Exam 3

6. The actual cost of the direct materials is:

A. 30,000*4 + 13,750 = $133,750

10. A plan that lists the types and amounts of general and administrative expenses expected during the budget period is referred to as a:

A. General and administrative expense budget

5. A comprehensive or overall formal plan for a business that includes specific plan for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a:

A. Master budget

(Blank) is a costing method that includes all manufacturing costs in unit product costs.

Absorption costing

13. A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units. Merchandise purchases for June are projected to include how many units?

B. 6,000 + 1,000*1.15 - 1,000 = 6,150 units

12. A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is how in the table below.

B. Any amount over $17 per unit

3. An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity), and which presents the differences between actual and budgeted amounts as variances, is called a(n):

B. Flexible budget performance report

4. Which of the following statements is true regarding variable costing?

B. Only manufacturing costs that change in total with changes in production level are included in product costs.

Briefly describe the process by which budgets are developed and administered

Budgets are developed from the bottom up to make sure all inputs are accounted for. A budget committee of department heads administers the budget.

8. The direct materials price variance is:

C. $16,250

11. Bartels Corp. produces woodcarvings. It takes 2 hours of direct labor to produce a carving. Bartels' standard labor cost is $12 per hour. During August, Bartels produced 10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376. What is Bartels' labor rate variance for August?

C. $2,104

9. Under the absorption costing a company had the following unit costs when 8,000 units were produced. Compute the total production cost per unit under variable costing if 20,000 units had been produced.

D. $24.25

7. The direct materials quantity:

D. $30,000 unfavorable

14. The following company information is available: The direct materials price variance is:

D. (6.10 - 6.00)*36,000 = $3,600

15. Assume a company sells a given product for $75 per unit. How many units must be sold to break-even if variable selling costs are $12 per unit, variable production costs are $23 per unit, and total fixed costs are $700,000?

D. 700,000/(75 - 12 -23) = 17,500

What costs are treated as product costs under the variable costing method?

Direct labor, direct materials, and variable manufacturing overhead costs

1. Which of the following is not a product cost?

E. Advertising costs

2. Which of the following is not a benefit derived from budgeting?

E. Budgeting assures the achievement of all goals

10. Cost variances are ignored under management by exception.

False

4. Absorption costing is not permitted under GAAP.

False

5. Budgeting is an informal plan for future business activities.

False

7. Producing too much can lead to lost sales and customer dissatisfaction.

False

Define standard costs. How do they assist management?

Standard costs are preset costs for delivery that are used to assess how reasonable the actual costs are. They assist management by allowing managers to compute the difference between actual and standard costs

Should both favorable and unfavorable variances be investigated, or only the unfavorable ones? Explain.

They should both be investigated because favorable variances could indicate that performance was better than expected and unfavorable variances could indicate a problem.

1. Product costs consist of direct labor, direct materials, and overhead.

True

2. A budget can be an effective means of communicating management's plan to the employees of a business.

True

3. Standard costs provide a basis for assessing the reasonableness of actual costs incurred for producing a product or service.

True

6. A cost variance is the difference between actual cost and standard cost.

True

8. The process of evaluating performance can be improved by using budgets.

True

9. A cost variance equals the sum of the quantity variance and the price variance.

True

A per unit cost that is constant at all production levels is a (Blank) cost per unit.

Variable

A traditional product costing approach is referred to as:

absorption costing

Absorption costing is also referred to as

full costing