
Diff: 2
Objective: 1
20) Management by exception is the practice of concentrating on areas not operating as anticipated (such
as a cost overrun) and placing less attention on areas operating as anticipated.
Answer: TRUE
Diff: 1
Objective: 1
21) A favorable variance indicates that budgeted costs are less than actual costs.
Answer: FALSE
Explanation: A favorable variance indicates that budgeted costs are greater than actual costs.
Diff: 2
Objective: 1
22) A favorable variance should be ignored by management.

Answer: FALSE
Explanation: Favorable variance investigation may lead to improved production methods, other
discoveries for future opportunities, or not be good news at all and adversely affect other variances.
Diff: 1
Objective: 1
23) Variances are used for evaluating performance and for motivating managers.
Answer: TRUE
Diff: 2
Objective: 1
24) Static-budget variance for operating income is calculated by taking a difference between static-budget
operating income and actual operating income.
Answer: TRUE
Diff: 2
Objective: 1
7
25) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static
budget variance and a flexible budget variance.
Answer: A static budget is one based on the level of output planned at the start of the budget period. A
flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget
period. The only difference between the static budget and the flexible budget is that the static budget is
prepared for the planned output, whereas the flexible budget is prepared based on the actual output.
A static budget variance is the difference between the actual results and the corresponding budgeted
amounts in the static budget. A flexible-budget variance is the difference between an actual result and the
corresponding flexible-budget amount based on the actual output in the budget period.
Diff: 2
Objective: 1
Objective 7.2
1) The flexible budget contains ________.

A) budgeted amounts for actual output
B) budgeted amounts for planned output
C) actual costs for actual output
D) actual costs for planned output
Answer: A
Diff: 1
Objective: 2
2) Which of the following items will be same for a flexible budget and a master budget?
A) total variable cost
B) total fixed costs
C) total contribution margin
D) total revenues
Answer: B
Diff: 2
Objective: 2
3) A flexible budget ________.

A) is another name for management by exception
B) is developed at the end of the period
C) is based on the budgeted level of output
D) provides favorable operating results
Answer: B
Diff: 1
Objective: 2
8
4) Which of the following elements are used in calculating revenue in a flexible budget?
A) budgeted selling price and actual quantity of output
B) actual selling price and budgeted quantity of output
C) budgeted selling price and budgeted quantity of output
D) actual selling price and actual quantity of output
Answer: A
Diff: 2
Objective: 2
5) An unfavorable flexible-budget variance for variable costs may be the result of ________.
A) using more input quantities than were budgeted
B) paying lower prices for inputs than were budgeted
C) selling output at a higher selling price than budgeted
D) selling less quantity compared to the budgeted
Answer: A
Diff: 3
Objective: 2
6) In a flexible budget ________.

A) variable costs are calculated proportionately for the budgeted level of sales
B) fixed costs are calculated proportionately for the actual level of sales
C) fixed costs are kept at the same level of static budget
D) variable costs are kept at the same level of static budget
Answer: C
Diff: 2
Objective: 2
7) Which of the following information is needed to prepare a flexible budget?

A) actual units sold
B) actual variable cost
C) actual selling price per unit
D) actual fixed cost
Answer: A
Diff: 3
Objective: 2
8) Which of the following is true of flexible budget?

A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per
unit.
Answer: A
Diff: 2
Objective: 2
9
9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were
________.
A) $600 more than the master budget
B) $600 less than for the planned level of activity
C) $600 more than standard for the achieved level of activity
D) $600 less than standard for the achieved level of activity
Answer: D
Diff: 2
Objective: 2
Domose Inc. planned to use $150 of material per unit but actually used $147 of material per unit, and
planned to make 1,100 units but actually made 900 units.
10) The flexible-budget amount for materials is ________.

A) $165,000
B) $135,000
C) $161,700
D) $132,300
Answer: B
Explanation: B) 900 units × $150 = $135,000
Diff: 2
Objective: 2
11) The flexible-budget variance for materials is ________.

A) $2,700 favorable
D) $3,300 favorable
Answer: A
Explanation: A) ($147 − $150) × 900 = $2,700 F
Diff: 2
Objective: 2
12) The sales-volume variance for materials is ________.

A) $2,700 favorable
Answer: C
Explanation: C) (900 − 1,100) × $150 = $30,000 U
Diff: 2
Objective: 2
10
13) Dynozz Corporation currently produces cardboard boxes in an automated process. Expected
production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing
overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible
budget for 10,000 and 15,000 units, respectively?
A) $15,000; $22,500
B) $15,000; $17,500
C) $20,000; $22,500
D) $20,000; $17,500
Answer: C
Explanation: C) 10,000 units 15,000 units
Materials ($0.50) $ 5,000 $7,500
Machinery 15,000 15,000
Flexible Budgets $20,000 $22,500
Diff: 2
Objective: 2
Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per
unit, and planned to make 1,500 units but actually made 1,800 units.

A) $18,000
B) $19,500
C) $21,600
D) $23,400
Answer: C
Explanation: C) 1,800 units × $12 = $21,600
Diff: 2
Objective: 2

A) $1,500 favorable
D) $1,800 favorable
Answer: B
Explanation: B) ($13 − $12) × 1,800 = $1,800 U
Diff: 2
Objective: 2
11
A) $3,600 favorable
D) $3,900 favorable
Answer: A
Explanation: A) (1,800 − 1,500) × $12 = $3,600 F
Diff: 2
Objective: 2
Aurous Incorporated planned to use $35 of material per unit but actually used $34 of material per unit,
and planned to make 1,500 units but actually made 1,300 units.

A) $45,500
B) $52,500
C) $51,000
D) $44,200
Answer: A
Explanation: A) 1,300 units × $35 = $45,500
Diff: 2
Objective: 2

A) $1,500 favorable
D) $1,300 favorable
Answer: D
Explanation: D) ($34 − $35) × 1,300 = $1,300 F
Diff: 2
Objective: 2

A) $7,000 favorable
D) $6,800 favorable
Answer: B
Explanation: B) (1,300 − 1,500) × $35 = $7,000 U
Diff: 2
Objective: 2
12
20) Lunicious Corporation currently produces baseball caps in an automated process. Expected
production per month is 15,000 units, direct material costs are $3.50 per unit, and manufacturing
overhead costs are $40,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible
budget for 12,000 and 15,000 units, respectively?
A) $74,000; $92,500
B) $74,000; $84,500
C) $82,000; $92,500
D) $82,000; $84,500
Answer: C
Explanation: C) 12,000 units 15,000 units
Materials ($3.00) $42,000 $52,500
Machinery 40,000 40,000
Flexible Budget $82,000 $92,500
Diff: 2
Objective: 2
The actual information pertains to the month of September. As a part of the budgeting process, Twilith
Fencing Company developed the following static budget for September. Twilith is in the process of
preparing the flexible budget and understanding the results.
Actual Flexible Static

Results Budget Budget
Sales volume (in units) 12,000 15,000
Sales revenues $600,000 $ $750,000

Variable costs 307,200 $ ________ 360,000
Contribution margin 292,800 $ 390,000
Fixed costs 274,800 $ ________ 270,000

Operating profit $ 18,000 $ $ 120,000
21) The flexible budget will report ________ for variable costs.
A) $245,760
B) $360,000
C) $288,000
D) $384,000
Answer: C
Explanation: C) 12,000 units × $360,000 / 15,000 = $288,000
Diff: 2
Objective: 2
13
22) The flexible budget will report ________ for the fixed costs.
A) $343,500
B) $270,000
C) $274,800
D) $216,000
Answer: B
Explanation: B) $270,000, given in the static budget
Diff: 2
Objective: 2
23) The flexible-budget variance for variable costs is ________.

A) $19,200 unfavorable
D) $76,800 favorable
Answer: A
Explanation: A) $307,200 − (12,000 × $360,000/15,000) = $19,200 U
Diff: 2
Objective: 2
24) The only difference between the static budget and flexible budget is that the static budget is prepared
using planned output.
Answer: TRUE
Diff: 2
Objective: 2
25) A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume
variance.
Answer: FALSE
Explanation: A static-budget variance can be subdivided into the flexible-budget variance and the sales-
volume variance.
Diff: 2
Objective: 2
26) A flexible budget is calculated at the end of the budget period.

Answer: TRUE
Diff: 1
Objective: 2
27) A sales-volume variance may be the result of quality problems leading to customer dissatisfaction.
Answer: TRUE
Diff: 2
Objective: 2
14
28) Failure of a firm's managers to execute the sales plans may create a favorable sales-volume variance.
Answer: FALSE
Explanation: Failure of a firm's managers to execute the sales plans may create an unfavorable sales-
volume variance.
Diff: 2
Objective: 2
29) An unfavorable variance is conclusive evidence of poor performance.

