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

Question 1

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?

A) <$3,360,000>
B) $4,750,000
C) $5,200,000
D) $5,550,000
E) $5,970,000

Answer 1

$5,550,000

Question 2

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 budgeted operating income for Ames Golf Company?

A) $7,000,000
B) $5,970,000
C) $5,550,000
D) $5,200,000
E) $4,750,000

Answer 2

$5,200,000

Question 3

Use the information below to answer the following question(s).
Everclean Filter Corporation used the following data to evaluate their current operating system. The company sells items for $10 each and had used a budgeted selling price of $11 per unit.
?

-What is the static-budget variance of revenues?

A) $60,000 favourable
B) $240,000 favourable
C) $240,000 unfavourable
D) $6,000 favourable
E) $6,000 unfavourable

Answer 3

$240,000 unfavourable

Question 4

A packaging company produces a variety of cardboard boxes in an automated process. Expected production per month is 160,000 units. The required direct materials costs $0.30 per unit. Variable manufacturing overhead costs are $24,000 per month and are allocated based on units of production. Direct labour is budgeted to be $6,400. The company only produces based on customer orders, so all production is considered sold as it is produced. Revenue for the month will be $240,000. What is the budgeted contribution margin per unit?

A) $1.50 per unit
B) $1.31 per unit
C) $1.16 per unit
D) $1.05 per unit
E) $1.01 per unit

Question 5

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?

A) $26,000; $20,000
B) $36,000; $30,000
C) $40,000; $34,000
D) $44,000; $38,000
E) $2,500; <$14,500>

Question 6

The flexible-budget variance measures

A) what the costs and revenues should have been for the budgeted number of outputs.
B) the difference between budgeted expenditures and actual expenditures for the budgeted number of outputs.
C) the difference between budgeted and actual variable costs.
D) [expected expenditures for the actual number of outputs] + [the actual expenditures for the actual number of outputs].
E) [actual cost for the actual level of the revenue or cost driver] - [budget unit amount × the actual level of the revenue or cost driver].

Question 7

Use the following data to prepare a flexible budget for possible sales/production levels of 10,000; 11,000; and, 12,000 units. Show the contribution margin at each activity level.

Question 8

Nicholas Company manufacturers TVs. Some of the company's data was misplaced. Use the
following information to replace the lost data:

Required:
a. What are the respective flexible-budget revenues (A)?
b. What are the static-budget revenues (B)?
c. What are the actual variable costs (C)?
d. What is the total flexible-budget variance (D)?
e. What is the total sales-volume variance (E)?
f. What is the total static-budget variance?

Question 9

Whistler Table Company manufactures tables for schools. The current year operating budget is based on sales of 20,000 units at $100 per table. Operating income is anticipated to be $120,000. Budgeted variable costs are $64 per unit while fixed costs total $600,000.
Actual income for the year was $2,184,000 on actual sales of 21,000 units. Actual variable costs were $60 per unit and fixed costs totaled $570,000.
Required:
Prepare a Level 2 variance analysis report with both flexible-budget and sales-volume variances.

Question 10

Bach Table Company manufactures tables for schools. The current year operating budget is based on sales of 40,000 units at $50 per table. Operating income is anticipated to be $300,000. Budgeted variable costs are $30 per unit, while fixed costs total $500,000.
Actual income for the year was a surprising $2,268,000 on actual sales of 42,000 units. Actual variable costs were $33 per unit and fixed costs totaled $550,000.
Required:
Prepare a Level 2 variance analysis report with both flexible-budget and sales-volume variances.

Question 11

Use the information below to answer the following question(s).
The following data for a pottery company pertain to the production of 2,000 clay pots during July.
Direct Materials (all materials purchased were used):
Standard cost: $6.00 per kilogram of clay
Total actual cost: $11,200
Standard cost allowed for units produced was $12,000
Materials efficiency variance was $240 unfavourable
Direct Manufacturing Labour:
Standard cost is 2 pots per hour at $24.00 per hour
Actual cost per hour was $24.50
Actual labour was 972 hours

-What is the standard direct material amount per pot?

