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Exam 8: Flexible Budgets and Standard Costing

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Question 21

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A cost variance is the difference between actual cost and standard cost.

A) True
B) False

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Question 22

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A company established a direct material standard of 2 pounds of material at a cost of $6 per pound for unit produced.During August the company produced 6,000 units of product.10,000 pounds of direct material which cost $6.50 per pound were used in the production process.Compute the direct material quantity variance for August.

A) $5,000 unfavorable
B) $12,000 unfavorable
C) $5,000 favorable
D) $12,000 favorable
E) $7,000 favorable

F) A) and E)
G) B) and E)

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Question 23

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This information comes from the records of Dina Co. for the current period: Actual costs and quantities: $\begin{array} { l l } \text { Direct materials used } & 38,000 \text { feet } @ \$ \$ 6.20 \text { per foot } \\ \text { Direct labor hours used } & 50,660 \text { hours } \\ \text { Direct labor rate per hour } & \$ 16 \\ \text { Factory overhead } & \$ 211,600 \\ 25,000 \text { units were produced during the period. } & \\ & \\ \text { Standard costs and quantities per unit: } & 1.5 \mathrm { ft } . @ \$ 6.10 \text { per } \mathrm { ft } . \\ \text { Direct materials } & 2 \text { hours @ } \$ 17 \text { per hour } \\ \text { Direct labor } & \end{array}$ Factory overhead (based on budgeted production of 24,500 units) Variable overhead $\$ 2.25 /$ direct labor hour Fixed overhead $\quad \$ 1.95 /$ direct labor hour -Make the necessary general journal entries to record the above standard and actual costs, and all variances.

A standard that takes into account the reality that some loss usually occurs with any process under normal application of the process is known as a __________________ standard.

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)The difference between the total budgeted overhead cost and the overhead cost that was allocated to products using the predetermined fixed overhead rate. __________ (2)A planning budget based on a single predicted amount of sales or production volume; unsuitable for evaluations if the actual volume differs from the predicted volume. __________ (3)Preset costs for delivering a product, component, or service under normal conditions. __________ (4)A process of examining the differences between actual and budgeted sales or costs and describing them in terms of the amounts that resulted from price and quantity differences. __________ (5)The difference between actual and budgeted sales or cost caused by the difference between the actual price per unit and the budgeted price per unit. __________ (6)A budget prepared based on predicted amounts of revenues and expenses corresponding to the actual level of output. __________ (7)The difference between actual and budgeted cost caused by the difference between the actual quantity and the budgeted quantity. __________ (8)The combination of both overhead spending variances (variable and fixed)and the variable overhead efficiency variance. __________ (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 cost and standard cost, made up of a price variance and a quantity variance.

A company established a direct material standard of 2 pounds of material at a cost of $6 per pound for unit produced.During August the company produced 6,000 units of product; 10,000 pounds of direct material that cost $6.50 per pound were used in the production process.Compute the direct material price variance for August.

A cost variance equals the sum of the quantity variance and the price variance.

Use the following cost information to calculate the direct labor rate and efficiency variances and indicate whether they are favorable or unfavorable. $\begin{array}{lc} \text { Actual costs and quartities: } \\\text { Direct labor cost incurred } & \$ 360,000 \\\text { Direct labor hours used } & 20,000 \text { hours } \\\text { Units produced } & 45,000 \text { units } \\\text { tandard costs and quantities: } & \\\text { Direct labor rate per hour } & \$ 16.50 \\\text { Hours to produce one unit } & 0.5 \text { hours }\end{array}$

A process of examining the differences between actual and budgeted costs and describing them in terms of the amounts that resulted from price and quantity differences is called:

______________________ are preset costs for delivering a product or service under normal conditions.

Actual fixed overhead for a company during March was $97,612.The flexible budget for fixed overhead this period is $88,000 based on a production level of 5,500 units.If the company actually produced 4,300 units, what is the fixed overhead spending variance for March?

Cost variances are ignored under management by exception.

Bartels Corp.produces woodcarvings.It takes two hours of direct labor to produce a carving.Bartels' standard labor cost is $12 per hour.During August, Bartels produced 10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376.What is Bartels' labor rate variance for August?

When the actual cost of direct materials used exceeds the standard cost, the company must have experienced an unfavorable direct materials price variance.

A _______________________ contains relevant information that compares actual results to planned activities.

The difference between the actual cost incurred and the standard cost is called the:

Actual fixed overhead for Kapok Company during March was $92,780.The flexible budget for fixed overhead this period is $89,000 based on a production level of 5,000 units.If the company actually produced 4,200 units what is the fixed overhead volume variance for March?

A company's flexible budget for 48,000 units of production showed variable overhead costs of $72,000 and fixed overhead costs of $64,000.The company incurred overhead costs of $122,800 while operating at a volume of 40,000 units.The total controllable cost variance is:

A company's flexible budget for 36,000 units of production showed variable overhead costs of $54,000 and fixed overhead costs of $50,000.The company actually incurred total overhead costs of $95,300 while operating at a volume of 32,000 units.What is the controllable variance?

Cheshire, Inc., allocates fixed overhead at a rate of $18 per direct labor hour.This amount is based on 90% of capacity or 3,600 direct labor hours for 6,000 units.During May, Cheshire produced 5,500 units.Budgeted fixed overhead is $66,000, and overhead incurred was $67,000. Required: Determine the volume variance for May.