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Exam 8: Flexible Budgets and Standard Costs

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Question 31

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Claymore Corp. has the following information about its standards and production activity for September. The volume variance is:

A) $1,295U.
B) $1,295F.
C) $2,400U.
D) $2,400F.
E) $3,695U.

F) C) and E)
G) B) and E)

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Question 32

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Overhead cost variance is:

A) The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level.
B) The difference between the actual overhead incurred during a period and the standard overhead applied.
C) The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit.
D) The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service.
E) The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate.

F) A) and E)
G) C) and D)

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Question 33

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Regarding overhead costs, as volume increases:

What are the four steps in the effective management of variance analysis?

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

Standard costs can be used by management to assess the reasonableness of actual costs incurred.

Jake Co. has prepared the following fixed budget for the year, assuming production and sales of 30,000 units. This level of production represents 80% of capacity. $\text { Take Co. Fixed Budget for Year Ending December } 31$ $\begin{array}{|l|r|r|} \hline \text { Sales } &&\$1,500,000\\\hline \text { Cost of goods sold:} &\\\hline \text { Direct materials } &\$540,000\\ \hline \text { Direct labor} &300,000\\ \hline \text { Indirect materials (variable)} &15,000\\\hline \text { Indirect labor (variable) } &21,000\\\hline \text { Depreciation } &180,000\\\hline \text {Salaries } &90,000\\ \hline \text { Utilities ( 80 \% fixed)} &54,000\\\hline \text { Maintenance (40\% variable) } &\underline{33,000}&\underline{1,233,000}\\ \hline \text {Gross profit } &&\$267,000\\\hline \text { Operating expenses: } &\\\hline \text { Commissions. } &\$45,000\\\hline \text {Advertising (fixed) } &60,000\\\hline \text { Wages (variable) } &15,000\\\hline \text { Rent } &\underline{30,000}\\\hline \text {Total operating expenses } &&\\underline{150,000}\\\hline \text { Income from operations} &&\underline{\$117,000}\\\hline \end{array}$ Calculate the following flexible budget amounts at the indicated levels of capacity: $\begin{array} { | l | l | l | l | } \hline & \begin{array} { l } \text { Operations at } \\60 \% \text { of Capacity }\end{array} & & \begin{array} { l } \text { Operations at } \\75 \% \text { of Capacity }\end{array} \\\hline \text { Sales } & & & \\\hline \text { Total variable costs } & & & \\\hline \text { Total fixed costs } & & & \\\hline \text { Income from operations } & & & \\\hline\end{array}$

A variable or flexible budget is so named because it only focuses on variable costs.

The following company information is available. The direct materials quantity variance is: $\begin{array} { l c } \text { Direct materials used for production } & 36,000 \text { gallons } \\\text { Stardard quantity for units produced } & 34,400 \text { gallons } \\\text { Stardard cost per gallon of direct material } & \$ 6.00 \\\text { Actual cost per gallon of direct material } & \$ 6.10\end{array}$

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

Sales variance analysis is used by managers for:

Regent, Inc. uses the following standard to produce a single unit of its product: overhead $6 (2 hrs. @ $3/hr.) . The flexible budget for overhead is $100,000 plus $1 per direct labor hour. Actual data for the month show overhead costs of $150,000, and 24,000 units produced. The overhead volume variance is:

Identify the situation below that will result in a favorable variance.

A flexible budget performance report compares the differences between:

The following information relating to a company's overhead costs is available. Based on this information, the total variable overhead variance is:

Product A has a sales price of $10 per unit. Based on a 10,000-unit production level, the variable costs are $6 per unit and the fixed costs are $3 per unit. Using a flexible budget for 12,500 units, what is the budgeted operating income from Product A?

A company uses the following standard costs to produce a single unit of output. $\begin{array} { l l l } \text { Direct materials } & 6 \text { pounds at } \$ 0.90 \text { per pound } & = \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = \$ 6.00 \\\text { Marnfacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = \$ 2.40\end{array}$ 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 total direct labor cost variance for the month was:

Companies promoting continuous improvement strive to achieve practical standards rather than ideal standards.

If ending variance account balances are immaterial, they can be closed directly to Cost of Goods Sold.

Within the same flexible budget performance report, it is impossible to have both favorable and unfavorable variances.