A) 1.00 kilogram
B) 1.88 kilograms
C) 2.12 kilograms
D) 3.00 kilograms
E) 4.00 kilograms

Question 12

Use the information below to answer the following question(s).
Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:

Direct Manufacturing Labour:

Direct Marketing Labour:


-What is the combined total of the flexible budget variances?

A) $102,650 unfavourable
B) $99,000 unfavourable
C) $78,500 unfavourable
D) $75,150 favourable
E) $75,150 unfavourable

Question 13

Use the information below to answer the following question(s).
Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:

Direct Manufacturing Labour:

Direct Marketing Labour:


-What is the rate variance of the direct materials?

A) $10,000 favourable
B) $11,500 unfavourable
C) $11,500 favourable
D) $10,000 unfavourable
E) $11,000 favourable

Question 14

Use the information below to answer the following question(s).
Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:

Direct Manufacturing Labour:

Direct Marketing Labour:


-What is the rate variance of the direct manufacturing labour, and the direct marketing labour, respectively?

A) $4,750 favourable; $12,500 favourable
B) $8,000 favourable; $10,000 favourable
C) $3,500 unfavourable; $6,750 unfavourable
D) 3,500 favourable; $6,750 favourable
E) $4,750 unfavourable; $12,500 unfavourable

Question 15

Use the information below to answer the following question(s).
Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:

Direct Manufacturing Labour:

Direct Marketing Labour:


-What are the efficiency variances for direct manufacturing labour and direct marketing labour, respectively?

A) $25,000 favourable; $18,400 favourable
B) $23,750 favourable; $12,650 unfavourable
C) $25,000 unfavourable; $18,400 unfavourable
D) $23,750 unfavourable; $12,650 unfavourable
E) $23,750 favourable; $12,650 favourable

Question 16

Use the information below to answer the following question(s).
Sawyer Industries Inc. (SII), developed standard costs for direct material and direct labour. In 2016, SII estimated the following standard costs for one of their major products, the 30-litre heavy-duty plastic container.

During July 2017, SII produced and sold 10,000 containers using 2,200 kilograms of direct materials at an average actual cost per kilogram of $24 and 1,050 direct manufacturing labour hours at an average actual wage of $14.75 per hour.

-July's direct material flexible-budget variance is

A) $2,800 unfavourable.
B) $2,200 favourable.
C) $5,000 unfavourable.
D) $2,200 unfavourable.
E) $2,800 favourable.

Question 17

Use the information below to answer the following question(s).
Sawyer Industries Inc. (SII), developed standard costs for direct material and direct labour. In 2016, SII estimated the following standard costs for one of their major products, the 30-litre heavy-duty plastic container.

During July 2017, SII produced and sold 10,000 containers using 2,200 kilograms of direct materials at an average actual cost per kilogram of $24 and 1,050 direct manufacturing labour hours at an average actual wage of $14.75 per hour.

-July's direct material rate variance is

A) $2,800 favourable.
B) $2,200 favourable.
C) $5,000 unfavourable.
D) $2,200 unfavourable.
E) $2,000 favourable.

Question 18

Use the information below to answer the following question(s).
Sawyer Industries Inc. (SII), developed standard costs for direct material and direct labour. In 2016, SII estimated the following standard costs for one of their major products, the 30-litre heavy-duty plastic container.

During July 2017, SII produced and sold 10,000 containers using 2,200 kilograms of direct materials at an average actual cost per kilogram of $24 and 1,050 direct manufacturing labour hours at an average actual wage of $14.75 per hour.

-July's direct material efficiency variance is

A) $4,800 favourable.
B) $2,200 favourable.
C) $5,000 unfavourable.
D) $5,000 favourable.
E) $4,800 unfavourable.

Question 19

Answer the following question(s) using the information below.
Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labour. In 2016, 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 2017, AVO produced and sold 1,200 pies using 1,875 kilograms of direct materials at an average cost per kilogram of $7.00 and 280 direct labour hours at an average wage of $14.25 per hour.

-September's direct material rate variance is

A) $468.75 favourable.
B) $300.00 favourable.
C) $468.75 unfavourable.
D) $450.00 favourable.
E) $300.00 unfavourable.

Question 20

Answer the following question(s) using the information below.
Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labour. In 2016, 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 2017, AVO produced and sold 1,200 pies using 1,875 kilograms of direct materials at an average cost per kilogram of $7.00 and 280 direct labour hours at an average wage of $14.25 per hour.