Answer: FALSE
Explanation: An unfavorable variance suggests further investigation, not conclusive evidence of poor
performance.
Diff: 1
Objective: 2
30) When actual revenues exceed budgeted revenues, a favorable variance arises.
Answer: TRUE
Diff: 1
Objective: 2
31) A favorable flexible-budget variance for variable costs may be the result of using more input
quantities than were budgeted.
Answer: FALSE
Explanation: An unfavorable flexible-budget variance for variable costs may be the result of using more
input quantities than were budgeted.
Diff: 1
Objective: 2
15
32) The president of the company, Gregory Peters, has come to you for help. Use the following data to
prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the
contribution margin at each activity level.
Sales price $24 per unit

Variable costs:
Manufacturing $12 per unit
Administrative $ 3 per unit
Selling $ 1 per unit
Fixed costs:
Manufacturing $60,000
Administrative $20,000
Answer:
Flexible Budget for Various Levels
of Sales/Production Activity
Units 10,000 11,000 12,000
Sales $240,000 $264,000 $288,000
Variable costs:
Manufacturing 120,000 132,000 144,000
Administrative 30,000 33,000 36,000
Selling 10,000 11,000 12,000
Total variable costs 160,000 176,000 192,000
Contribution margin 80,000 88,000 96,000
Fixed costs:
Manufacturing 60,000 60,000 60,000
Administrative 20,000 20,000 20,000
Operating income/(loss) $ -0- $ 8,000 $ 16,000

Diff: 3
Objective: 2
16
33) Nicholas Company manufacturers TVs. Some of the company's data was misplaced. Use the
following information to replace the lost data:
Sales-
Actual Flexible Flexible Volume Static
Analysis Results Variances Budget Variances Budget
Units Sold 112,500 112,500 103,125
Revenues $42,080 $1,000 F (A) $1,400 U (B)
Variable Costs (C) $200 U $15,860 $2,340 F $18,200
Fixed Costs $8,280 $860 F $9,140 $9,140
Operating Income $17,740 (D) $16,080 (E) $15,140
Required:
a. What are the respective flexible-budget revenues (A)?
b. What are the static-budget revenues (B)?
c. What are the actual variable costs (C)?
d. What is the total flexible-budget variance (D)?
e. What is the total sales-volume variance (E)?
f. What is the total static-budget variance?
Answer:
a. $42,080 - $1,000 = $41,080
b. $41,080 + $1,400 = $42,480
c. $15,860 + $200 = $16,060
d. $17,740 - $16,080 = $1,660 favorable
e. $16,080 - $15,140 = $940 favorable
f. $17,740 - $15,140 = $2,600 favorable

Diff: 3
Objective: 2
17
Objective 7.3
1) The actual information pertains to the month of September. As part of the budgeting process, Kriger
Fencing Company developed the following static budget for September. Kriger is in the process of
preparing the flexible budget and understanding the results.

Sales revenues $500,000 $ $625,000

Variable costs 256,000 $ ________ 300,000
Fixed costs 229,000 $ ________ 225,000

The primary reason for low operating profits was ________.

A) the variable-cost variance
B) increased fixed costs
C) a poor management accounting system
D) lower sales volume than planned
Answer: D
Diff: 3
Objective: 3
18
The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy
Department of Paralith Incorporated had developed the following static budget for the third quarter.
Duck Decoy is in the process of preparing the flexible budget and understanding the results.

Sales revenues $238,000 $ $230,000

Variable costs 150,000 $ ________ 180,000
Fixed costs 36,000 $ ________ 35,000

2) The flexible budget will report ________ for variable costs.

A) $136,364
B) $198,000
C) $30,000
D) $13,583
Answer: B
Explanation: B) 11,000 units × $180,000/10,000 = $198,000
Diff: 2
Objective: 3
3) The flexible budget will report ________ for the fixed costs.
A) $536,000
B) $35,000 Favorable
C) $35,000
D) $1,000 Unfavorable
Answer: C
Explanation: C) $35,000, given in the static budget
Diff: 2
Objective: 3
19
4) The flexible-budget variance for variable costs is ________.
Answer: D
Explanation: D) [(11,000 × $180,000/10,000)] − $150,000 = $48,000 F
Diff: 2
Objective: 3
5) The sales-volume variance is sometimes due to ________.

A) the difference between selling price and budgeted selling price
B) quality problems leading to customer dissatisfaction
C) unexpected increase in manufacturing labor time
D) unexpected increase in the use of quantities of inputs of raw material
Answer: B
Diff: 2
Objective: 3
6) An unfavorable sales-volume variance could result from ________.

A) an inappropriate assignment of labor or machines to specific jobs
B) competitors taking market share
C) an inefficiency of a purchasing manager in bargaining with suppliers
D) a decrease in actual selling price compared to anticipated selling price
Answer: B
Diff: 2
Objective: 3
7) If a sales-volume variance was caused by poor-quality products, then the ________ would be in the
best position to explain the variance.
A) production manager
B) sales supervisor
C) financial supervisor
D) logistic manager
Answer: A
Diff: 2
Objective: 3
20
8) The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy
Department of Paralith Incorporated had developed the following static budget for the third quarter.
Duck Decoy is in the process of preparing the flexible budget and understanding the results.

Sales revenues $238,000 $ $230,000

Variable costs 150,000 $ ________ 180,000
Fixed costs 36,000 $ ________ 35,000

The primary reason for high actual operating profits was ________.
A) the variable-cost variance
B) increased fixed costs
C) flexible budget variance for revenues
D) lower sales volume than planned
Answer: A
Explanation: A) Actual variable costs per unit were significantly less than the static budget. Actual sales
revenues were only slightly greater than the static budget, and actual fixed costs were only slightly
greater than the static budget.
Diff: 3
Objective: 3
21
Genent Company manufactures tires. Some of the company's data was misplaced. Use the following
information to replace the lost data:
Actual Flexible Budget Flexible Sales-Volume Static

Results Variances Budget Variances Budget
Units sold 495,000 495,000 453,750
Revenues $185,150 $4,400 F (A) $6,160 U (B)
Variable
costs (C) $880 U $69,780 $10,300 F $88,080
Fixed costs $36,430 $3,770 F $40,200 0 $40,200
Operating
income $78,060 (D) $70,770 (E) $66,630
9) What amounts are reported for revenues in the flexible-budget (A) and the static-budget (B),
respectively?
A) $164,320; $178,990
B) $180,750; $186,910
C) $185,150; $177,920
D) $178,990; $186,910
Answer: B
Explanation: B) $185,150 − $4,400 = $180,750; $180,750 + $6,160 = $186,910
Diff: 2
Objective: 3
10) What are the actual variable costs (C)?

A) $72,800
B) $70,660
C) $62,640
D) $54,080
Answer: B
Explanation: B) $69,780 + $880 = $70,660
Diff: 2
Objective: 3
11) What is the total flexible-budget variance (D)?

A) $240 unfavorable
B) $0
C) $1,360 favorable
D) $7,290 favorable
Answer: D
Explanation: D) $78,060 − $70,770 = $7,290
Diff: 2
Objective: 3
22
12) What is the total sales-volume variance (E)?
C) $4,140 favorable
Answer: C
Explanation: C) $70,770 − $66,630 = $4,140
Diff: 2
Objective: 3
13) What is the total static-budget variance?

B) $7,290 favorable
D) $4,140 favorable
Answer: A
Explanation: A) $78,060 − $66,630 = $11,430
Diff: 2
Objective: 3
14) A flexible-budget variance pertaining to revenues is often called a sales-volume variance.

Answer: FALSE
Explanation: A flexible-budget variance for revenues is called the selling-price variance because it arises
solely from the difference between the actual selling price and the budgeted selling price.
Diff: 2
Objective: 3
15) A difference between the static-budget and the flexible-budget amounts is called the sales-volume
variance.
Answer: TRUE
Diff: 1
Objective: 3
23
16) Quindo Table Company manufactures tables for schools. The 2015 operating budget is based on sales
of 44,000 units at $55 per table. Operating income is anticipated to be $132,000. Budgeted variable costs
are $35 per unit, while fixed costs total $660,000.
Actual income for 2015 was a surprising $477,000 on actual sales of 46,000 units at $57 each. Actual
variable costs were $33 per unit and fixed costs totaled $627,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.
Answer: Quindo Table Company
Variance Analysis
Flexible Flexible Volume

Actual Results Variances Budget Variances Sales-Static
Units sold 46,000 46,000 44,000
Sales $2,622,000 $92,000 F $2,530,000 $110,000 F $2,420,000
Variable
costs 1,518,000 92,000 F 1,610,000 70,000 U 1,540,000
Contributio
n margin $1,104,000 $184,000 F $920,000 $40,000 F $880,000
Fixed costs 627,000 33,000 F 660,000 0 660,000
Operating
income $477,000 $217,000 F $260,000 $40,000 F $220,000
Total flexible-budget variance = $217,000 favorable.

Total sales-volume variance = $40,000 favorable.
Diff: 3
Objective: 3
24
Objective 7.4
1) The flexible-budget variance for direct cost inputs can be further subdivided into a ________.
A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance
Answer: C
Diff: 1
Objective: 4
2) An efficiency variance reflects the difference between ________.

