ACCT 2101 Exam 2
Favorable differences occur when actual costs are below budgeted costs. Unfavorable differences occur when actual costs are above budget costs. When there is no difference between budgeted and actual costs, it is neither favorable nor unfavorable.
Favorable vs. Unfavorable
materials price variance
The difference between the actual quantity times the actual price and the actual quantity times the standard price for materials.
total materials variance
The difference between the actual quantity times the actual price and the standard quantity times the standard price of materials.
merchandise purchases budget
The estimated cost of goods to be purchased by a merchandiser to meet expected sales.
participative budgeting
A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate.
manufacturing overhead budget
An estimate of expected manufacturing overhead costs for the budget period.
sales budget
An estimate of expected sales revenue for the budget period.
budgeted income statement
An estimate of the expected profitability of operations for the budget period.
direct materials budget
An estimate of the quantity and cost of direct materials to be purchased.
standard predetermined overhead rate
An overhead rate determined by dividing budgeted overhead costs by an expected standard activity index.
sales cost of goods sold gross profit selling and administrative expenses income from operations interest expense income before income taxes income tax expense net income/(loss)
Budgeted Income Statement Format
budgeted production
Budgeted sales + Budgeted ending inventory - Budgeted beginning inventory is used to determine a. budgeted materials purchases b. budgeted average inventory c. budgeted cost of goods sold d. budgeted production
$106 favorable materials price variance = (actual price x actual quantity) - (standard price x actual quantity) $123,500 - ($1.89 x 65,400) = $106 favorable.
Bulk PVC manufactures PVC pipes for plumbing. The direct materials quantity standard is 1.3 pounds of PVC per pipe, and one pound of PVC is expected to cost $1.89. In June, Bulk made 50,000 pipes and used 65,400 pounds of PVC. The total cost for materials was $123,500. What is Bulk's materials price variance for June?
organizational structure
Effective budgeting is dependent on an ____ ____ in which authority and responsibility are clearly defined.
favorable If actual activity is less than budgeted activity, a static budget will likely report favorable cost variances because costs would have been based on a higher budgeted activity.
For December, Alpine Ski Resort's static budget was based on a 98% occupancy rate for their hotel. However, the winter has been much warmer than normal with little snow so the resort has only had a 72% occupancy rate. If the actual costs for the 72% occupancy rate were compared to the budgeted costs for the 98% occupancy rate, the difference would likely be?
$800, favorable Total budgeted costs: $27,000 + $36,000 + $9,000 = $72,000 Total actual costs: $28,000 + $34,000 + $9,200 = $71,200 Total budget difference = $72,000 - $71,200 = $800 $800 is favorable because the total actual costs are less than the total budgeted costs.
Fox Company's static budget shows $27,000 budgeted for direct materials, $36,000 budgeted for direct labor, and $9,000 budgeted for overhead. Fox's actual direct materials were $28,000, actual direct labor was $34,000, and actual overhead was $9,200. What is the total difference between the static budget and actual, and is the difference favorable or unfavorable?
unaffected The total labor variance is the labor price variance plus the labor quantity variance; therefore, even though the overhead is applied based on direct labor costs, the manufacturing overhead variance is unaffected by the total labor variance.
Giordano Chocolates applies overhead using direct labor costs and had a total unfavorable labor variance of $12,540 in the month of March. Because of this, the manufacturing overhead variance will be
$51,750 favorable total direct labor variance = (actual hours x actual rate) - (standard hours x standard rate) standard hours = 150,000 textbooks x 0.5 hours per textbook = 75,000 hours $698,250 - (75,000 x $10) = $51,750 favorable.
Gradebook Publishers prints textbooks for public grade schools. The standard direct labor quantity per textbook is 0.5 direct labor hours and the standard direct labor rate is $10 per hour. Last month, 150,000 textbooks were produced and 73,500 actual direct labor hours were worked. The company's direct labor payroll for last month was $698,250. What was the total direct labor variance?