-September's direct labour rate variance is

A) $75.00 unfavourable.
B) $75.00 favourable.
C) $70.00 unfavourable.
D) $70.00 favourable.
E) $90.00 unfavourable.

Question 21

Answer the following question(s) using the information below.
Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labour. In 2016, 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 2017, AVO produced and sold 1,200 pies using 1,875 kilograms of direct materials at an average cost per kilogram of $7.00 and 280 direct labour hours at an average wage of $14.25 per hour.

-September's direct labour efficiency variance is

A) $285.00 unfavourable.
B) $285.00 favourable.
C) $290.00 unfavourable.
D) $280.00 unfavourable.
E) $280.00 favourable.

Question 22

Littrell Company produces chairs and has determined the following direct cost categories and budgeted amounts:
‪
Required:
a. What is the combined total of the flexible-budget variances?
b. What is the rate variance of the direct materials?
c. What is the rate variance of the direct manufacturing labour and the direct marketing labour, respectively?
d. What is the efficiency variance for direct materials?
e. What are the efficiency variances for direct manufacturing labour and direct marketing labour, respectively?

Question 23

Mittrell Company produces chairs and has determined the following direct cost categories and budgeted amounts:

Required:
a. What is the combined total of the flexible-budget variances?
b. What is the rate variance of the direct materials?
c. What is the rate variance of the direct manufacturing labour and the direct marketing labour, respectively?
d. What is the efficiency variance for direct materials?
e. What are the efficiency variances for direct manufacturing labour and direct marketing labour, respectively?

Question 24

Wilson's Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka requires the following:
Direct materials standard 2 square metres at $13.50 per metre
Direct manufacturing labour standard 1.5 hours at $20.00 per hour
During the third quarter, the company made 1,500 parkas and used 3,150 square metres of fabric costing $39,375. Direct labour totaled 2,100 hours for $45,150.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labour rate and efficiency variances for the quarter.

Question 25

Wilson's Summer Cottons manufactures shirts and other cotton clothing. A certain designed t-shirt requires the following:
Direct materials standard 0.9 square metres at $1.50 per metre
Direct manufacturing labour standard 0.25 hours at $14.00 per hour
During the third quarter, the company made 7,500 t-shirts and used 8,250 square metres of fabric costing $11,550. Direct labour totaled 1,650 hours for $23,265.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labour rate and efficiency variances for the quarter.

Question 26

Glenn's Draperies manufactures curtains. A certain window requires the following:
Direct materials standard is 10 square metres at $5 per metre
Direct manufacturing labour standard is 5 hours at $10
During the second quarter the company made 1,500 curtains and used 14,000 square metres of fabric costing $68,600. Direct labour totaled 7,600 hours for $79,800.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labour rate and efficiency variances for the quarter.

Question 27

Video Producers manufactures two types of videos: regular and CD. The regular tapes require 5 units of direct material X at a standard price of $2 per unit. The CDs require 2 units of direct material Y at a standard price of $3.
During January the company purchased 9,000 units of X for $2.10 each and 3,600 units of Y at $3.20 each. January production used 8,800 units of X and 3,400 units of Y. Outputs of finished tapes was 1,750 of each type.
Required:
Compute the price and efficiency variances for each material.
For the rate variances use two different responsibility assumptions. First assume that rate variances are isolated at the time of purchase; second assume that the rate variances are isolated as materials are placed into production.
The efficiency variances for each material are determined during production.

Question 28

Vienna Chocolate Company produces fudge in large batches. One batch of fudge has the following standard costs and amounts:

Vienna Chocolate Company produced 400 batches of fudge in the most recent month. Actual input costs and per batch usage levels were as follows:

Required:
a. Calculate the total material input rate variance.
b. Calculate the total material efficiency variance.
c. Calculate the total labour rate variance.
d. Calculate the total labour efficiency variance.

Question 29

Brussels Chocolate Company produces chocolates in large batches. One batch of chocolate has the following standard costs and amounts:

Brussels Chocolate Company produced 600 batches of chocolates in the most recent month. Actual input costs and per batch usage levels were as follows:

Required:
a. Calculate the total material input rate variance.
b. Calculate the total material efficiency variance.
c. Calculate the total labour rate variance.

