Learnsmart 8
Flexible budget variances occur due to differences in standard and
actual per unit amounts
A fixed cost volume variance occurs when
actual per unit fixed costs are different than budgeted per unit fixed costs.
If actual volume is more than the planned volume, the fixed cost volume variance will be
favorable
If the actual rate paid for labor is less than the standard rate there is a
favorable labor price variance
The difference between actual sales and sales on a flexible budget based on actual volume is a
sales price variance.
The difference between budgeted fixed costs and actual fixed costs is called a fixed cost spending variance
spending variance
The master budget is frequently called a(n) static budget.
static
Material variances should be investigated if they are favorable or
unfavorable
Actual results and the flexible budget reflect _____ volume of activity, and variances result from differences between standard and actual _____.
the same; per-unit amounts
Changes in the level of activity will not affect the
total fixed cost.
The static and flexible budgets use the same
total fixed costs per unit variable costs per unit sales price
Which of the following is the correct formula for the materials usage variance?
∣Actual-quantity−Standard-quantity∣∣Actual-quantity * Standard price
JJ Company planned to sell 5,000 units for $10 per unit. The Company actually sold 6,000 units for $8 per unit. What is the sales price variance?
$10,000 unfavorable. Reason: 6,000 units * ($10-$8)=$12,000 The variance is unfavorable because the actual sales price was lower than the expected sales price.
JJ Company planned to sell 5,000 units for $10 per unit. The Company actually sold 6,000 units for $8 per unit. What is the sales price variance?
$12,000 unfavorable
JJ Company planned to sell 5,000 units for $10 per unit. The Company actually sold 6,000 units for $15 per unit. What is the sales price variance?
$30,000 favorable. Reason: 6,000 units * ($10-$15)=$30,000 The variance is favorable because the actual sales price was higher than the expected sales price.
Durango Co. prepared the following static budget based on sales projections of 10,000 units: Revenue $20,000 Variable costs 10,000 Contribution margin 10,000 Fixed costs 5,000 Net income 5,000 What would be reported for net income on a flexible budget, assuming 12,000 units were sold? Multiple choice question.
$7,000 Reason: Revenue 24,000 Var. Costs 12,000 Cont. Marg. 12,000 Fixed Costs 5,000 Net Income 7,000
What type of standard is easily attainable and does not motivate most people?
Lax
If the actual volume is less than the planned volume, the fixed cost volume variance will be unfavorable.
Less
Variable selling, general, and administrative costs can have price and usage variances
price
Which of the following is the correct formula for the labor price variance?
Actual-price−Standard-price∣∣Actual-price* Actual hours
Which of the following statements is incorrect regarding variable overhead variances?
All companies must calculate price and usage variances for variable overhead costs.
Which of the following formulas would be used to calculate fixed cost volume variance?
Applied fixed cost based on actual volume - budgeted fixed cost based on planned volume
Which of the following are reasons companies use a predetermined overhead rate to allocate fixed overhead? (Select all that apply.)
Estimate cost to determine a sales price. Estimate cost for quarterly financial statements.
Static budgets change when the actual volume of activity differs from the planned volume.
False
True or false: Deciding which variances to investigate is an exact science and does not rely on managerial judgment.
False
True or false: Management should only investigate material variances if they are unfavorable.
False Reason: Material variances should be investigated if they are favorable or unfavorable.
Actual costs are less than standard costs
Favorable
Which of the following statements is true concerning flexible budget variances?
Flexible budget variances can be caused by price or usage variances.
The labor price variance is normally the responsibility of the production supervisor
Production supervisor
The purchasing agent is normally held responsible for the materials price variance.
Purchasing
The difference between sales on the static budget and sales on a flexible budget based on actual volume is a
Sales volume variance
The difference between sales on the static budget and sales on a flexible budget based on actual volume is a(n) sales volume variance. (
Sales volume variance
Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following.
The total direct labor variance is $2,500 favorable.
Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000.
The total direct materials variance is $1,000 favorable. Reason: $3,000 favorable direct materials price variance + $2,000 unfavorable materials usage variance = $1,000 favorable total direct materials variance.
When would a variance be labeled as unfavorable?
When standard cost are less than actual cost.
Cost variances are favorable when
actual costs are less than standard costs.
Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as:
budget slack Reason: Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as: budget slack.
The cost volume variance is defined as the difference between the
cost on the static budget and the cost on a flexible budget based on actual volume.
The primary advantage of a standard cost system is
efficient use of management talent to control costs.
The primary difference between the static and flexible budget is the
expected number of units sold.
Normally, upper level marketing managers are held accountable for the
fixed cost volume variance
The static and flexible budget have the same total fixed costs
fixed costs
The difference between flexible budget figures and actual figures are
flexible budget variances
What type of standard represents flawless performance including what costs should be under the best possible circumstances?
ideal
The production supervisors are typically held responsible for
labor usage variances. labor price variances.
A management philosophy that encourages managers to concentrate on areas not performing as expected is known as
management by exception Reason A management philosophy that encourages managers to concentrate on areas not performing as expected is known as management by exception.
A favorable labor variance could mean
management motivated employees to work hard.
What type of variance is one that could influence management decisions?
material. Reason: A material variance is one that could influence management decisions
A favorable material variance could mean
purchasing agents negotiated price concessions or discounts
A variance is
the difference between the standard and actual amount.
Sales price variances always occur when
the sales price is different than expected.
A variable overhead usage variance provides no clue about which overhead inputs were overused or
underused
According to a philosophy known as management by exception, what type of cost variances should be investigated?
unfavorable
The difference between the standard and the actual amount is called a(n)
variance
The standard amount of materials required to make one unit of Product Q is 2 pounds. Sam's static budget showed a planned production of 2,000 units. During the period the company actually produced 2,100 units of product. The actual amount of materials used averaged 2.3 pounds per unit. The standard price of material is $3 per pound. Based on this information, the materials usage variance was:
$1,890 unfavorable. Reason: Materials usage variance= (Actual quantity - Standard quantity) × Standard price Actual quantity= 2100 units × 2.3 pounds per unit= 4830 Standard quantity= 2100 units × 2 pounds per unit= 4200 MUV=(4830- 4200) × $3 MUV=$1,890 unfavorable
Durango Co. prepared the following static budget based on sales projections of 5,000 units: Revenue $20,000 Variable costs 10,000 Contribution margin 10,000 Fixed costs 5,000 Net income 5,000 What would be reported for net income on a flexible budget, assuming 10,000 units were sold? Multiple choice question.
$15,000 Reason: Revenue 40,000 Variable Cost 20,000 Cont. Margin 20,000 Fixed Costs 5,000 net Income 15,000
For 2016, Monroe Corporation budgeted fixed costs of $300,000. It expected to make 20,000 units during the year. Actual fixed costs were $346,000, and Monroe actually made 19,000 units of product. What is the fixed cost volume variance?
$15,000 unfavorable Reason: Fixed cost volume variance = (19,000 - 20,000) × $300,000/20,000 = $15,000 unfavorable
The Boyle Company estimated that April sales would be 50,000 units with an average selling price of $5.00. Actual sales for April were 80,000 units and average selling price was $5.20. The sales volume variance was:
$150,000 favorable. Reason: 50,000 units × $5=$250,000 Sales on the Static Budget 80,000 units × $5=$400,000 Sales on the Flexible Budget $250,000-$400,000=$150,000 The sales volume variance is favorable because the sales were higher than expected.
Hickam Company makes one product, for which it has developed the following standard for labor: each unit should require 1.50 hours at $12/hour. In April, Hickam made 10,000 units, using 1.65 hours per unit at a cost of $11.50 per hour. What is the labor usage variance?
$18,000 unfavorable. Reason: Labor usage variance = $12 (15,000 hours - 16,500) = $18,000 unfavorable
The Boyle Company estimated that April sales would be 10,000 units with an average selling price of $2.00. Actual sales for April were 11,000 units and average selling price was $1.90. The sales volume variance was:
$2,000 favorable Reason: 10,000 units × $2=$20,000 Sales on the Static Budget 11,000 units × $2=$22,000 Sales on the Flexible Budget $20,000-$22,000=$2,000 The sales volume variance is favorable because the sales were higher than expected.
