Ch 8

Question 1

Budget compare actual results to budgeted results.

Answer 1

reports or report

Question 2

The static budget is an example of a:

Answer 2

fixed budget

Question 3

Managers use budget reports to answer all of the following questions:

Answer 3

Why is actual income higher than budgeted income?

Are we using too much direct material?

Why are variances unfavorable?

Question 4

A fixed budget performance report not only compares results, but also indicates if the variances are:

Answer 4

favorable or unfavorable

Question 5

The fixed budget indicates sales of $50,000. Actual sales were $55,000. The variance is:

Answer 5

$5,000 favorable

Question 6

Budget reports are commonly prepared for: (Check all that apply).

Answer 6

a month.

a year.

a quarter.

Question 7

A(n) …
budget is based on one predicted amount of sales or other activity measure.

Answer 7

fixed or static

Question 8

When compared to the budgeted amount, if the actual cost or revenue contributes to a lower income, then the variance is considered …

Answer 8

Unfavorable

Question 9

A fixed budget performance report indicates a sales variance of $20,000 favorable. The reason for the variance:

Answer 9

cannot be determined from the fixed budget performance report

Question 10

A fixed budget performance report compares the:

Answer 10

fixed budget to the actual results

Question 11

A flexible budget prepared (before/after) …
the period begins allows management to make adjustments to increase profits or decrease losses.

Answer 11

Before

Question 12

When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered…

Answer 12

favorable

Question 13

A company sells a product for $3. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted sales will be $…
. At a sales volume of 60 units, budgeted sales will be $…

Answer 13

150. And 180.
     3×50 and 3×60

Question 14

True or false: A flexible budget reporting sales volumes at three different levels will have the same fixed costs.

Answer 14

True

Reason: Total fixed cost do not change due to a change in activity level.

Question 15

The fixed budget indicates direct labor costs of $27,500. Actual direct labor costs were $27,000. The variance is:

Answer 15

$500 favorable

Question 16

When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____

Answer 16

per unit; in total

Question 17

A flexible budget has which of the following characteristics?

Answer 17

Useful for evaluating past performance

Useful to compare what-if scenarios

Often based on several levels of activity

Question 18

A company sells a product for $3. Direct materials are $1.80 per unit. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted direct materials will be $…
. At a sales volume of 60 units, budgeted direct materials will be $…
.

Answer 18

90. And 108.
    50×1.80
    60×1.80

Question 19

Fixed costs equal $25,000; variable cost per unit is $2.50 and units produced are 10,000. The total budgeted costs is $…

Answer 19

50000
25,000+(2.50×10,000)

Question 20

A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries will be $…
.

Answer 20

5000 doesn’t change?

Question 21

The report that compares actual performance and budgeted performance based on actual activity level is called a ______ budget performance report.

Answer 21

flexible

Question 22

The first step in preparing a flexible budget is to:

Answer 22

identify activity levels

Question 23

When analyzing variances, it is most likely that management will direct their attention to: (Select all that apply).

Answer 23

large and unfavorable variances

large and favorable variances

Question 24

Standard costs have which of the following characteristics? (Check all that apply.)

Answer 24

they are used to help management understand reasons for variances

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

production managers help determine production requirements for a unit of product

Question 25

The formula to calculate total budgeted costs is:

Answer 25

total fixed costs plus (total variable cost per unit times units of activity)

Question 26

Management by exception means that managers focus attention on the most significant differences between … costs and … costs.

Answer 26

actual
standard

Question 27

All of the following individuals work to help set standard costs: (Check all that apply.)

Answer 27

purchasing managers

engineers

managerial accountants

Question 28

The flexible budget performance report directs management’s attention to areas where: (Check all that apply.)

Answer 28

costs differ substantially from budgeted amounts.

revenues differ substantially from budgeted amounts.

Question 29

A flexible budget performance report indicates a sales variance of $200 unfavorable. The variance was likely caused by:

Answer 29

selling units for less than the budgeted price

Question 30

A(n) … standard is the quantity of material required under normal operations.

Answer 30

practical

Question 31

Preset costs for delivering a product or service under normal conditions are called … costs.

Answer 31

Standard

Question 32

True or false: A standard cost card shows standard costs of materials, labor, and overhead for a product and is used to prepare manufacturing budgets.

Answer 32

True

Question 33

Management by exception means that:

Answer 33

management focuses on the most significant variances

Question 34

If actual cost is less than standard cost, the variance is ___.

Answer 34

favorable

Question 35

Costs developed which identify what products should cost are called

Answer 35

standard costs.

