CPS Financial Analysis & Reporting 3 — Questions and Answers
Question 1: Which of the following best describes a payroll cost center analysis?
- A report showing total taxes withheld per employee
- A breakdown of payroll expenses attributed to specific departments or business units (Correct answer)
- A reconciliation of bank deposits to payroll checks
- A summary of year-to-date gross wages
Correct answer: A breakdown of payroll expenses attributed to specific departments or business units
Cost center analysis allocates payroll costs to specific organizational units to help management understand labor spending by department.
Question 2: A company pays employees twice a month (semi-monthly). How many payroll accrual entries would typically be needed in a fiscal year?
- 12
- 24 (Correct answer)
- 26
- 52
Correct answer: 24
Semi-monthly payroll results in 24 pay periods per year (2 per month × 12 months), requiring 24 payroll entries.
Question 3: The purpose of a payroll to Form 941 reconciliation is to ensure that:
- Employee W-2s match Social Security Administration records
- Total wages and taxes reported on 941s match the payroll register for the year (Correct answer)
- Payroll bank accounts are properly funded
- Overtime hours comply with FLSA rules
Correct answer: Total wages and taxes reported on 941s match the payroll register for the year
Reconciling payroll to Form 941 verifies that quarterly tax reports accurately reflect wages paid and taxes withheld as recorded in payroll data.
Question 4: An employer's FUTA tax liability is reduced by the credit for state unemployment taxes paid. What is the maximum FUTA credit allowed?
- 2.7%
- 5.4% (Correct answer)
- 6.0%
- 0.6%
Correct answer: 5.4%
Employers can receive a maximum FUTA credit of 5.4% for timely paid state unemployment taxes, reducing the effective FUTA rate to 0.6%.
Question 5: When analyzing overtime costs, which formula correctly expresses the overtime premium as a percentage of regular pay?
- (Total OT hours / Total hours) × 100
- [(OT rate − Regular rate) / Regular rate] × 100 (Correct answer)
- (OT pay / Gross pay) × 100
- (Total OT pay / OT hours) × 100
Correct answer: [(OT rate − Regular rate) / Regular rate] × 100
The overtime premium percentage compares the extra cost above regular rate to the regular rate, showing how much more OT labor costs.
Question 6: A payroll variance report shows that actual payroll exceeded budget by 8%. Which factor would NOT typically explain this variance?
- Higher-than-planned overtime
- New hires above headcount budget
- A decline in employee turnover (Correct answer)
- Across-the-board merit increases processed early
Correct answer: A decline in employee turnover
A decline in turnover means fewer departures and replacements, which would generally reduce costs through avoided hiring expenses rather than increasing payroll.
Question 7: For internal financial reporting, which document serves as the primary source of detail for all payroll transactions within a given period?
- Form W-3
- General ledger trial balance
- Payroll register (Correct answer)
- Bank reconciliation statement
Correct answer: Payroll register
The payroll register is the detailed record of each payroll run, listing all employee earnings, deductions, and net pay for the period.
CPS Financial Analysis & Reporting 3
Which of the following best describes a payroll cost center analysis?