Chapter 12 questions from teacher

Question 1

Total Fixed overhead variance

Answer 1

c

Question 2

32. The difference between a budget and a standard is that
    a. a budget expresses what costs were, while a standard expresses what costs should be.
    b. a budget expresses management’s plans, while a standard reflects what actually happened.
    c. a budget expresses a total amount while a standard expresses a unit amount.
    d. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

Answer 2

c

Question 3

36. It is possible that a company’s financial statements may report inventories at
    a. budgeted costs.
    b. standard costs.
    c. both budgeted and standard costs.
    d. none of these.

Answer 3

b

Question 4

38. Standard costs
    a. may show past cost experience.
    b. help establish expected future costs.
    c. are the budgeted costs per unit in the present.
    d. all of these

Answer 4

d

Question 5

39. Which of the following statements about standard costs is false?
    a. Properly set standards should promote efficiency.
    b. Standard costs facilitate management planning.
    c. Standards should not be used in “management by exception.”
    d. Standard costs can simplify the costing of inventories.

Answer 5

c

Question 6

40. Which of the following is not considered an advantage of using standard costs?
    a. Standard costs can reduce clerical costs.
    b. Standard costs can be useful in setting prices for finished goods.
    c. Standard costs can be used as a means of finding fault with performance.
    d. Standard costs can make employees “cost-conscious.”

Answer 6

c

Question 7

53. The direct labour quantity standard is sometimes called the direct labour
    a. volume standard.
    b. effectiveness standard.
    c. efficiency standard.
    d. quality standard

Answer 7

c

Question 8

54. A manufacturing company would include setup and downtime in their direct
    a. materials price standard.
    b. materials quantity standard.
    c. labour price standard.
    d. labour quantity standard

Answer 8

d

Question 9

55. Allowance for spoilage is part of the direct
    a. materials price standard.
    b. materials quantity standard.
    c. labour price standard.
    d. labour quantity standard.

Answer 9

b

Question 10

56. The total standard cost to produce one unit of product is shown
    a. at the bottom of the income statement.
    b. at the bottom of the balance sheet.
    c. on the standard cost card.
    d. in the Work in Process Inventory account.

Answer 10

c

Question 11

57. An unfavourable materials quantity variance would occur if
    a. more materials are purchased than are used.
    b. actual kilograms of materials used were less than the standard kilograms llowed.
    c. actual labour hours used were greater than the standard labour hours allowed.
    d. actual kilograms of materials used were greater than the standard kilograms allowed.

Answer 11

d

Question 12

58. If actual direct material costs are greater than standard direct materials costs, it means that
    a. actual costs were calculated incorrectly.
    b. the actual unit price of direct materials was greater than the standard unit price of direct materials.
    c. the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected.
    d. the purchasing agent or the production foreman is inefficient.

Answer 12

c

Question 13

59. If actual costs are greater than standard costs, there is a(n)
    a. normal variance.
    b. unfavourable variance.
    c. favourable variance.
    d. error in the accounting system.

Answer 13

b

Question 14

Use the following information for questions 61 and 62:
A company developed the following per-unit standards for its product: 5 kilograms of direct materials at $3 per kilogram. Last month, 1,000 kilograms of direct materials were purchased for $2,900. Also last month, 700 kilograms of direct materials were used to produce 135 units.
61. What was the direct materials price variance for last month?
a. $12,100 favourable
b. $100 favourable
c. $12,100 unfavourable
d. $100 unfavourable

Answer 14

b

Question 15

A company developed the following per-unit standards for its product: 5 kilograms of direct materials at $3 per kilogram. Last month, 1,000 kilograms of direct materials were purchased for $2,900. Also last month, 700 kilograms of direct materials were used to produce 135 units.

62. What was the direct materials quantity variance for last month?
    a. $75 unfavourable
    b. $75 favourable
    c. $900 unfavourable
    d. $900 favourable

Answer 15

a

Question 16

Use the following information to answer questions 111 to 115:
EKPN Co. Produces wooden boxes. The company’s standards per box require 6 boards, each costing $10 per board, and half of an hour of direct labour. The standard labour rate is $15 per hour. In August, EKPN Co. Purchased 12,000 boards for a total cost of $123,000. It used 11,500 boards to manufacture 1,900 boxes. Total labour hours were 1,000 hours, and total labour costs were $16,250.
111. What was the materials price variance for August?
a. $3,000 F
b. $3,000 U
c. $ 8,000 F
d. $8,000 U

12. What was the material quantity variance for August?
    a. $5,000 U
    b. $5,000 F
    c. $1,000 U
    d. $1,000 F
13. What was the labour quantity variance for August?
    a. $750 F
    b. $750 U
    c. $13,500 F
    d. $13,500 U
14. What was the labour price variance?
    a. $1,250 U
    b. $1,250 F
    c. $4,250 F
    d. $4,250 U
15. What was the total labour variance for August?
    a. $1.25 F
    b. $1.25 U
    c. $2,000 F
    d. $2,000 U

Answer 16

b
c
b
a
d

Question 17

Brief Exercise 131
Go Mix Company uses both standards and budgets. The company estimates that production for the year will be 125,000 units of Product Fast. To produce these units of Product Fast, the company expects to spend $406,250 for materials and $1,875,000 for labour.