Question 36

Variance analysis allows management to assign responsibility for variances so that:

Answer 36

action can be taken to correct the situation

Question 37

A(n) … standard is the quantity of material required if the process is 100% efficient without any loss or waste.

Answer 37

Ideal

Question 38

A standard cost _____ indicates the amount of direct labor, direct materials and overhead for one unit of product.

Answer 38

card

Question 39

Match the cost variance component to its definition.
Actual quantity
Standard quantity
Actual price
Standard price

Answer 39

Actual quantity: The input used to manufacture the quantity of output
Standard quantity: The expected input for the quantity of output
Actual price:The amount paid to acquire input
Standard price: The preset, or expected price

Question 40

A _____ variance is the difference between actual and standard costs.

Answer 40

cost

Question 41

A … variance is the difference between the actual price per unit and the standard price per unit.

Answer 41

Price

Question 42

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials price variance.

Answer 42

$720 F
Reason: $17,280/18,000=.96 actual cost. $1.00-.96=.04 x 18,000 lbs = $720 F

Question 43

List the steps in cost variance analysis, with the first step on top.

Answer 43

1. Prepare reports
2. Analyze variances
3. questions and answers
4. Take action

Question 44

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials quantity variance.

Answer 44

$500 U
Reason: Standard allowed=35,000 units x .5 pounds=17,500 pounds. Actual pounds=18,000. Actual 18,000-standard 17,500 x $1.00= $500 U

Question 45

XYZ Company makes one product and has calculated the following amounts for direct materials: Actual cost: AQ x AP = $150,000; AQ x SP = $145,000; Standard cost: SQ x SP = $152,000. Compute the direct materials variance.

Answer 45

$2,000 F
Reason: $150,000 - $152,000 = $2,000 F

Question 46

Which of the following is the correct formula?

Answer 46

Cost variance = (AQ x AP) - (SQ x SP)

Question 47

A company has an unfavorable direct materials quantity variance. A possible reason for this variance is that:

Answer 47

the production department used more materials than expected

Question 48

The main factors that can cause a variance include the following. Select all that apply.

Answer 48

quantity variance

price variance

Question 49

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor variance.

Answer 49

$24,400 U
Reason: $374,400 - (35,000 units x 1 hr x $10/hr) = $24,400 U

Question 50

XYZ Company makes one product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials price variance.

Answer 50

$5,000 U
Reason: $150,000 - $145,000 = $5,000 U

Question 51

XYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials quantity variance.

Answer 51

$7,000 F
Reason: $145,000 - $152,000 = $7,000 F

Question 52

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials variance.

Answer 52

$220 F
Reason: $17,280 - (35,000 x 0.5 lb x $1/lb) = $220 F

Question 53

A company has a favorable direct materials price variance. A possible reason for this variance is that:

Answer 53

the purchasing department purchased materials at a cost less than expected

Question 54

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the direct labor rate variance.

Answer 54

$1,000 U
Reason: $84,000 - $83,000 = $1,000 U

Question 55

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the direct labor cost variance.

Answer 55

$1,000 F
Reason: Labor cost variance = total actual cost - total standard cost. $84,000 - $85,000 = $1,000 F

Question 56

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor rate variance.

Answer 56

$14,400 U
Reason: $374,400 - (36,000 hr x $10/hr) = $14,400 U

Question 57

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the labor efficiency variance.

Answer 57

$10,000 U
Reason: (36,000 hrs x 1 hr x $10/hr) - (35,000 hrs x 1 hr x $10/hr)

Question 58

A company has a favorable direct labor efficiency variance. A possible reason for this variance is that:

Answer 58

the production department used fewer labor hours than expected

Question 59

Step 1 of computing a standard overhead rate is to:

Answer 59

determine an allocation base

Question 60

The predicted level of activity is usually:

Answer 60

set at less than 100% of capacity

Question 61

The standard overhead rate is computed separately for:

Answer 61

fixed and variable costs

Question 62

XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH x SR = $85,000. Compute the labor efficiency variance.

Answer 62

$2,000 F
Reason: (AH x SR) - (SH x SR). $83,000 - $85,000 = $2,000 F

Question 63

A manufacturing company has the following budgeted overhead costs: Indirect materials: $0.50 per unit; Utilities: $0.25 per unit; Supervisory salaries: $60,000; Building rent: $80,000. If the company expects to produce 200,000 units using 100,000 hours of direct labor, the standard overhead rate will be $… per direct labor hour.

Answer 63

2.90 How

Question 64

A company has an unfavorable direct labor rate variance. A possible reason for this variance is that:

Answer 64

the personnel department hired workers at an hourly rate more than expected

Question 65

The standard overhead applied is based on the ______ level of activity multiplied by the predetermined overhead rate.

