Exam 7: Flexible Budgets, Variances, and Management Control: I

A packaging company produces cardboard boxes in an automated process. The required direct materials costs $0.30 per unit. Fixed manufacturing overhead costs are budgeted at $24,000 per month and are allocated based on units of production. The budgeted contribution margin per unit is $0.85, and administration fixed costs are budgeted at $7,500 per month. What is the flexible-budget amount for operating income for 40,000 and 20,000 units, respectively?

Use the information below to answer the following question(s). Ames Golf Company used the following data to evaluate their current operating system. The company sells 1 pack of golf balls for $10 per pack. The $10 selling price is also the budgeted selling price. -What is the actual operating income for Ames Golf Company using the actual results?

Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the standard cost of material Y is $2.00 per gram. During February, 22,000 grams were purchased for $2.10 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y. Required: a. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager so price variances are based on purchase quantities. b. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager so price variances are determined as quantities are placed into production. c. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption.

Use the information below to answer the following question(s). A company makes table lamps, for which the following standards have been developed: During January, production of 100 lamps was expected, but 110 lamps were actually completed. Direct materials purchased and used were 2,100 kilograms at an actual price of $2.20 per kilogram. Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00. -When a journal entry is made to record the direct materials used, a debit to the Direct Materials Efficiency Variance

Give at least three good reasons why a favourable price variance for direct materials might be reported.

Vienna Chocolate Company produces fudge in large batches. One batch of fudge has the following standard costs and amounts: Switzer Chocolate Company produced 400 batches of fudge in the most recent month. Actual costs and usage levels were as follows: Required: a. Calculate the total material input price variance. b. Calculate the total material efficiency variance. c. Calculate the total labour rate variance. d. Calculate the total labour efficiency variance.

Decreasing demand for a product may create a favourable sales-volume variance.

The sales-volume variance of operating income is a measure of efficiency.

Price variances can be calculated for batch-level costs as well as for output unit-level costs.

A standard is

A static budget is a budget that can be changed or altered after it is developed.

Cost variances should be investigated when

Performance variance analysis can be used in activity-based costing systems.

Cayman Designs makes chair cushions. The standard direct materials quantity is 1 kilogram per cushion at a cost of $2.50 per kilogram. The actual results for the production of 20,000 cushions was 1.25 kilograms per cushion, at a cost of $2.40 per kilogram. Calculate the direct materials input price variance and the direct materials efficiency variance.

The direct materials mix variance is the difference between: 1) the actual cost of direct materials based on the actual total quantity of all direct material inputs used, and 2) the flexible-budget cost of direct materials based on the budgeted total quantity of direct material inputs for the actual output.

Which of the following is likely to be related to an unfavourable direct materials price variance?

Use the information below to answer the following question(s). Robb Industries Inc. (RII), developed standard costs for direct material and direct labour. In 2013, RII estimated the following standard costs for one of their major products, the 10-litre plastic container. During June, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average actual cost per kilogram of $32 and 250 direct manufacturing labour-hours at an average actual wage of $15.25 per hour. -June's direct manufacturing labour price variance is

Which of the following statements is true?

Companies use both internal and external benchmarks.

The flexible-budget variance pertaining to revenues is also called the variance of operating income.