test 2 307
if the sales volume is estimated to be 2,100 ton in the next year, the after tax net income will be....equation
(unitsxcm )- fc= xx* the (100%- tax%)= xx
Data regarding Mill Company's direct materials costs is as follows: Actual unit cost $2.00 Standard unit cost 2.20 Actual quantity purchased and used 28,000 units Standard units of materials per unit of finished goods 3 units Actual output of finished goods 9,000 units What is the direct materials price variance?
5,600 unfavorable
what is absorption costing and variable costing? How are they different and when are they used?
Absorption costing considers all manufacturing costs to be product costs. it is used for GAAP and external reporting. Variable costing considers only the variable production costs to be product costs. fixed manufacturing costs are considered costs of capacity and are period costs. it is used for internal purposes.
what are the advantages and disadvantage of variable costing?
Advantages: better measure of profits, better information for decision making Disadvantages: not acceptable for GAAP, can distort decisions by focusing too much on short term
what are advantages and disadvantages of absorption costing?
Advantages: matches costs with the revenue: good for long term decisions. Disadvantages: poor performance measure affected by production, uses matching principle vs. microeconomics, considers fixed costs as costs of units instead of costs of capacity.
In a standard cost system, the investigation of an unfavorable materials usage variance should begin with the A. Production manager or the purchasing manager. B. Production manager only. C. Plant controller only. D. Purchasing manager only. Previous
Answer A is correct. An unfavorable materials quantity variance is usually caused by waste, shrinkage, or theft. Alternatively, an unfavorable variance could be attributable to the purchasing department's not buying the proper quality of materials in an attempt to achieve a favorable material price variance. Thus, either the production manager or the purchasing manager could be responsible for a material usage variance.
A firm uses a standard cost system and applies factory overhead to products on the basis of direct labor hours. If the firm recently reported a favorable direct labor efficiency variance, then the A. Variable overhead spending variance must be favorable. B. Variable overhead efficiency variance must be favorable. C. Direct labor rate variance must be unfavorable. D. Fixed overhead volume variance must be unfavorable.
Answer B is correct. Highlight uses direct labor hours as the driver for variable overhead application. Thus, if the direct labor efficiency variance was favorable, the variable overhead efficiency variance must be favorable as well since the two variances are based on the same standard and actual hours.
Which one of the following variances is of least significance from a behavioral control perspective? A. Unfavorable direct labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. B. Fixed overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%. C. Favorable direct labor rate variance resulting from an inability to hire experienced workers to replace retiring workers. D. Unfavorable direct materials quantity variance amounting to 20% of the quantity allowed for the output attained.
Answer B is correct. Most variances are of significance to someone who is responsible for that variance. However, a fixed overhead volume variance is often not the responsibility of anyone other than top management. The fixed overhead volume variance equals the difference between budgeted fixed overhead and the amount applied (standard input allowed for the actual output × standard rate). It can be caused by economic downturns, labor strife, bad weather, or a change in planned output. Thus, a fixed overhead volume variance resulting from a top management decision to reduce output has fewer behavioral implications than other variances.
Fact Pattern: The following is taken from Fortech Company's records for the fiscal year just ended: Direct materials used $300,000 Direct labor 100,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 80,000 Selling and admin. costs--variable 40,000 Selling and admin. costs--fixed 20,000 Using absorption (full) costing, Fortech Company's inventoriable costs are A. $400,000 B. $530,000 C. $450,000 D. $590,000
Answer B is correct. The absorption method is required for financial statements prepared according to GAAP. It charges all costs of production to inventories. The variable cost of materials of $300,000, direct labor of $100,000, variable manufacturing overhead of $50,000, and the fixed manufacturing overhead of $80,000 are included. They total $530,000.