Instructions
Calculate the estimates for (a) a standard cost and (b) a budgeted cost.

Answer 17

Solution 131 (5 min.)
(a) Standards are stated as a per unit amount. Thus, the standards are
materials $3.25, ($406,250 ÷ 125,000), and labour $15, ($1,875,000 ÷ 125,000).

(b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are materials $406,250 and labour $1,875,000

Question 18

Brief Exercise 132
During March, Tile Company purchases and uses 15,125 kilograms of materials costing $22,990 to make 5,000 tiles. Tile Company’s standard material cost per tile is $4.50 (3 kilograms of material x $1.50).

Instructions
Calculate the total, price, and quantity material variances for Tile Company for March.

Answer 18

Solution 132 (5 min.)
Total materials variance = $490 U, (15,125 X $1.52) – (15,000 X $1.50).
Materials price variance = $302.50 U, (15,125 X $1.52) – (15,125 X $1.50).
Materials quantity variance = $187.50 U, (15,125 X $1.50) – (15,000 X $1.50).

Question 19

Brief Exercise 133
During January, Ray Company incurs 2,250 hours of direct labour at an hourly cost of $10.10 in producing 1,250 units of its finished product. Ray’s standard labour cost per unit of output is $18.45 (1.75 hours x $10.25).
Instructions
Calculate the total, price, and quantity labour variances for Ray Company for January.

Answer 19

Solution 133 (5 min.)
Total labour variance = $303.13 U, (2,250 X $10.10) – (2,187.50 X $10.25).
Labour price variance = $337.50 F, (2,250 X $10.10) – (2,250 X $10.25).
Labour quantity variance = $640.63 U, (2,250 X $10.25) – (2,187.50 X $10.25).

Question 20

Brief Exercise 134
In October, Halo Inc. reports 35.000 actual direct labour hours, and it incurs $168,750 of manufacturing overhead costs. Standard hours allowed for the work completed during October is 36,000 hours. Halo’s predetermined overhead rate is $4.70 per direct labour hour.
Instructions
Calculate the total manufacturing overhead variance for Halo Inc. for October.

Answer 20

Actual
Overhead
$168,750	
–	Overhead
Applied
*$169,200*	
=	Total Overhead
Variance
$450 F

*36,000 X $4.70 = $169,200

Question 21

Exercise 139
Peter’s Pick-Me_Ups Inc. manufactures and sells a nutrition drink for children. The company wants to develop a standard cost per kilogram. The following are required for production of a 10-litre batch:
70 grams of lime Kool-Drink at $0.07 per gram
5 grams of granulated sugar $0.24 per gram
12 kiwi fruit at $0.70 each
30 protein tablets at $0.80 each
9 litres of mineral water at $0.05 per litre
Peter’s Pick-Me-Ups estimates that 3% of the lime Kool-Drink is wasted, 10% of the sugar is lost, and 5% of the kiwis cannot be used.

Instructions
Calculate the standard cost of the ingredients for one litre of the nutrition drink.

Answer 21

Standard Cost per litre $3.965

Question 22

Exercise 140
The following direct labour data pertain to the operations of Bell Chime Manufacturing Company for the month of January:
	Actual labour rate	$15.50 per hr.
	Actual hours used	17,000
	Standard labour rate	$15.00 per hr.
	Standard hours allowed	16,700

Instructions
Prepare a matrix and calculate the labour variances.

Answer 22

see sheet

Question 23

Exercise 143
You have just been hired at SB Polo Supply as a managerial accountant. You are responsible for variance analysis for direct materials required in the manufacturing of polo mallets. An old college friend called and asked you to lunch. You raced out the door before finishing the cost analysis for April. While you were gone, a janitor accidentally threw away your cost analysis sheet. You do remember, however, that each mallet requires 4 metres of wood with a standard cost of $5 per metre and that there were 3,000 mallets completed during April. In addition, you remember that the materials price variance was $700 favourable, and the total materials variance was $30 favourable.

Instructions

a. Calculate the materials quantity variance.
b. Calculate the actual price paid per metre of wood.

