Deck 23: Flexible Budgets and Standard Costs

Question 1

Setting materials, labor, and overhead standards is challenging. If standards are set too low, companies might purchase inferior products and employees might not work to their full potential. If standards are set too high, companies could be unable to offer a quality product at a profitable rate and employees could be overworked. The ethical challenge is to set a high but reasonable standard. Assume that as a manager you are asked to set the standard materials price and quantity for the new 1,000 CKB Mega- Max chip, a technically advanced product. To properly set the price and quantity standards, you assemble a team of specialists to provide input.
Required
Identify four types of specialists that you would assemble to provide information to help set the materials price and quantity standards. Briefly explain why you chose each individual.

Answer 1

There are four specialists those who are providing information regarding materials price and quantity standards. See below.
Market specialist: A market specialist will give an idea about the market. The sensitivity analyzing of a market is very important before producing any sort of product. The company is going to produced technically advanced chip. The company has to know clearly the use of such chips, demand of products, and availability of raw materials in near future. A market specialist uses to help in this regards.
Purchase specialist : A purchase specialist will give an idea about the quality, quantity, grade, and the price of material. There are so many materials in the market. We have to choose the right one at right price to set materials standard. A purchase specialist also can use his anticipation for future changes.
Production specialist : A production specialist helps us to know the best production technique so that there is minimum waste of materials. The material variance would be smaller if there is minimum waste of materials. Therefore the standard of material will be improved.
Research and development specialist: A research and development specialist helps us to know new inventions so that the materials for productions are properly used. If a material has several uses the utilizable value of such material improves. It leads to an improvement of material standard.
I certainly use to get help from the above four specialist for setting materials price and quantity standards.

Question 2

Refer to information in Problem 23-4B.
Required
Compute these variances: (a) variable overhead spending and efficiency, (b) fixed overhead spending and volume, and (c) total overhead controllable.
Reference: Problem 23-4B.
Kryll Company set the following standard unit costs for its single product.

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; direct labor hours worked were 250,000. Units produced were assigned the following standard costs:

Actual costs incurred during the current quarter follow:
Required
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the total overhead controllable and volume variances.

Answer 2

When there is difference between the actual volume of production and standard volume of production then a volume variance existed. However, this volume variance is based on fixed overhead alone.
a.
Compute variable overhead spending and efficiency variance:
Variable overhead spending:
Therefore, spending variance is $50,000 Favorable.
Efficiency variance:
Therefore, efficiency variance is $10,000 Favorable.
b.
Compute Fixed overhead spending and volume variance:
Spending variance:
Therefore, spending variance is $56,000 Favorable.
Fixed Volume variance:
Therefore, Volume variance is $266,000 Favorable.
c.
Managers separates variances into controllable and volume variances and analyze them individually. This separation and analysis provide useful information for strategic decision making to improve company's performance in relevant areas. The difference between actual overhead cost incurred and budgeted overhead cost is called as controllable variance. This controllable variance is under the control of management.
Compute the total overhead controllable variance:
Therefore, controllable variance is $116,000 Favorable.

Question 3

Access the annual report of Samsung ( at samsung.com ) for the year ended December 31, 2013. The usefulness of its budgets, variances, and related analyses depends on the accuracy of management's estimates of future sales activity.
Required
1. Identify and record the prior two years' sales (in W millions) for Samsung from its income statement.
2. Using the data in part 1 , predict sales activity for Samsung for the next two years. Explain your prediction process.

Answer 3

Global Decision
1.
S's sales figures for the most recent 2 years - data available from its website - are shown below (KRW millions):
2.
S's sales were increased in the year 2013 by 13.7%, and the rate of increase was lower in the recent year. In the future year it is expected that the company's sales may increase slightly.

Question 4

How can the manager of advertising sales at Google use flexible budgets to enhance performance

Question 5

Farad, Inc., specializes in selling used SUVs. During the month, the dealership sold 50 trucks at an average price of $9,000 each. The budget for the month was to sell 45 trucks at an average price of $9,500 each. Compute the dealership's sales price variance and sales volume variance for the month.