6.04 hours standard DL hours = 2 hours for cutting + 4 hours for sewing + 0.02 for rest periods + 0.02 for machine downtime = 6.04 hours
Heidi makes rag quilts. Each child-sized quilt contains 4.25 yards of flannel priced at $4.99 per yard and thread costing $0.24 per quilt. Heidi also allows 0.10 yards of fabric for waste per quilt. Direct labor for each quilt includes 2 hours of cutting and 4 hours of sewing. The cutters' direct labor rate is $7.25 per hour, and the sewers' direct labor rate is $8.50 per hour. Rest periods of 0.01 hours per quilt are allowed each for both sewers and cutters, with an additional 0.02 hours per quilt allowed for machine downtime. What is the standard direct labor hours per quilt?
price quantity
In developing a standard cost for direct materials used in making a product, consideration should be given to two factors: (1) ____ per unit of direct materials and (2) the ____ of direct materials to produce one unit of product.
financial budgets
Individual budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.
operating budgets
Individual budgets that result in a budgeted income statement.
$20 favorable total standard costs = $14,000 + $12,600 + $6,200 = $32,800 total actual costs = $13,860 + $12,420 + $6,500 = $32,780 total variance = $32,780 - $32,800 = $20 favorable
JT Engineering has determined that it should cost $14,000 in direct materials, $12,600 in direct labor, and $6,200 in total overhead to produce 1,000 widgets. During the most recent period, JT actually spent $13,860 in direct materials, $12,420 in direct labor, and $6,500 in total overhead to produce 1,000 widgets. What is JT's total variance? Is it favorable or unfavorable?
$250 unfavorable total materials variance = materials quantity variance + materials price variance -$750 favorable + $1,000 unfavorable = $250 unfavorable.
Last December Sandy Davis Inc. had a $750 favorable materials quantity variance and a $1,000 unfavorable materials price variance. What was the total materials variance last December?
units produced variable costs: DM DL OH total variable costs fixed costs: depreciation supervision total fixed costs total costs
Manufacturing Flexible Budget Report Format
variable costs fixed costs total MOH
Manufacturing Overhead Budget Format
continuous 12-month
Many companies use ____ ____-____ budgets by dropping the month just ending and adding a future month.
at the end of the budget period, collecting financial data from different departments involves evaluating actual results at the end of the period against the budget set at the beginning of the period.
Michael was asked to collect the financial data from all the different departments so that top management could determine if they met their goals. What point is the company at in its budgeting process? a. at the end of the budget period b. at the end of the budgeting process c. in the middle of the budgeting process d. at the beginning of the budgeting process
activity level finished units variable costs: DM DL OH total variable costs fixed costs: depreciation supervision total fixed costs total costs
Monthly Flexible Manufacturing Budget Format
activity level direct labor hours variable costs: Indirect Labor Indirect Materials Utilities total variable costs fixed costs: supervision depreciation property taxes total fixed costs total costs
Monthly Manufacturing Overhead Flexible Budget Format
31,000 units, budgeted production = budgeted sales + budgeted ending inventory - budgeted beginning inventory beginning inventory for October is ending inventory for September, which is 5% of 30,000 units. 50,000 units from Nov. is ending inventory for October which is 5% of 50,000 units 30,000 + (50,000 * 0.05) - (30,000 * 0.05) = 31,000 units
Mounce, Inc. produces and sells free-standing quilt frames. In budgeting for production needs, the company requires that 5% of the next month's sales be on hand at the end of each month. Budgeted sales of quilt frames over the next four months are: Sept: 20,000 units Oct: 30,000 units Nov: 50,000 units Dec: 40,000 units Calculate the budgeted production for October.
$4,800 unfavorable materials quantity variance = (actual quantity x standard price) - (standard quantity x standard price) (25,200 x $4.00) - (24,000 x $4.00) = $4,800 unfavorable.
