Exam 8: Standard Costing and Variance Analysis

Earth, Inc., is developing flexible budgets for each department as part of its plan to use standard costs. Normal monthly volume in the Sifting Department is 50,000 direct labor hours. At normal volume, department fixed costs include $70,000 for power and $40,000 for maintenance, and salaries of $70,000 per month. Indirect variable labor is $120,000, which involves 15,000 hours of indirect labor at $8 per hour. Other variable costs in the Sifting Department are as follows: Tools and supplies \ 3.00 per machine hour Maintenance 2.50 per machine hour Power 3.50 per machine hour Depreciation 4.50 per machine hour Normal volume is 40,000 machine hours per month. The company uses a service (or usage) hours method to depreciate its fixed assets. a. Prepare a departmental flexible overhead budget for 30,000 machine hours and for 40,000 machine hours. b. Did you treat depreciation expense as a variable or a fixed cost? Defend your approach.

Standard costs for company products are typically used for all except which of the following?

Sweet Dreams manufactures candy. Its records revealed the following data: Number of units produced 4,000 Standard direct labor hours per unit 2 Standard variable overhead rate \ 2.50 per hour Standard fixed overhead rate \ 5.00 per hour Budgeted fixed overhead costs \ 40,800 Actual variable overhead costs \ 16,800 Actual fixed overhead costs \ 40,400 Actual labor hours 8,000 direct labor hours Total actual overhead \ 57,200 - The total fixed overhead variance is

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year. Direct materials quantity standard 3 pounds per prochuct Direct labor time standard 5 hours per product Direct materials price standard \ 10 per pound Direct labor rate standard \ 9 per hour Standard variable overhead rate \ 5 per labor hour Standard fixed overhead rate \ 10 per labor hour - The standard unit cost for direct materials is

Although expensive to install and maintain, a standard cost accounting system can save a company considerable amounts of money by reducing resource waste.

Underfoot Products uses standard costing. The following information about overhead was generated during May: Standard variable overhead rate Standard fixed overhead rate Actual variable overhead costs Actual fixed overhead costs Budgeted fixed overhead costs Standard machine hours per unit produced Good units prockuced Actual machine hours \ 2 per machine hours \ 1 per machine hours \ 390,000 \ 175,000 \ 190,000 10 18,000 195,000 - Compute the fixed overhead volume variance.

Standard costs are realistically predetermined costs of direct materials, direct labor, and overhead that usually are expressed as a cost per unit.

Multiplying the standard price of direct materials by the standard quantity for direct materials yields

"The difference between actual hours worked and standard hours allowed for the good units produced, multiplied by the standard labor rate" is a description of the

Service organizations use direct materials, direct labor, and overhead standard costs.

Variance analysis involves computing the difference between standard and actual costs.

The standard fixed overhead rate is usually based on the expected number of standard machine hours.

The direct materials price standard is a carefully derived estimate or projected amount of what a particular type of direct material will cost when purchased during the next accounting period.

Standard costing is typically a sophisticated and inexpensive component to add to a company's existing cost accounting system.

A performance report should contain cost or revenue items that the manager receiving the report can control.

The static budget can be adjusted automatically for changes in the level of output.

Underfoot Products uses standard costing. The following information about overhead was generated during May: Standard variable overhead rate Standard fixed overhead rate Actual variable overhead costs Actual fixed overhead costs Budgeted fixed overhead costs Standard machine hours per unit produced Good units prockuced Actual machine hours \ 2 per machine hours \ 1 per machine hours \ 390,000 \ 175,000 \ 190,000 10 18,000 195,000 - Compute the variable overhead efficiency variance.

Fixed overhead variances: a. Fixed overhead budget variance: Budgeted fixed overhead \ 24,000 Less actual fixed overhead costs 24,500 Fixed overhead budget variance \5 00()

Predetermined overhead costs are the same as standard costs.