Chp. 8 Flexible Budgets, Standard Costs, and Variance Analysis

Standard hours allowed for actual output

The time that should have been taken to complete the period's output. It is computed by multiplying the actual number of units produced by the standard hours per unit

Standard quantity allowed for actual output

The amount of an input that should have been used to complete the period's actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit

Standard hours per unit

The amount of direct labor time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects, and other normal inefficiencies

Standard cost per unit

The standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input.

Management by exception

A management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further

Flexible Budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period

Standard quantity per unit

The amount of an input that should be required to complete a single unit of product, inducing allowances for normal waste, spoilage, rejects, and other normal inefficiences

The standard price per unit for direct materials should not include the cost of delivering the materials. True or False

False

Quantity variance

A variance that is computed by taking the difference between the actual quantity of the input used and ht amount of the input that should have been used for the actual level of output and multiplying the result by the standard price of the input.

Price variance

A variance that is coupled by taking the difference between the actual price and the standard price and multiplying gate result by the actual quantity of the input.

A favorable spending variance occurs when the actual cost exceeds the amount of the cost in the static planning budget. True or False

False

A flexible budget cannot be used to estimate what costs should have been at a given level of activity. True or False

False

A planning budget is prepared before the period begins and is valid for whatever the actual level of activity turns out to be. True or False

False

Standard price per unit

The price that should be paid for an input

A direct materials quantity standard generally includes an allowance for waste. True or False

True

A flexible budget can be used to estimate what revenues and costs should have been, given the actual level of activity for the period. True or False

True

A materials price variance is unfavorable if the actual price exceeds the standard price. True or False

True

A revenue variance is favorable if the actual revenue exceeds what the revenue should have been for the actual level of activity of the period. True or False

True

An unfavorable labor rate variance can occur if workers with high hourly wage rates are assigned to work on products with standards that assume workers have low hourly wage rates. True or False

True

An unfavorable spending variance may reflect waste as well as paying too much for inputs. True or False

True

Fixed costs should be included in a flexible budget even though they do not change when the level of activity changes. True or False

True

Purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor efficiency variance. True or False

True

The revenue and spending variances are the differences between the flexible budget and the actual results for the period. True or False

True

Materials price variance

the difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased

Standard cost card

A detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product

Planning budget

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity

A quantity standard indicates how much output should have been produced. True or False

False

Comparing a static planning budget to actual costs is a good way to assess whether variable costs are under control. True or False

False

Fixed costs should be ignored when evaluating how well a manager has controlled costs. True or False

False

Spending variance

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. A favorable (unfavorable) variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.

Revenue variance

The difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A favorable (unfavorable) variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for that period

Labor efficiency variance

The difference between the actual hours taken to complete a task and the standard hours allowed for the actual output, multiplied by the standard hourly labor rate

Variable overhead efficiency variance

The difference between the actual level of activity (DLH, machine hours, or some other base) and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate.

Materials quantity variance

The difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials

Variable overhead rate variance

The difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period.

Standard rate per hour

The labor rate that should be incurred per hour of labor time, including employment taxes and fringe benefits