ACCT 202 CH 08

T/F When a flexible budget is used in a performance evaluation, actual costs are compared to the static planning budget.

False. Actual costs are compared to what the costs should have been for the actual level of activity during the period.

If the planned budget revenue for 5,000 unites is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units? $118,000 $180,000 $108,000 No change in revenue.

$120,000/5,000 = $24 per unit x 4,500 = $108,000

Use the following information to calculate the labor efficiency variance for Adkinson Company. Act. hrs. used - 5,500 St. Hrs. used - 5,800 Act. labor rate - $14.75 per hr. St. rate - $14 per hr. Pick one: $4,425 Favorable $4,125 Unfavorable $4,200 Favorable

$14(5,500 - 5,800) = 4,200 Favorable

Definition of unfavorable variance

actual revenue is less than budgeted revenue

Definition of favorable variance

actual revenue is more than budgeted revenue

The variable overhead efficiency variance compares the ____ hours times the standard rate with the standard hours allowed for the actual output times the ______ rate.

actual; standard

To calculate a price variance, multiply the _____ quantity times the actual price and compare it to the actual quantity times the ______ price.

actual; standard

When calculation the labor rate variance, multiply the actual hours worked times the _______ labor rate and compare it to the actual hours worked times the ______ labor rate.

actual; standard

Flexible budget

an estimate of what revenues and costs should have been given the actual level of activity for the period.

The materials price variance if the difference b/w the act. price of the materials: and the standard price for materials w/ the diff. multiplied by the actual quantity of materials. times the ac. quantity of materials and the standard price of materials times the stand. quantity allowed for production. and the stand. price for materials w/ the diff. multiplied by the stand. quantity of materials allowed.

and the standard price for materials w/ the diff. multiplied by the actual quantity of materials.

A materials price variance is _____ when the standard price is higher than the actual price. favorable unfavorable

favorable

When the act. quantity of materials used is less than the standard quantity allowed, the material quantity variance is labeled as ______.

favorable

Quantity standards

how much of an input should be used to make a product or provide a service.

The difference b/w the standard and the actual direct labor hourly rates is reflected in the ____ _____ variance.

labor rate

Labor rate variance

measures the diff. b/w the act. hourly rate and the standard hourly rate, multiplied by the actual number of hours worked during the period.

materials price variance

measures the difference b/w an input's act. price and its standard price, multiplied by the act. quantity purchased.

variable overhead efficiency rate

measures the difference b/w the act. level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.

Materials quantity variance

measures the difference b/w the act. quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials.

variable overhead rate

measures the difference b/w the act. variable overhead cost incurred during the period and the standard cost that should have been incurred based on the actual activity of the period.

Planning budget

prepared before the period begins and is valid for only the planned level of activity.

Most companies compute the material price variance when materials are ____ and the material quantity variance when materials are ____. purchased, purchased purchased, used used, used used, purchased

purchased, used

The difference b/w the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a(n) ______ variance.

quantity

The standard labor rate per hour: should only include hourly wages and employment taxes. is often determined using time and motion studies. should account for differences in skill and seniority. reflects the expected mix of workers.

reflects the expected mix of workers.

Standard cost card

shows the standard quantity (or hours) and standard price (or rate) of the inputs required to produce a unit of a specific product.

Price standards

specify how much should be paid for each unit of the input.

A benchmark used in measuring performance is called a(n) _______.

standard

The most difficult standard to determine is perhaps the: standard hours per unit. standard rate per direct labor hour. standard quantity per unit standard price per unit

standard hours per unit.

An unchanging planning budget is known as a(n) ______ planning budget.

static

Price variance

the difference b/w how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of input.

The standard price of the material is used in the calculation of the material quantity variance because: using act. prices would hold the production manager responsible for the inefficiencies of the purchasing manager. act. prices are not known when the materials quantity variance is calculated. using act. prices is unfair to the purchasing manager. materials are acquired at their standard prices, not their actual prices.

using act. prices would hold the production manager responsible for the inefficiencies of the purchasing manager.

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $.20 unit, and actual fixed costs total $500, which of the following are true? Pick ALL that apply $1,300 in total costs $4,700 net income $4,200 net income $800 in total costs

$1,300 in total costs 4,000 units x $0.20 + $500 = $1,300 $4,700 net income $6,000 - (4,000 x $0.20) - $500 = $4,700 net income

Given the following info, calculate the variable overhead efficiency variance Act. hrs. - 1,500 St. hrs. allowed - 1,350 Act. V.O.R. - $3 per hr St. V.O.R. - $3.50 per hr $450 Favorable $450 Unfavorable $525 Unfavorable $525 Favorable

$3.50(1,500 - 1350)

The standard price of materials is $4.10 per lb and the stand. quantity allowed for act. output is 5,800 lbs. If the act. quantity purchased and used was 6,000 lbs, and the act. price per lb was $4, the direct materials price variance is: $600 F $600 U $580 U $580 F

$600 F 6,000 x ($4 - $4.10) = $600 F

Spending variances are computed by...

