Learnsmart 8

Flexible budget variances occur due to differences in standard and

actual per unit amounts

A fixed cost volume variance occurs when

actual per unit fixed costs are different than budgeted per unit fixed costs.

If actual volume is more than the planned volume, the fixed cost volume variance will be

favorable

If the actual rate paid for labor is less than the standard rate there is a

favorable labor price variance

The difference between actual sales and sales on a flexible budget based on actual volume is a

sales price variance.

The difference between budgeted fixed costs and actual fixed costs is called a fixed cost spending variance

spending variance

The master budget is frequently called a(n) static budget.

static

Material variances should be investigated if they are favorable or

unfavorable

Actual results and the flexible budget reflect _____ volume of activity, and variances result from differences between standard and actual _____.

the same; per-unit amounts

Changes in the level of activity will not affect the

total fixed cost.

The static and flexible budgets use the same

total fixed costs per unit variable costs per unit sales price

Which of the following is the correct formula for the materials usage variance?

∣Actual-quantity−Standard-quantity∣∣Actual-quantity * Standard price

JJ Company planned to sell 5,000 units for $10 per unit. The Company actually sold 6,000 units for $8 per unit. What is the sales price variance?

$10,000 unfavorable. Reason: 6,000 units * ($10-$8)=$12,000 The variance is unfavorable because the actual sales price was lower than the expected sales price.

JJ Company planned to sell 5,000 units for $10 per unit. The Company actually sold 6,000 units for $8 per unit. What is the sales price variance?

$12,000 unfavorable

JJ Company planned to sell 5,000 units for $10 per unit. The Company actually sold 6,000 units for $15 per unit. What is the sales price variance?

$30,000 favorable. Reason: 6,000 units * ($10-$15)=$30,000 The variance is favorable because the actual sales price was higher than the expected sales price.

Durango Co. prepared the following static budget based on sales projections of 10,000 units: Revenue $20,000 Variable costs 10,000 Contribution margin 10,000 Fixed costs 5,000 Net income 5,000 What would be reported for net income on a flexible budget, assuming 12,000 units were sold? Multiple choice question.

$7,000 Reason: Revenue 24,000 Var. Costs 12,000 Cont. Marg. 12,000 Fixed Costs 5,000 Net Income 7,000

What type of standard is easily attainable and does not motivate most people?

Lax

If the actual volume is less than the planned volume, the fixed cost volume variance will be unfavorable.

Less

Variable selling, general, and administrative costs can have price and usage variances

price

Which of the following is the correct formula for the labor price variance?

Actual-price−Standard-price∣∣Actual-price* Actual hours

Which of the following statements is incorrect regarding variable overhead variances?

All companies must calculate price and usage variances for variable overhead costs.

Which of the following formulas would be used to calculate fixed cost volume variance?

Applied fixed cost based on actual volume - budgeted fixed cost based on planned volume

Which of the following are reasons companies use a predetermined overhead rate to allocate fixed overhead? (Select all that apply.)

Estimate cost to determine a sales price. Estimate cost for quarterly financial statements.

Static budgets change when the actual volume of activity differs from the planned volume.

False

True or false: Deciding which variances to investigate is an exact science and does not rely on managerial judgment.

False

True or false: Management should only investigate material variances if they are unfavorable.

False Reason: Material variances should be investigated if they are favorable or unfavorable.

Actual costs are less than standard costs

Favorable

Which of the following statements is true concerning flexible budget variances?

Flexible budget variances can be caused by price or usage variances.

The labor price variance is normally the responsibility of the production supervisor

Production supervisor

The purchasing agent is normally held responsible for the materials price variance.

Purchasing

The difference between sales on the static budget and sales on a flexible budget based on actual volume is a

Sales volume variance

The difference between sales on the static budget and sales on a flexible budget based on actual volume is a(n) sales volume variance. (

Sales volume variance

Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following.

The total direct labor variance is $2,500 favorable.

Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000.

The total direct materials variance is $1,000 favorable. Reason: $3,000 favorable direct materials price variance + $2,000 unfavorable materials usage variance = $1,000 favorable total direct materials variance.

When would a variance be labeled as unfavorable?

When standard cost are less than actual cost.

Cost variances are favorable when

actual costs are less than standard costs.

Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as:

budget slack Reason: Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as: budget slack.

