Accounting 222 Chapter 8 Final Review

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units. Per unit standards Static Budget Flexible Budget Number of units 12,000 13,000 Sales revenue $65.00 $780,000 $845,000 Variable manufacturing costs: Materials $11.00 132,000 143,000 Labor $9.00 108,000 117,000 Overhead $4.20 50,400 54,600 Variable general, selling, and administrative costs $11.00 132,000 143,000 Contribution margin $357,600 $387,400 Fixed costs Manufacturing overhead 100,800 100,800 General, selling, and administrative costs 45,000 45,000 Net income $211,800 $241,600 What was the sales volume variance?

$65,000 favorable Correct $65,000 unfavorable $29,800 unfavorable $29,800 favorable Sales volume variance = Static budget (based on planned volume) − Flexible budget (based on actual volume) Sales volume variance = $780,000 − $845,000 = $65,000 favorable Since the actual volume was greater than the planned volume, the variance is favorable.

The Landrum Company provides the following standard cost data per unit of product: Variable overhead $8.00 Landrum anticipated that they would produce and sell 24,000 units. During the period, the company produced and sold 25,000 units, incurring $210,000 of variable overhead costs. The variable overhead flexible budget variance was:

$8,000 unfavorable. $10,000 unfavorable. Correct $8,000 favorable. $10,000 favorable. Variable overhead flexible variance = (Actual cost per unit of product − Standard cost per unit of product) × Actual units Variable overhead flexible variance = Actual variable overhead cost − (Standard cost per unit of product × Actual units) Variable overhead flexible variance = $210,000 − ($8.00 per unit × 25,000 units) Variable overhead flexible variance = $210,000 − $200,000 = $10,000 Since the actual cost is greater than the flexible budget, the variance is unfavorable.

When a comparison of static and flexible budgets shows an unfavorable sales volume variance, the variable cost volume variances will also be unfavorable.

False When the static is compared to the flexible budget, a decrease in sales volume will produce an unfavorable sales volume variance. However, since the variable costs in the flexible budget will be lower than the variable costs in the static budget, the variable cost volume variances will be favorable.

Volume variances are computed for which of the following costs?

Fixed manufacturing costs only Variable selling and administrative costs only Variable manufacturing and selling and administrative costs Correct Variable manufacturing costs only Variances occur only because the budgets are created using different volumes of activity. Since total fixed cost is not affected by the level of activity, there will be no fixed cost variances associated with static versus flexible budgets.

Which of the following income statement formats is most commonly used with flexible budgeting?

Sales − Variable costs = Contribution margin; Contribution margin − Fixed costs = Net income Correct Sales − Cost of goods sold = Gross margin; Gross margin − Operating expenses = Net income Sales − Manufacturing costs − Selling and administrative costs = Net income None of these answers are correct.

The resources used in the manufacturing process are frequently called:

Variances. Standards. Inputs. Correct Outputs.

Achieving the sales volume in the master budget is known as:

making the numbers. Correct lowballing. cooking the books. budget slack.

A budget prepared at a single volume of activity is referred to as a:

Strategic budget. Standard budget. Static budget. Correct Flexible budget.

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $6 per gallon) $18.00 Direct labor (2 hours @ $10 per hour) $20.00 During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material 68,000 gallons @$5.90 per gallon Direct labor 45,500 hours @$9.75 per hour The direct labor usage variance was:

$15,000 unfavorable. Correct $15,000 favorable. $14,625 unfavorable. $14,625 favorable. Usage variance = (Actual quantity − Standard quantity) × Standard price Usage variance = [45,500 hours − (22,000 units × 2 hours per unit)] × $10 per hour Usage variance = (45,500 hours − 44,000 hours) × $10 per hour = $15,000 Since the actual quantity was greater than the standard quantity, the variance is unfavorable.