A) actual input quantities used last period and current period
B) an actual input quantity and a budgeted input quantity
C) an actual input quantity used in a company and its main competitor's
D) a standard input quantity in a company and its main competitor's
Answer: B
Diff: 1
Objective: 4
3) Which of the following is an advantage of using actual input data from past periods to develop a
budget?
A) Past inefficiencies are excluded in the preparation of new budget.
B) Expected future changes are incorporated in the preparation of new budget.
C) Information is available at a low cost.
D) Data represents the ideal performance.
Answer: C
Diff: 2
Objective: 4
4) Which of the following is a disadvantage of using the standards developed by a firm itself to develop a
budget?
A) A firm's inefficiencies will be part of the data.
B) They are not based on realized benchmarks.
C) The expected future changes are not included in the standards.
D) The flexible-budget amounts are difficult to determine.
Answer: B
Diff: 2
Objective: 4
25
5) A price variance reflects the difference between ________.
A) a standard input price in a company and its competitor
B) an actual input price used last period and current period
C) an actual input price used in a company and its competitor
D) an actual input price and a budgeted input price
Answer: D
Diff: 1
Objective: 4
6) Standard cost per output unit for each variable direct cost input is calculated by multiplying ________.
A) standard input allowed for one output unit by standard price per input unit
B) standard input allowed for one output unit by actual price per input unit
C) actual input allowed for one output unit by standard price per input unit
D) actual input allowed for one output unit by actual price per input unit
Answer: A
Diff: 1
Objective: 4
7) Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual
material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit?
A) $9
B) $11.25
C) $10
D) $12.5
Answer: C
Explanation: C) Standard cost per output unit = Standard material cost per kg × standard material
allowed per unit = $5 × 2kg = $10
Diff: 2
Objective: 4
8) Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor
hour is $7.5 and actual labour hour per unit is 0.7 hours. What is the standard labor cost per output unit?
A) $4.5
B) $4.8
C) $5.6
D) $5.25
Answer: B
Explanation: B) Standard cost per output unit = Standard labor allowed per unit × Standard labor rate =
$8 × 0.6 hours = $4.8 per unit
Diff: 2
Objective: 4
26
9) A standard price is the minimum price a company will have to pay for a unit of input.
Answer: FALSE
Explanation: A standard price is a carefully determined price a company expects to pay for a unit of
input.
Diff: 2
Objective: 4
10) To prepare budgets based on actual data from past periods is preferred since past inefficiencies are
EXCLUDED.
Answer: FALSE
Explanation: A deficiency of using budgeted input quantity information based on actual quantity data
from past periods is that past inefficiencies are included.
Diff: 2
Objective: 4
11) A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence
the data represents the ideal performance of a firm.
Answer: FALSE
Explanation: A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data.
Hence the data does not represent the ideal performance of a firm.
Diff: 2
Objective: 4
12) A standard is attainable through efficient operations but allows for normal disruptions such as
machine breakdowns and defective production.
Answer: TRUE
Diff: 2
Objective: 4
13) One advantage of using standard times to develop a budget is they are simple to compile, are based
solely on the past actual history, and do not require expected future changes to be taken into account.
Answer: FALSE
Explanation: An advantage of using standard times is they aim to take into account changes expected to
occur in the budget period.
Diff: 1
Objective: 4
27
14) The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain
the meaning of each of those levels and provide an example of a variance at each of those levels.
Answer: A Level 0 variance is simply the difference between actual operating income and planned
operating income in the static budget.
A Level 1 variance would be any of the differences between the static budget and the actual results that
make up operating income. Examples of such differences could include the following items:
Units sold (Static budget - actual)

Revenues (Static budget - actual)
Material costs (Static budget - actual)
Direct manufacturing labor (Static budget - actual)
Variable manufacturing overhead (Static budget - actual)
Contribution margin (Static budget - actual)
Fixed costs (Static budget - actual)
A Level 2 variance subdivides the level 0 variance (which is the total of the Level 1 variances) into a sales
volume variance and a flexible-budget variance. The sales volume variance is the difference between the
flexible budget amount and the corresponding static budget amount. The flexible budget variance is an
actual result and the corresponding flexible budget amount based on the actual output level in the budget
period. Specific examples of Level 2 variances could include any of the items shown in the list of Level 1
variances.
A Level 3 variance would include price variances that reflect the difference between the actual input price
and a budgeted input price, such as the direct material price variance, the direct labor rate variance, and
the variable overhead rate variance. Level 3 variances would also include efficiency variances that reflect
the difference between an actual input quantity and a budgeted input quantity. Examples would include
material quantity variances, labor efficiency variances, and variable overhead efficiency variances.
Diff: 3
Objective: 4
28
Objective 7.5
1) Which of the following can be a reason for a favorable price variance for direct materials?
A) a decrease in the price of materials due to an oversupply of materials
B) an unexpected increase in the price of materials
C) less amount of material used during production than planned for actual output
D) workers taking less time to produce the products
Answer: A
Diff: 2
Objective: 5
2) A favorable efficiency variance for direct manufacturing labor indicates that ________.
A) a lower wage rate than planned was paid for direct labor
B) a higher wage rate than planned was paid for direct labor
C) less direct manufacturing labor-hours were used during production than planned for actual output
D) more direct manufacturing labor-hours were used during production than planned for actual output
Answer: C
Diff: 2
Objective: 5
3) An unfavorable price variance for direct materials might indicate ________.

A) that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory
methods
B) congestion due to scheduling problems
C) that the purchasing manager skillfully negotiated a better purchase price
D) that the market had an unexpected oversupply of those materials
Answer: A
Diff: 3
Objective: 5
4) A favorable efficiency variance for direct materials might indicate that ________.
A) lower-quality materials were purchased
B) work is scheduled efficiently
C) there is an unexpected increase in direct labor rates
D) management hired underskilled workers
Answer: B
Diff: 3
Objective: 5
29
5) A favorable price variance for direct manufacturing labor might indicate that ________.
A) employees were paid more than planned
B) unexpected increase in direct labor rates
C) underskilled employees are being hired
D) congestion due to scheduling problems
Answer: C
Diff: 3
Objective: 5
6) An unfavorable efficiency variance for direct manufacturing labor might indicate that ________.
A) there is unexpected increase in direct labor rates
B) work is scheduled inefficiently
C) lower-quality materials were purchased
D) more higher-skilled workers were scheduled than planned
Answer: B
Diff: 3
Objective: 5
Animent Industries, Inc. (AII), developed standard costs for direct material and direct labor. In 2015, AII
estimated the following standard costs for one of their major products, the 10-gallon plastic container.
Budgeted quantity Budgeted price

Direct materials 0.10 pounds $60 per pound
Direct labor 0.05 hours $30 per hour
During June, AII produced and sold 20,000 containers using 1,900 pounds of direct materials at an
average cost per pound of $64 and 1,000 direct manufacturing labor-hours at an average wage of $30.50
per hour.
7) June's direct material flexible-budget variance is ________.

B) $600 favorable
D) $500 favorable
Answer: C
Explanation: C) Flexible-budget variance = (1,900 × $64) − (20,000 × 0.10 × $60) = $1,600 U
Diff: 2
Objective: 5
30
8) The direct material price variance during June is ________.
B) $1,600 favorable
D) $500 favorable
Answer: A
Explanation: A) Direct material price variance = 1,900 × ($64 − $60) = $7,600 U
Diff: 2
Objective: 5
9) The direct manufacturing labor price variance during June is ________.

A) $500 unfavorable
B) $500 favorable
D) 1,600 unfavorable
Answer: A
Explanation: A) Direct manufacturing labor price variance = 1,000 dlh × ($30 − $30.50) = $500 U
Diff: 2
Objective: 5
10) The direct manufacturing labor efficiency variance during June is ________.
A) $125 unfavorable
B) $500 favorable
D) $0
Answer: D
Explanation: D) Direct manufacturing labor efficiency variance = [1,000 dlh − (20,000 × 0.05)] × $30 = $0
Diff: 2
Objective: 5
31
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2015, GII
estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic
container.

Direct materials 0.30 pounds $20 per pound
Direct labor 0.20 hours $12 per hour
During July, GII produced and sold 3,000 containers using 1,000 pounds of direct materials at an average
cost per pound of $19 and 625 direct manufacturing labor hours at an average wage of $11.75 per hour.
11) July's direct material flexible-budget variance is ________.

B) $2,000 favorable
D) $0
Answer: A
Explanation: A) Direct material flexible-budget variance = (1,000 × $19) − (3,000 × 0.30 × $20) = $1,000 U
Diff: 2
Objective: 5
12) The direct material price variance during July is ________.

B) $1,100 favorable
Answer: B
Explanation: B) Direct material price variance = 1,000 × ($20 − $19) = $1,000 F
Diff: 2
Objective: 5
13) The direct material efficiency variance during July is ________.

B) $1,100 favorable
D) $1,000 favorable
Answer: C
Explanation: C) Direct material efficiency variance = $20 × [1,000 − (3,000 × 0.30)] = $2,000 U
Diff: 2
Objective: 5
32
14) The direct manufacturing labor flexible-budget variance during July is ________.
A) $375.00 unfavorable
B) $131.25 favorable
C) $143.75 unfavorable
D) $1,000 favorable
Answer: C
Explanation: C) Direct manufacturing labor flexible-budget variance = (625 × $11.75) − (3,000 × 0.20 × $12)
= $143.75 U
Diff: 2
Objective: 5
15) The direct manufacturing labor price variance during July is ________.
C) $243.75 favorable
Answer: B
Explanation: B) Direct manufacturing labor price variance = 625 dlh × ($11.75 − $12.00) = $156.25 F
Diff: 2
Objective: 5
16) The direct manufacturing labor efficiency variance during July is ________.
D) $131.75 unfavorable
Answer: A
Explanation: A) Direct manufacturing labor efficiency variance = [625 dlh − (3,000 × 0.20)] × $12 = $300 U
Diff: 2
Objective: 5
33
Demizio Valley Orchards, Inc. (DVO), developed standard costs for direct material and direct labor. In
2015, DVO estimated the following standard costs for one of their most well loved products, the DVO
classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as
including cranberry and mince ingredients in addition to the apples.

Direct materials 2.0 pounds $6.25 per pound
Direct labor 0.20 hours $13.00 per hour
During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct materials at an
average cost per pound of $6.00 and 200 direct labor hours at an average wage of $13.25 per hour.
17) September's direct material flexible-budget variance is ________.

D) $575 favorable
Answer: C
Explanation: C) Direct material flexible-budget variance = (2,300 × $6.00) − (1,100 × 2.0 × $6.25) = $50.00 U
Diff: 2
Objective: 5
18) The direct material price variance during September is ________.