The cost volume variance is defined as the difference between the

cost on the static budget and the cost on a flexible budget based on actual volume.

The primary advantage of a standard cost system is

efficient use of management talent to control costs.

The primary difference between the static and flexible budget is the

expected number of units sold.

Normally, upper level marketing managers are held accountable for the

fixed cost volume variance

The static and flexible budget have the same total fixed costs

fixed costs

The difference between flexible budget figures and actual figures are

flexible budget variances

What type of standard represents flawless performance including what costs should be under the best possible circumstances?

ideal

The production supervisors are typically held responsible for

labor usage variances. labor price variances.

A management philosophy that encourages managers to concentrate on areas not performing as expected is known as

management by exception Reason A management philosophy that encourages managers to concentrate on areas not performing as expected is known as management by exception.

A favorable labor variance could mean

management motivated employees to work hard.

What type of variance is one that could influence management decisions?

material. Reason: A material variance is one that could influence management decisions

A favorable material variance could mean

purchasing agents negotiated price concessions or discounts

A variance is

the difference between the standard and actual amount.

Sales price variances always occur when

the sales price is different than expected.

A variable overhead usage variance provides no clue about which overhead inputs were overused or

underused

According to a philosophy known as management by exception, what type of cost variances should be investigated?

unfavorable

The difference between the standard and the actual amount is called a(n)

variance

The standard amount of materials required to make one unit of Product Q is 2 pounds. Sam's static budget showed a planned production of 2,000 units. During the period the company actually produced 2,100 units of product. The actual amount of materials used averaged 2.3 pounds per unit. The standard price of material is $3 per pound. Based on this information, the materials usage variance was:

$1,890 unfavorable. Reason: Materials usage variance= (Actual quantity - Standard quantity) × Standard price Actual quantity= 2100 units × 2.3 pounds per unit= 4830 Standard quantity= 2100 units × 2 pounds per unit= 4200 MUV=(4830- 4200) × $3 MUV=$1,890 unfavorable

Durango Co. prepared the following static budget based on sales projections of 5,000 units: Revenue $20,000 Variable costs 10,000 Contribution margin 10,000 Fixed costs 5,000 Net income 5,000 What would be reported for net income on a flexible budget, assuming 10,000 units were sold? Multiple choice question.

$15,000 Reason: Revenue 40,000 Variable Cost 20,000 Cont. Margin 20,000 Fixed Costs 5,000 net Income 15,000

For 2016, Monroe Corporation budgeted fixed costs of $300,000. It expected to make 20,000 units during the year. Actual fixed costs were $346,000, and Monroe actually made 19,000 units of product. What is the fixed cost volume variance?

$15,000 unfavorable Reason: Fixed cost volume variance = (19,000 - 20,000) × $300,000/20,000 = $15,000 unfavorable

The Boyle Company estimated that April sales would be 50,000 units with an average selling price of $5.00. Actual sales for April were 80,000 units and average selling price was $5.20. The sales volume variance was:

$150,000 favorable. Reason: 50,000 units × $5=$250,000 Sales on the Static Budget 80,000 units × $5=$400,000 Sales on the Flexible Budget $250,000-$400,000=$150,000 The sales volume variance is favorable because the sales were higher than expected.

Hickam Company makes one product, for which it has developed the following standard for labor: each unit should require 1.50 hours at $12/hour. In April, Hickam made 10,000 units, using 1.65 hours per unit at a cost of $11.50 per hour. What is the labor usage variance?

$18,000 unfavorable. Reason: Labor usage variance = $12 (15,000 hours - 16,500) = $18,000 unfavorable

The Boyle Company estimated that April sales would be 10,000 units with an average selling price of $2.00. Actual sales for April were 11,000 units and average selling price was $1.90. The sales volume variance was:

$2,000 favorable Reason: 10,000 units × $2=$20,000 Sales on the Static Budget 11,000 units × $2=$22,000 Sales on the Flexible Budget $20,000-$22,000=$2,000 The sales volume variance is favorable because the sales were higher than expected.

Marks Company makes one product, for which it has established the following standards for materials: Average quantity of material per unit of product: 4.5 pounds Price per pound of materials, $16 During March, Marks made 10,000 units of the product, using 50,000 pounds at a total purchase price of $825,000. What is the materials price variance?