Question 30

The following data for the Alma Company pertain to the production of 1,000 urns during August.
Direct Materials (all materials purchased were used):
Standard cost: $6.00 per kilogram.
Total actual cost: $5,600.
Standard cost allowed for units produced was $6,000.
Materials efficiency variance was $120 unfavourable.
Direct Manufacturing Labour:
Standard cost is 2 urns per hour at $24.00 per hour.
Actual cost per hour was $24.50.
Labour efficiency variance was $336 favourable.
Required:
a. What is standard direct material cost and quantity per urn?
b. What is the direct material rate variance?
c. What is the total actual cost of direct manufacturing labour?
d. What is the labour rate variance for direct manufacturing labour?

Question 31

The following data for the lew grow Garden Supplies Company pertains to the production of 2,500 garden spades during March. The spade consists of a wooden handle and a metal forged tool that comes in contact with the ground.
Direct Materials (all materials purchased were used):
Standard cost: $1.00 per handle and $3.50 per metal tool.
Total actual cost: $11,350.
Materials flexible-budget efficiency variance was $650 unfavourable.
Direct Manufacturing Labour:
Standard cost is 5 garden spades per hour at $20.00 per hour.
Actual cost per hour was $21.00.
Labour efficiency variance was $400 favourable.
Required:
a. What is the standard direct material amount per garden spade?
b. What is the standard cost allowed for all units produced?
c. What is the total direct materials flexible-budget variance?
d. What is the direct material flexible-budget rate variance?
e. What is the total actual cost of direct manufacturing labour?
f. What is the labour rate variance for direct manufacturing labour?

Question 32

Tyson's Hardware, a retailing company with several locations, anticipated that it would have 96,000 sales units for 664 customer shipments. Average storage bin usage for various inventories was estimated to be 200 storage bins per day. The costs and cost drivers were determined to be as follows:
?
Required:
a. Prepare a static-budget and show the static-budget variances for each cost item and the total static-budget variance.
b. Prepare a flexible-budget and show the flexible-budget variances for each cost item and the total flexible-budget variance.

Question 33

Samson Equipment Ltd. is a company that manufactures an abdominal exerciser called The Ab Rippler. The following information is for three of the company's activities in 2015:

Required:
a. Calculate the flexible-budget variance for each activity in 2015.
b. Calculate the price and efficiency variances for each activity in 2015.

Question 34

Delila Equipment Ltd. is a company that manufactures an abdominal exerciser called The Tummy Toner. The following information is for three of the company's activities in 2015:

Required:
a. Calculate the flexible-budget variance for each activity in 2015.
b. Calculate the price and efficiency variances for each activity in 2015.

Question 35

A continuous improvement budgeted cost, in terms of variances and standard costs

A) is held constant regardless of external factors, thus enabling management to isolate internal variance factors.
B) is successively reduced over succeeding time periods.
C) ensures that managers will avoid unfavourable materials (or labour) variances that are due to external factors.
D) is easier to achieve for older, more established production runs, than for new products.
E) is achieved as easily for older, more established production runs, as for for new products.

Question 36

During February the Lungren Manufacturing Company's costing system reported several variances that the production manager was surprised to see. The following information is for the manufacture of garden gates, its only product:
1. Direct materials rate variance, $800 unfavourable.
2. Direct materials efficiency variance, $1,800 favourable.
3. Direct manufacturing labour rate variance, $4,000 favourable.
4. Direct manufacturing labour efficiency variance, $600 unfavourable.
Required:
a. Provide the manager with some ideas as to what may have caused the rate variances.
b. What may have caused the efficiency variances?

Question 37

Your company hired a summer student as an accounting intern to prepare variance analysis for the plant manager (the student's father), so that the entire organization could become more effective and efficient. Up to this time, the company used a budget but only one that specified sales and production in units, and each department gauged and reported on its own performance based on historical rules of thumb developed over the years. The plant manager instructed every department manager to assist the new accountant as achieving favourable results would ensure he got a good bonus. For the month of May, the student met with the department heads of each functional area, obtaining from them the data and estimates to come up with: standard costs and prices; and, standard direct material usage and standard direct labour usage. Then in June, July and August the student collected; and, analyzed the variance results, and prepared a report for the plant manager. The report indicated favourable variances in virtually every functional area, allowing the plant manager to receive a larger bonus than usual.
Required:
Comment on the above process, in terms of variance analysis.