Answer 65

actual

Question 66

Which of the following are examples of an overhead allocation base:

Answer 66

machine hours

direct labor hours

Question 67

A company has budgeted total overhead of $10,575 at actual units produced and actual total overhead of $9,775. The controllable variance is:

Answer 67

800F
10,575−9,775

Question 68

Management must consider many factors when choosing the predicted level of activity. These factors include all of the following

Answer 68

scheduling

condition of equipment

product demand

Question 69

The controllable variance is so called because it:

Answer 69

refers to activities usually under management control

Question 70

Management uses a(n) ______ budget to establish the standard overhead rate.

Answer 70

flexible

Question 71

A manufacturing company has variable overhead costs of $2.50 per unit and fixed costs of $5,000 per month. Each unit requires 4 hours of direct labor and the company expects to produce 2,000 units each month. The standard overhead rate will be $… per direct labor hour.

Answer 71

1.25

Question 72

The overhead variance is the difference between:

Answer 72

actual total overhead and the standard overhead applied

Question 73

A company has budgeted total overhead at actual units produced of $10,400. The company has actual total overhead of $12,000. The controllable variance is:

Answer 73

$1,600 U
Reason: $12,000 - 10,400 = $1,600 U.

Question 74

A(n) … variance occurs when the company operates at a different capacity level than predicted.

Answer 74

volume

Question 75

The controllable variance is the difference between the actual total overhead and:

Answer 75

budgeted overhead based on a flexible budget

Question 76

A company has budgeted overhead of $8,750 and standard overhead applied of $9,250. The volume variance is:

Answer 76

$500 F
Reason: The volume variance is favorable. If applied is greater than budgeted, this is a favorable variances. This shows that they produced more units than planned, hence the favorable variance.

Question 77

A report which presents overhead variance information along with variances from budgeted amounts is called a(n):

Answer 77

overhead variance report.

Question 78

True or false: Volume variances are due to the difference between expected production and actual production and, therefore, never need to be investigated.

Answer 78

False
Reason: Management still needs to know why production differed, even if the reason is beyond employees’ control.

Question 79

The volume variance is computed as:

Answer 79

the difference between budgeted overhead and standard overhead applied

Question 80

A company had a standard sales price of $1.79 per unit and expected to sell 10,000 units. Due to a downturn in the economy, the product was marked down to $1.59 per unit and the company only sold 9,500 units. Calculate the sales price variance.

Answer 80

$1,900 U
Reason: ($1.59-$1.79)x9500=$1,900U.

Question 81

A company has budgeted overhead of $10,000 and standard overhead applied of $10,400. The volume variance is:

Answer 81

$400 F
Reason: $10,000 - 10,400 = $400 F

Question 82

A company had a standard sales price of $1.79 per unit and expected to sell 10,000 units. Due to a downturn in the economy, the product was marked down to $1.59 per unit and the company only sold 9,500 units. Calculate the sales volume variance.

Answer 82

$895 U
Reason: (9,500-10,000)x$1.79=$895 U.

Question 83

True or false: An overhead variance report can be used to help management identify individual overhead costs to investigate.

Answer 83

True

Question 84

A(n) … variance occurs when management pays an amount different from the standard price to acquire an overhead item.

Answer 84

spending

Question 85

When standard direct labor hours differ from actual direct labor hours used, the company experienced a(n):

Answer 85

efficiency variance

Question 86

A manufacturing company has an unfavorable volume variance. Which statement is true?

Answer 86

The company did not reach its predicted operating level.

Question 87

Actual sales volume for a period is 5,000 units. Budgeted sales volume is 4,500. Actual selling price per unit is $15 and budgeted price per unit is $15.75. The sales price variance is $

Answer 87

3750
(5,000×15)−(5,000
×15.75)

Question 88

Actual sales volume for a period is 5,000 units. Budgeted sales volume is 4,500. Actual selling price per unit is $15 and budgeted price per unit is $15.75. The sales volume variance is $

Answer 88

7875
(5,000×15.75)−(4,500
×15.75)

Question 89

A manufacturing company accumulates the following data on variable overhead: Actual variable cost incurred: $61,000; Budgeted variable overhead at actual hours used: $64,000; Applied variable overhead: $60,000. The variable overhead spending variance is:

Answer 89

$3,000 F
Reason: $61,000 - $64,000 = $3,000 F

Question 90

The difference between the actual amount paid and the standard price paid to purchase an overhead item is called a

Answer 90

spending variance

Question 91

A manufacturing company accumulates the following data on fixed overhead: Actual fixed overhead cost incurred: $21,000; Budgeted fixed overhead: $20,000; Applied fixed overhead: $24,000. The fixed overhead spending variance is:

Answer 91

$1,000 U
Reason: Actual-budget. $21,000-$20,000=$1,000U.