A firm uses a standard costing system and allocates variable overhead costs based on direct labor hours. The annual budget projected 1,000 finished units, 10,000 hours of direct labor, and $100,000 of variable overhead costs. At the end of the year, 750 units were completed using 8,000 hours of direct labor and $75,000 in variable overhead. What is the variable overhead spending variance? A. $5,000 unfavorable. B. $5,000 favorable. C. $25,000 favorable. D. $0
Answer B is correct. The spending variance is the difference between (1) actual variable overhead and (2) the product of the budgeted application rate and the actual amount of the allocation base. The actual variable overhead is stated as $75,000. The firm uses direct labor hours as an allocation base. Thus, the budgeted application rate is equal to $10/DLH ($100,000 budgeted variable overhead ÷ 10,000 budgeted DLHs). The actual amount of direct labor hours was 8,000. Thus, the product of the budgeted application rate ($10) times the actual amount of the allocation base (8,000 DLH) is $80,000. Since the actual overhead of $75,000 is less than the $80,000, the variable overhead spending variance is a favorable $5,000 ($75,000 - $80,000).
A firm uses a four-way allocation of overhead, machine hours to allocate overhead, and years of experience as the main determinant for wage increases. The standards are set and revised on an annual basis. Due to a surge in competitive pressures, the firm's management decided to undertake downsizing. The firm offered incentives that permitted a large number of senior employees to opt in the middle of the year for early retirement. As a result, the firm had to bring in temporary replacements who were paid entry-level wages to see that work deadlines were met. Which one of the following is most likely to result from this situation? A. Unfavorable efficiency variances and unfavorable price variances. B. Unfavorable efficiency variances and favorable price variances. C. Favorable efficiency variances and unfavorable price variances. D. Favorable efficiency variances and favorable price variances.
Answer B is correct. The use of less-skilled workers will generally result in unfavorable labor efficiency variances. However, this is accompanied by favorable labor rate (or price) variances, which result from paying lower wages.
Absorption costing and variable costing are two different methods of assigning costs to units produced. Of the four cost items listed below, identify the one that is not correctly accounted for as a product cost. Part of Product Cost Under Absorption Variable Costing Costing A. Direct labor cost Yes Yes B. Packaging and shipping costs Yes Yes C. Insurance on factory Yes No D. Manufacturing supplies Yes Yes
Answer B is correct. Under absorption costing, all manufacturing costs, both fixed and variable, are treated as product costs. Under variable costing, only variable costs of manufacturing are inventoried as product costs. Fixed manufacturing costs are expensed as period costs. Packaging and shipping costs are not product costs under either method because they are incurred after the goods have been manufactured. Instead, they are included in selling and administrative expenses for the period.
if sales revenue increase by 10%next year, BY WHAT PERCENT will the pre tax income rise? equation
DOL= CM/ net income before tax= % x 10%= increase in pre tax
Tiny Tykes Corporation had the following activity relating to its fixed and variable overhead for the month of July: Actual costs Fixed overhead $120,000 Variable overhead 80,000 Flexible budget (Standard input allowed for actual output achieved × budgeted rate) Variable overhead 90,000 Applied (Standard input allowed for actual output achieved × budgeted rate) Fixed overhead 125,000 Variable overhead spending variance 2,000 F Production volume variance 5,000 U A. $5,000 favorable. B. Never a meaningful variance. C. $3,000 unfavorable. D. $3,000 favorable
Never a meaningful variance. Answer B is correct. Variable overhead variances can be subdivided into spending and efficiency components. However, fixed overhead variances do not have an efficiency component because fixed costs, by definition, are not related to changing levels of output. Fixed overhead variances are typically subdivided into a budget (or fixed overhead spending) variance and a volume variance.
The financial statements have just arrived showing a $3,000 loss on the new stadium job that was budgeted to show a $6,000 profit. Actual and budget information relating to the materials for the job are as follows. Actual Budget Bricks -- number of bundles 3,000 2,850 Bricks -- cost per bundle $7.90 $8.00 Which one of the following is a correct statement regarding the stadium job? A. The efficiency variance was unfavorable by $1,185. B. The price variance was favorable by $285. C. The price variance was favorable by $300. D. The flexible budget variance was unfavorable by $900.
