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Exam 23: Flexible Budgets and Standard Costs

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Question 31

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Presented below are terms preceded by letters a through j and followed by a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition. (a) Cost variance (b) Volume variance (c) Price variance (d) Quantity variance (e) Standard costs (f) Controllable variance (g) Fixed budget (h) Flexible budget (i) Variance analysis (j) Management by exception ________ (1) Occurs when there is a difference between the actual and standard volume of production. ________ (2) A planning budget based on a single predicted amount of sales or other activity measure. (3) Preset costs for delivering a product, or service under normal conditions. ________ (4) A process of examining differences between actual and budgeted sales or costs and describing them in terms of the price and quantity differences. ________ (5) The difference between actual price per unit of input and standard price per unit of input. ________ (6) A budget prepared based on several different amounts of sales, often including a best-case and worst-case scenario. ________ (7) The difference between actual quantity of input used and standard quantity of input used. ________ (8) The difference between actual overhead costs incurred and the budgeted overhead costs based on a flexible budget. ________ (9) A management process to focus on significant variances and give less attention to areas where performance is close to the standard. ________ (10) The difference between actual and standard cost.

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1. B; 2. G; 3. E; 4....

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Question 32

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If ending variance account balances are material, they should always be closed directly to Cost of Goods Sold.

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Question 33

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Identify the four steps in the budgetary control process.

The standard materials cost to produce 1 unit of Product R is 6 pounds of material at a standard price of $50 per pound. In manufacturing 8,000 units, 47,000 pounds of material were used at a cost of $51 per pound. - What is the direct materials quantity variance?

The difference between actual overhead costs incurred and the budgeted overhead costs based on a flexible budget is the:

Jake Co. has prepared the following fixed budget for the year, assuming production and sales of 30,000 units. This level of production represents 80% of capacity. Jake Co. Fixed Budget for Year Ending December 31 $\text { Jake Co. Fixed Budget for Year Ending December } 31$ $\begin{array}{|l|c|c|}\hline \text { Sales } & & \$ 1,500,000 \\\hline \text { Cost of goods sold: } & & \\\hline \text { Direct materials } & \$ 540,000 & \\\hline \text { Direct labor } & 300,000 & \\\hline \text { Indirect materials (variable) } & 15,000 & \\\hline \text { Indirect labor (variable) } & 21,000 & \\\hline \text { Depreciation } & 180,000 & \\\hline \text { Salaries } & 90,000 & \\\hline \text { Utilities ( } 80 \% \text { fixed) } & 54,000 & \\\hline \text { Maintenance ( } 40 \% \text { variable) } & 33,000 & 1,233,000 \\\hline \text { Gross profit } & & \$ 267,000 \\\hline\end{array}$ $\begin{array} { l | l | l } \hline \text { Operating expenses: } & & \\\hline \text { Commistions } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 45,000 & \\\hline \text { Advertising (fixed) } \ldots \ldots \ldots \ldots \ldots \ldots & 60,000 & \\\hline \text { Wages (variable) } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 15,000 & \\\hline \text { Rent } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 30,000 & \\\hline \text { Total operating Expentes } \ldots \ldots \ldots \ldots & & 150,000 \\\hline \text { Income from operations } \ldots \ldots \ldots \ldots \ldots \ldots & & \underline { \underline { \$ 117,000 } } \\\hline & &\end{array}$ Calculate the following flexible budget amounts at the indicated levels of capacity: $\begin{array} { l | l | l | l } & \begin{array} { l } \text { Operations at } \\60 \% \text { of Capacity }\end{array} & & \begin{array} { l } \text { Operations at } \\75 \% \text { of Capacity }\end{array} \\\hline \text { Sales } & & & \\\hline \text { Total variable costs } & & & \\\hline \text { Total fixed costs } & & & \\\hline \text { Income from operations } & & &\end{array}$

Wren Company determined that in the production of their products last period; they had a favorable price variance and an unfavorable quantity variance for direct materials. What might be the cause(s) of this pattern of variances?

A flexible budget is based on a single predicted amount of sales or other activity measure.

The standard materials cost to produce 1 unit of Product R is 6 pounds of material at a standard price of $50 per pound. In manufacturing 8,000 units, 47,000 pounds of material were used at a cost of $51 per pound. -What is the total direct materials cost variance?

Another name for a static budget is a variable budget.

Based on predicted production of 25,000 units, Marvel Mix Co. anticipates $175,000 of variable costs and $137,500 of fixed costs. What are the flexible budget amounts of total costs for 28,000 units?

A company's flexible budget for 60,000 units of production showed sales of $96,000, variable costs of $36,000, and fixed costs of $26,000. What operating income would be expected if the company produces and sells 70,000 units?

Georgia, Inc. has collected the following data on one of its products. The direct materials quantity variance is: Direct materials standard (4 lbs. @ $1/lb.) $ 4 per finished unit Total direct materials cost variance-unfavorable $ 13,750 Actual direct materials used 150,000 lbs. ^{Actual finished units produced 30,000} units

Use the following data to find the direct labor rate variance if the company produced 7,000 units of product during the period. $\text {Standard:}$ $\begin{array}{ll}\text { Direct labor ( } 3.2 \mathrm{hrs} . \text { per unit } @ \$ 7 \mathrm{hr} .) & \$ 22.40 \text { per unit } \\\text { Actual cost incurred: } & \\\text { Direct labor }(24,500 \mathrm{hrs} . @ \$ 7.50 / \mathrm{hr} \text {.) } & \$ 183,750\end{array}$

Clevenger Co. planned to produce and sell 30,000 units with a selling price of $10 per unit. Variable costs are expected to be $4 per unit and fixed costs are expected to be $80,000. Clevenger actually produced and sold 37,000 units. Using a contribution margin format: Prepare a flexible budget income statement for the actual level of sales and production.

Jefferson Co. uses the following standard to produce a single unit of its product: variable overhead $6 (2 hrs. per unit @ $3/hr.) . Actual data for the month show variable overhead costs of $150,000, and 24,000 units produced. The total variable overhead variance is:

Fletcher Company collected the following data regarding production of one of its products. Compute the variable overhead cost variance. $\begin{array}{lll}\text { Direct labor stendard (2 hrs. @ } \$ 12.75 / \mathrm{hr} \text {.) } & \$ 5.50 &\text {per finished unit}\\\text { Actual direct labor hours } & 81,500&\text { hrs}\\\text { Budgeted units } & 42,000&\text {units}\\\text {Actual finished units produced}&40,000&\text {units}\\\text {Standad variable OH rate (2 hrs. @ \$14.30/hr) }&\$28.60&\text {per finished unit}\\\text {Standard fixed OH rate (\$ 336,000 / 42,000 units) }&\$8.00 &\text {per unit}\\\text {Actual cost of variable overhead costs incurred}&\$1,140,000\end{array}$ Actual cost of fixed overhead costs incurred $ 338,000

A company uses the following standard costs to produce a single unit of output. $\begin{array} { l l l } \text { Direct materials } & 6 \text { pounds at } \$ 0.90 \text { per pound } & = \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = \$ 6.00 \\\text { Manufactuning overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = \$ 2.40\end{array}$ During the latest month, the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400. -Based on this information, the direct labor rate variance for the month was:

Sanchez Company's output for the current period was assigned a $400,000 standard direct labor cost. The direct labor variances included a $10,000 unfavorable direct labor rate variance and a $4,000 favorable direct labor efficiency variance. What is the actual total direct labor cost for the current period?

A company's flexible budget for 12,000 units of production showed per unit contribution margin of $3.00 and fixed costs, $20,000. The operating income expected if the company produces and sells 18,000 units is: