ACC 202 Ch. 9

If the actual cost is greater than budgeted cost, the variance is labeled as______________.

unfavorable

The process of comparing actual and budgeted results is ______.

variance analysis

A system that records costs based on what managers think they should be rather than using actual costs is a(n) ____________ ____________system.

standard cost

The amount 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

Ideal standards are problematic because they ______.

tend to discourage workers demand peak effort at all times

A variable overhead rate variance may be favorable because ______.

the relationship between variable overhead and direct labor may not be perfect less money was spent on supplies and other variable overhead items

How much input should be used to produce a product or provide a service is specified by ______________standards.

quantity

In general, variances tell managers

Whether budgeted goals are being achieved

Silicon Inc. has provided the following information for the year ended December 31, Year 1. What is the total variable manufacturing overhead variance?

$200 favorable explanation: The total variance is calculated by comparing the actual variable manufacturing overhead cost ($7,800) to the master budget ($8,000). So, the total variable variance of $200 is favorable ($8,000 − $7,800).

Based on the following information, 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 Reason: Applied variable overhead cost is based on the actual hours, so applied overhead of $15,750 (4,200 actual hours × $3.75) - $15,500 of actual overhead = $250 favorable.

The difference between a budget and a standard is that

A budget expresses a total amount, while a standard expresses a unit amount explanation: Standards define what the per-unit cost and quantity should be, whereas budgets estimate the total amounts to be spent and vary for different levels of output.

True or false: Quantity standards refer to the price to be paid for each unit of the input.

FALSE

True or false: The labor rate variance measures the productivity of direct labor.

FALSE

Which of the following statements are true? Favorable variances are not always good and unfavorable variances are not always bad. When calculating variances one or more factors change at a time. Variances provide information that can help managers take corrective action if needed. Variances cause companies to hold managers responsible for things our of their control.

Favorable variances are not always good and unfavorable variances are not always bad. Variances provide information that can help managers take corrective action if needed.

Which of the following shows how budgeted costs and revenues will change over different volumes?

Flexible budget

____ is an integrated set of operating and financial budgets that reflects managements' expectations for a given sales level, and ____ shows how budgeted costs and revenues will change across different levels of sales volume.

Master budget, flexible budget.

In a standard costing system, applied overhead is calculated using which of the following as the base?

Standard allocation base explanation: Factory cleaning supplies are a variable manufacturing overhead. Factory rent is a fixed manufacturing overhead. Direct materials and labor are direct production costs and not overhead costs.

True or false: The variable overhead rate variance may not explain all the differences between actual spending and standard variable overhead.

TRUE

True or false: 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

The price variance is calculated using the ______ quantity of the input purchased.

actual

A variance is labeled as favorable when the ______.

actual cost is less than the standard or budgeted cost

A price variance is the difference between the ______.

actual price and the standard price multiplied by the actual amount of the input

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

Standard cost systems ______.

are based on what managers think costs should be help maintain consistency and quality help managers budget and control costs

A budget that takes into account how costs are affected by changes in level of activity is a(n)_______________ budget.

flexible or flex

Standards that do not allow for any work interruptions or machine breakdowns are called ______________standards.

ideal

The difference between the standard and the actual direct labor hourly rates is reflected in the ___________ _____________variance.

labor or labour, rate

Silicon Inc. has provided the following information for the year ended December 31, Year 1. What is the fixed manufacturing overhead volume variance?

$0 explanation: Volume variances are calculated by comparing the flexible budget to the master budget. Fixed overhead does not vary with volume, so the fixed overhead volume variance is zero.

Calculate the direct materials spending variance when the direct materials price variance is $5,500 favorable and the direct materials quantity variance is $660 unfavorable.

$4,840 favorable explanation: The direct materials spending variance is calculated by combining the direct materials price variance and the direct materials quantity variance. So, the direct materials spending variance is $4,840, favorable ($5,500 favorable + $660 unfavorable).

The direct materials ____________ variance reflects the difference between the actual cost of a material and what the cost should have

price

How much should be paid for an input is specified by a(n)__________standard.

price, cost, or rate

Xcel Technologies, Inc. applies variable manufacturing overhead to products based on machine hours. The standard variable overhead rate is $5 per machine hour. The standard time allowed for producing one unit is 2 machine hours. During the month of August, the company produced 500 units. It incurred actual variable costs of $5,655 and used 870 machine hours. Calculate the variable overhead rate variance for the month of August.

$1,305 unfavorable explanation: Variable overhead rate variance = 870 hours (Actual hours) × [$5.00 (Standard rate) − $6.50 (Actual rate calculated as: $5,655 ÷ 870 hours)] = $1,305 U

Silicon Inc. has provided the following information for the year ended December 31, Year 1. What is the direct labor volume variance?

$1,500 favorable explanation: The volume variance is calculated by comparing the master budget to the flexible budget, not the actual cost. The standard cost of direct labor per unit is $3 ($15,000 ÷ 5,000 units). The flexible budget cost for direct labor is $13,500 (4,500 units × $3). So, the direct labor volume variance of $1,500 is favorable ($15,000 − $13,500).