A) $575 favorable
B) $575 unfavorable
D) $50.00 favorable
Answer: A
Explanation: A) Direct material price variance = 2,300 × ($6.00 − $6.25) = $575 F
Diff: 2
Objective: 5
19) The direct material efficiency variance during September is ________.

A) $575 favorable
B) $575 unfavorable
C) $625 favorable
D) $625 unfavorable
Answer: D
Explanation: D) Direct material efficiency variance = $6.25 × [2,300 − (1,100 × 2.0)] = $625 U
Diff: 2
Objective: 5
34
20) The direct labor flexible-budget variance during September is ________.
A) $210.00 favorable
B) $210.00 unfavorable
Answer: A
Explanation: A) Direct labor flexible-budget variance = (200 × $13.25) − (1,100 × 0.20 × $13) = $210.00 F
Diff: 2
Objective: 5
21) The direct labor price variance during September is ________.

D) $50.00 favorable
Answer: C
Explanation: C) Direct labor price variance = 200 dlh × ($13.25 − $13.00) = $50 U
Diff: 2
Objective: 5
22) The direct labor efficiency variance during September is ________.

A) $260.00 favorable
B) $250.00 unfavorable
Answer: A
Explanation: A) Direct labor efficiency variance = [200 dlh − (1,100 × 0.20)] × $13 = $260 F
Diff: 2
Objective: 5
These questions refer to flexible-budget variance formulas with the following descriptions for the
variables: A = Actual; B = Budgeted; P = Price; Q = Quantity.
23) The best label for the formula (AQ - BQ) BP is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) spending variance
Answer: A
Diff: 2
Objective: 5
35
24) The best label for the formula (AP - BP) AQ is the ________.
A) efficiency variance
B) price variance
Answer: B
Diff: 2
Objective: 5
25) The flexible-budget variance for materials is $5,000 (U). The sales-volume variance is $13,000 (U). The
price variance for material is $31000 (F). The efficiency variance for direct manufacturing labor is $7,000
(F). Calculate the efficiency variance for materials.
C) $6,000 favorable
Answer: D
Explanation: D) $5,000(U) = $31,000(F) + Price variance
Price variance = $5,000 + $31,000 = $36,000 (U)
Diff: 3
Objective: 5
26) Unfavorable direct material price variances are ________.

A) always credits
B) always debits
C) credited to the Materials Control account
D) credited to the Accounts Payable Control account
Answer: B
Diff: 1
Objective: 5
27) Favorable direct manufacturing labor efficiency variances are ________.

A) always credits
B) always debits
C) debited to the Work-in-Process Control account
D) debited to the Wages Payable Control account
Answer: A
Diff: 1
Objective: 5
36
28) These questions refer to flexible-budget variance formulas with the following descriptions for the
variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. The best label for the formula [(AP)(AQ) -
(BP)(BQ)] is the ________.
A) efficiency variance.
B) price variance
Answer: C
Diff: 2
Objective: 5
Berman's Camera Shop has prepared the following flexible budget for September and is in the process of
interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance.
Flexible Variances
Budget Price Efficiency
Material A $40,000 $1,000F $3,000U
Material B 60,000 500U 1,500F
Direct manufacturing labor 80,000 500U 2,500F
29) The most likely explanation of the above variances for Material A is that ________.
A) a lower price than expected was paid for Material A
B) higher-quality raw materials were used than were planned
C) the company used a higher-priced supplier
D) Material A used during September was $2,000 less than expected
Answer: A
Diff: 3
Objective: 5
30) The actual amount spent for Material B was ________.

A) $58,000
B) $59,000
C) $60,000
D) $61,000
Answer: B
Explanation: B) $60,000 + $500 U - $1,500 F = $59,000
Diff: 2
Objective: 5
37
31) The actual amount spent for direct manufacturing labor was ________.
A) $80,000
B) $83,000
C) $82,000
D) $78,000
Answer: D
Explanation: D) $80,000 + $500 U - $2,500 F = $78,000
Diff: 2
Objective: 5
32) The most likely explanation of the above direct manufacturing labor variances is that ________.
A) the average wage rate paid to employees was less than expected
B) employees did not work as efficiently as expected to accomplish the job
C) the company may have assigned more experienced employees this month than originally planned
D) management may have a problem with budget slack and might be using lax standards for both labor-
wage rates and expected efficiency
Answer: C
Diff: 3
Objective: 5
Midend's Camera Shop has prepared the following flexible budget for September and is in the process of
interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance.
Flexible Variances
Budget Price Efficiency
Material A $25,000 $1,500U $1,800F
Material B 32,000 600F 900U
Material C 42,000 1,300U 900F
33) The actual amount spent for Material A was ________.

A) $28,300
B) $25,300
C) $24,700
D) $21,700
Answer: C
Explanation: C) Actual amount spent for Material A = $25,000 + $1,500 U − $1,800 F = $24,700
Diff: 2
Objective: 5
38
34) The actual amount spent for Material B was ________.
A) $31,700
B) $30,500
C) $33,500
D) $32,300
Answer: D
Explanation: D) Actual amount spent for Material B = $32,000 − $600 F + $900 U = $32,300
Diff: 2
Objective: 5
35) The explanation that lower-quality materials were purchased is most likely for ________.
A) Material A
B) Material B
C) Material C
D) both Material A and C
Answer: B
Diff: 3
Objective: 5
36) The flexible-budget variance is the total of price variance and efficiency variance.
Answer: TRUE
Diff: 1
Objective: 5
37) The price variance is the difference between the actual price and the budgeted price of the input,
multiplied by the actual quantity of input.
Answer: TRUE
Diff: 1
Objective: 5
38) For any actual level of output, the efficiency variance is the difference between actual quantity of
input used and the budgeted quantity of input allowed to produce actual output, multiplied by the
budgeted price.
Answer: TRUE
Diff: 1
Objective: 5
39) From the perspective of control, the direct materials price variance should be isolated at the time of
sales.
Answer: FALSE
Explanation: From the perspective of control, the direct materials price variance should be isolated at the
time of purchase of materials.
Diff: 2
Objective: 5
39
40) Employees logging in to production floor terminals and other modern technologies greatly facilitate
the use of a standard costing system.
Answer: TRUE
Diff: 1
Objective: 5
41) The use of high-quality raw materials is likely to result in a favorable efficiency variance and an
unfavorable price variance.
Answer: TRUE
Diff: 2
Objective: 5
42) Direct material price variance is likely to be unfavorable if the purchasing manager switched to a
lower-price supplier.
Answer: FALSE
Explanation: Direct material price variance is likely to be favorable if the purchasing manager switched
to a lower-price supplier.
Diff: 2
Objective: 5
43) Direct manufacturing labor efficiency variance is likely to be unfavorable if underskilled workers are
put on a job.
Answer: TRUE
Diff: 2
Objective: 5
40
44) Madzinga's Draperies manufactures curtains. A certain window requires the following:
Direct materials standard 10 square yards at $5 per yard

Direct manufacturing labor standard 5 hours at $10
During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric
costing $68,600. Direct labor totaled 7,600 hours for $79,800.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.
Answer:
a. Direct materials variances:
Actual unit cost = $68,600/14,000 square yards

= $4.90 per square yard
Price variance = 14,000 × ($5.00 - $4.90)

= $1,400 favorable
Efficiency variance = $5.00 × [14,000 - (1,500 × 10)]

= $5,000 favorable
b. Direct manufacturing labor variances:
Actual labor rate = $79,800/7,600

= $10.50 per hour
Price variance = 7,600 × ($10.50 - $10.00)

= $3,800 unfavorable
Efficiency variance = $10.00 × (7,600 - 7,500)

Diff: 3
Objective: 5
41
45) Wilson's Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka
requires the following:
Direct materials standard 2 square yards at $13.50 per yard

Direct manufacturing labor standard 1.5 hours at $20.00 per hour
During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric costing
$39,375. Direct labor totaled 2,100 hours for $45,150.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.
Answer:
a. Direct materials variances:
Actual unit cost = $39,375/3,150 square yards

= $12.50 per square yard
Price variance = 3,150 × ($13.50 - $12.50)

= $3,150 favorable
Efficiency variance = $13.50 × [3,150 - (1,500 × 2)]

b. Direct manufacturing labor variances:
Actual labor rate = $45,150/2,100

= $21.50 per hour
Price variance = 2,100 × ($21.50 - $20.00)

Efficiency variance = $20.00 × (2,100 - (1,500 × 1.5)

= $3,000 favorable
Diff: 3
Objective: 5
42
46) The following data for the Prender Company pertain to the production of 800 urns during August.
Direct Materials (all materials purchased were used):
Standard cost: $4.80 per pound of urn.

Total actual cost: $4,480.
Standard cost allowed for units produced was $4,800.
Materials efficiency variance was $96 unfavorable.
Direct Manufacturing Labor:
Standard cost is 2 urns per hour at $19.20 per hour.

