Exam 7: Flexible Budgets, Direct-Cost Variances, and Management Control

Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the company's only accountant quit on July 10 and the president is at a loss as to the company's performance for the month of June. Required: a. What kind of performance did the company have for June? Explain each variance. b. Why is Direct Materials given in two entries?

Answer the following questions using the information below: Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labor. In 2011, AVO estimated the following standard costs for one of their most well loved products, the AVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples. During September, AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $7.00 and 280 direct labor hours at an average wage of $14.25 per hour. -September's direct labor price variance is:

Answer the following questions using the information below: The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results. -The primary reason for high actual operating profits was:

Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million.

The price variance is the difference between the actual price and the budgeted price of the input, multiplied by the actual quantity of input.

The presumed cause of a material price variance will determine how a company responds.

Answer the following questions using the information below: Brennen Incorporated planned to use $24 of material per unit but actually used $25 of material per unit, and planned to make 2,000 units but actually made 2,400 units. -The flexible-budget amount is:

A favorable variance indicates that:

Answer the following questions using the information below: Melville Incorporated planned to use $37.50 of material per unit but actually used $36.75 of material per unit, and planned to make 1,800 units but actually made 1,600 units. -The flexible-budget amount is:

Answer the following questions using the information below: Bowden Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit. -What is the static-budget variance of operating income?

Answer the following questions using the information below: Caan Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit. -What is the static-budget variance of revenues?

When using variance for performance evaluation, managers often focus on effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results.

A favorable variance should be ignored by management.

Unfavorable direct material price variances are:

The flexible-budget variance may be the result of inaccurate forecasting of units sold.

When benchmarking, the best levels of performance are typically found in companies that are totally different.

Answer the following questions using the information below: Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labor. In 2011, AVO estimated the following standard costs for one of their most well loved products, the AVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples. During September, AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $7.00 and 280 direct labor hours at an average wage of $14.25 per hour. -September's direct labor flexible-budget variance is:

Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun)and placing less attention on areas operating as anticipated.

One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do NOT require expected future changes to be taken into account.

For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the budgeted price.