Ch 8 Flashcards
Budget compare actual results to budgeted results.
reports or report
The static budget is an example of a:
fixed budget
Managers use budget reports to answer all of the following questions:
Why is actual income higher than budgeted income?
Are we using too much direct material?
Why are variances unfavorable?
A fixed budget performance report not only compares results, but also indicates if the variances are:
favorable or unfavorable
The fixed budget indicates sales of $50,000. Actual sales were $55,000. The variance is:
$5,000 favorable
Budget reports are commonly prepared for: (Check all that apply).
a month.
a year.
a quarter.
A(n) …
budget is based on one predicted amount of sales or other activity measure.
fixed or static
When compared to the budgeted amount, if the actual cost or revenue contributes to a lower income, then the variance is considered …
Unfavorable
A fixed budget performance report indicates a sales variance of $20,000 favorable. The reason for the variance:
cannot be determined from the fixed budget performance report
A fixed budget performance report compares the:
fixed budget to the actual results
A flexible budget prepared (before/after) …
the period begins allows management to make adjustments to increase profits or decrease losses.
Before
When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered…
favorable
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 $…
- And 180.
3×50 and 3×60
True or false: A flexible budget reporting sales volumes at three different levels will have the same fixed costs.
True
Reason: Total fixed cost do not change due to a change in activity level.
The fixed budget indicates direct labor costs of $27,500. Actual direct labor costs were $27,000. The variance is:
$500 favorable
When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____
per unit; in total
A flexible budget has which of the following characteristics?
Useful for evaluating past performance
Useful to compare what-if scenarios
Often based on several levels of activity
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 $…
.
- And 108.
50×1.80
60×1.80
Fixed costs equal $25,000; variable cost per unit is $2.50 and units produced are 10,000. The total budgeted costs is $…
50000
25,000+(2.50×10,000)
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 $…
.
5000 doesn’t change?
The report that compares actual performance and budgeted performance based on actual activity level is called a ______ budget performance report.
flexible
The first step in preparing a flexible budget is to:
identify activity levels
When analyzing variances, it is most likely that management will direct their attention to: (Select all that apply).
large and unfavorable variances
large and favorable variances
Standard costs have which of the following characteristics? (Check all that apply.)
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
The formula to calculate total budgeted costs is:
total fixed costs plus (total variable cost per unit times units of activity)
Management by exception means that managers focus attention on the most significant differences between … costs and … costs.
actual
standard
All of the following individuals work to help set standard costs: (Check all that apply.)
purchasing managers
engineers
managerial accountants
The flexible budget performance report directs management’s attention to areas where: (Check all that apply.)
costs differ substantially from budgeted amounts.
revenues differ substantially from budgeted amounts.
A flexible budget performance report indicates a sales variance of $200 unfavorable. The variance was likely caused by:
selling units for less than the budgeted price
A(n) … standard is the quantity of material required under normal operations.
practical
Preset costs for delivering a product or service under normal conditions are called … costs.
Standard
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.
True
Management by exception means that:
management focuses on the most significant variances
If actual cost is less than standard cost, the variance is ___.
favorable
Costs developed which identify what products should cost are called
standard costs.
Variance analysis allows management to assign responsibility for variances so that:
action can be taken to correct the situation
A(n) … standard is the quantity of material required if the process is 100% efficient without any loss or waste.
Ideal
A standard cost _____ indicates the amount of direct labor, direct materials and overhead for one unit of product.
card
Match the cost variance component to its definition.
Actual quantity
Standard quantity
Actual price
Standard price
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
A _____ variance is the difference between actual and standard costs.
cost
A … variance is the difference between the actual price per unit and the standard price per unit.
Price
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.
$720 F
Reason: $17,280/18,000=.96 actual cost. $1.00-.96=.04 x 18,000 lbs = $720 F
List the steps in cost variance analysis, with the first step on top.
- Prepare reports
- Analyze variances
- questions and answers
- Take action
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.
$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
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.
$2,000 F
Reason: $150,000 - $152,000 = $2,000 F
Which of the following is the correct formula?
Cost variance = (AQ x AP) - (SQ x SP)
A company has an unfavorable direct materials quantity variance. A possible reason for this variance is that:
the production department used more materials than expected
The main factors that can cause a variance include the following. Select all that apply.
quantity variance
price variance
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.
$24,400 U
Reason: $374,400 - (35,000 units x 1 hr x $10/hr) = $24,400 U
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.
$5,000 U
Reason: $150,000 - $145,000 = $5,000 U
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.
$7,000 F
Reason: $145,000 - $152,000 = $7,000 F
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.
$220 F
Reason: $17,280 - (35,000 x 0.5 lb x $1/lb) = $220 F
A company has a favorable direct materials price variance. A possible reason for this variance is that:
the purchasing department purchased materials at a cost less than expected
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.
$1,000 U
Reason: $84,000 - $83,000 = $1,000 U
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.
$1,000 F
Reason: Labor cost variance = total actual cost - total standard cost. $84,000 - $85,000 = $1,000 F
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.
