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Exam 6: Flexible Budgets and Standard Cost Systems

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Question 61

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Favorable and unfavorable variances are subtracted from each other to arrive at a net favorable or unfavorable variance.

A) True
B) False

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Question 62

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The efficiency variance measures ________.

A) the difference between the quantity used by the company and the quantity used by its competitors
B) the change in quantities used over time
C) how well the business uses its materials or human resources
D) how quickly direct materials are processed into finished goods

E) A) and C)
F) All of the above

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Question 63

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Alpine Productions uses a standard cost system for recording transactions.Alpine reported the following data for the year ended December 31: Sales revenues: $800,000 Cost of goods sold (standard costing) : $382,000 Selling & administrative expenses: $105,000 Variances: $\begin{array} { | l | r | c | } \hline \text { Sales revenue variance } & \$ 4100 & \mathrm {~F} \\\hline \text { Direct materials cost variance } & 30 & \mathrm { U } \\\hline \text { Direct materials efficiency variance } & 300 & \mathrm {~F} \\\hline \text { Direct labor cost variance } & 65 & \mathrm { U } \\\hline \text { Direct labor efficiency variance } & 10 & \mathrm {~F} \\\hline \text { Variable overhead cost variance } & 300 & \mathrm { U } \\\hline \text { Variable overhead efficiency variance } & 80 & \mathrm {~F} \\\hline \text { Fixed overhead cost variance } & 430 & \mathrm { U } \\\hline \text { Fixed overhead volume variance } & 100 & \mathrm {~F}\\\hline\end{array}$ What is the net operating income on a standard cost income statement?

Apogee Fashions uses standard costs for their manufacturing division.The allocation base for overhead costs is direct labor hours.From the following data,calculate the fixed overhead allocated to production based on direct labor hours (DLHr) . $\begin{array} { | l | l | } \hline \text { Actual fixed overhead } & \$ 40,000 \\\hline \text { Budgeted fixed overhead } & \$ 23,000 \\\hline \text { Standard overhead allocation rate } & \$ 8 \\\hline \text { Standard direct labor hours per unit } & 3 \text { DLHr } \\\hline \text { Actual output } & 2500 \text { units } \\\hline\end{array}$

List the direct labor variances and briefly describe each.

A company is setting its direct materials and direct labor standards for its leading product.Direct materials cost from the supplier are $9 per square foot,net of purchase discount.Freight-in amounts to $0.40 per square foot.Basic wages of the assembly line personnel are $14 per hour.Payroll taxes are approximately 21% of wages.Benefits amount to $2 per hour.How much is the direct materials cost standard per square foot?

The management of Cleancut Lawnmowers has calculated the following variances: $\begin{array} { | l | r | } \hline \text { Direct materials cost variance } & \$ 8000 \mathrm { U } \\\hline \text { Direct materials efficiency variance } & 38,000 \mathrm {~F} \\\hline \text { Direct labor cost variance } & 17,000 \mathrm {~F} \\\hline \text { Direct labor efficiency variance } & 13,000 \mathrm { U } \\\hline \text { Variable overhead cost variance } & 3500 \mathrm {~F} \\\hline \text { Variable overhead efficiency variance } & 5000 \mathrm {~F} \\\hline \text { Fixed overhead cost variance } & 3000 \mathrm {~F} \\\hline\end{array}$ When determining the total product cost flexible budget variance,what is the total manufacturing overhead variance of the company?

When using management by exception,managers investigate only those variances that are unfavorable.

Only substantial unfavorable variances should be investigated to determine their causes.

If both favorable and unfavorable variances exist,the variances are subtracted from each other.The variance is determined to be favorable or unfavorable based on which one is the larger amount.

Meridian Fashions uses standard costs for their manufacturing division.The allocation base for overhead costs is direct labor hours.From the following data,calculate the fixed overhead cost variance. $\begin{array} { | l | l | } \hline \text { Actual fixed overhead } & \$ 32,000 \\\hline \text { Budgeted fixed overhead } & \$ 24,000 \\\hline \text { Standard overhead allocation rate } & \$ 8 \\\hline \text { Standard direct labor hours per unit } & 3 \text { DLHr } \\\hline \text { Actual output } & 2500 \text { units } \\\hline\end{array}$

The purchasing manager was able to bring down the cost of direct materials by purchasing direct materials of a slightly lower grade quality than the company had used previously.The lower grade of direct materials,however,meant a higher defect rate on the assembly line and a higher waste of direct materials during production,which in turn lowered operating income.This would have led to a(n________.

A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing a higher waste of valuable direct materials.The production manager decided to purchase a higher grade of materials that would be more reliable.This would produce a(n________.

Ibis Paper Company prepared the following static budget for November: If a flexible budget is prepared at a volume of 13,300 units,calculate the operating income.The production level is within the relevant range.

A direct labor cost variance is unfavorable if the employer pays workers more per hour than budgeted.

A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing a higher waste of valuable direct materials.The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate.This would produce a(n________.

The term management by exception refers to investigating ________.

Aunt Emily's Food Products is famous for its frosted fruit cake.The main ingredient of the cake is dried fruit,which Aunt Emily's purchases by the pound.In addition,the production requires a certain amount of direct labor.Aunt Emily's uses a standard cost system,and at the end of the first quarter,there was a favorable direct materials cost variance.Which of the following is a logical explanation for that variance?

When investigating variable overhead variances,management needs to determine whether cost increases were controllable or if the cost standard needs to be updated.

What does the fixed overhead cost variance measure?