Question 6

Prepare a flexible budget performance report title (in proper form) for Spalding Company for the calendar year 2015. Why is a proper title important for this or any report

Question 7

BatCo makes metal baseball bats. Each bat requires 1 kg of aluminum at $18 per kg and 0.25 direct labor hours at $20 per hour. Overhead is assigned at the rate of $40 per direct labor hour. What amounts would appear on a standard cost card for BatCo

Question 8

Google monitors its fixed overhead. In an analysis of fixed overhead cost variances, what is the volume variance

Question 9

Refer to Exercise 23-13. Hart Company records standard costs in its accounts and its materials variances in separate accounts when it assigns materials costs to the Work in Process Inventory account.
1. Show the journal entry that both charges the direct materials costs to the Work in Process Inventory account and records the materials variances in their proper accounts.
2. Assume that Hart's materials variances are the only variances accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period-end.
3. Identify the variance that should be investigated according to the management by exception concept. Explain.
Reference: Exercise 23-13
Hart Company made 3,000 bookshelves using 22,000 board feet of wood costing $266,200. The company's direct materials standards for one bookshelf are 8 board feet of wood at $12 per board foot.
1. Compute the direct materials price and quantity variances incurred in manufacturing these bookshelves.
2. Interpret the direct materials variances.

Question 10

James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget:

During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead
costs:

Question 11

Solitaire Company's fixed budget performance report for June follows. The $315,000 budgeted expenses include $294,000 variable expenses and $21,000 fixed expenses. Actual expenses include $27,000 fixed expenses. Prepare a flexible budget performance report showing any variances between budgeted and actual results. List fixed and variable expenses separately.

Question 12

Many service industries link labor rate and time (quantity) standards with their processes. One example is the standard time to board an aircraft. The reason time plays such an important role in the service industry is that it is viewed as a competitive advantage: best service in the shortest amount of time. Although the labor rate component is difficult to observe, the time component of a service delivery standard is often readily apparent-for example, "Lunch will be served in less than five minutes, or it is free."
Required
Break into teams and select two service industries for your analysis. Identify and describe all the time elements each industry uses to create a competitive advantage.

Question 13

Refer to the information in Exercise 23-8 and compute the (1) direct materials price and (2) direct materials quantity variances. Indicate whether each variance is favorable or unfavorable.
Reference: Exercise 23-8
A manufactured product has the following information for June.

Compute the (1) standard cost per unit and (2) total cost variance for June. Indicate whether the cost variance is favorable or unfavorable.

Question 14

AirPro Corp. reports the following for November. Compute the controllable overhead variance for November.

Question 15

In a recent year, BMW sold 216,944 of its 1 Series cars. Assume the company expected to sell 225,944 of these cars during the year. Also assume the budgeted sales price for each car was $30,000, and the actual sales price for each car was $30,200. Compute the sales price variance and the sales volume variance.

Question 16

Analysis of flexible budgets and standard costs emphasizes the importance of a similar unit of measure for meaningful comparisons and evaluations. When Apple compiles its financial reports in compliance with GAAP, it applies the same unit of measurement, U.S. dollars, for most measures of business operations. One issue for Apple is how best to adjust account values for its subsidiaries that compile financial reports in currencies other than the U.S. dollar.
Required
1. Read Apple's Note 1 in Appendix A and identify the financial statement where it reports the annual adjustment for foreign currency translation for subsidiaries that do not use the U.S. dollar as their functional currency.
2. Translating financial statements requires the use of a currency exchange rate. For each of the following financial statement items, explain the exchange rate the company would apply to translate into U.S. dollars.
a. Cash
b. Sales revenue
c. Property, plant and equipment

Question 17

Antuan Company set the following standard costs for one unit of its product.

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory's capacity of 20,000 units per month. Following are the company's budgeted overhead costs per month at the 75% capacity level.

The company incurred the following actual costs when it operated at 75% of capacity in October.

