Chapter 14

Addison, Inc. master budget called for 1,000 units of product to be produced and sold during the period. The budgeted price was $15 per unit and budgeted variable cost was $7 per unit including $3.50 for direct labor (1/4 hours at $14 per hour) During the period, 950 units were actually produced and sold. Total actual variable costs were $6,500. This included $3,125 for 250 labor hours worked at $12.50 per hour. Calculate Addison's direct labor efficiency variance for the period:

$175 U The direct labor efficiency variance= (AQ-SQ) x SP [250 hours - (950 units x 1/4 hour per unit)] x $14/hr = (250-237.5) hours U x $14/hr = $175 U

Addison, Inc. master budget called for 1,000 units of product to be produced and sold during the period. The budgeted price was $15 per unit and budgeted variable cost was $7 per unit including $3.50 for direct labor (1/4 hours at $14 per hour) During the period, 950 units were actually produced and sold. Total actual variable costs were $6,500. This included $3,125 for 250 labor hours worked at $12.50 per hour. Calculate Addison's direct labor rate variance for the period.

$375 F The direct labor rate variance = AQ x (AP-SP) 250 hours x ($12.50-$14)/hour 250 hours x 1.50/hour favorable (actual is less than budgeted)

Addison, Inc. master budget called for 1,000 units of product to be produced and sold during the period. The budgeted price was $15 per unit and budgeted variable cost was $7 per unit. Total fixed costs on the master budget was $4,000. During the period, actual sales were 950 units. Total actual sales revenue was $13,900. Total actual variable costs were $6,500 and total actual fixed costs were $3,900. Assuming that 950 units is within the same operating range as the master budget, what amount of fixed costs will appear on the flexible budget?

$4,000 - as long as the actual level of sales is the same operating range as the operating range embodied in the master budget, fixed costs on the flexible budget are the same as fixed costs on the master budget

Relative of financial measures of performance, nonfinancial performance measures have the advantage of:

- being easier to quantify - being easier for operating personnel to understand - being effective predicts of future financial performance

The total flexible-budget variance for any given accounting period:

- can be broken down into a sales price variance and series of cost variances - is the difference between actual operating income earned and the flexible-budget operating income for the period

The sales volume variance:

- can be calculated for each income statement item (sales, variable costs, etc.) - expressed in terms of contribution margin is typically called the same as when expressed in terms of operating income - represents the impact on operating income of selling an amount different from the sales volume in the master budget

In conjunction with a standard cost system, journal entries to record direct labor cost include as:

- debit to WIP inventory for the standard direct labor cost of units produced - credit to direct labor rate variance account, if the labor rate variance is favorable

In a standard cost system where the price variance for direct materials is recorded at time of purchase, journal entries for the purchase of direct materials include a:

- debit to direct materials purchase-price variance account, if there is a unfavorable price variance - credit to the cash or accounts payable for the actual purchase price paid for direct materials during the period

Implementing a JIT system may lead to increased sales and market share due to:

- increases in product quality - reduction in cycle/processing time

The total flexible-budget variance for direct labor cost:

- is favorable if actual direct labor costs for the period < the standard direct labor cost allowed for the output achieved during the period - can be broken down (decomposed) into a price (rate) variance and a quantity (efficiency) variance

The usage variance (UV) for direct materials:

- measure the efficiency with which each raw material was used during the period - if favorable if the actual consumption of direct materials was less than standard for the output achieved - is equal to the difference between the standard and actual raw materials consumed, both stated at standard price

The direct materials usage variance:

- measures efficiency in using direct materials - can be caused by issues with production personnel

Ideal standards:

- reflect maximum efficiency - do not allow for production disruptions - can have negative behavioral consequences when used for performance-evaluation purposes

Limitation of using short-term financial-performance indicators for operational control include:

- the cost of designing, updating, and using a standard cost system can be substantial - the tendency of managers to make decisions that improve short-term financial but not long-term performance - operating personnel prefer non-financial performance indicators, which they view as more readily understandable

An effective Just-in-Time (JIT) manufacturing process is one:

- the focuses on the elimination of waste and inefficiency - in which production at any stage of a process does not take place until an order from a customer is received

Plausible causes for a direct materials usage variance include:

- the use of improved operating procedures - variation in the quality of raw material inputs - inadequate training of employees - poor (i.e., tax) supervisor or oversight of employees

Nonfinancial performance measures:

- together with financial performance indicators they help form a comprehensive management accounting and control system - complement financial measures of performance

A flexible budget:

Adjusts budgeted costs and revenues to actual sales volume (and mix, for a multi-product firm) achieved during the period

The total flexible-budget variance for direct labor:

Compares actual direct labor cost incurred to the standard labor cost that should have been incurred, given the output of the period

S&P Enterprises uses a standard cost system. The standard wage rate and time required for Product PQ-2 is $30 per direct labor hour and 3/4 hour per unit. Last month, 1,000 units were produced. The total direct labor cost was $25,000 for 1,000 total hours. To record S&P's direct labor rate variance for the month requires a:

Credit of $5,000 F 1,000 hours x ($30-$35)

S&P Enterprises uses a standard cost system and records variances for the cost of direct materials at the time of purchase. The standard cost of material ABC is $3.00 per pound and standard usage is 1.5 pounds per unit. Last month, the purchase price for the materials was $3.50 per pound and each of the 1,000 units produced used 1.25 pounds. To record S&P's direct material usage variance for the month requires a:

Credit of $750 (1.5-1.25)= .25 pounds .25 pounds x 1,000 units = 250 pounds at a standard cost of $3 per pound = $750 favorable

When using a standard cost system, a favorable variance is recorded with a _______ and an unfavorable variance is recorded with a ____________

Credit, debit

Performance expectations are set to a level that people with proper training and experience can achieve most of the time without extraordinary effort when ____________________ standards are in use

Currently attainable

S&P Enterprises uses a standard cost system. The standard wage rate and time required for Product PQ-2 is $30 per direct labor hour and 3/4 hour per unit. Last month, 1,000 units were produced. The total direct labor cost was $25,000 for 1,000 total hours. To record S&P's direct labor efficiency variance for the month requires a:

Debit of $7,500 U 1,000 hours - (1,000 x 3/4 hour) = excess hours x $30

In a typical standard cost system where the price variance for direct materials is recorded at point of purchase, journal entires for issuance of direct materials to production include a:

Debit to WIP inventory account

In a typical standard cost system where the price variance for direct materials is recorded at point of purchase, journal entries for the issuance of direct materials to production include a:

Debit to the WIP inventory account

The difference between total materials cost incurred during a period and the flexible budget amount for direct materials is called the direct materials _______________ variance

Flexible-budget

Maximum efficiency in every aspect of an operation is reflected in a(n) _________ standard

Ideal

Both financial and non-financial control performance indicators are included in _________________ systems

Operational control

The three facets of a standard cost for direct materials of a product are ________,_______, and ___________

Quality, quantity, and price

A favorable direct labor ______ variance would be expected when using employees with a lower skill level than specific in the standard cost sheet

Rate

The difference between the master budget operating income and the flexible-budget operating income is the:

Sales value variance

The difference between the actual sales dollars earned during a given period and the flexible-budget sales dollars for the period is the _________ variance

Selling price

The difference between the actual sales dollars earned during a given period and the flexible-budget sales dollars for the period is the __________ variance

Selling price

The cost that a firm should incur, when operating under relatively efficient conditions, is referred to as a ___________

Standard cost

Budgeted variable cost per unit (both manufacturing and manufacturing) is contained in the:

Standard cost sheet

The difference between total variable cost in the flexible budget and actual variable costs incurred is:

The total variable cost flexible-budget variance

If actual variable costs in a period are less then flexible budget variable costs:

The total variable cost flexible-budget variance for the period is favorable

To master (static) budget variance is also called the ___________________ variance

Total operating income

The general term used to describe the set of procedures, tools and system organizations use to ensure progress is being made toward accomplishing organizational goals and objectives is __________

control

The direct materials usage variance is also referred to as a(n) _____________ or ______________ variance

efficiency, quantity