Answer 23

see sheet

quantity 670U
Price 700F
total $30 F

Question 24

Exercise 145
Ducker Company has developed the following standard costs for its product for 2012:
DUCKER COMPANY
Standard Cost Card
Product A
Cost Element Standard Quantity × Standard Price = Standard Cost
Direct materials 1.5 kilograms $4 $6
Direct labour 2 hours 11 22
Manufacturing overhead 2 hours 7 14
$42
The company expected to produce 15,000 units of Product A in 2012 and work 75,000 direct labour hours.
Actual results for 2012 are as follows:
• 14,700 units of Product A were produced.
• Actual direct labour costs were $340,000 for 34,000 direct labour hours worked.
• Actual direct materials purchased and used during the year cost $89,000 for 23,000 kilograms.
• Actual variable overhead incurred was $179,000 and actual fixed overhead incurred was $87,000.

Answer 24

Instructions
Calculate the following variances showing all computations to support your answers.  Indicate whether the variances are favourable or unfavourable.
(a)	Materials quantity variance.
(b)	Total direct labour variance.
(c)	Direct labour quantity variance.
(d)	Direct materials price variance.
(e)	Total overhead variance.

Solution 145 (20–25 min.)
(a)	Materials quantity variance = $3,800 unfavourable.
		(AQ × SP) – (SQ × SP) = Materials quantity variance
		(23,000 × $4) – (22,050 × $4) = $92,000 – $88,200= $3,800 unfavourable
		SQ = 14,700 units × 1.5 kg/unit = 22,050 kilograms
(b)	Total direct labour variance = $16,600 unfavourable.
		(AH × AR) – (SH × SR) = Total direct labour variance
		(34,000 × $10) – (29,400 × $11) = $340,000 – $323,400 = $16,600 unfavourable
		SH = 14,700 × 2 = 29,400 direct labour hours

(c) Direct labour quantity variance = $50,600 unfavourable.
(AH × SR) – (SH × SR) = Direct labour quantity variance
(34,000 × $11) – (29,400 × $11) = $374,000 – $323,400 = $50,600 unfavourable

(d) Direct materials price variance = $3,000 favourable.
(AQ × AP) – (AQ × SP) = Direct materials price variance
(23,000 × $3.87) – (23,000 × $4) = $89,000 – $92,000 = $3,000 favourable

(e) Total overhead variance = $60,200 unfavourable.
(Actual overhead) – (Overhead applied) = Total overhead variance
($179,000 + $87,000) – (29,400 × $7) = $266,000 – $205,800 = $60,200 unfavourable
Standard hours = 14,700 × 2 = 29,400 direct labour hours

Question 25

Exercise 151
Preston Well Company planned to produce 25,000 units of product and work 100,000 direct labour hours in 2012. Manufacturing overhead at the 100,000 direct labour hours level of activity was estimated to be:
Variable manufacturing overhead $ 700,000
Fixed manufacturing overhead 300,000
Total manufacturing overhead $1,000,000

At the end of 2012, 26,000 units of product were actually produced and 107,000 actual direct labour hours were worked. Total actual overhead costs for 2012 was $1,015,000, of which $295,000 was fixed manufacturing overhead.

Instructions

(a) Calculate the total overhead variance.
(b) Calculate the variable overhead budget variance.
(c) Calculate the fixed overhead volume variance.

Answer 25

Solution 151 (11–16 min.)
(a)	Actual overhead	–	Overhead applied	=	Total overhead variance
	$1,015,000	–	$1,040,000	=	$25,000 favourable

	Overhead applied	=	26,000 units × 4 hrs	=	104,000 standard hours allowed
	104,000 × $10			=	$1,040,000

(b) Actual variable overhead – Variable overhead budgeted = variable overhead budget variance
$720,000 – $728,000 = $8,000 favourable

Actual variable overhead = $1,015,000 - $295,000 = $720,000
Overhead budgeted at 104,000 actual
direct labour hours allowed.
Variable overhead (104,000 × $7) $ 728,000

(c) Budgeted fixed overhead – Fixed overhead applied = Fixed overhead volume variance
$300,000 – $312,000 = $12,000 favourable

Fixed overhead applied = 26,000 units X 4 hours/unit X $3/hour = $312,000.

Question 26

Exercise 158
Hasak Corp makes 100 kg containers of vegetable seeds, and has the following unit standard costs for direct materials and direct labour:

Direct materials (100 kg @$1.00 per kg) $100.00
Direct labour (0.5 hours at $24 per hour) $12.00
Total standard costs per 100 kg container: $112.00
The following activities were recorded in June:
1) 1,000 containers were manufactured
2) 95,000 kg of materials costing $76,000 were purchased.
3) 102,500 kg of materials were used.
4) $12,000 was paid for 475 hours of direct labour.

There were neither beginning nor ending WIP inventories on hand.
Instructions
a) Compute the direct materials variances.
b) Compute the direct labour variances.
c) Suggest rational explanations for each variance.

Answer 26

see sheet