4. Compute the direct labor cost variance, including its rate and efficiency variances.
5. Prepare a detailed overhead variance report (as in Exhibit 23.15) that shows the variances for individual items of overhead.

Question 18

What department is usually responsible for a direct labor rate variance What department is usually responsible for a direct labor efficiency variance Explain.

Question 19

For the current period, Kayenta Company's manufacturing operations yield a $4,000 unfavorable price variance on its direct materials usage. The actual price per pound of material is $78; the standard price is $77.50 per pound. How many pounds of material were used in the current period

Question 20

Is it possible for a retail store such as Apple to use variances in analyzing its operating performance Explain.

Question 21

Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following budget:

1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.

Question 22

What limits the usefulness to managers of fixed budget performance reports

Question 23

Suncoast Company set the following standard costs for one unit of its product.

The predetermined overhead rate ($16.00 per direct labor hour) is based on an expected volume of 75% of the factory's capacity of 20,000 units per month. Following are the company's budgeted overhead costs per month at the 75% capacity level.

Required
1. Examine the monthly overhead budget to (a) determine the costs per unit for each variable overhead item and its total per unit costs, and (b) identify the total fixed costs per month.
2. Prepare flexible overhead budgets (as in Exhibit 23.12) for December showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.
3. Compute the direct materials cost variance, including its price and quantity variances.
4. Compute the direct labor cost variance, including its rate and efficiency variances.
5. Prepare a detailed overhead variance report (as in Exhibit 23.15) that shows the variances for individual items of overhead.
Reference: Exhibit 23.12

Reference: Exhibit 23.15

Question 24

Resset Co. provides the following results of April's operations: F indicates favorable and U indicates unfavorable. Applying the management by exception approach, which of the variances are of greatest concern Why

Question 25

What is the predetermined standard overhead rate How is it computed

Question 26

The following information describes production activities of Mercer Manufacturing for the year:

Budgeted standards for each unit produced are 0.50 pounds of direct material at $4.00 per pound and 10 minutes of direct labor at $20 per hour.
1. Compute the direct materials price and quantity variances.
2. Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 27

Comp Wiz sells computers. During May 2015, it sold 350 computers at a $1,200 average price each. The May 2015 fixed budget included sales of 365 computers at an average price of $1,100 each.
1. Compute the sales price variance and the sales volume variance for May 2015.
2. Interpret the findings.

Question 28

JPAK Company manufactures and sells mountain bikes. It normally operates eight hours a day, five days a week. Using this information, classify each of the following costs as fixed or variable. If additional information would affect your decision, describe the information.

Question 29

Brodrick Company expects to produce 20,000 units for the year ending December 31. A flexible budget for 20,000 units of production reflects sales of $400,000; variable costs of $80,000; and fixed costs of $150,000. If the company instead expects to produce and sell 26,000 units for the year, calculate the expected level of income from operations.

Question 30

Boss Company's standard cost accounting system recorded this information from its December operations.

Required
1. Prepare December 31 journal entries to record the company's costs and variances for the month. (Do not prepare the journal entry to close the variances.)
Analysis Component
2. Identify the variances that would attract the attention of a manager who uses management by exception. Explain what action(s) the manager should consider.

Question 31

Refer to the information in Exercise 23-8 and compute the (1) direct labor rate and (2) direct labor efficiency variances. Indicate whether each variance is favorable or unfavorable.
Reference: Exercise 23-8
A manufactured product has the following information for June.

Compute the (1) standard cost per unit and (2) total cost variance for June. Indicate whether the cost variance is favorable or unfavorable.

Question 32

Refer to information in QS 23-14. Compute the overhead volume variance for November.
Reference: QS 23-14
AirPro Corp. reports the following for November. Compute the controllable overhead variance for November.