Actual cost per hour was $19.60.
Labor efficiency variance was $288 favorable.
Required:
a. What is standard direct material amount per urn?
b. What is the direct material price variance?
c. What is the total actual cost of direct manufacturing labor?
d. What is the labor price variance for direct manufacturing labor?
Answer:
a. Standard cost per urn = $4,800 / 800
= $6.00 per urn
Standard number of pounds per urn = $6.00 / $4.80

= 1.25 pound per urn
b. Materials price variance = Total variance - efficiency variance

= ($4,480 − $4,800) − $96 unfavorable
= $416 favorable
c. Total standard labor cost of actual hours = ((800/2) × $19.2) − $288 favorable
= $7,392
Actual hours = $7,392/19.2 = 385 hours
Total actual costs = 385 × $19.60 = $7,546
d. Labor price variance = $7,546 − $7,392

= $154 unfavorable
Diff: 3
Objective: 5
43
47) The following data for the Panoid Garden Supplies Company pertains to the production of 2,000
garden spades during March. The spade consists of a wooden handle and a metal forged tool that comes
in contact with the ground.
Direct Materials (all materials purchased were used):
Standard cost: $1.00 per handle and $3.00 per metal tool.
Total actual cost: $9,000.
Materials flexible-budget efficiency variance was $500 unfavorable.
Direct Manufacturing Labor:
Standard cost is 5 garden spades per hour at $20.00 per hour.

Labor efficiency variance was $500 favorable.
Required:
a. What is the standard direct material amount per garden spade?
b. What is the standard cost allowed for all units produced?
c. What is the total direct materials flexible-budget variance?
d. What is the direct material flexible-budget price variance?
e. What is the total actual cost of direct manufacturing labor?
f. What is the labor price variance for direct manufacturing labor?
Answer:
a. Standard cost per garden spade = $1.00 (handle) + $3.00 (tool)
= $4.00 per garden spade
b. Standard cost allowed for all units = 2,000 × $4.00

= $8,000 per garden spade
c. Total materials variance = $8,000 − $9,000

= $1,000 unfavorable = $1,000 unfavorable
d. Materials price variance = Total variance - efficiency variance

= ($9,000 − $8,000) − $500 unfavorable
= $500 unfavorable
e. Total standard labor cost of actual hours = ((2,000/5) × $20) − $500 favorable
= $7,500
Actual hours = $7,500/20 = 375 hours
Total actual costs = 375 × $21 = $7,875
f. Labor price variance = $7,500 − $7,875

= $375 unfavorable
Diff: 3
Objective: 5
44
48) The following data for the telephone company pertain to the production of 450 rolls of telephone wire
during June. Selected items are omitted because the costing records were lost in a windstorm.
Direct Materials (All materials purchased were used.)
Standard cost per roll: a pounds at $4.00 per pound.

Total actual cost: b pounds costing $9,600.
Standard cost allowed for units produced was $9,000.
Materials price variance: c .
Materials efficiency variance was $80 unfavorable.
Direct Manufacturing Labor
Standard cost is 3 hours per roll at $8.00 per hour.

Total actual cost: d .
Labor price variance: e .
Labor efficiency variance was $400 unfavorable.
Required:
Compute the missing elements in the report represented by the lettered items.
Answer:
a. Standard cost per roll = $9,000/450 = $20.00
Standard number of pounds per roll = $20/$4 = 5 pounds per roll
b. Actual pounds = ($9,000 + $80)/$4 = 2,270 pounds
c. Materials price variance = $9,600 - ($9,000 + $80)

= $520 unfavorable
d. Total standard labor cost of actual hours = (450 × 3 × $8) + $400 = $11,200
Actual hours = $11,200/$8 = 1,400
Total actual cost = 1,400 × $8.25 = $11,550
e. Labor price variance = $11,550 - $11,200 = $350 unfavorable

Diff: 3
Objective: 5
45
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Carolina convention, the same Iredell, after pointing out that the
American concept of the relation of citizen to all governments had
become basic American law, contrasts that fact with the fundamental
law of Great Britain where “Magna Charta itself is no constitution, but
a solemn instrument ascertaining certain rights of individuals, by the
legislature for the time being; and every article of which the
legislature may at any time alter.” (4 Ell. Deb. 148.)
In the Pennsylvania convention, on December I, 1787, one of the
most distinguished lawyers of that generation made a memorable
speech, expressing the universal knowledge that the American
concept had taken forever the place of the Tory concept in
fundamental American law. We commend a careful study of that
speech to those of our public leaders and “constitutional” lawyers,
who for five years have been acting on the assumption that the Tory
concept has again become our fundamental American law. We
average Americans, after living with those earlier Americans, are not
surprised to listen to the statements of Wilson. “The secret is now
disclosed, and it is discovered to be a dread, that the boasted state
sovereignties will, under this system, be disrobed of part of their
power.... Upon what principle is it contended that the sovereign
power resides in the state governments?... The proposed system
sets out with a declaration that its existence depends upon the
supreme authority of the people alone.... When the principle is once
settled that the people are the source of authority, the consequence
is, that they may take from the subordinate governments powers
which they have hitherto trusted them, and place those powers in the
general government, if it is thought that there they will be productive
of more good. They can distribute one portion of power to the more
contracted circle, called state governments; they can also furnish
another proportion to the government of the United States. Who will
undertake to say, as a state officer, that the people may not give to
the general government what powers, and for what purposes, they
please? How comes it, sir, that these state governments dictate to
their superiors—to the majesty of the people?” (2 Ell. Deb. 443.)
We average Americans, legally bound (as American citizens) by
no command (interfering with our human freedom) except from our
only legislature at Washington and then only in those matters in
which we ourselves, the citizens of America, have directly given it
power to command us, now intend insistently to ask all our
governments, the supreme one at Washington and the subordinate
ones in the states of which we are also citizens, exactly the same
question which Wilson asked.
Daniel Webster asked almost exactly the same question of Hayne
and history does not record any answer deemed satisfactory by the
American people. Webster believed implicitly in the concept of
American law stated by those who made our Constitution. Like them,
and unlike our “constitutional” lawyers, he knew that the Tory
concept of the relation of men to their government had disappeared
from American basic law.
“This leads us to inquire into the origin of this government, and the
source of its power. Whose agent is it? Is it the creature of the state
legislatures, or the creature of the people?... It is, sir, the people’s
constitution, the people’s government—made for the people, made
by the people, and answerable to the people. The people of the
United States have declared that this Constitution shall be the
supreme law. We must either admit the proposition, or dispute their
authority. The states are, unquestionably, sovereign, so far as their
sovereignty is not affected by this supreme law. But the state
legislatures, as political bodies, however sovereign, are yet not
sovereign over the people.... The national government possesses
those powers which it can be shown the people have conferred on it,
and no more.... We are here to administer a Constitution emanating
immediately from the people, and trusted by them to our
administration.... This government, sir, is the independent offspring
of the popular will. It is not the creature of state legislatures; nay,
more, if the whole truth must be told, the people brought it into
existence, established it, and have hitherto supported it, for the very
purpose, amongst others, of imposing certain salutary restraints on
state sovereignties.... The people, then, sir, erected this government.
They gave it a constitution, and in that constitution they have
enumerated the powers which they bestow upon it.... Sir, the very
chief end, the main design for which the whole constitution was
framed and adopted, was to establish a government that should not
be obliged to act through state agency, depend on state opinion and
state discretion.... If anything be found in the national constitution,
either by original provisions, or subsequent interpretation, which
ought not to be in it, the people know how to get rid of it. If any
construction be established, unacceptable to them, so as to become
practically a part of the constitution, they will amend it at their own
sovereign pleasure. But while the people choose to maintain it as it
is—while they are satisfied with it, and refuse to change it—who has
given, or who can give, to the state legislatures a right to alter it,
either by interference, construction, or otherwise?... Sir, the
people have not trusted their safety, in regard to the general
constitution, to these hands. They have required other security, and
taken other bonds.” (From Webster’s reply to Hayne, U. S. Senate,
January, 1830. 4 Ell. Deb. 498 et seq.)
We average Americans, now educated in the experience of the
average American from 1776 to the beginning of 1787, find much
merit and comfort in Webster’s understanding of basic American law.
He had a reasoned and firm conviction that Americans really are
citizens and not subjects. His conviction, in that respect, while
opposed to the convictions of our leaders and “constitutional”
lawyers, has seemed to us quite in accord with the convictions of
earlier leaders such as Iredell and Wilson and the others, and also
with the decisions of our Supreme Court.
Briefly stated, it has become quite clear to us that the American
people, from 1776 to 1787, were fixed in their determination to make
our basic American law what the conviction of Webster and the
leaders of every generation prior to our own knew it to be. Let us go
back, therefore, to the Americans in the Philadelphia convention of
1787, who worded the Constitution which is the supreme law of
America, and ascertain how their knowledge of fundamental
American law dictated the wording of their proposed Seventh Article.
CHAPTER VIII
PHILADELPHIA ANSWERS “CONVENTIONS, NOT
LEGISLATURES”
We recall how clearly the Americans at Philadelphia, in 1787,