Question 92

A(n) (labor/spending/volume/efficiency) … variance occurs when the standard direct labor hours expected for actual production differs from the actual direct labor hours used.

Answer 92

efficiency

Question 93

When recording journal entries for production costs using a standard cost accounting system, the debit to Work in Process Inventory is for the ______ amount.

Answer 93

standard

Question 94

True or false: Volume variances are due to the difference between expected production and actual production and, therefore, never need to be investigated.

Answer 94

False

Question 95

In a standard costing income statement, favorable variances are _____ cost of goods sold at standard cost.

Answer 95

subtracted from

Question 96

A manufacturing company accumulates the following data on variable overhead: Actual cost incurred: $61,000; Budgeted variable overhead at hours used: $64,000; Applied variable overhead: $60,000. The variable overhead efficiency variance is:

Answer 96

$4,000 U
Reason: $64,000-$60000=$4,000U.

Question 97

A manufacturing company accumulates the following data on fixed overhead: Actual fixed overhead cost incurred: $21,000; Budgeted fixed overhead: $20,000; Applied fixed overhead: $24,000. The fixed overhead volume variance is:

Answer 97

$4,000 F
Reason: Budget - applied. $20,000-$24,000=$4,000F.

Question 98

When recording journal entries for production costs using a standard cost accounting system, the credit to Raw Materials Inventory for the materials used in production is for the ______ amount.

Answer 98

actual

Question 99

In a standard costing income statement, unfavorable variances are _____ cost of goods sold at standard cost.

Answer 99

added to

Question 100

CH 8 CV

Question 101

Standard costs are preset costs for a product under ______blank conditions.

Answer 101

normal

Question 102

To make a cake, one pound of dry cake mix is needed. However, when pouring cake mix into the mixing bowl, 10% spills onto the floor and is unusable. What is the standard amount of cake mix necessary to make a cake?

Answer 102

1.10 pounds
1+(1×10%)

Question 103

If the actual cost is greater than the standard cost, what is the resulting variance.

Answer 103

Unfavorable

Question 104

After preparing a standard cost performance report, the next step is to:

Answer 104

Compute and analyze variances.

Question 105

Actual quantity is the actual direct material or direct labor used to manufacture the

Answer 105

actual quantity of output

Question 106

Identify the type of variance defined by the following formula: (Actual Price − Standard Price) × Actual Quantity.

Answer 106

Price variance

Question 107

In producing jelly beans, 4,700 pounds of direct materials were used at a cost of $2.50 per pound. The standard was 4,000 pounds at $2.75 per pound. What is the direct materials quantity variance?

Answer 107

$1,925 Unfavorable
(4,700×2.75)−(4,000
×2.75)

Question 108

Who has the main responsibility for a materials price variance?

Answer 108

purchasing manager

Question 109

In producing jelly beans, 1,000 hours of direct labor were used at a rate of $12 per hour. The standard was 1,100 at $12.25 per hour. What is the direct labor rate variance?

Answer 109

$250 Favorable
(1,000×12)−(1,000×12.25)

Question 110

Who has the main responsibility for a labor rate variance?

Answer 110

production manager

Question 111

A Min Company operates at 80% capacity. At this level, they produce 1,000 units, total overhead costs are $15,000, and they predict they will use 10,000 direct labor hours.

Standard overhead rate per direct labor hour at 80% capacity is

Answer 111

$1.50
15,000÷10,000

Question 112

Baylor Company has actual total overhead of $1,900. The standard overhead applied is $2,000. What is the overhead variance?

Answer 112

$100 Favorable
1,900−2,000

Question 113

Kramer Company budgeted that it would operate at 80% capacity for the month producing 800 units of its product, AA. Each unit requires 2 direct labor hours. For the month it actually produced 700 units and operated at 70% capacity. If the budgeted (flexible) overhead at 700 units produced was $3,000, the standard overhead rate is $2.00 per direct labor hour, what is the volume variance?

Answer 113

$200 Unfavorable
The volume variance equals budgeted (flexible) overhead at units produced of $3,000 − standard overhead applied of (700 units × 2 direct labor hours × $2.00 per direct labor hour) $2,800 = $200 unfavorable. The variance is unfavorable because the company made 100 fewer units than expected.

Question 114

An overhead variance report includes:

Answer 114

Variable and fixed variances
Variable and fixed actual results
Variable and fixed flexible budget costs

Question 115

CH 8 HW