MGMT 303 - Chapter 9
The direct materials price variance is the difference between the actual price of materials:
and the standard price for materials with the difference multiplied by the actual quantity of materials
Variable overhead variances:
are calculated using the same basic formulas as labor and material variances
A(n) _______ _______ standard identifies the quantity and price of an input (i.e. ounces or pounds) that should be required to create a single unit of output.
direct material
The difference between the standard and the actual direct labor hourly rates is reflected in the _______ ________ variance.
labor rate
The difference between 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 formula for the direct materials ______ variance is SP(SQ-AQ)
quantity
A company with a $2,000 unfavorable direct labor rate variance and a $700 favorable direct labor efficiency has a direct labor ______ variance of $ _____ _______.
spending, $1,300 unfavorable
A system that records based on what managers think they should be rather than using actual costs is a(n) _________ _________ system.
standard cost
Very detailed levels to reflect the required quantity of inputs for a product or service are specified in ______, whereas _____ represent the total dollar amount expected at a given level of output.
standards; budgets
A _______ budget is based on a fixed estimate of sales volume.
static
The _____ budget is static, whereas a(n ______ budget adjusts revenues and costs as the level of activities changes.
master; flexible
The_ ______is typically responsible for the direct materials quantity variance.
production manager
How much input should be used to produce a product or provide a service are specified by ________ standards.
quantity
What a company should spend to produce a single unit of product based on expected production and sales is shown on a(n) ______ ________ card.
standard cost
To encourage continuous improvement:
standards should increase in difficulty over time
In a standard costing system, overhead is applied by multiplying the budgeted overhead rate by:
the standard value of the cost driver
If the actual cost is greater than budgeted cost, the variance is labeled as ______.
unfavorable
If the actual hours worked exceeds the standard hours allowed for production, the direct labor efficiency variance will be:
unfavorable
If the planned fixed overhead for 5,000 units is $120,000, what is the flexible budget fixed overhead for 4,500 units?
$120,000 Budgeted fixed costs do not change within the relevant range
Use the following information to calculate the direct labor rate variance for Adkinson Company. Actual hours used 5,500 Standard hours allowed 5,800 Actual labor rate $14.75 per hour Standard rate $14.00 per hou
$4,125 Unfavorable The direct labor rate variance is: AH(AR-SR): 5,500 x ($14.75-$14.00) = $4,125 Unfavorable
A static budget shows variable supply cost of $6,250 based on 1,000 units. A flexible budget based on 1,250 units should show:
$7,500 ($6,250/1000*1200)
The materials price variance is calculated using the:
- actual quantity of the input purchased - standard price of the input - actual price of the input
T/F Favorable variances always indicate good performance.
False
T/F The labor rate variance measures the productivity of direct labor.
False
A price variance is the difference between the:
actual price and the standard price multiplied by the actual amount of input
Spending variance:
calculated by comparing actual costs to the flexible budget
Volume variance:
calculated by comparing the master budget to the flexible budget
When recording journal entries, the actual cost is a _____ and the standard cost is a _______.
credit, debit
Unfavorable variances appear as _______ entries; favorable variances appear as ________ entries.
debit, credit
Based on the following information below, calculate the variable overhead rate variance: Actual variable overhead cost $15,500 Actual hours used 4,200 Standard hours allowed 4,000 Standard variable overhead rate $3.75 per hour
$250 favorable Applied variable overhead cost is based on the actual hours so, applied overhead of $15,750 (4200 actual hours x $3.75) - $15,500 actual overhead = $250 overapplied. When the actual cost is less than the applied cost, the variance is favorable.
Use the following information to calculate the direct labor efficiency variance for Adkinson Company. Actual hours used 5,500 Standard hours allowed 5,800 Actual labor rate $14.75 per hour Standard rate $14.00 per hour
$4,200 Favorable $14.00 x (5,800-5,500)
Fancy Nail's master budget for June was based on 2,400 manicures and supplies were budgeted at a total cost of $1,800. During June, 2,500 manicures were done and the total cost for supplies was $2,000. Which of the following statements are true?
- The volume variance is $75 Unfavorable Flexible budget amount for supplies = ($1,800/2,400)=$0.75x2,500 manicures=$1,875-$1,800=$75 Unfavorable - The spending variance is $125 Unfavorable Flexible budget amount for supplies = ($1,800/2,400)=$0.75x2,500 manicures = $1,875 - $2,000 = $125 Unfavorable
Which of the following statements are true?
- When calculating variances only one factor changes at the time - Variances always compare actual results to budgeted or standard results - Companies generally try to hold specific managers responsible for specific variances
Which statement regarding variable overhead variance analysis is true?
The variable overhead efficiency may depend on the efficiency of direct labor.
To calculate a price variance, multiply the _____ quantity times the actual price and compare it to the actual quantity times the _____ price.
actual, standard
Direct labor variances:
are computed in the same way as direct material variances
If the actual wage rate paid to employees is less than the standard rate allowed, the direct labor rate variance will be:
favorable
The variable overhead rate variance is _______ when the actual variable overhead rate is less than the standard variable overhead rate.
favorable
Using less direct materials than expected results in a _______ variance.
favorable
The _______ variance is sometimes also called the denominator variance.
fixed overhead volume
A budget that takes into account how costs are affected by changes in level of activity is a(n) ______ budget.
flexible
The _______ variance is the difference between the number of actual direct labor hours used and the number of standard direct labor hours multiplied by the standard variable overhead rate.
variable overhead efficiency
When a master budget is flexed, total ______ costs will be different on the two budgets, but total ______ costs will be same.
variable, fixed
The process of comparing actual and budgeted results is called ______ _______.
variance analysis
A _______ variance represents the difference between actual and expected levels of activity
volume
A variable overhead rate variance may be favorable because:
- less money was spent on supplies and other variable overhead items - the relationship between variable overhead and direct labor may not be perfect
A favorable material price variance:
- may be due to a quantity discount - may be due to price fluctuations - may be based on the quality of the goods
Comparing a static budget to actual results:
- may penalize a manager for serving more customers than expected - does not indicate what actions need to be taken to address a problem
Standards that do not allow for any work interruptions or machine breakdowns are ______ standards.
ideal
The materials quantity variance is generally the responsibility of the _____ department manager.
production
The _______ is typically responsible for the direct labor efficiency variance.
production manager
Which of the following are common causes for favorable variances?
- using less materials than expected - taking less time to produce a unit than expected - using less of a variable resource than expected
Ideal standards are problematic because:
- they demand peak effort at all times - they tend to discourage workers
Unfavorable labor rate variances may occur as a result of:
- overtime premiums being charged to the direct labor account - skilled worker being assigned to jobs requiring little skills
Standards are:
- used to maintain consistency and quality - used to help control costs - based on what managers think costs should be