knew that any grant of national power to interfere with the freedom of
individuals was the constitution of government. We recall the bitter
conflict of opinion, threatening the destruction of the assembly, over
the manner of choosing the members of the legislature to exercise
whatever powers of that kind the citizens of America might grant. We
recall the great opposition to the proposal of a grant of any power of
that kind and to the particular proposal of each of the enumerated
powers of that kind, all embodied in the First Article.
We have thus come to know with certainty that the minds of the
Americans at Philadelphia, during those strenuous four months,
were concentrated mainly upon a proposal to grant some national
power to interfere with the human freedom of all Americans. In other
words, we have their knowledge that their proposed First Article, by
reason of its grants of such power, would constitute a new nation
and government of men, if those grants were validly made by those
competent to make such grants.
Under which circumstances, we realize that it became necessary
for them to make a great legal decision, in the construction of basic
American law, and, before making that decision, which was
compelled to be the result of judgment and not of will, accurately to
ascertain one important legal fact. Indeed, their decision was to be
the actual conclusion reached in the effort to ascertain that legal fact.
This was the single question to which they must find the right
answer: “Under our basic American law, can legislatures ever give to
government any power to interfere with the human freedom of men,
or must every government in America obtain its only valid powers of
that kind by direct grant from its own citizens?”
It is easy for us to state that they should have known that the
answer to that question was expressly and authoritatively given in
the Statute of ’76. It was there plainly enacted that every just power
of any government must be derived from the direct grant of those to
be governed by its exercise. Yet our own leaders for the last five
years have not even asked the question, much less known the right
answer.
At Philadelphia, in 1787, they did know it. They had no doubt
whatever about it. We shall see that quickly in our brief review of the
record they made at Philadelphia in ascertaining and deciding, as a
legal necessity, to whom their First Article and its enumerated grants
of national power must be sent and, when we boast of how quickly
we knew the answer, we should admit that we did not know it until
after we had lived again with them through their experience of the
preceding ten or twelve years which had educated them, as it has
just educated us, to that knowledge. Furthermore, many of us
average Americans will be unable to explain, until later herein, why,
during the last five years, our own leaders have not known the right
answer. The Statute of ’76 has not been wholly unknown to them.
The record of the Philadelphia Convention and the ratifying
conventions has not been entirely a closed book to them. The
important and authentic statements of Webster and other leaders of
past generations have been read by many of them. If they did not
understand and know the correct answer, as we now realize they
have not known, let us not withhold from the Americans at
Philadelphia our just tribute of gratitude that they did accurately
know, when it was amazingly important to us that they should know.
When those Americans came to answer that question, there were
facts which might have misled them as other similar facts of lesser
importance have undoubtedly misled our leaders.
In 1776, from that same Philadelphia had gone a suggestion that a
constitution of government, with Articles granting power to
government, be made in each former colony. In 1787, there had
gone from that same Philadelphia a proposal that a constitution of a
general government for America be made, with Articles granting
power to that government. The proposal of 1776 had suggested that
the proposed Articles be made by the people themselves, assembled
in conventions. The proposal of 1777 had suggested that the
proposed Articles be made by the legislative governments of the
states. Both proposals, even as to the makers of the respective
Articles, had been acted upon. All the Articles, although some had
been made by the people themselves and others by legislatures, had
been generally recognized as valid law. Some of the men at
Philadelphia in 1787 had been members of the proposing Second
Continental Congress, when the respective proposals of 1776 and
1777 had gone from Philadelphia. When, in 1787, they were called
upon to find and state, as their legal decision, the correct answer to
their important question, it was necessary for them to ascertain, as
between state “legislatures” and the people themselves, in
“conventions,” which could validly make the Articles which had been
worded and were about to be proposed. It would not, therefore, have
been beyond the pale of our own experience if the earlier proposals
had misled them and they had made the wrong answer to the
question which confronted them. Furthermore, as we have already
noted, although we can little realize the influence of such a fact upon
men seeking the correct legal answer to an important question, their
whole proposal was a new adventure for men on an uncharted sea
of self-government. Under all of which circumstances, let us again
pay them their deserved tribute that they went unerringly to the only
correct answer.
We know that the essence of that answer is expressed in the
Seventh Article proposed from Philadelphia. Only one answer was
possible to Americans of that generation. They had been “subjects”
and had become “citizens.” They knew the vital distinctions between
the two relations to government.
The Convention which framed the Constitution was, indeed,
elected by the state legislatures. But the instrument, when it
came from their hands, was a mere proposal, without
obligation, or pretensions to it. It was reported to the then
existing Congress of the United States, with the request that it
might “be submitted to a convention of delegates, chosen in
each state by the people thereof, under the recommendation
of its legislature, for their assent and ratification.” This mode
of proceeding was adopted; and by the Convention, by
Congress, and by the state legislatures, the instrument was
submitted to the people. They acted upon it in the only
manner in which they can act safely, effectively, and wisely,
on such a subject, by assembling in convention. It is true, they
assembled in their several states; and where else should they
have assembled? No political dreamer was ever wild enough
to think of breaking down the lines which separate the states,
and of compounding the American people into one common
mass. Of consequence, when they [the American people] act,
they act in their states. But the measures they adopt do not,
on that account, cease to be the measures of the people
themselves, or become the measures of the state
governments. From these conventions the Constitution [the
First Article grants of power to interfere with individual
freedom] derives its whole authority. The government
proceeds directly from the people; is “ordained and
established” in the name of the people.... It required not the
affirmance, and could not be negatived, by the state
governments.... To the formation of a league, such as was the
Confederation, the state sovereignties were certainly
competent.
But, when a general government of America was to be given any
national power to interfere with the individual freedom of its citizens,
as in the First Article of 1787 and in the Eighteenth Amendment of
1917,
acting directly on the people, the necessity of referring it to
the people, and of deriving its powers directly from them, was
felt and acknowledged by all. The government of the Union,
then, (whatever may be the influence of this fact on the case,)
is, emphatically, and truly, a government of the people. In form
and in substance it emanates from them. Its powers are
granted by them, and are to be exercised directly on them,
and for their benefit. (Marshall in the Supreme Court,
M’Culloch v. Maryland, 4 Wheat. 316.)
Marshall was one of the Americans who had been at Valley Forge
in 1778, and at other places whose sacrifices made it the basic law
of America that all power over American citizens must be derived by
direct grant from themselves. Later, he was prominent in the Virginia
convention where all Americans in Virginia knew and acted upon this
basic law. These facts qualified him to testify, from the Bench of the
Supreme Court, that all Americans then knew and acknowledged the
binding command of that basic law.
Under such circumstances, it was impossible that the Americans
at Philadelphia should not have known and obeyed that law in the
drafting of their proposed Seventh and Fifth Articles. Both of these
Articles, the Seventh wholly, and the Fifth partly, deal with the then
future grant of national power over the people and its only legal gift
by direct grant from the people themselves, assembled in their
“conventions.” Both Articles name the people of America, by the one
word “conventions.”
That Philadelphia should not have strayed from the legal road
clearly marked by the Statute of ’76 was certain when we recall how
large a part Madison played at Philadelphia, and particularly how he
personally worded and introduced, in the closing hours at
Philadelphia, what we know as its Fifth Article. As to his personal
knowledge of this basic law, we recall his letter of April, 1787, where
he said, “To give the new system its proper energy, it will be
desirable to have it ratified by the authority of the people, and not
merely by that of the legislatures.” And we recall his later words,
when urging Americans to adopt the Constitution with its Fifth and
Seventh Articles, he said of the Seventh, “This Article speaks for
itself. The express authority of the people alone could give due
validity to the Constitution,” to its grants of power over the people in
its First Article. (Fed. No. 43.)
That we may fix firmly in our own minds the knowledge which all
Americans then had, which our leaders never acquired or have
entirely forgotten, let us briefly review what the earlier Americans did
at Philadelphia in obedience to that knowledge of basic American
law.
On May 28, Randolph of Virginia “opened the main business” of
the Convention. He proposed fifteen resolutions embodying the
suggestion of what should be in the different Articles. Resolution
Number 15 was that such Articles should be submitted to
“conventions,” “to be expressly chosen by the people, to consider
and decide thereon.” (5 Ell. Deb. 128.)
The first short debate on this Resolution took place on June 5. In it
Madison stated that he “thought this provision essential. The Articles
of Confederation themselves were defective in this respect, resting,
in many of the states, on the legislative sanction only.” The resolution
was then postponed for further consideration. On June 12, “The
question was taken on the 15th Resolution, to wit, referring the new
system to the people of the United States for ratification. It passed in
the affirmative.” (5 Ell. Deb. 183.) This was all in the Committee of
the Whole.
On June 13, that Committee made their full report, in which the
Randolph Resolution Number 15 was embodied in words as
Resolution Number 19 of the report. On June 16, while the
Convention was again sitting as a Committee of the Whole, the great
struggle was on between the conflicting opinions as to how and in
what proportion should be elected the future legislators who were to
exercise the granted powers over Americans. On that day, the
discussion centered on the relative merits of the Randolph national
proposals and a set of federal Articles amending the existing Federal
Constitution. In supporting Randolph, Wilson of Pennsylvania stated
that “he did not fear that the people would not follow us into a
national government; and it will be a further recommendation of Mr.
Randolph’s plan that it is to be submitted to them, and not to the
legislatures, for ratification.” (5 Ell. Deb. 196.)
On July 23, Resolution Number 19 came up for action.
Remembering how insistent many of the delegates were that the
general government should be kept a purely federal one, it is not
surprising to find Oliver Ellsworth of Connecticut opening the short
debate with a motion that the Constitution “be referred to the
legislatures of the states for ratification.” But it will also be
remembered that the powers to be granted in the new Articles had
not yet been settled. The nationalists in the Convention, intent on
having some national Articles, knew that the proposed ratification
must be by the people themselves, “felt and acknowledged by all” to
be the only competent grantors of national powers.
Colonel Mason of Virginia “considered a reference of the plan to
the authority of the people as one of the most important and
essential of the resolutions. The legislatures have no power to ratify
it. They are the mere creatures of the state constitutions, and cannot
be greater than their creators.... Whither, then, must we resort? To
the people, with whom all power remains that has not been given up
in the constitutions derived from them. It was of great moment that
this doctrine should be cherished, as the basis of free government.”
(5 Ell. Deb. 352.)
Rufus King of Massachusetts, influenced undoubtedly by the error
of thinking that the Convention meant to act within the Articles of
Confederation, was inclined to agree with Ellsworth “that the
legislatures had a competent authority, the acquiescence of the
people of America in the Confederation being equivalent to a formal
ratification by the people.... At the same time, he preferred a
reference to the authority of the people, expressly delegated to
conventions, as the most certain means of obviating all disputes and
doubts concerning the legitimacy of the new Constitution.” (5 Ell.
Deb. 355.)
Madison “thought it clear that the legislatures were incompetent to
the proposed changes. These changes would make essential
inroads on the state constitutions; and it would be a novel and
dangerous doctrine, that a legislature could change the constitution
under which it held its existence.” (5 Ell. Deb. 355.)
Ellsworth’s motion to send to the state legislative governments,
and not to the people themselves, assembled in “conventions,” was
lost by a vote of seven to three. Resolution Number 19, that the new
Articles must be sent to the people themselves was adopted by a
vote of nine to one, Ellsworth and King both voting for it. (5 Ell. Deb.
356.)
This impressive discussion, now continued for over a month of
1787, with its display of accurate knowledge of the distinction
between sending Articles to legislatures and “referring” them to the
people, makes quite amusing what we shall hear later in 1917. It will
come from the counsel of the political organization which dictated
that governments should make the supposed Eighteenth
Amendment. After he kindly tells us that history has proven that
these Americans of 1787 “builded more wisely than they knew,”
meaning “than he knew,” he shall later impart to us the remarkable
information that “the framers in the Constitutional Convention knew
very little, if anything, about referendums.”
The Resolutions, which had now become twenty-three in number,
on July 26, were referred to the Committee of Detail to prepare
Articles in conformity therewith. On August 6, that Committee made
its report of twenty-three worded Articles. In Article XXII was
embodied the requirement that the Constitution should be submitted
“to a convention chosen in each state, under the recommendation of
its legislature, in order to receive the ratification of such convention.”
This provision, the Philadelphia answer and always the only legal
answer to the question as to who can validly grant power to interfere
with individual freedom, was later seen not properly to belong in the
Constitution itself. For which reason, it was taken out of the
Constitution and embodied in a separate Resolution which went with
the Constitution from Philadelphia.
In Article XXI, the first draft of our Article VII, it was provided: “The
ratification of the conventions of —— states shall be sufficient for
organizing this Constitution.” (5 Ell. Deb. 381.)
The month of August was passed in the great debates on the
proposed grants of national power and the other proposed Articles.
When the Convention was drawing to a close on August 30, Articles
XXI and XXII were reached.
Gouverneur Morris of Pennsylvania “moved to strike out of Article
XXI the words, ‘conventions of the,’ after ‘ratification,’ leaving the
states to pursue their own modes of ratification.” Rufus King “thought
that striking out ‘conventions,’ as the requisite mode, was equivalent
to giving up the business altogether.” Madison pointed out that, “The
people were, in fact, the fountain of all power.” The motion of Morris
was beaten. An attempt was made to fill the blank in Article XXI with
the word “thirteen.” “All the states were ‘No’ except Maryland.” The
blank was then filled by the word “nine” the vote being eight to three.
The two articles were then passed, the vote thereon being ten to
one. (5 Ell. Deb. 499-502.)
On September 10, the beginning of the last business week of the
Convention, Gerry of Massachusetts moved to reconsider these two
Articles. The short discussion was not in connection with any matter
in which we are now interested. His motion was lost. The entire set
of worded Articles was then referred to a committee for revising the
style and arrangement of the Articles agreed upon. (5 Ell. Deb. 535.)
On Wednesday, September 12, that Committee reported our
Constitution, with its seven Articles, as we know them except for
some slight changes made during the discussions of the last three or
four days of the Convention. In these seven Articles, the language of
the earlier Article XXII did not appear. As it really was the statement
of the correct legal conclusion of the Convention that its proposed
Articles, because they would grant power to interfere with individual
freedom, must necessarily be made by the people themselves, its
proper place was outside the Constitution itself and in a special
Resolution of the same nature as every Congress resolution
proposing an amendment to that Constitution. That was the view of
the Committee and, on Thursday, September 13, the Committee
reported such special Resolutions, in the very words of the former
Article XXII. “The proceedings on these Resolutions are not given by
Mr. Madison, nor in the Journal of the Federal Convention. In the
Journal of Congress, September 28, 1787, Volume 4, p. 781, they
are stated to have been presented to that body, as having passed in
the Convention on September 17 immediately after the signing of the
Constitution.” (5 Ell. Deb. 602.)
This is the Resolution:
“Resolved, That the preceding Constitution be laid before the
United States in Congress assembled; and that it is the opinion of
this Convention, that it should afterwards be submitted to a
convention of delegates chosen in each state by the people thereof,
under the recommendation of its legislature, for their assent and
ratification; and that each convention, assenting to and ratifying the
same, should give notice thereof to the United States in Congress
assembled.
“Resolved, That it is the opinion of this Convention, that, as soon
as the conventions of nine states shall have ratified this Constitution,
the United States in Congress assembled should fix a day, etc.” (5
Ell. Deb. 541.)
This Resolution is the most authoritative statement of the legal
conclusion reached by these leaders of a people then “better
acquainted with the science of government than any other people in
the world.” The conclusion itself was compelled by accurate
knowledge that the government of “citizens” can validly obtain only
from the citizens themselves, by their direct grant, any power to
interfere with their individual freedom. The expression of that
knowledge, in the Resolution, is, in many respects, one of the most
important recorded legal decisions ever made in America. We
average Americans, educated with those Americans at Philadelphia
through their experience of the years between 1775 and 1787,
cannot misunderstand the meaning and importance of that decision.
Instructed by our review of their actions and their reasoning at
Philadelphia in reaching that conclusion and making that legal
decision, we know, with an accurate certainty, that it was their
declaration to the world and to us that no proposal from Philadelphia
suggested that Americans again resume the relation of “subjects” to
any government or governments.
Our minds impressed with this accurate knowledge that such was
not their purpose, we now prepare to complete our education as
American citizens, not subjects, by reading the Philadelphia story
and language of their Fifth Article, their only other Article which even
partly concerned the future grant of new government power to
interfere with individual American freedom. By reason of our
education, we will then come to the reading of the language of this
Article, as the Americans read it and understood it when they made it
in their “conventions” that followed the proposing convention of
Philadelphia.
Being educated “citizens” and not “subjects,” we ourselves will no
longer, as our leaders have done for five years, mistake the only
correct and legal answer to the indignant outburst of Madison, who
wrote this Fifth Article at Philadelphia. “Was, then, the American
Revolution effected, was the American Confederacy formed, was the
precious blood of thousands spilt, and the hard-earned substance of
millions lavished, not that the people of America should enjoy peace,
liberty, and safety, but that the governments of the individual states,
that particular municipal establishments, might enjoy a certain extent
of power, and be arrayed with certain dignities and attributes of
sovereignty? We have heard of the impious doctrine in the Old
World, that the people were made for kings, not kings for the people.
Is the same doctrine to be revived in the New, in another shape—
that the solid happiness of the people is to be sacrificed to the views
of political institutions of a different form?” (Fed. No. 45.)
The American answer, from the people of America assembled in
the conventions that ratified that Fifth Article, was a clear and
emphatic “No.” The Tory answer of the last five years, from our
leaders and our governments, has been an insistent “Yes.”
No one, however, with any considerable degree of truthfulness,
can assert that there has come from the American people
themselves, during the last five years, any very audible “Yes.” To
whatever extent individual opinions may differ as to the wisdom or
legality of the new constitution of government of men, made entirely
by governments, no unbiased observer has failed to note one
striking fact. By a very extensive number of Americans otherwise
law-abiding, Americans in all classes of society, the new government
edict, the government command to “subjects,” has been greeted with
a respect and obedience strikingly similar to the respect and
obedience with which an earlier generation of Americans received
the Stamp Act and the other government edicts between 1765 and
1776.
When the Americans of that earlier generation were denounced by
the government which had issued those edicts to its “subjects,” one
of the latter, five years before Americans ceased to be “subjects” of
that government, stated: “Is it a time for us to sleep when our free
government is essentially changed, and a new one is forming upon a
quite different system—a government without the least dependence
upon the people?”
It may be but a coincidence that, while our American government
was announcing its recognition of the wide-spread American
disrespect for the new government edict, it is only a few days since
throughout America there resounded many eulogies of the Samuel
Adams, who made that statement in the Boston Gazette of October
7, 1771. In those eulogies, there was paid to him the tribute that he
largely helped to bring about the amazing result of American desire
for individual freedom which culminated in the assembling of the
Americans in the “conventions” which ratified the proposed
Constitution.
We have already sensed that the existence of the supposed
Eighteenth Amendment depends entirely upon an amazing modern
meaning put into the Fifth Article made in those conventions. Let us,
therefore, who are Americans now educated in the experience of the
Americans who assembled in those “conventions,” sit therein with
them and there read the story and the language of the Fifth Article as
they read it when they made it.
CHAPTER IX
THE FIFTH ARTICLE NAMES ONLY
“CONVENTIONS”
It has been the misfortune of our prominent Americans of this

