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Exam 23: Flexible Budgets and Standard Costs

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Question 31

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A favorable direct materials price variance might lead to an unfavorable direct materials quantity variance because the company purchased inferior materials.

A) True
B) False

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Question 32

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Standard material,labor,and overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants.

A) True
B) False

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Question 33

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The following information relating to a company's overhead costs is available.Based on this information,the total overhead variance is: $\begin{array} { l l } \text { Budgeted fixed overhead rate per machine hour } & \$ 0.50 \\\text { Actual variable overhead } & \$ 73,000 \\\text { Budgeted variable overhead rate per machine hour } & \$ 2.50 \\\text { Actual fixed overhead } & \$ 17,000 \\\text { Budgeted hours allowed for actual output achieved } & \mathbf { 32 } , 000\end{array}$ Based on this information,the total overhead variance is:

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

Prichard Company has developed the following standard cost data based on 60,000 direct labor hours,which is 75% of capacity.Fixed overhead is $360,000 and variable overhead is $180,000 at this level of activity. During the current period,the company operated at 80% of capacity and produced 128,000 units.Actual costs were: Calculate the variable overhead spending and efficiency variance and the fixed overhead spending and volume variances.Indicate whether each is favorable or unfavorable.

A company uses the following standard costs to produce a single unit of output. $\begin{array} { l l l l } \text { Direct materals } & 6 \text { pourds at } \$ 0.90 \text { per pound } & = & \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = & \$ 6.00 \\\text { Marufacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = &\$ 2.40\end{array}$ During the latest month,the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output.Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked.Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400.Based on this information,the direct materials quantity variance for the month was:

When recording variances in a standard cost system:

A fixed budget performance report never provides useful information for evaluating variances.

Montaigne Corp.has the following information about its standards and production activity for November.The controllable variance is:

Should both favorable and unfavorable variances be investigated,or only the unfavorable ones? Explain.

Cabot Company collected the following data regarding production of one of its products.Compute the direct materials cost variance. $\begin{array} { l l } \text { Direct materials stardard (6lbs. @ } \$ 2 / lb ) & \$ 12 \mathrm { per } \text { firished urit } \\\text { Actual direct materials used } & 243,000 \mathrm { lbs } \\\text { Actual firished urits produced } & 40,000 \mathrm { units } \\\text { Actual cost of direct materials used } & \$ 483,570\end{array}$

If cost variances are material,they should always be closed directly to Cost of Goods Sold.

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

Abrams,Inc.,provides the following results of March's operations: Required: (a)Determine the total overhead cost variance for March. (b)Applying the management by exception approach,which of the variances shown are of greatest concern? Why?

The purchasing department is often responsible for the price paid for materials that may create a direct materials price variance.

During November,Heim Company allocated overhead to products at the rate of $26.00 per direct labor hour.This figure was based on 80% of capacity or 1,600 direct labor hours.However,Heim Company operated at only 70% of capacity,or 1,400 direct labor hours.Budgeted overhead at 70% of capacity is $38,900,and overhead actually incurred was $38,000.What is the company's volume variance for November? (Indicate whether the variance is favorable or unfavorable)

The difference between the total budgeted fixed overhead cost and the fixed overhead applied to production using the predetermined overhead rate is the:

Standard costs can serve as a basis for evaluating actual performance.

Manatee Corp.has developed standard costs based on a predicted operating level of 352,000 units of production,which is 80% of capacity.Variable overhead is $281,600 at this level of activity,or $0.80 per unit.Fixed overhead is $440,000.The standard costs per unit are: Manatee actually produced 330,000 units at 75% of capacity and actual costs for the period were: Calculate the following variances and indicate whether each variance is favorable or unfavorable: (1)Direct labor efficiency variance: $__________________ (2)Direct materials price variance: $__________________ (3)Controllable overhead variance: $__________________

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