Question 33

Phoenix Company's 2015 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

Required
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets (see Exhibit 23.3) for the company at sales volumes of 14,000 and 16,000 units.
3. The company's business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2015 budgeted amount of $159,000 if this level is reached without increasing capacity
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level

Question 34

The reason we use the words favorable and unfavorable when evaluating variances is made clear when we look at the closing of accounts. To see this, consider that (1) all variance accounts are closed at the end of each period (temporary accounts), (2) a favorable variance is always a credit balance, and (3) an unfavorable variance is always a debit balance. Write a half-page memorandum to your instructor with three parts that answer the three following requirements. (Assume that variance accounts are closed to Cost of Goods Sold.)
Required
1. Does Cost of Goods Sold increase or decrease when closing a favorable variance Does gross margin increase or decrease when a favorable variance is closed to Cost of Goods Sold Explain.
2. Does Cost of Goods Sold increase or decrease when closing an unfavorable variance Does gross margin increase or decrease when an unfavorable variance is closed to Cost of Goods Sold Explain.
3. Explain the meaning of a favorable variance and an unfavorable variance.

Question 35

Kenya Company's standard cost accounting system recorded this information from its June operations.

Required
1. Prepare journal entries dated June 30 to record the company's costs and variances for the month. (Do not prepare the journal entry to close the variances.)
Analysis Component
2. Identify the variances that would attract the attention of a manager who uses management by exception. Describe what action(s) the manager should consider.

Question 36

Juan Company's output for the current period was assigned a $150,000 standard direct materials cost. The direct materials variances included a $12,000 favorable price variance and a $2,000 favorable quantity variance. What is the actual total direct materials cost for the current period

Question 37

Assume that Samsung is budgeted to operate at 80% of capacity but actually operates at 75% of capacity. What effect will the 5% deviation have on its controllable variance Its volume variance

Question 38

Tohono Company's 2015 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.

Required
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets (see Exhibit 23.3) for the company at sales volumes of 18,000 and 24,000 units.
3. The company's business conditions are improving. One possible result is a sales volume of 28,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2015 budgeted amount of $125,000 if this level is reached without increasing capacity
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level
Reference: Exhibit 23.3

Question 39

What type of analysis does a flexible budget performance report help management perform

Question 40

Refer to information in QS 23-5. Assume the actual cost to manufacture one metal bat was $40. Compute the cost variance and classify it as favorable or unfavorable.
Reference: QS 23-5
BatCo makes metal baseball bats. Each bat requires 1 kg of aluminum at $18 per kg and 0.25 direct labor hours at $20 per hour. Overhead is assigned at the rate of $40 per direct labor hour. What amounts would appear on a standard cost card for BatCo

Question 41

In general, variance analysis is said to provide information about ________ and _________ variances.

Question 42

After evaluating Null Company's manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and $15 per hour for the labor rate. During October, the company uses 16,250 hours of direct labor at a $247,000 total cost to produce 5,600 units of product. In November, the company uses 22,000 hours of direct labor at a $335,500 total cost to produce 6,000 units of product.
1. Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months.
2. Interpret the October direct labor variances.

Question 43

Beech Company produced and sold 105,000 units of its product in May. For the level of production achieved in May, the budgeted amounts were: sales, $1,300,000; variable costs, $750,000; and fixed costs, $300,000. The following actual financial results are available for May. Prepare a flexible budget performance report for May.

Question 44

Bay City Company's fixed budget performance report for July follows. The $647,500 budgeted total expenses include $487,500 variable expenses and $160,000 fixed expenses. Actual expenses include $158,000 fixed expenses. Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately.

Question 45

Niner Bikes , as discussed in the chapter opener, uses a costing system with standard costs for direct materials, direct labor, and overhead costs. Two comments frequently are mentioned in relation to standard costing and variance analysis: "Variances are not explanations" and "Management's goal is not to minimize variances."
Required
Write a short memo to Chris Sugai, Niner Bikes' president, (no more than one page) interpreting these two comments in the context of his business.

Question 46

Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

During May the company incurred the following actual costs to produce 9,000 units.

