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Exam 8: Flexible Budgets and Standard Costs

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Question 51

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The difference between actual quantity of input used and the standard quantity of input used results in a:

A) Controllable variance.
B) Standard variance.
C) Budget variance.
D) Quantity variance.
E) Price variance.

F) C) and D)
G) A) and B)

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Question 52

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Zip-up Company provides the following data developed for its master budget: $\begin{array}{c}\begin{array}{|l|}\hline \text {Sales price}\\\hline \text {Costs:}\\\hline \text {Direct materials}\\\hline \text {Direct labor}\\\hline \text {Variable overhead}\\\hline \text {Factory depreciation}\\\hline \text {Supervision}\\\hline \text {Selling expense}\\\hline \text {Administrative cost}\\\hline \end{array}\begin{array}{l|}\hline \$ 11.00 \text { per unit }\\\hline \\\hline \$ 3.00 \text { per unit } \\\hline \$ 4.75 \text { per unit } \\\hline \$ 0.50 \text { per unit } \\\hline \$ 12,000 \text { per month } \\\hline \$ 13,000 \text { per month } \\\hline \$ 0.25 \text { per unit } \\\hline \$ 9,000 \text { per month }\\\hline \end{array}\end{array}$ Required: Prepare flexible budgets for sales of 20,000, 22,000 and 24,000 units. Use a contribution margin format.

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Question 53

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A flexible budget is also called a ________ budget.

When computing a price variance, the quantity is held constant.

Fletcher Company collected the following data regarding production of one of its products. Compute the direct labor efficiency variance. $\begin{array}{lrl}\text { Direct labor standard (2hrs. @, } \$ 12.75 / \mathrm{hr} .) & \$ 5.50&\text {per finished} \\&&\text {unit}\\\text { Actual direct labor hours } & 81,500 &\text {hrs.} \\\text { Actual finished units produced } & 40,000&\text {units}\\\text { Actual cost of direct labor } & \$ 1,100,250\end{array}$

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.

The variable overhead spending variance, the fixed overhead spending variance, and the variable overhead efficiency variance can be combined to find the:

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

The total sales variance can be divided into the sales price variance and the sales volume variance.

A direct labor cost variance can be divided into price and quantity variances, which are almost always called controllable and volume variances.

Gala Enterprises reports the following information regarding the production on one of its products for the month. Compute the direct labor cost variance, the direct labor rate variance, the direct labor efficiency variance and identify each as either favorable or unfavorable.

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

Identify and explain the primary differences between fixed and flexible budgets.

The fixed overhead variance can be broken down into the ________ variance and the ________ variance.

Joseph, Inc., provides the following results of June's operations: $\begin{array} { | l | r | r | } \hline \text { Direct materials price variance } \ldots \ldots \ldots \ldots . & \$ 400 \mathrm {~F} \\\hline \text { Direct materials quantity variance } \ldots \ldots \ldots & 2,000 \mathrm { U } \\\hline \text { Direct labor rate variance } \ldots \ldots \ldots \ldots \ldots . & 100 \mathrm { U } \\\hline \text { Direct labor efficiency variance } \ldots \ldots \ldots \ldots & 1,200 \mathrm {~F} \\\hline \text { Variable overhead spending variance } \ldots \ldots & 400 \mathrm { U } \\\hline \text { Variable overhead efficiency variance } \ldots \ldots & 800 \mathrm {~F} \\\hline \text { Fixed overhead spending variance } \ldots \ldots \ldots . & 100 \mathrm { U } \\\hline \text { Fixed overhead volume variance } \ldots \ldots \ldots . . & 600 \mathrm {~F} \\\hline\end{array}$ Required: (a) Determine the total overhead cost variance for June. (b) Applying the management by exception approach, which of the variances shown are of greatest concern? Why?

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 fixed budget income statement for the planned level of sales and production.

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The sales expected if the company produces and sells 16,000 units is:

Identify the four steps in the budgetary control process.

How are unfavorable variances recorded? How are favorable variances recorded?

Briefly describe the procedure of management by exception.