generation that they read the Fifth Article with preconceived notions
of its meaning. To the error of that method of reading it, we average
Americans will not pay the tribute of imitation. We know that its
meaning to those who made it in the “conventions” of the earlier
century is the meaning which it must have as part of the supreme
law of the land. That we may read it as they read it and get its clear
and only possible meaning, as they got it, we shall briefly review the
story of its wording and its proposal at Philadelphia. That Convention
immediately preceded the assembling of the people in their own
“conventions.” In each of their “conventions,” among the people
assembled, were some who had been prominent at Philadelphia,
such as Madison and Randolph and Mason in Virginia, Hamilton in
New York, Wilson in Pennsylvania and the Pinckneys in South
Carolina. Moreover, between the Philadelphia proposal and the
assembling of these conventions, Madison and Hamilton, proposer
and seconder of the Fifth Article at Philadelphia, had been publishing
their famous essays, now collectively known as The Federalist, in
the New York newspapers to explain the Articles worded at
Philadelphia and to urge their adoption. Under which circumstances,
it is clear that, if we want to read and know the meaning of the Fifth
Article as it was understood in those conventions, the Fifth Article
which named those same “conventions,” we must complete our
education by an accurate and brief review of the story of that Article
at Philadelphia. Only in that way shall we average Americans of
today be in the position in which were the Americans who made that
Article.
When we read that story of Philadelphia, in relation to the Fifth
Article, one thing stands out with amazing clarity and importance.
We already know how that Convention, until its last days, was
concentrated upon the hotly debated question of its own proposed
grants of national powers in the First Article. In the light of which
continued concentration, it is not surprising to learn that, until almost
the very last days, the delegates forgot entirely to mention, in their
tentative Fifth Article, the existing and limited ability of state
legislatures to make federal or declaratory Articles, and mentioned
only “conventions” of the people, who alone could or can make
national Articles.
The first suggestion of what we now know as the Fifth Article was
on the second day, May 29, when the Randolph Resolution 13 read
“that provision ought to be made for the amendment of the Articles of
union whensoever it shall seem necessary.” This wording was the
exact language of Resolution 17 of the report of the Committee of
the Whole. It was adopted by the Convention on July 23. Three days
later, with the other Resolutions, it was referred to the Committee of
Detail “to prepare and report the Constitution.” On August 6, this
Committee, in the first draft of our Constitution, reported the
following: “Art. XIX. On the Application of the legislatures of two-
thirds of the states in the Union, for an amendment of this
Constitution, the legislature of the United States shall call a
convention for that purpose.”
We see clearly why the delegates, their minds concentrated on
their own proposed grants of national powers, mentioned only the
people themselves, the “conventions” of the “Seventh” and “Fifth”
Articles, who alone can make national Articles, and forgot to mention
legislatures, because the latter never can make national Articles.
That kind of Article was the only thing they were then thinking about.
Naturally, it then escaped their attention that, if they proposed a wise
and proper distribution of national power between the new American
government and the respective existing state governments, almost
every future Article, if not every one, would be of the federal kind,
which legislatures or governments could validly make, as they had
made all the Articles of the existing federation. Clearly for that
reason this Article XIX never even mentioned the existing and limited
ability of legislatures.
Between this report of August 6 and August 30, the Convention
was again entirely occupied with the grants of national power and
the election of the legislators to exercise it or, in other words, with
what is now the First Article. On August 30, Article XIX was adopted
without any debate.
We are now aware that the Convention was within two weeks of its
end and no one had mentioned, in what is now the Fifth Article, the
state governments or legislatures as possible makers of federal
Articles, if and when such Articles were to be made in the future.
It was not until September 10, Monday of the last Convention
week, that Article XIX again came up for action, when Gerry of
Massachusetts moved to reconsider it. His purpose, as he himself
stated it, was to object because it made it possible that, if the people
in two-thirds of the states called a convention, a majority of the
American people assembled in that convention “can bind the Union
with innovations that may subordinate the state constitutions
altogether.” Hamilton stated that he could see “no greater evil, in
subjecting the people in America to the major voice than the people
of any particular state.” He went on to say that he did think the Article
should be changed so as to provide a more desirable “mode for
introducing amendments,” namely, drafting and proposing them to
those who could make them. In this respect he said: “The mode
proposed was not adequate. The state legislatures will not apply for
alterations, but with a view to increase their own powers. The
national legislature will be the first to perceive, and will be most
sensible to, the necessity of amendments; and ought also to be
empowered, whenever two-thirds of each branch should concur, to
call a convention. There could be no danger in giving this power, as
the people would finally decide in the case.” (5 Ell. Deb. 531.)
Roger Sherman of Connecticut then tried to have the Article
provide that the national government might also propose
amendments to the several states, as such; such amendment to be
binding if consented to by the several states, namely, all the states.
For reasons that will appear in a moment, this clear attempt to
enable the states, mere political entities, and their legislatures,
always governments, to do what they might wish with the individual
freedom of the American citizen—thus making him their subject—
was never voted upon. It was, however, seconded by Gerry of
Massachusetts. Its probable appeal to Sherman, always a strong
opponent of the national government of individuals instead of the
federal government of states, was that it would make it difficult to
take away any power from Connecticut, unless Connecticut wished
to give it up. Its appeal to Gerry, consistently a Tory in his mental
attitude to the relation of government and human being, was
undoubtedly the fact that it would permit government or governments
to do what they might wish with individual freedom. It does not
escape the attention of the average American that our governments
and leaders, during the last five years, have not only displayed the
mental attitude of Gerry but have also acted as if the proposal, which
he urged, had been put into what is our Fifth Article. Only on that
theory can we average Americans, with our education, understand
why governments in America have undertaken to exercise and to
vest in our government a national power over us, which power
neither is enumerated in the First Article nor was ever granted by the
citizens of America to their only government; nor can we understand
why our leaders have assumed that governments in America, which
are not even the government of the American citizens, can do either
or both of these things. We know, if governments and leaders do not,
that neither thing can ever be possible in a land where men are
“citizens” and not “subjects.”
CHAPTER X
ABILITY OF LEGISLATURES REMEMBERED
Living through the days of that Convention, we have now seen