The price variance was favorable by $300. Answer C is correct. The direct materials price variance is defined as the actual quantity used in production times the standard price minus the actual price. This calculation is [3,000 units × ($8.00 - $7.90)] = $300 favorable.
Last year a company had sales of 75,000 units and production of 100,000 units. Other information for the year is shown below. Direct manufacturing labor $187,500 Variable manufacturing overhead 100,000 Direct materials 150,000 Variable selling expenses 100,000 Fixed administrative expenses 100,000 Fixed manufacturing overhead 200,000 Assuming no beginning inventory, what is the total value of ending finished goods inventory under absorption costing? A. $184,375 B. $159,375 C. $209,375 D. $279,175
With no beginning inventory, cost of goods manufactured is simply the sum of direct labor, direct materials, variable overhead, and fixed overhead, or $637,500 ($187,500 + $100,000 + $150,000 + $200,000). The cost of the ending inventory is equal to $159,375 [$637,500 × (25,000 units ÷ 100,000 units)].
is absorption or variable accepted by Gaap
absorption,
to find the margin of safety
amount produced and sold - the cm in units
to find cogs
beg inventory + cost of goods manufactured- ending inventory
bep in sales
cm in units x unit selling price
to find bep in units
cm/ fc
cm ratio
cm/ sales
variable costing enables a company to run a
cvp anaylsis, which reveals the break even point in production by determining how many products a company must manufacture and sell to reach the point of profitabilty
what is target costing?
is a system under which a company plans in advance for the price points, product costs, and margins that it wants to achieve for a new product. If it cannot manufacture a product at these planned levels, then it cancels the design project entirely. With target costing, a management team has a powerful tool for continually monitoring products from the moment they enter the design phase and onward throughout their product life cycles. It is considered one of the most important tools for achieving consistent profitability in a manufacturing environment.
product life cycle costing
is the process of compiling all costs that the owner or producer of an asset will incur over its lifespan.is used to develop and manufacture goods that will have the least cost to the customer to install, operate, maintain, and dispose of.
where is a volume variance found
on the variance chart of foh
where is efficiency variance found
on the variance chart of voh
where is spending variance found
on the variance chart of voh
cm =
sales - variable costs(selling costs included)
what is the budgeted area on the variance chart
the middle thing
variable costing basis, what does that mean?
variable costing considers only variable product costs as inventories. fixed costs including fixed production costs are period costs not product costs.
which method more accurately measures performance Absorption or Variable? why?
variable costing measures performance better as it is unaffected by the level of production and income varies in response to sales and cost control. with absorption costing, when production exceeds sales, income will become higher than under variable costing.
Zazoo, Inc. specializes in reviewing and editing technical magazine articles. Zazoo sets the following standards for evaluating the performance of the professional staff: Annual budgeted fixed costs for normal capacity level of 10,000 articles reviewed and edited $600,000 Standard professional hours per 10 articles 200 Flexible budget of standard labor costs to process 10,000 articles $10,000,000 The following data apply to the 9,500 articles that were actually reviewed and edited during the current year. Total hours used by professional staff 192,000 Flexible costs $9,120,000 Total cost $9,738,000
Answer A is correct. Budgeted fixed costs are $600,000. The actual fixed costs were $618,000 ($9,738,000 total costs - $9,120,000 flexible costs). Because actual costs were $18,000 higher than the budget, the variance is unfavorable.