Compute the (1) direct materials price and quantity variances and (2) direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 47

Alvarez Company's output for the current period yields a $20,000 favorable overhead volume variance and a $60,400 unfavorable overhead controllable variance. Standard overhead applied to production for the period is $225,000. What is the actual total overhead cost incurred for the period

Question 48

(This serial problem began in Chapter 1 and continues through most of the book. If previous chapter segments were not completed, the serial problem can begin at this point. It is helpful, but not necessary, to use the working papers that accompany the book.)
Business Solutions's second quarter 2016 fixed budget performance report for its computer furniture operations follows. The $156,000 budgeted expenses include $108,000 in variable expenses for desks and $18,000 in variable expenses for chairs, as well as $30,000 fixed expenses. The actual expenses include $31,000 fixed expenses. Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately.

Question 49

Trico Company set the following standard unit costs for its single product.

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 90% of capacity and produced 54,000 units of product; actual direct labor totaled 265,000 hours. Units produced were assigned the following standard costs:

Actual costs incurred during the current quarter follow:

Required
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the overhead controllable and volume variances.

Question 50

What is a price variance What is a quantity variance

Question 51

The following information describes a company's usage of direct labor in a recent period. Compute the direct labor rate and efficiency variances for the period.

Question 52

Sedona Company set the following standard costs for one unit of its product for 2015.

The $5.60 ($4.00 1 $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.

Question 53

The usefulness of budgets, variances, and related analyses often depends on the accuracy of management's estimates of future sales activity.
Required
1. Identify and record the prior three years' sales (in dollars) for Apple and Google using their financial statements in Appendix A.
2. Using the data in part 1, predict both companies' sales activity for the next two to three years. (If possible, compare your predictions to actual sales figures for those years.)

Question 54

Kryll Company set the following standard unit costs for its single product.

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; direct labor hours worked were 250,000. Units produced were assigned the following standard costs:

Actual costs incurred during the current quarter follow:
Required
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the total overhead controllable and volume variances.

Question 55

Presented below are terms preceded by letters a through j and a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition.

Question 56

Samsung monitors its overhead. In an analysis of overhead cost variances, what is the controllable variance and what causes it

Question 57

Refer to the information in QS 23-16. Alvarez records standard costs in its accounts. Prepare the journal entry to charge overhead costs to the Work in Process Inventory account and to record any variances.
Reference: QS 23-16
Alvarez Company's output for the current period yields a $20,000 favorable overhead volume variance and a $60,400 unfavorable overhead controllable variance. Standard overhead applied to production for the period is $225,000. What is the actual total overhead cost incurred for the period

Question 58

Identify the main purpose of a flexible budget for managers.

Question 59

Refer to information in QS 23-3. Assume that actual sales for the year are $480,000, actual variable costs for the year are $112,000, and actual fixed costs for the year are $145,000. Prepare a flexible budget performance report for the year.
Reference: QS 23-3
Brodrick Company expects to produce 20,000 units for the year ending December 31. A flexible budget for 20,000 units of production reflects sales of $400,000; variable costs of $80,000; and fixed costs of $150,000. If the company instead expects to produce and sell 26,000 units for the year, calculate the expected level of income from operations.

Question 60

Managers use management by exception for control purposes.
1. Describe the concept of management by exception.
2. Explain how standard costs help managers apply this concept to monitor and control costs.

Question 61

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

During June the company incurred the following actual costs to produce 9,000 units.

Compute the (1) direct materials price and quantity variances and (2) direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 62

Refer to the information from Exercise 23-17. Compute and interpret the following.
1. Variable overhead spending and efficiency variances.
2. Fixed overhead spending and volume variances.
3. Controllable variance.
Reference: Exercise 23-17
Sedona Company set the following standard costs for one unit of its product for 2015.

The $5.60 ($4.00 1 $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.

Question 63

Tempo Company's fixed budget (based on sales of 7,000 units) for the first quarter of calendar year 2015 reveals the following. Prepare flexible budgets following the format of Exhibit 23.3 that show variable costs per unit, fixed costs, and three different flexible budgets for sales volumes of 6,000, 7,000, and 8,000 units.