Abba, Inc. has developed the following standards for one of its products: Direct materials - 1/2 pound at $6.00 per pound Direct labor - 1/4 hour at $20.00 per hour Variable overhead - 20% of direct labor cost Total fixed overhead is expected to be $15,000 and the company expects to produce 7,500 units. The standard cost card for this product would show a cost per unit of ______.

$11.00 Reason: (1/2 x $6.00) + (1/4 x $20.00) + ($5.00 x 20%) + ($15,000/7,500) = $11.00 per unit

Pastel Papers Inc. produces wrapping paper. The standard direct materials quantity is 0.20 pound per unit and the standard rate is $0.30 per pound. During June, the company actually purchased and used 1,800 pounds of direct materials to produce 7,500 units, at an average cost of $0.40 per pound. Calculate the direct materials price variance.

$180 unfavorable explanation: $180 unfavorable (Direct materials price variance) = 1,800 pounds (AQ) × [$0.30 (SP) − $0.40 (AP)]. The direct materials price variance is unfavorable by $180 because Pastel paid $0.10 more than the standard rate for the 1,800 pounds of materials it purchased.

Wholesome Burger, Inc. budgeted 25,000 direct labor hours for producing 100,000 units. The standard direct labor rate is $6 per hour. During March, the company used 30,000 hours for producing 80,000 units and paid $6.25 per hour. Calculate the direct labor efficiency variance.

$60,000 unfavorable explanation: Direct labor efficiency variance = (Standard hours − Actual hours) × Standard rate, or [(80,000 × (25,000 ÷ 100,000)) − 30,000] × $6 = $60,000 unfavorable.

Wholesome Burger, Inc. budgeted 25,000 direct labor hours for producing 100,000 units. The standard direct labor rate is $6 per hour. During March, the company used 30,000 hours for producing 80,000 units and paid $6.25 per hour. Calculate the direct labor rate variance.

$7,500 unfavorable explanation: Direct labor rate variance = (Standard labor rate − Actual labor rate) × Actual hours, or ($6.00 − $6.25) × 30,000 hours = $7,500 unfavorable.

BonJoy Co. applies variable overhead on the basis of direct labor hours. For the month of June, the variable overhead efficiency variance is unfavorable but the variable overhead rate variance is favorable. Which of the following can be concluded from this?

The quantity of actual direct labor hours used was more than budgeted. explanation: The variable efficiency overhead variance shows the efficiency with which the allocation base was used. When actual direct labor hours are more than budgeted, the variable efficiency variance will be unfavorable.

Which of the following statements correctly describes a favorable direct materials quantity variance?

The quantity of direct materials used in production was less than the standard requirement. explanation: A favorable direct materials quantity variance indicates that the company used fewer direct materials in production than required per the standard.

Which of the following statements are true? Multiple select question. The variance formulas only allow one factor to change at a time. Variances always compare actual results to budgeted or standard results. Favorable variances are always good and unfavorable variances are always bad. Companies generally try to hold specific managers responsible for specific variances.

The variance formulas only allow one factor to change at a time. Variances always compare actual results to budgeted or standard results. Companies generally try to hold specific managers responsible for specific variances.

Variances are always noted as favorable or unfavorable. What do these terms indicate?

Whether actual results are more or less than standard or budgeted amounts.

Silicon Inc. has provided the following information for the year ended December 31, Year 1. What is the direct materials spending variance?

$1,000 unfavorable explanation: The spending variance is calculated by comparing the actual costs to the flexible budget, not the master budget. The standard cost of direct materials per unit is $7 ($35,000 ÷ 5,000 units). The flexible budget cost for direct materials is $31,500 (4,500 units × $7). So, the direct materials spending variance of $1,000 is unfavorable ($31,500 − $32,500).

Xcel Technologies, Inc. applies variable manufacturing overhead to products based on machine hours. The standard variable overhead rate is $5 per machine hour. The standard time allowed for producing one unit is 2 machine hours. During the month of August, the company produced 500 units. It incurred actual variable costs of $5,655 and used 870 machine hours. Calculate the variable overhead efficiency variance for the month of August.

$650 favorable explanation: Variable overhead efficiency variance = (1,000 hours (Standard hours) − 870 hours (Actual hours)) × $5.00 per hour (Standard hours) = $650 F

In its latest production, Vero Corp. calculated a favorable direct labor rate variance of $4,500 and an unfavorable direct labor efficiency variance of $3,750. What is the direct labor spending variance?

$750 favorable explanation: The direct labor spending variance is calculated by adding the direct labor rate variance and the direct labor efficiency variance. So Vero's direct labor spending variance is favorable by $750 ($4,500 F + $3,750 U).

Pastel Papers Inc. produces wrapping paper. The standard direct materials quantity is 0.20 pound per unit and the standard rate is $0.30 per pound. During June, the company actually purchased and used 1,800 pounds of direct materials to produce 7,500 units, at an average cost of $0.40 per pound. Calculate the direct materials quantity variance.

$90 unfavorable explanation: $90 unfavorable (Direct materials quantity variance) = $0.30 (SP) × [1,500 pounds (SQ) − 1,800 pounds (AQ)]. SQ = 7,500 units × 0.20 pounds per unit = 1,500 pounds. The direct materials quantity variance is unfavorable by $90 because Pastel used 300 pounds more than the standard quantity for producing 7,500 units.