$14,400 U
Reason: $374,400 - (36,000 hr x $10/hr) = $14,400 U
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.
$10,000 U
Reason: (36,000 hrs x 1 hr x $10/hr) - (35,000 hrs x 1 hr x $10/hr)
A company has a favorable direct labor efficiency variance. A possible reason for this variance is that:
the production department used fewer labor hours than expected
Step 1 of computing a standard overhead rate is to:
determine an allocation base
The predicted level of activity is usually:
set at less than 100% of capacity
The standard overhead rate is computed separately for:
fixed and variable costs
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.
$2,000 F
Reason: (AH x SR) - (SH x SR). $83,000 - $85,000 = $2,000 F
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.
2.90 How
A company has an unfavorable direct labor rate variance. A possible reason for this variance is that:
the personnel department hired workers at an hourly rate more than expected
The standard overhead applied is based on the ______ level of activity multiplied by the predetermined overhead rate.
actual
Which of the following are examples of an overhead allocation base:
machine hours
direct labor hours
A company has budgeted total overhead of $10,575 at actual units produced and actual total overhead of $9,775. The controllable variance is:
800F
10,575−9,775
Management must consider many factors when choosing the predicted level of activity. These factors include all of the following
scheduling
condition of equipment
product demand
The controllable variance is so called because it:
refers to activities usually under management control
Management uses a(n) ______ budget to establish the standard overhead rate.
flexible
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.
1.25
The overhead variance is the difference between:
actual total overhead and the standard overhead applied
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:
$1,600 U
Reason: $12,000 - 10,400 = $1,600 U.
A(n) … variance occurs when the company operates at a different capacity level than predicted.
volume
The controllable variance is the difference between the actual total overhead and:
budgeted overhead based on a flexible budget
A company has budgeted overhead of $8,750 and standard overhead applied of $9,250. The volume variance is:
$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.
A report which presents overhead variance information along with variances from budgeted amounts is called a(n):
overhead variance report.
True or false: Volume variances are due to the difference between expected production and actual production and, therefore, never need to be investigated.
False
Reason: Management still needs to know why production differed, even if the reason is beyond employees’ control.
The volume variance is computed as:
the difference between budgeted overhead and standard overhead applied
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.
$1,900 U
Reason: ($1.59-$1.79)x9500=$1,900U.
A company has budgeted overhead of $10,000 and standard overhead applied of $10,400. The volume variance is:
$400 F
Reason: $10,000 - 10,400 = $400 F
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.
$895 U
Reason: (9,500-10,000)x$1.79=$895 U.
True or false: An overhead variance report can be used to help management identify individual overhead costs to investigate.
True
A(n) … variance occurs when management pays an amount different from the standard price to acquire an overhead item.
spending
When standard direct labor hours differ from actual direct labor hours used, the company experienced a(n):
efficiency variance
A manufacturing company has an unfavorable volume variance. Which statement is true?
The company did not reach its predicted operating level.
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 $
3750
(5,000×15)−(5,000
×15.75)
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 $
7875
(5,000×15.75)−(4,500
×15.75)
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:
$3,000 F
Reason: $61,000 - $64,000 = $3,000 F
The difference between the actual amount paid and the standard price paid to purchase an overhead item is called a
spending variance
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:
$1,000 U
Reason: Actual-budget. $21,000-$20,000=$1,000U.
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.
efficiency
When recording journal entries for production costs using a standard cost accounting system, the debit to Work in Process Inventory is for the ______ amount.
standard
True or false: Volume variances are due to the difference between expected production and actual production and, therefore, never need to be investigated.
False
In a standard costing income statement, favorable variances are _____ cost of goods sold at standard cost.
subtracted from
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:
$4,000 U
Reason: $64,000-$60000=$4,000U.
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:
$4,000 F
Reason: Budget - applied. $20,000-$24,000=$4,000F.
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.
actual
In a standard costing income statement, unfavorable variances are _____ cost of goods sold at standard cost.
added to
CH 8 CV
Standard costs are preset costs for a product under ______blank conditions.
normal
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?
1.10 pounds
1+(1×10%)
If the actual cost is greater than the standard cost, what is the resulting variance.
Unfavorable
After preparing a standard cost performance report, the next step is to:
Compute and analyze variances.
Actual quantity is the actual direct material or direct labor used to manufacture the
actual quantity of output
Identify the type of variance defined by the following formula: (Actual Price − Standard Price) × Actual Quantity.
Price variance
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?
$1,925 Unfavorable
(4,700×2.75)−(4,000
×2.75)
Who has the main responsibility for a materials price variance?
purchasing manager
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?
$250 Favorable
(1,000×12)−(1,000×12.25)
Who has the main responsibility for a labor rate variance?
production manager
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
$1.50
15,000÷10,000
Baylor Company has actual total overhead of $1,900. The standard overhead applied is $2,000. What is the overhead variance?
$100 Favorable
1,900−2,000
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?
$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.
An overhead variance report includes:
Variable and fixed variances
Variable and fixed actual results
Variable and fixed flexible budget costs
CH 8 HW
