a

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the labor efficiency variance.

$10,000 U

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the direct labor rate variance.

$1,000 U

Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost?

$10 $2 +$4 + $1 + $3=$10

When compared to the budgeted amount, if the actual cost or revenue contributes to a lower income, then the variance is considered

unfavorable

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials price variance.

$720 F

Freshmart, Incorporated, began operations last year when it produced and sold the same number of units. This year, the company produced 1,000 units and sold 750 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit. Using absorption costing, income was:

$11,250

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor rate variance.

$14,400 U

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the labor efficiency variance.

$2,000 F

Freshmart, Incorporated, began operations this year. The company produced 1,000 units and sold 1,000 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit. Using absorption costing, income was:

$20,000.

Units produced1,000Direct materials$ 6Direct labor$ 10Fixed overhead$ 6,000Variable overhead$ 6Fixed selling and administrative$ 2,000Variable selling and administrative$ 2 The cost per unit under variable costing is:

$22.

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials variance.

$220 F

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor variance.

$24,400 U

Units produced 1,000Direct materials $6 Direct labor $10 Fixed overhead $6,000 Variable overhead $6Fixed selling and administrative$ 2,000Variable selling and administrative$ 2 The total product cost per unit under absorption costing is:

$28.

XYZ Company makes one product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials price variance.

$5,000 U

The fixed budget indicates sales of $50,000. Actual sales were $55,000. The variance is:

$5,000 favorable

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials quantity variance.

$500 U

The fixed budget indicates direct labor costs of $27,500. Actual direct labor costs were $27,000. The variance is:

$500 favorable

A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries will be $

$5000

XYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials quantity variance.

$7,000 F

List the steps in cost variance analysis, with the first step on top.

1. Prepare reports 2. Analyze variances 3. Q&A 4. Take action

A company sells a product for $3. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted sales will be -----1-----$. At a sales volume of 60 units, budgeted sales will be $.--2----

1.150 2.180

Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is:

12

XYZ Company makes one product and has calculated the following amounts for direct materials: Actual cost: AQ x AP = $150,000; AQ x SP = $145,000; Standard cost: SQ x SP = $152,000. Compute the direct materials variance.

2,000 f

A student is considering adding a minor to her degree. The additional courses would cost $1,500 but would allow additional income upon graduation of $10,000. The incremental income related to this decision is:

8500

A company sells a product for $3. Direct materials are $1.80 per unit. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted direct materials will be $. At a sales volume of 60 units, budgeted direct materials will be $.

90 108

When units produced equals units sold, income under absorption costing will be ______ (>,<,=) net income under variable costing.

=

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the direct labor cost variance.

= $ 1,000 F

Which costing method can be helpful to management in setting prices because it reflects full costs that sales must exceed for the company to be profitable?

Absorption costing

Match the cost variance component to its definition. Instructions

Actual quantity-------The input used to manufacture the quantity of output Standard quantity------The expected input for the quanntity of output Actual price-------The amount paid to acquire input Standard price-----The expected price

Which of the following is the correct formula?

Cost variance = (AQ x AP) - (SQ x SP)

In a make or buy decision, management should consider: (Check all that apply.)

Incremental costs Workload product quality Employee morale

A company incurred $1,000 in costs to produce 500 units which normally sell for $1,500. Upon inspection, it was determined the units were defective and reworking the units would cost an additional $1.50 per unit. The defective units can be sold as is for $1.00 each. How should the company handle the defective units?

Rework the units which will generate incremental income of $250.

Preset costs for delivering a product or service under normal conditions are called

Standard

cost arises from a past decision, cannot be avoided or changed, and is irrelevant to current and future decisions.

Sunk

A company currently makes a component used in production. The per unit costs incurred to make the component include: Direct materials: $5; Direct labor: $2; Overhead: $4; Total cost: $11. Twenty-five percent of the overhead costs are considered incremental. The company can purchase the component from another source for $10. The company should do which of the following?

The company should make the components because incremental costs are $2 less than the purchase price.

A student purchased a used car for $5,000. Three months later, the student discovers the car needs major repairs which will cost $2,000. The student must decide whether to repair the car or purchase another car. Which statement is correct?

The relevant costs are $2,000.

True or false: A flexible budget reporting sales volumes at three different levels will have the same fixed costs.

True

A flexible budget has which of the following characteristics?

Useful to compare what-if scenarios Useful for evaluating past performance Often based on several levels of activity

Over the long run, the starting point for setting selling prices should be established by adding the target markup to the _________ cost per unit.

absorption

When manager bonuses are tied to income computed under ___________ costing, these managers may be tempted (even enticed) to increase production, since doing so will increase income and their bonuses.

absorption

An income statement prepared using the ___________ highlights the impact of each cost element for income and is also useful in aiding managers in pricing.

absorption costing

Variance analysis allows management to assign responsibility for variances so that:

action can be taken to correct the situation

The last step in the decision making process is:

analyze and assess the decision

A flexible budget prepared (before/after) the period begins allows management to make adjustments to increase profits or decrease losses.

before

(neither, both) costing method(s) is helpful to management in setting prices.

both

format income statement reports variable costs separately from fixed costs.

contribution

An income statement which separately reports variable costs from fixed costs is known as a(n)

contribution format

An income statement which shows the excess of sales over variable costs is referred to as a

contribution margin

Sales minus variable costs is called

contribution margin

Makum Company is using variable costing. Which of the items below would you see on Makum's income statement?

contribution margin variable expenses net income

The flexible budget performance report directs management's attention to areas where: (Check all that apply.)

costs differ substantially from budgeted amounts. revenues differ substantially from budgeted amounts.