A manufacturer uses a standard cost system with overhead applied based on direct labor hours. The manufacturing budget for the production of 5,000 units for the month of June included 10,000 hours of direct labor at $15 per hour, or $150,000. During June, 4,500 units were produced, using 9,600 direct labor hours, incurring $39,360 of variable overhead, and showing a variable overhead efficiency variance of $2,400 unfavorable. The standard variable overhead rate per direct labor hour was A. $4.00 B. $4.10 C. $3.85 D. $6.00
Answer A is correct. Since 10,000 hours were budgeted to complete 5,000 units, the standard number of hours required for each unit of output is 2 (10,000 hours ÷ 5,000 units). Since 4,500 units were actually produced, the "expected" number of hours, that is, the number that should have been consumed given the achieved level of production, was 9,000 (4,500 units × 2 hours per unit). The actual number of labor hours expended during the month was 9,600, and the efficiency variance is given as $2,400 U. Plugging these amounts into the formula for the efficiency variance allows us to derive the standard variable overhead rate: (EQ - AQ) × SP = Variable overhead efficiency variance (9,000 - 9,600) × SP = $2,400 U SP = $4.00 per hour
The difference between the sales price and total variable costs is A. The contribution margin. B. The breakeven point. C. Gross operating profit. D. Net profit.
Answer A is correct. The contribution margin is calculated by subtracting all variable costs from sales revenue. It represents the portion of sales that is available for covering fixed costs and profit.
A company isolates its raw material price variance in order to provide the earliest possible information to the manager responsible for the variance. The budgeted amount of material usage for the year was computed as follows: 150,000 units of finished goods × 3 lbs./unit × $2.00/lb. = $900,000 Actual results for the year were the following. Finished goods produced 160,000 units Raw materials purchased 500,000 pounds Raw materials used 490,000 pounds Cost per pound $2.02 The raw material price variance for the year was A. $10,000 unfavorable. B. $9,800 unfavorable. C. $20,000 unfavorable. D. $9,600 unfavorable.
Answer A is correct. The direct materials price variance, when it is isolated early, is calculated as the quantity purchased times the standard price minus the actual price (this firm has decided that waiting until the quantity actually used is known delays the usefulness of the calculation). The calculation is therefore [500,000 × ($2.00 - $2.02)] = $10,000 unfavorable.
A company planned to produce 3,000 units of its single product, Titactium, during November. The standard specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual production in November was 3,100 units of Titactium. The accountant computed a favorable direct materials purchase price variance of $380 and an unfavorable direct materials quantity variance of $120. Based on these variances, one could conclude that A. The actual cost of materials was less than the standard cost. B. The actual usage of materials was less than the standard allowed. C. More materials were purchased than were used. D. More materials were used than were purchased.
Answer A is correct. The direct materials purchase price variance may be isolated at the time of purchase or at the time of transfer to production. It equals the actual quantity of materials purchased or transferred times the difference between the standard and actual unit prices. Hence, a favorable direct materials purchase price variance means that materials were purchased at a price less than the standard price.
The following is a standard cost variance analysis report on direct labor cost for a division of a manufacturing company. Job Actual Hours at Actual Wages Actual Hours at Standard Wages Standard Hours at Standard Wages 213 $ 3,243 $ 3,700 $ 3,100 215 15,345 15,675 15,000 217 6,754 7,000 6,600 219 19,788 18,755 19,250 221 3,370 3,470 2,650 Totals $48,500 $48,600 $46,600 What is the total static budget direct labor variance for the division? A. $1,900 unfavorable. B. $100 unfavorable. C. $1,900 favorable. D. $100 favorable.
Answer A is correct. The total static budget direct labor variance equals the difference between total actual direct labor cost and standard direct labor cost (standard hours × standard rate). It combines the direct labor rate and efficiency variances. For this company, the variance is $1,900 U ($46,600 standard wages at standard hours - $48,500 actual wages at actual hours).
Using absorption costing, a company's income for October was $250,000. The company began the month with 10,000 units in finished goods inventory that contained $30,000 of fixed manufacturing overhead costs. During October, the company produced 330,000 units and sold 325,000 units. The fixed manufacturing overhead for October totaled $990,000. If the company used variable costing, its income for October would be A. $235,000 B. $250,000 C. $265,000 D. $234,308
Answer A is correct. Under variable costing, fixed manufacturing overhead is treated as a period expense and is expensed in the period incurred. Each of the units produced under absorption costing carries $3/unit of fixed manufacturing overhead expense that is incurred when the unit is sold. Therefore, because they increased their inventory by 5,000 units (330,000 produced - 325,000 sold), an additional $15,000 ($5,000 × $3) must be expensed in the current period that would not have been otherwise expensed until sale under absorption costing, reducing income to $235,000.
