ACCT 2101 Exam 2

Clark Company manufactures a product with a standard direct labor cost of two hours at $18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour. The labor price variance was a $1,260 U b $4,860 U c $4,860 F d $3,600 U

a $1,260 U

A total materials variance is analyzed in terms of

price and quantity variances

T/F: The manufacturing overhead budget generally has separate sections for variable, mixed, and fixed costs.

False

The primary recipients of the sales report are the sales manager and the production supervisor

False

Top management's reaction to unfavorable differences is not influenced by the materiality of the difference

False

T/F: A Sales Budget is derived from the Production Budget

False

T/F: A static budget is changed only when actual activity differs from the expected level of activity.

False

T/F: All budget reports are prepared on a weekly basis

False

T/F: Budgetary control works best when a company has an informal reporting system

False

T/F: Once set, normal standards should not be changed.

False

T/F: The direct materials budget must be completed before the production budget because the quantity of materials available for production must be known.

False

A static budget is a projection of budget data at a single level of activity

True

A static budget is not appropriate in evaluating a manager's effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the cost is fixed

True

T/F: An unfavorable labor quantity variance indicates that the actual number of direct labor hours worked was greater than the number of direct labor hours that should have been worked for the output produced.

True

T/F: As a result of analyzing budget reports, management may either take corrective action or modify future plans

True

T/F: Budget Reports compare actual results with planned objectives

True

T/F: Budget reports compare actual results with planned objectives.

True

T/F: Budget reports provide feedback needed by management to see whether actual operations are on course.

True

T/F: Budgets are statements of management's plans stated in financial terms.

True

T/F: Effective budgeting requires clearly defined lines of authority and responsibility.

True

T/F: Management uses budget reports to analyze differences between actual and planned results and to determine their causes

True

T/F: The flexible budget report evaluates a manager's performance in two areas: (1) production and (2) costs.

True

T/F: The materials price standard is based on the purchasing department's best estimate of the cost of raw materials.

True

T/F: The production department may be responsible for a direct materials price variance.

True

T/F: The use of an inexperienced worker instead of an experienced employee can result in a favorable labor price variance but an unfavorable quantity variance.

True

T/F: Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.

True

The primary recipient of the scrap report is the production manager

True

Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870 boxes, during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500 pounds in ending inventory.What is the total amount to be budgeted for manufacturing overhead for the month? a $2,871 b $2,970 c $11,484 d $11,880

a $2,871

The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was a $3,200 favorable b $2,400 favorable c $3,200 unfavorable d $5,600 unfavorable

a $3,200 favorable

The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was a $3,200 favorable. b $3,200 unfavorable. c $5,600 unfavorable.

a $3,200 favorable.

At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At 15,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90,000. Total fixed costs and unit variable costs are a $30,000 fixed plus $4 per direct labor hour variable. b $30,000 fixed plus $6 per direct labor hour variable. c $60,000 fixed plus $2 per direct labor hour variable. d $60,000 fixed plus $4 per direct labor hour variable.

a $30,000 fixed plus $4 per direct labor hour variable.

Scorpion Production Company planned to use 1 yard of material per unit budgeted at $81 a yard. However, the material actually cost $80 per yard. The company actually made 3,900 units, although it had planned to make only 3,300 units. Total yards used for production were 3,960. What is the total materials variance? a $900 U b $3,960 F c $4,860 U d $48,600 U

a $900 U

The following information is taken from the production budget for the first quarter:Beginning finished goods units 1,200Expected sales units 426,000Capacity in units of production facility 472,000How many units of finished goods should be produced during the quarter if the company desires 3,200 finished goods units available to start the next quarter? a 428,000 b 424,000 c 474,000 d 429,200

a 428,000

If there were 60,000 pounds of direct materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 410,000 pounds are required for January production, how many pounds of direct materials should be purchased in January? a 470,000 pounds b 530,000 pounds c 290,000 pounds d 350,000 pounds

a 470,000 pounds

Which of the following statements is false? a A standard cost is more accurate than a budgeted cost. b A standard is a unit amount. c Conceptually, standards and budgets are essentially the same. d The standard cost of a product is equivalent to the budgeted cost per unit of product.

a A standard cost is more accurate than a budgeted cost.

Budgeting is usually most closely associated with which management function? a Planning b Directing c Motivating d Controlling

a Planning

Assume that actual sales exceed the budgeted sales for the second quarter. This favorable difference is greater than the unfavorable difference reported for the first quarter sales. Which of the following statements about the sales budget report on June 30 is true? a The year-to-date results will show a favorable difference. b The year-to-date results will show an unfavorable difference. c The difference for the first quarter can be ignored. d The sales report is not useful if it shows a favorable and unfavorable difference for the two quarters.

a The year-to-date results will show a favorable difference.

11.1 Actual costs that vary from standard costs can indicate inefficiencies. a True b False

a True

If the labor quantity variance is unfavorable and the cause is the inefficient use of direct labor, the responsibility rests with the a production department b budget office c controller's department

aproduction department

The standard number of hours for the output attained is 10,000 direct labor hours and the actual number of direct labor hours worked was 10,500. If the direct labor price variance was $10,500 unfavorable and the standard rate of pay was $12 per direct labor hour, what was the actual rate of pay for direct labor? a $9 per direct labor hour b $13 per direct labor hour c $12 per direct labor hour

b $13 per direct labor hour

The standard rate of pay is $20 per direct labor hour. If the actual direct labor payroll was $117,600 for 6,000 direct labor hours worked, the direct labor price variance is a $2,400 unfavorable b $2,400 favorable c $3,000 unfavorable d $3,000 favorable

b $2,400 favorable

Walt Bach Company has accumulated the following budget data for the year 2022. Sales: 40,000 units, unit selling price $50. Cost of one unit of finished goods: Direct materials 2 pounds at $5 per pound, direct labor 1.5 hours at $12 per hour, and manufacturing overhead $6 per direct labor hour. Inventories (raw materials only): Beginning, 10,000 pounds; desired ending, 15,000 pounds. Raw materials cost: $5 per pound. Selling and administrative expenses: $200,000. Income taxes: 20% of income before income taxes.Calculate budgeted net income for 2022. a $302,000 b $256,000 c $295,000 d $356,000

b $256,000

Clark Company manufactures a product with a standard direct labor cost of two hours at $18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour. The labor quantity variance was a $3,660 F b $3,600 U c $2,460 U d $3,660 U

b $3,600 U

Smith company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,500 pounds of direct materials were purchased for $5,700 and entered into production. The direct materials price variance for last month was a $5,700 favorable. b $300 favorable. c $150 favorable. d $300 unfavorable.

b $300 favorable.

Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are as follows:Fixed manufacturing costs $50,000 per monthVariable manufacturing costs $12.00 per ton of steelNikoto produced 40,000 tons of steel during March. What is the flexible budget for total manufacturing costs for March? a $650,000 b $530,000 c $480,000 d $600,000

b $530,000

The predetermined overhead rate for Zane Company is $5, comprised of a variable overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $5. Actual overhead for June was $9,500 variable and $6,050 fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total overhead variance is a $550 F b $550 U c $3,050 U

b $550 U

Smart Manufacturing budgeted costs for 50,000 linear feet of block are as follows:Fixed manufacturing costs $24,000 per monthVariable manufacturing costs $16.00 per linear footSmart installed 40,000 linear feet of block during March. What amount would be reported on a flexible budget for total manufacturing costs in March? a $640,000 b $664,000 c $800,000 d $824,000

b $664,000

The total variance is $35,000 unfavorable. The total materials variance is $14,000 unfavorable. The total labor variance is twice the total overhead variance. What is the total overhead variance? a $3,500 U b $7,000 U c $10,500 U d $1,400 U

b $7,000 U

The equation for the materials price variance is a (AQ × SP) - (SQ × SP) b (AQ × AP) - (AQ × SP) c (AQ × AP) - (SQ × SP) d (AQ × SP) - (SQ × AP)

b (AQ × AP) - (AQ × SP)

Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will increase by 18,000 units for each subsequent quarter during the year. The company has, and desires, an ending finished goods inventory equal to 25% of the next quarter's sales . Each unit sells for $25. Forty percent of the sales are for cash. Seventy percent of credit customers pay within the quarter. The remainder is collected in the quarter following the sale.Production in units for the third quarter should be budgeted at a 274,500 b 220,500 c 207,000 d 216,000

b 220,500

The production budget shows expected sales units are 100,000. The required production units are 104,000. What are the beginning and desired ending finished goods units, respectively? a Beginning units: 10,000 Ending units: 6,000 b Beginning units: 6,000 Ending units: 10,000 c Beginning units: 4,000 Ending units: 10,000 d Beginning units: 10,000 Ending units: 4,000

b Beginning units: 6,000 Ending units: 10,000

The standard unit price is used in the calculation of which of the following variances?I. Materials Price Variance II. Materials Quantity Variance a I. Yes II. No b I. Yes II. Yes c I. No II. Yes d I. No II. No