Question 64

Access iSixSigma 's website ( iSixSigma.com ) to search for and read information about benchmarking to complete the following requirements. ( Hint: Look in the "dictionary" link.)
Required
1. Write a one-paragraph explanation (in layperson's terms) of benchmarking.
2. How does standard costing relate to benchmarking

Question 65

Training employees to use standard amounts of materials in production is common. Typically, large companies invest in this training but small organizations do not. One can observe these different practices in a trip to two different pizza businesses. Visit both a local pizza business and a national pizza chain business and then complete the following.
Required
1. Observe and record the number of raw material items used to make a typical cheese pizza. Also observe how the person making the pizza applies each item when preparing the pizza.
2. Record any differences in how items are applied between the two businesses.
3. Estimate which business is more profitable from your observations. Explain.

Question 66

Frontera Company's output for the current period results in a $20,000 unfavorable direct labor rate variance and a $10,000 unfavorable direct labor efficiency variance. Production for the current period was assigned a $400,000 standard direct labor cost. What is the actual total direct labor cost for the current period

Question 67

Mosaic Company applies overhead using machine hours and reports the following information. Compute the total variable overhead cost variance.

Question 68

Refer to the information in Problem 23-1A. Phoenix Company's actual income statement for 2015 follows.

Required
1. Prepare a flexible budget performance report for 2015.
Analysis Component
2. Analyze and interpret both the (a) sales variance and (b) direct materials cost variance.
Reference: Problem 23-1A
Phoenix Company's 2015 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

Required
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets (see Exhibit 23.3) for the company at sales volumes of 14,000 and 16,000 units.
3. The company's business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2015 budgeted amount of $159,000 if this level is reached without increasing capacity
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level

Question 69

In what sense can a variable cost be considered constant

Question 70

What is the purpose of using standard costs

Question 71

What are the relations among standard costs, flexible budgets, variance analysis, and management by exception

Question 72

World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost. In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units.
1. Compute the overhead application rate for total overhead.
2. Compute the total overhead variance.

Question 73

Refer to the information in Problem 23-1B. Tohono Company's actual income statement for 2015 follows.

Required
1. Prepare a flexible budget performance report for 2015.
Analysis Component
2. Analyze and interpret both the (a) sales variance and (b) direct materials cost variance.
Reference: 23-1B
Tohono Company's 2015 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.

Required
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets (see Exhibit 23.3) for the company at sales volumes of 18,000 and 24,000 units.
3. The company's business conditions are improving. One possible result is a sales volume of 28,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2015 budgeted amount of $125,000 if this level is reached without increasing capacity
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level
Reference: Exhibit 23.3

Question 74

Match the terms a - e with their correct definition 1-5.

Question 75

A manufactured product has the following information for June.

Compute the (1) standard cost per unit and (2) total cost variance for June. Indicate whether the cost variance is favorable or unfavorable.

Question 76

Hart Company made 3,000 bookshelves using 22,000 board feet of wood costing $266,200. The company's direct materials standards for one bookshelf are 8 board feet of wood at $12 per board foot.
1. Compute the direct materials price and quantity variances incurred in manufacturing these bookshelves.
2. Interpret the direct materials variances.

Question 77

Refer to the information from QS 23-18. Compute the variable overhead spending variance and the variable overhead efficiency variance.
Reference: QS 23-18.
Mosaic Company applies overhead using machine hours and reports the following information. Compute the total variable overhead cost variance.

Question 78

Based on predicted production of 24,000 units, a company anticipates $300,000 of fixed costs and $246,000 of variable costs. If the company actually produces 20,000 units, what are the flexible budget amounts of fixed and variable costs

Question 79

Refer to information in Problem 23-4A.
Required
Compute these variances: (a) variable overhead spending and efficiency, (b) fixed overhead spending and volume, and (c) total overhead controllable.
Reference: Problem 23-4A
Trico Company set the following standard unit costs for its single product.

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 90% of capacity and produced 54,000 units of product; actual direct labor totaled 265,000 hours. Units produced were assigned the following standard costs:

Actual costs incurred during the current quarter follow:

Required
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the overhead controllable and volume variances.

Question 80

Tercer reports the following on one of its products. Compute the direct materials price and quantity variances.