A company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred variable manufacturing costs of $5,000,000, fixed manufacturing costs of $2,000,000, variable marketing costs of $1,000,000, and fixed marketing costs of $3,000,000. If the company uses the variable cost method to value inventory, the inventory value of the new product will be A. $5,000,000 B. $8,000,000 C. $11,000,000 D. $6,000,000
Answer A is correct. Under variable costing, only variable manufacturing costs are capitalized as part of inventory. Thus, ending inventory is valued at $5,000,000.
An organization's revenues and variable costs vary significantly with seasonal weather conditions. This variability has frustrated management's attempts to evaluate the organization's actual results against budgeted performance because there are often large variances in revenues. Which one of the following budgeting methods is most likely to assist management in planning and assessment of results? A. Project budgeting. B. Continuous budgeting. C. Flexible budgeting. D. Zero-based budgeting.
Answer C is correct. A flexible budget adjusts for changes in the volume of activity. It can be adapted to any level of production. To create a flexible budget, standard costs are determined for the underlying cost drivers. Standard costs may be used to isolate variances. This kind of budgeting will aid management in evaluating the large variances caused by the seasonal weather conditions.
To maintain competitive prices, control of costs is critical. Management has considered moving production overseas, but so far they are committed to remaining in the U.S. Management has decided to permit their employees to participate in setting up a new standard cost system. Management likely expects the new standard cost system, along with the employee input, to provide all of the following benefits except that A. Employees who participate in setting standards may be more efficient. B. Standard costs will help management in uncovering potential cost problems. C. Unfavorable variances are more likely to occur D. Standard costing permits management by exception, which should save some time.
Answer C is correct. A well-designed standard cost system should produce fewer unfavorable variances.
The costing method that is properly classified for both external and internal reporting purposes is External Internal Reporting Reporting A. Job-order costing No Yes B. Process costing No No C. Variable costing No Yes D. Activity-based costing No Yes
Answer C is correct. Activity-based costing, job-order costing, process costing, and standard costing can all be used for both internal and external purposes. Variable costing is not acceptable under GAAP for external reporting purposes.
A manufacturing company employs variable costing for internal reporting and analysis purposes. However, it converts its records to absorption costing for external reporting. The Accounting Department always reconciles the two operating income figures to assure that no errors have occurred in the conversion. The fixed manufacturing overhead cost per unit was based on the planned level of production of 480,000 units. Financial data for the year are presented below: Budget Actual Sales (in units) 495,000 510,000 Production (in units) 480,000 500,000 Variable Absorption Costing Costing Variable costs $10.00 $10.00 Fixed manufacturing overhead 0 6.00 Total unit manufacturing costs $10.00 $16.00 The difference between the operating income calculated under the variable costing method and the operating income calculated under the absorption costing method would be A. $90,000 B. $120,000 C. $60,000 D. $57,600
Answer C is correct. The difference between variable costing and absorption costing is that the former treats fixed manufacturing overhead as a period cost. The latter method treats it as a product cost. Given that sales exceeded production, both methods expense all fixed manufacturing overhead incurred during the year. However, 10,000 units (510,000 sales - 500,000 production) manufactured in a prior period were also sold. These units presumably were recorded at $10 under variable costing and $16 under absorption costing. Consequently, absorption costing operating income is $60,000 (10,000 units × $6) less than that under variable costing.
One of the items produced by a manufacturer of lawn and garden tools is a chain saw. The direct labor standard for assembling and testing a chain saw is 2.5 hours at $8 per hour. Budgeted production for October was 1,200 units. Actual production during the month was 1,000 units, and direct labor cost was $27,840 for 3,200 hours. Using a two-variance system, what was the direct labor rate variance for October? A. $5,600 unfavorable. B. $2,240 favorable. C. $2,240 unfavorable. D. $3,840 favorable.