List the steps of the decision making process, with the first step on top. Instructions Choice 1 of 5. Analyze and assess decision toggle button Analyze and assess decision Choice 2 of 5. Collect relevant information toggle button Collect relevant information Choice 3 of 5. Select the course of action toggle button Select the course of action Choice 4 of 5. Define the decision toggle button Define the decision Choice 5 of 5. Identify alternatives toggle button Identify alternatives

define the decision identify alternative, collect relevant information select the course of action, analyze and assess decision

An income statement under absorption costing includes all of the following:

direct material direct labor variable overhead fixed overhead

The variable costing method includes all of the following costs (select all that apply):

direct materials variable overhead direct labor

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:

ending inventory

All of the following individuals work to help set standard costs:

engineers purchasing managers managerial accountants

When units produced equals units sold, income under variable costing as compared to net income under absorption costing will be

equal to

Production planning is important because producing too much can lead to

excess

A system of rewarding managers by linking bonuses to income computed under absorption costing may result in:

excess inventory buildup

When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered

favorable

budget is based on one predicted amount of sales or other activity measure.

fixed

The static budget is an example of a:

fixed budget

The report that compares actual performance and budgeted performance based on actual activity level is called a ______ budget performance report.

flexible

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be (greater, less) than income calculated under variable costing.

greater

When resources are constrained and products use different inputs, the company should produce the product with the:

highest contribution margin per unit of constrained resource

standard is the quantity of material required if the process is 100% efficient without any loss or waste.

ideal

The first step in preparing a flexible budget is to:

identify activity levels

is incremental revenues minus incremental costs.

income

If management incentives are tied to income under absorption costing, which of the following may occur (select all that apply):

increased financing costs possible obsolescence increased storage costs.

costs, also called differential costs, are the additional costs from selecting a certain course of action.

incremental

Managers should accept special orders if the special-order price

is greater than variable cost

When analyzing variances, it is most likely that management will direct their attention to: (Select all that apply).

large and favorable variances large and unfavorable variances

_ run, selling prices must cover both fixed and variable costs.

long

Budget reports are commonly prepared for: (Check all that apply).

month. a year. a quarter.

Under absorption costing, when ___________ units are produced than are sold, some of the fixed overhead is assigned to ending inventory on the balance sheet.

more

Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?

net income cost of goods sold gross margin

A student is deciding whether to take an additional class or work extra hours. Which amounts are relevant to this decision? (Check all that apply.)

opportunity costs out-of-pocket costs

When making decisions, managers should consider all relevant benefits and relevant costs, which include: (Check all that apply.)

opportunity costs. out-of-pocket costs. incremental costs.

cost requires a future outlay of cash and is relevant for decisions.

out-of-pocket

When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.

per unit; in total

If management incentives are tied to income under absorption costing, which of the following may occur:

possible inventory obsolescence

standard is the quantity of material required under normal operations.

practical

variance is the difference between the actual price per unit and the standard price per unit.

price

variance is the difference between the actual quantity of input used and the standard quantity of input that should have been used.

quantity

Incremental or differential costs are_______ costs in making decisions.

relevant

------- compare actual results to budgeted results.

report

Budget ------compare actual results to budgeted results.

reports

When making sell or process decisions, management should consider: (Check all that apply.)

revenue from selling after further processing. incremental costs of processing further. revenue from selling as is.

A contribution margin income statement shows:

sales-variable costs

Contribution margin is the excess of

sales-variable costs.

A manufacturing company currently produces 1,000 units of a product at a cost of $5,000. The units sell for $7,000. Alternatively, the company can process the units further to produce a refined product that will sell for $10,000. The additional processing will cost $4,000. The company should:

sell as is because the incremental income of selling as is versus processing further will increase income by $1,000

A flexible budget performance report indicates a sales variance of $200 unfavorable. The variance was likely caused by:

selling units for less than the budgeted price

Costs developed which identify what products should cost are called

standard costs.

When products use the same inputs, the company should produce the product with:

the highest contribution margin per constrained resource

Standard costs have which of the following characteristics? (Check all that apply.)

they are used to help management understand reasons for variances they are preset costs for delivering a product or service under normal conditions production managers help determine production requirements for a unit of product

Managers cannot increase income under ___________ costing by merely increasing production without increasing sales.

variable

Under the (absorption,variable) costing method only variable costs are assigned to products.

variable

When using absorption costing, all of the following are included in product costs (select all answers that are applicable):

variable overhead direct materials fixed overhead direct labor