Marks Company makes one product, for which it has established the following standards for materials: Average quantity of material per unit of product: 4.5 pounds Price per pound of materials, $16 During March, Marks made 10,000 units of the product, using 50,000 pounds at a total purchase price of $825,000. What is the materials price variance?
$25,000 unfavorable. Reason: Price variance= (Actual price-Standard price) * Actual quantity Materials price variance: 50,000 pounds × ($16.50 - 16.00) = $25,000 unfavorable
For 2016, Monroe Corporation budgeted fixed costs of $400,000. It expected to make 20,000 units during the year. Actual fixed costs were $406,000, and Monroe actually made 22,000 units of product. What is the fixed cost volume variance?
$40,000 favorable
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. Reason: Materials usage variance= (Actual quantity - Standard quantity) * Standard price Actual quantity= 4100 units * 3.9 pounds per unit= 15990 Standard quantity= 4100 units * 4 pounds per unit= 16400 MUV=(15990- 16400) * $1 MUV=$410 favorable
Durango Co. prepared the following static budget based on sales projections of 10,000 units: Revenue $200,000 Variable costs 100,000 Contribution margin 100,000 Fixed costs 50,000 Net income 50,000 What would be reported for net income on a flexible budget, assuming 12,000 units were sold? Multiple choice question.
$70,000. Reason: Revenue 240,000 Variable Cost 120,000 Cont. Margin 120,000 Fixed Costs 50,000 net Income 70,000 Fixed costs do not vary with changes in volume
The fixed cost variance between the static and flexible budget is
0
The predetermined overhead rate is calculated as
Budgeted Fixed Cost/Planned Volume
Which of the following factors should influence a decision to investigate a variance?
Capacity for management to control the variance Materiality of variance Frequency of variance
Volume variances are typically the responsibility of
Marketing managers
The predetermined overhead rate is calculated as budgeted fixed cost divided by
Planned volume
Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as a slack budget.
Slack
A(n)------ represents the amount that a price, cost, or quantity should be under certain anticipated circumstances.
Standard
Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following.
The total direct labor variance is $2,500 favorable. Reason: It took employees more time to produce the outputs than expected as can be seen in the $1500 unfavorable direct labor usage variance. The actual direct labor rate must have been below the standard direct labor rate as can be seen by the $4000 favorable direct labor price variance. It is probable that the supervisor used less skilled employees and paid them less since there was a favorable direct labor price variance and a unfavorable direct labor usage variance.
Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $7,000 and an unfavorable direct materials usage variance of $3,000.
The total direct materials variance is 4,000 favorable.
True or false: Variable overhead variances are based on the same general formulas used to compute the materials and labor price variances.
True
True or false: When actual volume is different than expected volume, a fixed costs volume variance will occur.
True Reason: When actual volume is different than expected fixed costs, per unit cost will change, resulting in a fixed cost volume variance.
Actual costs exceed standard costs
Unfavorable
If Stan Company planned for variable cost per unit to be $2.00 but actual variable cost per unit is $2.50, the variance is
Unfavorable
Which manager is normally held responsible for fixed cost volume variances?
Upper level marketing managers
How do companies allocate fixed overhead before actual cost is known?
Use a predetermined rate to allocate the fixed overhead.
Which of the following is a reason for a favorable sales variance?
When actual sales exceed budgeted or expected sales
Cost variances are unfavorable when
actual costs exceed standard costs.
A flexible budget variance is the difference between
actual figures and figures on a flexible budget based on actual volume.
Which of the following correctly represents the materials price variance formula?
actual price - standard price X actual quantity
Sales variances are unfavorable when
actual sales are less than expected sales.
Sales price variances always occur when
actual sales differ from sales on a flexible budget based on actual volume.
Fixed cost volume variances occur when
actual volume is different than expected volume.
Benefits of a standard cost system include
alerting management to trouble spots motivating employees boosting morale encouraging good planning
The difference between costs on the static budget and costs on a flexible budget based on actual volume is a
cost volume variance.
When the actual sales price exceeds the expected sales price a company has a
favorable sales price variance
If the actual rate paid for labor is more than the standard rate there is a(n)
unfavorable labor price variance
Melrose has a $4,180 favorable flexible budget materials cost variance. This indicates that Melrose spent less than expected on materials to make 19,000 trophies. This could be a result of a price variance or a
usage