b I. Yes II. Yes

Marburg Co. expects direct materials cost of $6 per unit for 100,000 units (a total of $600,000 of direct materials costs). Marburg's standard direct materials cost and budgeted direct materials cost is a Standard: $6 per unit; Budgeted: $6 per unit b Standard: $6 per unit; Budgeted: $600,000 per year c Standard: $600,000 per year; Budgeted: $6 per unit d Standard: $600,000 per year; Budgeted: $600,000 per year

b Standard: $6 per unit; Budgeted: $600,000 per year

What is the primary difference between a static budget and a flexible budget? a The static budget includes only fixed costs while the flexible budget includes only variable costs. b The static budget is prepared for a single level of activity while a flexible budget is adjusted for different activity levels. c The static budget is constructed using input from only upper level management while a flexible budget obtains input from all levels of management. d The static budget is prepared only for units produced while a flexible budget reflects the number of units sold.

b The static budget is prepared for a single level of activity while a flexible budget is adjusted for different activity levels.

Why are budgets useful in the planning process? a They provide management with information about the company's past performance. b They help communicate goals and provide a basis for evaluation. c They guarantee the company will be profitable if it meets its objectives. d They enable the budget committee to evaluate the performance of employees.

b They help communicate goals and provide a basis for evaluation.

A major element in budgetary control is a the preparation of long-term plans. b the comparison of actual results with planned objectives. c the valuation of inventories. d approval of the budget by the stockholders.

b the comparison of actual results with planned objectives.

Kevin Jarvis Industries produced 192,000 units in 90,000 direct labor hours. Production for the period was estimated at 198,000 units and 99,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at a 96,000 hours and 90,000 hours. b 90,000 hours and 90,000 hours. c 96,000 hours and 99,000 hours. d 99,000 hours and 90,000 hours.

b90,000 hours and 90,000 hours.

Which of the following statements about budget acceptance in an organization is true? a Budgets are hardly ever accepted by anyone except top management. b Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process. c The most widely accepted budget by the organization is the one prepared by the department heads. d The most widely accepted budget by the organization is the one prepared by top management.

bBudgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.

Pell Manufacturing is preparing its direct labor budget for May. Projections for the month are that 33,400 units are to be produced and that the direct labor time required is three hours per unit. If the labor cost per hour is $12, what is the total budgeted direct labor cost for May? a $1,159,200 b $1,180,800 c $1,202,400 d $1,296,000

c $1,202,400

Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870 boxes, during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500 pounds in ending inventory.What is the total amount to be budgeted for Direct Labor for the Month? a $2,871 b $2,970 c $2,610 d $11,880

c $2,610

Strand Company is planning to produce 380 composting bins and sell 400 composting bins during March. Each composting bin requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Strand has 300 kilos of plastic in beginning direct materials inventory and wants to have 200 kilos in ending direct materials inventory. What is total amount budgeted for direct labor in March? a $3,000 b $6,000 c $2,850 d $5,700

c $2,850

Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and employee benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct materials price per pound is a $1.96 b $2.00 c $2.13 d $2.17

c $2.13

Monster Company produces a product requiring 3 direct labor hours at $16.00 per hour. During January, 2,000 products are produced using 6,300 direct labor hours. Monster's actual payroll for direct labor during January was $98,280. What is the labor quantity variance for the month? a $4,800 F b $2,520 F c $4,800 U

c $4,800 U

Scorpion Production Company planned to use 1 yard of material per unit budgeted at $81 a yard. However, the material actually cost $80 per yard. The company actually made 3,900 units, although it had planned to make only 3,300 units. Total yards used for production were 3,960. What is the total materials variance? a $4,860 U b $3,960 F c $900 U

c $900 U

If there were 60,000 pounds of direct materials on hand on January 1, 120,000 pounds are desired for inventory on January 31, and 410,000 pounds are required for January production, how many pounds of direct materials should be purchased in January? a 530,000 pounds b 290,000 pounds c 470,000 pounds

c 470,000 pounds

Under management by exception, which of the following differences between planned and actual results should be investigated? a Material and noncontrollable b Controllable and noncontrollable c Material and controllable d All differences should be investigated

c Material and controllable

Which of the following statements is true? a When actual costs exceed standard costs, the variance is favorable. b An unfavorable variance results when actual costs are decreasing but standards are not changed. c Variances are the differences between total actual costs and total standard costs. d All of the above are true.

c Variances are the differences between total actual costs and total standard costs.

An unrealistic budget is more likely to result when it a is developed with performance appraisal usages in mind. b has been developed in a bottom up fashion. c has been developed in a top down fashion. d has been developed by all levels of management.

c has been developed in a top down fashion.