Noah's Boat Supplies used 25,200 pounds of direct materials when the standard was 24,000 pounds. Noah paid $4.40 per pound when the standard was $4.00 per pound. What is Noah's direct materials quantity variance?
raw materials costs
One of the most common causes of a materials price variance is an unexpected change in ____.
manufacturing overhead budget, because all of his tasks revolve around the production of manufactured goods.
Philip is a manager who oversees raw materials ordering, inventory levels, employee efficiency and productivity, and assembly line maintenance. Which of the following budgets would Philip most likely help develop? a. sales budget b. selling and administrative expense budget c. capital expenditure budget d. manufacturing overhead budget
standard costs
Predetermined unit costs which companies use as measures of performance.
expected unit sales add: desired ending finished goods inventory total required units less: beginning finished goods inventory required production units
Production Budget Format
$14,472 favorable total actual costs = $234,582 + $390,417 + $42,600 + $30,429 = $698,028 total variance is actual costs of $698,028 less standard costs of $712,500 = $14,472 favorable
Saalfeld Industries used direct materials of $234,582, direct labor of $390,417, variable overhead of $42,600, and fixed overhead of $30,429 to make 150,000 units. The total standard costs for 150,000 units is $712,500. What is the total variance?
expected unit sales unit selling price total sales
Sales Budget Format
variable expenses fixed expenses total selling and administrative expenses
Selling and Administrative Expense Budget Format
normal standards
Standards based on an efficient level of performance that are attainable under expected operating conditions.
ideal standards
Standards based on the optimum level of performance under perfect operating conditions.
production in units variable costs: DM DL OH total variable costs fixed costs: depreciation supervision total fixed costs total costs
Static Budget Report Format
True
T/F: A static budget is a projection of budget data at a single level of activity.
True
T/F: A static budget is not appropriate in evaluating a manager's effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed.
False; Budget reports are prepared as frequently as NEEDED.
T/F: All budget reports are prepared on a weekly basis.
True
T/F: As a result of analyzing budget reports, management may either take corrective action or modify future plans.
True
T/F: Budget reports compare actual results with planned objectives.
False; Budgetary control works best when a company has a FORMALIZED reporting system.
T/F: Budgetary control works best when a company has an informal reporting system.
True
T/F: Management uses budget reports to analyze differences between actual and planned results and to determine their causes.
True
T/F: The primary recipient of the scrap report is the production manager.
False; The primary recipients of the sales report are the sales manager and TOP MANAGEMENT.
T/F: The primary recipients of the sales reports are the sales manager and the production supervisor.
False; Top management's reaction to unfavorable differences is OFTEN influenced by the materiality of the difference.
T/F: Top management's reaction to unfavorable differences is not influenced by the materiality of the difference.
budgetary slack
The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.
normal capacity
The average activity output that a company should experience over the long run.
top management evaluating performance
The budget should have the support of ____ _____ and should be an important basis for ____ ____ by comparing actual results to expected results.
direct materials price standard
The cost per unit of direct materials that management determines should be incurred to produce one unit of product.
price
The difference between actual hours times the actual pay and actual hours times the standard pay rate is the labor ____ variance.
total labor variance
The difference between actual hours times the actual rate and standard hours times the standard rate for labor.
quantity
The difference between actual quantity of materials times the standard price and standard quantity times the standard price is the materials ____ variance.
labor price variance
The difference between the actual hours times the actual rate and the actual hours times the standard rate for labor.
materials quantity variance
The difference between the actual quantity times the standard price and the standard quantity times the standard price for materials.
variance
The difference between total actual costs and total standard costs.
direct materials quantity standard
The quantity of direct materials that management determines should be used per unit of finished goods.
direct labor price standard
The rate per hour that management determines should be incurred for direct labor to produce one unit of product.
overhead applied
The standard number of hours allowed times the predetermined overhead rate is the amount of ____ ____ to the products produced.
direct labor quantity standard
The time that management determines should be required to produce one unit of product.
budgetary control
The use of budgets to control operations.