$25,000 unfavorable. Reason: Price variance= (Actual price-Standard price) * Actual quantity Materials price variance: 50,000 pounds × ($16.50 - 16.00) = $25,000 unfavorable

For 2016, Monroe Corporation budgeted fixed costs of $400,000. It expected to make 20,000 units during the year. Actual fixed costs were $406,000, and Monroe actually made 22,000 units of product. What is the fixed cost volume variance?

$40,000 favorable

The standard amount of materials required to make one unit of Product Q is 4 pounds. Tusa's static budget showed a planned production of 3,800 units. During the period the company actually produced 4,100 units of product. The actual amount of materials used averaged 3.9 pounds per unit. The standard price of material is $1 per pound. Based on this information, the materials usage variance was:

$410 favorable. Reason: Materials usage variance= (Actual quantity - Standard quantity) * Standard price Actual quantity= 4100 units * 3.9 pounds per unit= 15990 Standard quantity= 4100 units * 4 pounds per unit= 16400 MUV=(15990- 16400) * $1 MUV=$410 favorable

Durango Co. prepared the following static budget based on sales projections of 10,000 units: Revenue $200,000 Variable costs 100,000 Contribution margin 100,000 Fixed costs 50,000 Net income 50,000 What would be reported for net income on a flexible budget, assuming 12,000 units were sold? Multiple choice question.

$70,000. Reason: Revenue 240,000 Variable Cost 120,000 Cont. Margin 120,000 Fixed Costs 50,000 net Income 70,000 Fixed costs do not vary with changes in volume

The fixed cost variance between the static and flexible budget is

0

The predetermined overhead rate is calculated as

Budgeted Fixed Cost/Planned Volume

Which of the following factors should influence a decision to investigate a variance?

Capacity for management to control the variance Materiality of variance Frequency of variance

Volume variances are typically the responsibility of

Marketing managers

The predetermined overhead rate is calculated as budgeted fixed cost divided by

Planned volume

Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as a slack budget.

Slack

A(n)------ represents the amount that a price, cost, or quantity should be under certain anticipated circumstances.

Standard

Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following.

The total direct labor variance is $2,500 favorable. Reason: It took employees more time to produce the outputs than expected as can be seen in the $1500 unfavorable direct labor usage variance. The actual direct labor rate must have been below the standard direct labor rate as can be seen by the $4000 favorable direct labor price variance. It is probable that the supervisor used less skilled employees and paid them less since there was a favorable direct labor price variance and a unfavorable direct labor usage variance.

Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $7,000 and an unfavorable direct materials usage variance of $3,000.

The total direct materials variance is 4,000 favorable.

True or false: Variable overhead variances are based on the same general formulas used to compute the materials and labor price variances.

True

True or false: When actual volume is different than expected volume, a fixed costs volume variance will occur.

True Reason: When actual volume is different than expected fixed costs, per unit cost will change, resulting in a fixed cost volume variance.

Actual costs exceed standard costs

Unfavorable

If Stan Company planned for variable cost per unit to be $2.00 but actual variable cost per unit is $2.50, the variance is

Unfavorable

Which manager is normally held responsible for fixed cost volume variances?

Upper level marketing managers

How do companies allocate fixed overhead before actual cost is known?

Use a predetermined rate to allocate the fixed overhead.

Which of the following is a reason for a favorable sales variance?

When actual sales exceed budgeted or expected sales

Cost variances are unfavorable when

actual costs exceed standard costs.

A flexible budget variance is the difference between

actual figures and figures on a flexible budget based on actual volume.

Which of the following correctly represents the materials price variance formula?

actual price - standard price X actual quantity

Sales variances are unfavorable when

actual sales are less than expected sales.

Sales price variances always occur when

actual sales differ from sales on a flexible budget based on actual volume.

Fixed cost volume variances occur when

actual volume is different than expected volume.

Benefits of a standard cost system include

alerting management to trouble spots motivating employees boosting morale encouraging good planning

The difference between costs on the static budget and costs on a flexible budget based on actual volume is a

cost volume variance.

When the actual sales price exceeds the expected sales price a company has a

favorable sales price variance

If the actual rate paid for labor is more than the standard rate there is a(n)

unfavorable labor price variance

Melrose has a $4,180 favorable flexible budget materials cost variance. This indicates that Melrose spent less than expected on materials to make 19,000 trophies. This could be a result of a price variance or a

usage