The ___________ is the most rigorous level of standard. a normal standard b realistic standard c ideal standard d conceivable standard

c ideal standard

A static budget a should not be prepared in a company. b is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs. c shows planned results at the original budgeted activity level. d is changed only if the actual level of activity is different than originally budgeted.

c shows planned results at the original budgeted activity level.

The effectiveness of budgeting is enhanced by all of the following except a acceptance at all levels of management. b research and analysis in setting realistic goals c stockholders' approval. d sound organizational structure.

c stockholders' approval.

LO2 If actual direct materials costs are greater than standard direct materials costs, it means that a actual costs were calculated incorrectly. b the actual unit price of direct materials was greater than the standard unit price of direct materials. c the actual unit price of direct materials or the actual quantities of direct materials used was greater than the standard unit price or standard quantities of direct materials expected. d the purchasing agent or the production foreman is inefficient.

c the actual unit price of direct materials or the actual quantities of direct materials used was greater than the standard unit price or standard quantities of direct materials expected.

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets? a Direct materials cost b Direct labor cost c Fixed manufacturing overhead d Variable manufacturing overhead

cFixed manufacturing overhead

Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and employee benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct labor rate per hour is a $ 12.00 b $ 12.30 c $15.60 d $15.90

d $15.90

Walt Bach Company has accumulated the following budget data for the year 2022. Sales: 40,000 units, unit selling price $50. Cost of one unit of finished goods: Direct materials 2 pounds at $5 per pound, direct labor 1.5 hours at $12 per hour, and manufacturing overhead $6 per direct labor hour. Inventories (raw materials only): Beginning, 10,000 pounds; desired ending, 15,000 pounds. Raw materials cost: $5 per pound. Selling and administrative expenses: $200,000. Income taxes: 20% of income before income taxes.Calculate unit cost a $46 b $32 c $50 d $37

d $37

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable FixedIndirect materials $140,000 Depreciation $60,000Indirect labor 200,000 Taxes 10,000Factory supplies 20,000 Supervision 50,000A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of a $458,000 b $360,000 c $384,000 d $408,000

d $408,000

Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are as follows:Fixed manufacturing costs $12,000Variable manufacturing costs $16.00 per squareBest produced 40,000 squares of shingles during March. How much are budgeted total manufacturing costs in March? a $640,000 b $812,000 c $800,000 d $652,000

d $652,000

Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are as follows:Fixed manufacturing costs $12,000Variable manufacturing costs $16.00 per squareBest produced 40,000 squares of shingles during March. Using a flexible budget, how much are budgeted total manufacturing costs in March? a $640,000 b $812,000 c $800,000 d $652,000

d $652,000

A flexible budget can be prepared for which of the following budgets comprising the master budget? a Sales b Overhead c Direct materials d All of these answers are correct.

d All of these answers are correct.

Which of the following is not a proper match-up? a Long range planning ↔Strategies b Budgeting ↔Short-term goals c Long-range planning ↔5 years d Budgeting ↔ Long-term goals

d Budgeting ↔ Long-term goals

Which of the following is not an operating budget? a Direct labor budget b Sales budget c Production budget d Cash budget

d Cash budget

Which of the following expenses would not appear on a selling and administrative expense budget? a Sales commissions b Depreciation c Property taxes d Indirect labor

d Indirect labor

Budget reports should be prepared a daily. b weekly. c monthly. d as frequently as needed.

d as frequently as needed.

A budget is more likely to be effective if a it is used to assess blame when things do not occur according to plans. b it is not used to evaluate a manager's performance. c employees and managers at the lower levels do not get involved in the budgeting process. d it has top management support.

d it has top management support.

A static budget report a shows costs at only two or three different levels of activity. b is appropriate in evaluating a manager's effectiveness in controlling variable costs. c should be used when the actual level of activity is materially different from the master budget activity level. d may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed.

d may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed.

Budget development for the coming year usually starts a a year in advance. b the first month of the year to be budgeted. c the last month of the previous year. d several months before the end of the current year.

d several months before the end of the current year.

Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and employee benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct materials quantity per unit is a 2.6 pounds b 2.7 pounds c 2.9 pounds d 3.0 pounds

d. 3.0 pounds

On the basis of the budget reports, a management analyzes differences between actual and planned results. b management may take corrective action. c management may modify the future plans. d All of these answers are correct.

dAll of these answers are correct.

Which of the following is not an operating budget? a Direct labor budget b Sales budget c Production budget d Cash budget

dCash budget