Answer C is correct. The total direct labor variance can be isolated into the rate variance and the efficiency variance. The labor rate variance equals the actual hours worked, times the standard rate minus the actual rate. The actual rate was $8.70 ($27,840 ÷ 3,200 hours). Hence, the variance is $2,240 U [3,200 × ($8.00 - $8.70)].
When calculating variances from standard costs, the difference between budgeted fixed overhead and the amount applied yields a A. Combined price-quantity variance. B. Price variance. C. Volume variance. D. Mix variance.
Answer C is correct. The volume variance is the difference between budgeted fixed overhead and the amount applied based on the standard overhead rate and standard input for the actual output.
Valyn Corporation employs an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Valyn's planned and actual operations for the calendar year are presented below. Planned Actual Activity Activity Beginning finished goods inventory in units 35,000 35,000 Sales in units 140,000 125,000 Production in units 140,000 130,000 The planned per-unit cost figures shown in the schedule were based on the estimated production and sale of 140,000 units for the year. Valyn uses a predetermined manufacturing overhead rate for applying manufacturing overhead to its product; thus, a combined manufacturing overhead rate of $9.00 per unit was employed for absorption costing purposes. Any over- or underapplied manufacturing overhead is closed to the cost of goods sold account at the end of the reporting year. Planned Costs Incurred Per Unit Total Costs Direct materials $12.00 $1,680,000 $1,560,000 Direct labor 9.00 1,260,000 1,170,000 Variable manufacturing overhead 4.00 560,000 520,000 Fixed manufacturing overhead 5.00 700,000 715,000 Variable selling expenses 8.00 1,120,000 1,000,000 Fixed selling expenses 7.00 980,000 980,000 Variable administrative expenses 2.00 280,000 250,000 Fixed administrative expenses 3.00 420,000 425,000 Total $50.00 $7,000,000 $6,620,000 The beginning finished goods inventory for absorption costing purposes was valued at the previous year's planned unit manufacturing cost, which was the same as the current year's planned unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for the current year was $70.00 per unit. The value of Valyn Corporation's actual ending finished goods inventory on the absorption costing basis was A. $1,350,000 B. $900,000 C. $1,200,000 D. $1,220,000
Answer C is correct. Under the absorption method, unit cost is $30 ($12 direct materials + $9 direct labor + $4 variable overhead + $5 fixed overhead). Given beginning inventory of 35,000 units, the ending inventory equals 40,000 units (35,000 BI + 130,000 produced - 125,000 sold). Hence, ending inventory was $1,200,000 (40,000 units × $30).
Which one of the following statements is correct concerning a flexible budget cost formula? Variable costs are stated A. In total and fixed costs are stated in total. B. Per unit and fixed costs are stated per unit. C. Per unit and fixed costs are stated in total. D. In total and fixed costs are stated per unit.
Answer C is correct. Variable costs by their nature are directly related to the level of activity. Thus, a flexible budget formula must use per-unit variable costs to be useful. At the same time, all fixed costs must be covered regardless of the level of output. They are most meaningful when stated in total.
Franklin Glass Works' production budget for the year ended November 30 was based on 200,000 units. Each unit requires 2 standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and the fixed overhead rate was estimated to be $3.00 per unit. Both fixed and variable overhead are assigned to the product on the basis of direct labor hours. The actual data for the year ended November 30 are presented as follows. Actual production in units 198,000 Actual direct labor hours 440,000 Actual variable overhead $352,000 Actual fixed overhead $575,000 Franklin's fixed overhead spending variance for the year is A. $5,750 favorable. B. $25,000 unfavorable. C. $19,000 favorable. D. $25,000 favorable.
Answer D is correct. Actual fixed overhead was $575,000. Budgeted fixed overhead was $3 per unit at an estimated production of 200,000 units; a total of $600,000. The difference of $25,000 is a favorable variance because the actual amount was less than that budgeted.
Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure: Selling price $300 Costs Direct materials $40 Direct labor 30 Variable manufacturing overhead 24 Fixed manufacturing overhead 60 Variable shipping 6 Fixed selling and administrative 20 (180) Operating margin $120 What will the contribution margin per unit be if the company sells 10,000 units? A. $120 B. $140 C. $206 D. $200
Answer D is correct. Contribution margin is the excess of sales over variable costs. Sales will be at $300 per unit. Variable costs are $100, consisting of $40 of direct materials, $30 of direct labor, $24 of variable overhead, and $6 of variable selling costs. Thus, the contribution margin will be $200 per unit ($300 - $100).
Using the two-variance method for analyzing overhead, which of the following variances contains both variable and fixed overhead elements? Controllable (Budget) Volume Efficiency Variance Variance Variance A. Yes Yes Yes B. No No No C. Yes Yes No D. Yes No No
Answer D is correct. In two-way analysis, the total overhead variance (fixed + variable) is composed of the volume variance (total fixed overhead cost budgeted - fixed overhead applied based on standard input allowed for the actual output) and the controllable (budget) variance (the difference between the total actual overhead and the volume variance). Consequently, the controllable (budget) variance contains both fixed and variable elements.
When items are transferred from stores to production, an accountant debits work-in-process and credits materials accounts. During production, a materials quantity variance may occur. The materials quantity variance is debited for an unfavorable variance and credited for a favorable variance. The intent of variance entries is to provide A. Accountability for materials lost during production. B. A means of safeguarding assets in the custody of the system. C. Compliance with GAAP. D. Information for use in controlling the cost of production.
Answer D is correct. One step in the control process is measurement of actual results against standards. For example, the standard quantity of materials for a given output is established prior to production. If the actual materials usage exceeds the standard, the variance is unfavorable and corrective action may be needed.
A company produces and sells replacement parts for cotton processing equipment. Which one of the following cost variances are least likely to be controllable by the production manager? A. Variable overhead spending variance. B. Labor efficiency variance. C. Materials quantity variance. D. Fixed overhead production volume variance.
Answer D is correct. The fixed overhead production volume variance is the difference between the static/flexible budget for fixed overhead and the amount allocated based on the budgeted allocation rate and the driver level allowable for the actual production level achieved. None of these factors are under the control of the production manager.
A company planned to sell 100 canoes for the month of April at an average sales price of $600. Midway through the month, the company had sold 65 canoes and forecasted total sales of 130 canoes at an average price of $595. The actual sales for April were 120 canoes at an average sales price of $590. What is the flexible budget amount for canoe sales revenue for April? A. $77,350 B. $78,000 C. $60,000 D. $72,000
Answer D is correct. The flexible budget amount for sales is found by multiplying the actual number of sales by the average budgeted price at the beginning of the period. This is calculated as 120 × $600 = $72,000.
A company produced 600 units of one of its products last year. The standard for labor hours allowed was 2 hours per unit at a standard rate of $6 per hour. Actual hours worked amounted to 1,230 hours. The labor rate variance was $246 unfavorable, and the labor efficiency variance was $180 unfavorable. What was the actual direct labor cost for the period? A. $7,380 B. $7,200 C. $7,134 D. $7,626
Answer D is correct. The standard direct labor cost for 1,230 actual hours at $6 per hour equals $7,380. The rate variance of $246 was unfavorable, which means that the actual cost was $246 higher than the standard cost, or $7,626 ($7,380 + $246).
A company had a total labor variance of $15,000 favorable and a labor efficiency variance of $18,000 unfavorable. The labor price variance was A. $33,000 unfavorable. B. $3,000 unfavorable. C. $3,000 favorable. D. $33,000 favorable.
Answer D is correct. The total variance for labor consists of a price (rate) variance and an efficiency (usage) variance. Since the total variance is $15,000 favorable, the price variance must be $33,000 favorable (-$18,000 + $33,000 = $15,000).