The standard amount of materials required to make one unit of Product Q is 4 pounds. Tusa's static budget showed a planned production of 3,800 units. During the period, the company actually produced 4,100 units of product. The actual amount of materials used averaged 3.9 pounds per unit. The standard price of material is $1 per pound. Based on this information, the materials usage variance was:

$410 favorable. Correct $380 unfavorable. $410 unfavorable. $380 favorable. Usage variance = (Actual quantity − Standard quantity) × Standard price Usage variance = [(4,100 units × 3.9 pounds per unit) − (4,100 units × 4 pounds per unit)] × $1.00 per pound Usage variance = (15,990 pounds − 16,400 pounds) × $1.00 per pound = $410 Since the actual quantity is less than the standard quantity, the variance is favorable.

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales volume variance was:

$6,120 favorable. $6,000 unfavorable. Correct $17,880 favorable. $17,880 unfavorable. Sales volume variance = Static budget (based on planned volume) − Flexible budget (based on actual volume) Sales volume variance = (150,000 units × $6.00 per unit) − (149,000 units × $6.00 per unit) Sales volume variance = $900,000 − $894,000 = $6,000 unfavorable Since the actual volume was less than the planned volume, the variance is unfavorable.

If the master budget prepared at a volume level of 10,000 units includes direct labor of $10,000, a flexible budget based on a volume of 11,000 units would include direct labor of $10,000.

False Standard cost per unit = Standard cost ÷ Expected volume Standard direct material cost per unit = $10,000 ÷ 10,000 units = $1.00 per unit Flexible budget = Standard cost per unit × Actual volume Flexible budget at a level of 11,000 units = $1.00 per unit × 11,000 units = $11,000

In most cases, the production manager should be held accountable for fixed cost volume variances.

False The fixed cost volume variance is a measure of facility utilization. The company will suffer an unfavorable variance when it does not utilize its facilities to make and sell the number of units of product it had planned to make and sell. A favorable fixed cost volume variance suggests that a company utilized its facilities to make and sell more than the planned volume of activity. As a result, the production manager should not be held accountable for these variances.

Two budgeting games sometimes played by employees are building in budget slack and making the numbers.

False When marketing managers refer to making the numbers, they usually mean reaching the sales volume in the static (master) budget. This is not an example of budget gamesmanship.

Item to Classify Standard Actual Sales volume 100,000 units 96,000 units Sales price$4 per unit$3.90 per unit Material usage 40,000 gallons 42,000 gallons Labor price 12.50 per hour 12.45 per hour All of the following variances are unfavorable except?

Materials usage Sales price Sales volume Labor price Correct

If the master budget prepared at a volume level of 20,000 units includes factory rent of $40,000, a flexible budget based on a volume of 21,000 units would include factory rent of $40,000.

True Note that the fixed costs are the same at all levels of activity because, by definition, they are not affected by changes in volume.

Hurst Company's standard variable materials cost per unit was $8. The actual materials cost per unit on production of 10,000 units was $8.22. Based on this information, Hurst Company incurred an unfavorable variable materials price variance of $2,200.

True Price variance = (Actual price − Standard price) × Actual quantity Price variance = ($8.22 per unit − $8.00 per unit) × 10,000 units = $2,200 Since the actual price was greater than the standard price, the variance is unfavorable.

Select the correct statement regarding general, selling, and administrative (GS&A) costs.

Variable general, selling, and administrative costs can have price variances. Correct Variable general, selling, and administrative costs cannot have usage variances. Cost variances are not generally computed for fixed general, selling, and administrative costs. All of these answers are correct.

When would a variance be labeled as unfavorable?

When standard costs are more than actual costs Incorrect When expected sales are less than actual sales When actual sales are equal to expected sales None of these answers are correct. Correct

Abbot Company spent less than expected for materials and more than expected for labor. Select the incorrect statement from the following.

You can always expect unfavorable labor variances if you have favorable material variances. Correct In order to facilitate cost control, it will be necessary to analyze the price and quantity of each resource used in production. It cannot be determined from the information provided whether employees were paid higher wages or if they worked more hours. It cannot be determined from the information provided whether the company paid a lower purchase price for materials or if workers used less materials.