Smartbook Ch 21

The formula to calculate total budgeted costs is:

total fixed costs plus (total per unit variable cost times units of activity level)

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the direct labor rate variance.

$1,000 U Reason: $84,000 - $83,000 = $1,000 U

A company has budgeted total overhead at actual units produced of $10,400. The company has actual total overhead of $12,000. The controllable variance is:

$1,600 U Reason: $12,000 - 10,400 = $1,600 U.

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor rate variance.

$14,400 U

XYZ Company makes one product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials price variance.

$5,000 U Reason: $150,000 - $145,000 = $5,000 U

A company has budgeted total overhead of $10,575 at actual units produced and actual total overhead of $9,775. The controllable variance is:

$800 F

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the labor efficiency variance.

$83,000 - $85,000 = $2,000 Favorable

A flexible budget has which of the following characteristics?

-Useful for evaluating past performance -Often based on several levels of activity -Useful to compare different scenarios

List the steps in cost variance analysis, with the first step on top.

1. Prepare reports 2. Analyze variances 3. Questions and answers 4. Take action

A company sells a product for $3. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted sales will be $___________. At a sales volume of 60 units, budgeted sales will be $___________.

150 (50*3) 180 (60*3)

Actual sales volume for a period is 5,000 units. Budgeted sales volume is 4,500. Actual selling price per unit is $15 and budgeted price per unit is $15.75. The sales price variance is $

3750

Actual sales volume for a period is 5,000 units. Budgeted sales volume is 4,500. Actual selling price per unit is $15 and budgeted price per unit is $15.75. The sales volume variance is $

7875

A flexible budget prepared (before/after) __________ the period begins allows management to make adjustments to increase profits or decrease losses.

Before

Which of the following is the correct formula?

Cost variance = (AQ x AP) - (SQ x SP)

True or false: Volume variances are due to the difference between expected production and actual production and, therefore, never need to be investigated.

False

Actual price

The amount paid to acquire input

A(n) _______ variance occurs when the company operates at a different capacity level than predicted.

Volume

The standard overhead applied is based on the ______ level of activity multiplied by the predetermined overhead rate.

actual

The controllable variance is the difference between the actual total overhead and:

budgeted overhead based on a flexible budget

The flexible budget performance report directs management's attention to areas where:

costs differ substantially from budgeted amounts. revenues differ substantially from budgeted amounts.

Which of the following are examples of an overhead allocation base:

machine hours direct labor hours

A report which presents overhead variance information along with variances from budgeted amounts is called a(n):

overhead variance report.

A _______ variance is the difference between the actual price per unit and the standard price per unit.

price or rate

All of the following individuals work to help set standard costs:

purchasing managers managerial accountants engineers

The predicted level of activity is usually:

set at less than 100% of capacity

Costs developed which identify what products should cost are called

standard costs

The volume variance is computed as:

the difference between budgeted overhead and standard overhead applied

A company has an unfavorable direct labor rate variance. A possible reason for this variance is that:

the personnel department had to hire workers at an hourly rate more than expected

Managers use budget reports to answer all of the following questions:

Why is actual income higher than budgeted income? Why are variances unfavorable? Are we using too much direct material?

Budget reports are commonly prepared for:

a month. a year. a quarter.

When analyzing variances, it is most likely that management will direct their attention to:

large and favorable variances large and unfavorable variances

Management by exception means that:

management focuses on items with the most significant variances

When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.

per unit; in total

The main factors that can cause a variance include the following.

quantity variance price variance

The controllable variance is so called because it:

refers to activities usually under management control

Budget _________ compare actual results to budgeted results.

reports

Management must consider many factors when choosing the predicted level of activity. These factors include all of the following

scheduling product demand condition of equipment

A flexible budget performance report indicates a sales variance of $200 unfavorable. The variance was likely caused by:

selling units for less than the budgeted price

Preset costs for delivering a product or service under normal conditions are called ________ costs.

standard

A company has a favorable direct labor efficiency variance. A possible reason for this variance is that

the production department used fewer labor hours than expected

A company has an unfavorable direct materials quantity variance. A possible reason for this variance is that:

the production department used more materials than expected

A company has a favorable direct materials price variance. A possible reason for this variance is that:

the purchasing department purchased materials at a cost less than expected Reason: This would result in a favorable direct materials quantity variance. A possible reason for a favorable direct materials price variance is that the purchasing department purchased materials at a cost less than expected.

Standard costs have which of the following characteristics?

they are preset costs for delivering a product or service under normal conditions they are used to help management understand reasons for variances production managers help determine production requirements for a unit of product

When compared to the budgeted amount, if the actual cost or revenue contributes to a lower income, then the variance is considered

unfavorable

A(n) _______ variance occurs when the company operates at a different capacity level than predicted.

volume

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the direct labor cost variance.

$1,000 F Reason: Labor cost variance = total actual cost - total standard cost. $84,000 - $85,000 = $1,000 F

Management by exception means that managers focus attention on the most significant differences between ___________ costs and ___________ costs.