three months and ten days of its sincere and able effort to word a
Constitution which would “secure the Blessings of Liberty” to the
individual American. We have seen them spend most of their time in
the patriotic endeavor to adjust and settle how much, if any, national
power to interfere with individual freedom that Constitution shall give
to its only donee, the new and general government. In other words,
we have seen the mind and thought and will of that Convention
almost entirely concentrated, for those three months and ten days,
upon the Article which is the constitution of government, the First
Article, with its enumerated grants of general power to interfere with
the human rights of the American citizen.
Keeping in mind the object of that intense concentration, the First
Article grants of power of that kind, we average Americans note, with
determined intent never to forget, the effect of that concentration
upon the wording of our Fifth Article up to that tenth day of
September. We note, with determined intent never to forget, that,
from May 30 to September 10, the only maker of future changes
mentioned was the “people” of America, the most important reservee
of the Tenth Amendment, the “conventions” of the American people
named in both the Seventh and the Fifth Articles.
As this fact and its tremendous meaning have never been known
or mentioned in the sorry tale of the five years from 1917 to 1922, we
average Americans are determined to dwell upon it briefly so that we
cannot escape an accurate appreciation of the short remaining story
of the one week at Philadelphia, in 1787, in relation to our Fifth
Article.

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Cost Accounting A Managerial

Emphasis Canadian 15th Edition

1) A master budget is ________.

2) Management by exception is a practice whereby managers focus more closely on ________.

4) An unfavorable variance indicates that ________.

Answer the following questions using the information below:

6) What is the static-budget variance of revenues?

7) What is the static-budget variance of variable costs?

Revenues $738,000 $720,000 $18,000 F

Answer the following questions using the information below:

9) What is the static-budget variance of revenues?

11) What is the static-budget variance of operating income?

Revenues $3,780,000 $3,885,000 $(105,000) U

12) What is the static-budget variance of revenues?

13) What is the static-budget variance of variable costs?

Revenues $3,080,000 $3,300,000 $(220,000) U

22) A favorable variance should be ignored by management.

1) The flexible budget contains ________.

3) A flexible budget ________.

6) In a flexible budget ________.

7) Which of the following information is needed to prepare a flexible budget?

8) Which of the following is true of flexible budget?

Answer the following questions using the information below:

10) The flexible-budget amount for materials is ________.

11) The flexible-budget variance for materials is ________.

12) The sales-volume variance for materials is ________.

Answer the following questions using the information below:

14) The flexible-budget amount for materials is ________.

15) The flexible-budget variance for materials is ________.

Answer the following questions using the information below:

17) The flexible-budget amount for materials is ________.

18) The flexible-budget variance for materials is ________.

19) The sales-volume variance for materials is ________.

Answer the following questions using the information below:

Actual Flexible Static

Sales revenues $600,000 $ $750,000

Contribution margin 292,800 $ 390,000

Fixed costs 274,800 $ ________ 270,000

23) The flexible-budget variance for variable costs is ________.

26) A flexible budget is calculated at the end of the budget period.

29) An unfavorable variance is conclusive evidence of poor performance.

Sales price $24 per unit

Units 10,000 11,000 12,000

Sales $240,000 $264,000 $288,000

Total variable costs 160,000 176,000 192,000

Contribution margin 80,000 88,000 96,000

Operating income/(loss) $ -0- $ 8,000 $ 16,000

b. $41,080 + $1,400 = $42,480

c. $15,860 + $200 = $16,060

d. $17,740 - $16,080 = $1,660 favorable

e. $16,080 - $15,140 = $940 favorable

f. $17,740 - $15,140 = $2,600 favorable

Actual Flexible Static

Sales revenues $500,000 $ $625,000

Contribution margin 244,000 $ 325,000

Fixed costs 229,000 $ ________ 225,000

The primary reason for low operating profits was ________.

Actual Flexible Static

Sales revenues $238,000 $ $230,000

Contribution margin 88,000 $ 50,000

Fixed costs 36,000 $ ________ 35,000

2) The flexible budget will report ________ for variable costs.