$1,015 original indirect materials: $2.18 * 14,500 = $31,610 new indirect materials: $2.25 * 14,500 = $32,635 $32,625 - $31,610 = $1,015
Toledo Manufacturing has the following variable overhead costs: Indirect materials: $2.18/hour Indirect labor: $3.26/hour Utilities: $0.90/hour Maintenance: $0.33/hour Direct labor hours: 14,500 hours If Toledo decides that they need to increase their indirect materials to $2.25 per hour, how much will this increase the company's total variable costs at this level of activity?
0.07 hours 1.7 standard DL hours - 0.55 hours for cutting - 0.33 hours for constructing - 0.075 hours for finishing = 0.07 hours left for rest periods
Wholesale Furnishings manufactures desks. The process includes cutting, constructing, and finishing. Each desk requires 1.7 standard direct labor hours, which include 0.55 hours of cutting, 0.33 hours of constructing, and 0.75 hours of finishing. How much time is allowed for rest periods?
budgeted sales + budgeted ending inventory - budgeted beginning inventory
budgeted production can be computed as:
budget committee
A group responsible for coordinating the preparation of the budget.
responsibility accounting
A part of management accounting that involves identifying and reporting revenues and costs on the basis of the manager who has the authority to make day-to-day decisions about the items.
cash budget
A projection of anticipated cash flows.
selling and administrative expense budget
A projection of anticipated selling and administrative expenses for the budget period.
static budget
A projection of budget data at one level of activity.
flexible budget
A projection of budget data for various levels of activity.
budgeted balance sheet
A projection of financial position at the end of the budget period.
direct labor budget
A projection of the quantity and cost of direct labor necessary to meet production requirements.
production budget
A projection of the units that must be produced to meet anticipated sales.
master budget
A set of interrelated budgets that constitutes a plan of action for a specific time period.
budget
A formal written statement of management's plans for a specified future time period, expressed in financial terms.
labor quantity variance
The difference between actual hours times the standard rate and standard hours times the standard rate for labor.
total overhead variance
The difference between actual overhead costs and overhead costs applied to work done, based on standard hours allowed.
operating budgets master budget participative budgets financial budgets sales forecast long-range plans
1. establish goals for the company's sales and production personnel. 2. is a set of interrelated budgets that constitutes a plan of action for a specified time period. 3. reduces the risk of having unrealistic budgets. 4. include the cash budget and the budgeted balance sheet. 5. the budget is formed within the framework of a ____ 6. contains considerably less detail than budgets. word bank: sales forecast operating budgets long-range plans financial budgets master budget participative budgeting
long-range planning
A formalized process of identifying long-term goals, selecting strategies to achieve those goals, and developing policies and plans to implement the strategies.
communicating
A budget is a primary means of ____ agreed upon objectives throughout the business organization.
units to be produced direct labor time (hours) per unit total required direct labor hours direct labor cost per hour total direct labor cost
Direct Labor Budget Format
units to be produced direct materials pounds per unit/direct materials per unit total pounds required for production add: desired ending inventory pounds/desired ending direct materials (pounds) total materials required less: beginning materials inventory/beginning direct materials (pounds) direct materials units to be purchased/direct materials purchases cost per pound total cost of direct materials purchases
Direct Materials Budget Format
$33,000 sales commissions: $2 * 12,000 units = $24,000 shipping costs: $0.75 * 12,000 units = $9,000 $12,000 + $9,000 = $33,000
Dobbins Resources pays sales commissions of $2 per unit and shipping costs of $0.75 per unit. If Dobbins expects to sell 12,000 units in the third quarter, what will their total variable expenses be?
favorable
If actual costs are less than standard costs, the variance is ____.
unfavorable favorable
If the actual direct labor hours worked is greater than the standard hours, the labor quantity variance will be ____, and the labor rate variance will be ____ if the standard rate of pay is greater than the actual rate of pay.
standard hours allowed
The hours that should have been worked for the units produced.
sales forecast
The projection of potential sales for the industry and the company's expected share of such sales.