...taking the amounts in the actual results column and subtracting the amounts in the flexible budget column.

Standard quantity or hours allowed refers to...

...the amount of an input that should have been used to manufacture the actual output of finished goods produced during the period.

Warren, Inc. standard cost card indicates that each widget should require 2 lbs. of material. In July Warren budgeted 2,000 widgets and actually produced 1,500 widgets. Each widget produced used 2.2 of material. The standard quantity of materials allowed for July is: 3,300 lbs 3,000 lbs 4,000 lbs 4,400 lbs

3,000 lbs SQ x Actual Output

A company's cost of supplies for when 5,000 units are sold is $7,500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected? The cost remains the same. $437.50 $962.50

350 x 1.25 = $437.50 Fixed costs remain the same.

Labor rate variance =

AH(AR - SR)

variable overhead rate variance =

AH(AR - SR)

The standard quantity allowed for production equals: AO x AQ SO x SQ SO x AQ AO x SQ

AO x SQ

The standard quantity allowed for production equals: Act. output x act. quantity Standard output x act. quantity Act. output x standard quantity Standard output x standard quantity

Act. output x standard quantity

The materials price variance is calculated using the ___ quantity of the input purchased: standard actual

Actual

Standard quantity allowed for actual input = .....

Actual output x Standard quantity AQ x SQ

Which of the following statements is true? Improvement programs require waste and spoilage allowances as benchmarks. The standard quantity for materials rarely includes an allowance for waste and rejects. An allowance for rejects increases the standard quantity per unit of materials.

An allowance for rejects increases the standard quantity per unit of materials.

T/F Quantity standards refer to the price to be paid for each unity of the input.

False

T/F The labor rate variance measures the productivity of direct labor.

False

When the actual cost is less than the standard cost allowed for the planned output the spending variance is labeled as: Favorable Unfavorable

Favorable

_____ _____ take into account how changes in activity affect costs.

Flexible budgets

Which of the following statements are true? Pick ALL that apply Assigning highly skilled, highly paid worked to low skill, low pay level jobs will cause a favorable labor rate variance. How production supervisors use direct labor workers can lead to labor rate variances. Wage rates paid to workers are unpredictable in most companies. Overtime premiums can cause an unfavorable labor rate variance.

How production supervisors use direct labor workers can lead to labor rate variances. Overtime premiums can cause an unfavorable labor rate variance.

Can you compare revenues and costs at a different level of activity?

No. It's like comparing apples to oranges.

Which of the following statements are true? Pick ALL that apply Wage rates paid to workers are unpredictable in most companies. Overtime premiums can cause an unfavorable labor rate variance. How production supervisors use direct labor workers can lead to labor rate variances. Assigning highly skilled, highly paid workers to low skill, low pay level jobs will cause a favorable labor rate variance.

Overtime premiums can cause an unfavorable labor rate variance. How production supervisors use direct labor workers can lead to labor rate variances.

How much should be paid for each unit of an input is specified by a(n) ______ standard.

Price

Labor efficiency variance =

SR( AH - SH)

variable overhead efficiency variance =

SR(AH - SH)

The amount of an input that should have been used to produce the actual output is known as the ______ quantity or hours allowed.

Standard

The final, delivered price that should be paid for each unit of direct materials is the _____ price per unit of materials.

Standard

T/F If either the quantity or acquisition price of an input departs significantly from the standard, managers investigate the discrepancy to find the cause of the problem and eliminate it.

True

T/F Revenue is used in the planning budget rather than sales.

True

T/F The variable overhead rate variance uses the same basic formula as the labor rate variance except that the variable overhead rates are used instead of the direct labor rates.

True

If the actual level of activity differs from the level of activity used on the planning budget: Pick ALL that apply Total cost should not change. Variable costs may be lower than expected. Variable costs may be higher than expected. Variable costs will stay the same.

Variable costs may be lower than expected. Variable costs may be higher than expected.

Unfavorable

When actual is higher than budgeted or standard.

Standard

benchmark for measuring performance.

A quantity variance is: based only on the standard quantity of inputs. calculated using the actual price of the input. based only on the actual quantity of inputs. calculated using the standard price of the input.

calculated using the standard price of the input.

Standard hours per unit

defines the amount of direct labor-hours that should be used to produce one unit of finished goods.

Standard quantity per unit

defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage.

Standard rate per hour

defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits.

Standard price per unit

defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials.

Quantity variance

difference b/w how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input.

Spending variance

difference b/w the actual amount of the cost and how much a cost should have been, given the actual level of activity.

Revenue variance

difference b/w the actual total revenue and what the total revenue should have been, given the level of activity for the period.