Question 38

You have been promoted to management accountant at a hospital. One of the things you noted from reviewing past internal reports is that the quality of the data is poor at times, and there is no objective standard for evaluating performance. When you asked about this at a board of directors meeting, the consensus reply was that the hospital's operations were too subjective and service orientated, and that it was a non-profit organization, so setting profit goals was of no value.
Required:
Comment on a possible approach that could be taken to provide objective criteria for performance evaluation in this situation.

Question 39

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 rate variance, assuming that all materials costs are the responsibility of the materials purchasing manager so rate variances are based on purchase quantities.
b. Determine the direct materials rate variance, assuming that all materials costs are the responsibility of the production manager so rate variances are determined as quantities are placed into production.
c. Discuss the issues involved in determining the rate variance at the point of purchase versus the point of consumption.

Question 40

Match the department that is most likely responsible for the listed variance.

-Direct labour efficiency variance

A) Production department
B) Personnel department
C) Purchasing department
D) Marketing department

Question 41

Match the department that is most likely responsible for the listed variance.

-Direct material efficiency variance

A) Production department
B) Personnel department
C) Purchasing department
D) Marketing department

Question 42

When a journal entry is made in a standard cost system to record the liability for direct manufacturing labour costs, the difference between the debit to the work-in-process control account and the credit to the payroll payables is

A) only the efficiency variance.
B) only the rate variance.
C) the difference between the actual wage rate and the budgeted rate, times the actual hours.
D) the difference between the actual wage rate and the budgeted rate, times the budget hours.
E) the total of the price and efficiency labour variances.

Question 43

The input standard cost per completed unit may be calculated by

A) multiplying the budgeted number of outputs for one input by the budgeted price per output unit.
B) multiplying the budgeted price per input by the budgeted number of inputs for one unit of output.
C) dividing the variable price per input by the budgeted number of inputs for one unit of output.
D) dividing the budgeted number of outputs for one input by the budgeted price per output unit.
E) dividing the budgeted price per input by the budgeted number of inputs for one unit of output.

Question 44

Compute the total standard cost per book for Publisher's Company using the following information:
1) Direct Materials: 1 ream of paper allowed per output unit manufactured, at $5.00 per ream.
2) Direct Mfg. Labour: 0.35 labour-hours of input allowed per output unit finished, at $17.50 standard cost per hour.
3) Variable Manufacturing Overhead: assigned on the basis of 0.25 per hour at $25 standard cost per hour per output unit finished.

A) $11.13 per output unit
B) $14.63 per output unit
C) $17.38 per output unit.
D) $47.50 per output unit
E) $48.60 per output unit

Question 45

Waddell Productions uses a standard cost system for all manufacturing transactions. For the month of June the following activities have taken place:


Required:
Record the necessary journal entries to:
1. Record the materials purchases assuming that materials rate variances are recorded at the time of purchase.
2. Record the materials placed into production.
3. Record the direct labour used in production.

Question 46

Signet Engineering uses a standard cost system for all manufacturing transactions. For the month of April the following activities have taken place:


Required:
Record the necessary journal entries to:
1. Record the materials purchases assuming that materials rate variances are recorded at the time of purchase.
2. Record the materials placed into production.
3. Record the direct labour used in production.

Question 47

Jam Life Inc. manufactures jam products. It makes a mixed fruit and berry jam by blending strawberries, peaches, and apricots.
Budgeted costs to produce 100,000 kilograms of jam in September were:

Actual costs to produce 100,000 kilograms of jam in September were:

Required:
1. Calculate the total direct materials rate and efficiency variances.
2. Calculate the total direct materials mix and yield variances.
3. Jam Life's largest competitor sells a 500 gram jar of mixed fruit and berry jam for $4.50 . If Jam Life's management wants to meet this price and cover monthly fixed costs of $180,000 then what will be the company's margin of safety? (Assume that Jam Life will continue to use the budgeted mix of ingredients.)