Actual Standard

When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered

favorable

A fixed budget performance report not only compares results, but also indicates if the variances are:

favorable or unfavorable

The standard overhead rate is computed separately for:

fixed and variable costs

The static budget is an example of a:

fixed budget

A fixed budget performance report compares the:

fixed budget to the actual results

Management uses a(n) ______ budget to establish the standard overhead rate.

flexible

The report that compares actual performance and budgeted performance based on actual activity level is called a ______ budget performance report.

flexible

A(n) _________ standard is the quantity of material required if the process is 100% efficient without any loss or waste.

ideal

The first step in preparing a flexible budget is to:

identify the relevant activity levels

A(n) __________ budget is based on one predicted amount of sales or other activity measure.

fixed or static

A manufacturing company has the following budgeted overhead costs: Indirect materials: $0.50 per unit; Utilities: $0.25 per unit; Supervisory salaries: $60,000; Building rent: $80,000. If the company expects to produce 200,000 units using 100,000 hours of direct labor, the standard overhead rate will be $_________ per direct labor hour.

$2.90

A company has budgeted overhead of $10,000 and standard overhead applied of $10,400. The volume variance is:

$400 F

A company has budgeted overhead of $8,750 and standard overhead applied of $9,250. The volume variance is:

$500 F Reason: The volume variance is favorable. If applied is greater than budgeted, this is a favorable variances. This shows that they produced more units than planned, hence the favorable variance.

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials quantity variance.

$500 U Reason: Standard allowed=35,000 units x .5 pounds=17,500 pounds. Actual pounds=18,000. Actual 18,000-standard 17,500 x $1.00= $500 U

The fixed budget indicates direct labor costs of $27,500. Actual direct labor costs were $27,000. The variance is:

$500 favorable

XYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials quantity variance.

$7,000 F Reason: $145,000 - $152,000 = $7,000 F

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials price variance.

$720 F Reason: $17,280/18,000=.96 actual cost. $1.00-.96=.04 x 18,000 lbs = $720 F

A company had a standard sales price of $1.79 per unit and expected to sell 10,000 units. Due to a downturn in the economy, the product was marked down to $1.59 per unit and the company only sold 9,500 units. Calculate the sales volume variance.

$895 U Reason: (9,500-10,000)x$1.79=$895 U.

A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries will be $

5000

Fixed costs equal $25,000; variable cost per unit is $2.50 and units produced are 10,000. The total budgeted costs is $

50000 25000 + (10000 * 2.50)=

A company sells a product for $3. Direct materials are $1.80 per unit. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted direct materials will be $________. At a sales volume of 60 units, budgeted direct materials will be $_______.

90 (1.8 x 50) 180 (1.8 x 60)

A(n) _________ standard is the quantity of material required under normal operations.

Practical

A manufacturing company has an unfavorable volume variance. Which statement is true?

The company did not reach its predicted operating level.

Standard quantity

The expected input for the quantity of output

Standard price

The expected price

A fixed budget performance report indicates a sales variance of $20,000 favorable. The reason for the variance:

cannot be determined from the fixed budget performance report

A standard cost _____ indicates the amount of direct labor, direct materials and overhead for one unit of product.

card

A _____ variance is the difference between actual and standard costs.

cost

Step 1 of computing a standard overhead rate is to:

determine an allocation base

If actual cost is less than standard cost, the variance is ___.

favorable

A company had a standard sales price of $1.79 per unit and expected to sell 10,000 units. Due to a downturn in the economy, the product was marked down to $1.59 per unit and the company only sold 9,500 units. Calculate the sales price variance.

$1,900 U

A manufacturing company has variable overhead costs of $2.50 per unit and fixed costs of $5,000 per month. Each unit requires 4 hours of direct labor and the company expects to produce 2,000 units each month. The standard overhead rate will be $_________ per direct labor hour.

$1.25 work: $2.50 x 2,000 units = $5,000 VC + $5,000 FC = $10,000/8,000 hours = $1.25 per hour

XYZ Company makes one product and has calculated the following amounts for direct materials: Actual cost: AQ x AP = $150,000; AQ x SP = $145,000; Standard cost: SQ x SP = $152,000. Compute the direct materials variance.

$2,000 F Reason: $150,000 - $152,000 = $2,000 F

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials variance.

$220 F Reason: $17,280 - (35,000 x 0.5 lb x $1/lb) = $220 F

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor variance.

$24,400 U Reason: $374,400 - (35,000 units x 1 hr x $10/hr) = $24,400 U

The fixed budget indicates sales of $50,000. Actual sales were $55,000. The variance is:

$5,000 favorable Reason: The variance is $5,000 favorable.

True or false: A flexible budget reporting sales volumes at three different levels will have the same fixed costs.

True

True or false: A standard cost card shows standard costs of materials, labor, and overhead for a product and is used to prepare manufacturing budgets.

True

True or false: An overhead variance report can be used to help management identify individual overhead costs to investigate.

True

Actual quantity

The input used to manufacture the quantity of output

Variance analysis allows management to assign responsibility for variances so that:

action can be taken to correct the situation

The overhead variance is the difference between:

actual total overhead and the standard overhead applied