Deck 23: Flexible Budgets and Standard Costs

Question 1

Cost variances are ignored under management by exception.

Answer 1

False

Question 2

A variable or flexible budget is so named because it only focuses on variable costs.

Answer 2

False

Question 3

Variable budget is another name for a flexible budget.

Answer 3

True

Question 4

The amounts in a flexible budget are based on one expected level of sales or production.

Question 5

Fixed budgets are also known as flexible budgets.

Question 6

Another name for a static budget is a variable budget.

Question 7

Within the same budget performance report,it is impossible to have both favorable and unfavorable variances.

Question 8

When standard costs are used,factory overhead is assigned to products with a predetermined standard overhead rate.

Question 9

When computing a price variance,the price is held constant.

Question 10

A budget performance report that includes variances can have variances caused by both price differences and quantity differences.

Question 11

Standard costs can serve as a basis for evaluating actual performance.

Question 12

A cost variance equals the sum of the quantity variance and the price variance.

Question 13

A fixed budget performance report never provides useful information for evaluating variances.

Question 14

Management by exception allows managers to focus on the most significant variances in performance.

Question 15

Standard material,labor,and overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants.

Question 16

A cost variance is the difference between actual cost and standard cost.

Question 17

Companies promoting continuous improvement strive to achieve practical standards rather than ideal standards.

Question 18

While companies strive to achieve ideal standards,reality implies that some loss of materials usually occurs with any process.

Question 19

Fixed budget performance reports compare actual results with the expected amounts in the fixed budget.

Question 20

Standard costs provide a basis for assessing the reasonableness of actual costs incurred for producing a product or service.

Question 21

A direct labor cost variance may be broken down into a controllable variance and a volume variance.

Question 22

A favorable direct materials price variance might lead to an unfavorable direct materials quantity variance because the company purchased inferior materials.

Question 23

If cost variances are material,they should always be closed directly to Cost of Goods Sold.

Question 24

The difference between the actual cost incurred and the standard cost is called the:

A)Flexible variance.
B)Price variance.
C)Cost variance.
D)Controllable variance.
E)Volume variance.

Question 25

A flexible budget expresses all costs on a per unit basis.

Question 26

A process of examining the differences between actual and budgeted costs and describing them in terms of the amounts that resulted from price and quantity differences is called:

A)Cost analysis.
B)Flexible budgeting.
C)Variable analysis.
D)Cost variable analysis.
E)Variance analysis.

Question 27

When the actual cost of direct materials used exceeds the standard cost,the company must have experienced an unfavorable direct materials price variance.

Question 28

Standard costs are used in the calculation of:

A)Price and quantity variances.
B)Price variances only.
C)Quantity variances only.
D)Price, quantity, and sales variances.
E)Quantity and sales variances.

Question 29

Sales variances allow managers to focus on sales mix as well as sales quantities.

Question 30

One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.

Question 31

The costs that should be incurred under normal conditions to produce a specific product or component or to perform a specific service are:

A)Variable costs.
B)Fixed costs.
C)Standard costs.
D)Product costs.
E)Period costs.

Question 32

An unfavorable variance is recorded with a debit.

Question 33

A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.

Question 34

The difference between actual and standard cost caused by the difference between the actual quantity and the standard quantity is called the:

A)Controllable variance.
B)Standard variance.
C)Budget variance.
D)Quantity variance.
E)Price variance.

Question 35

Although a fixed budget is only useful over the relevant range of operations,a flexible budget is useful over all possible production levels.

Question 36

An overhead cost variance is the difference between the actual overhead incurred for the period and the standard overhead applied.

Question 37

Standard costs are:

A)Actual costs incurred to produce a specific product or perform a service.
B)Preset costs for delivering a product or service under normal conditions.
C)Established by the IMA.
D)Rarely achieved.
E)Uniform among companies within an industry.

Question 38

Sales variances may be computed in a manner similar to cost variances-that is,computing both price and volume variances.

Question 39

The purchasing department is often responsible for the price paid for materials that may create a direct materials price variance.

Question 40

A volume variance is the difference between overhead at maximum production volume and that at the budgeted production volume.

Question 41

A flexible budget is prepared:

A)Before the operating period only.
B)After the operating period only.
C)During the operating period only.
D)At any time in the planning period.
E)A flexible budget should never be prepared.

Question 42

An analytical technique used by management to focus on the most significant variances and give less attention to the areas where performance is satisfactory is known as:

A)Controllable management.
B)Management by variance.
C)Performance management.
D)Management by objectives.
E)Management by exception.

Question 43

Kyle,Inc.has collected the following data on one of its products.The direct materials quantity variance is:
$$\begin{array} { l l } \text { Direct materials stardard (4lbs. @ \$1/lb.) } & \$ 4 \text { per firished unit } \\\text { Total direct materials cost variance-unfavorable } & \$ 13,750 \\\text { Actual direct materials used } & 150,000 \text { bs. } \\\text { Actual firushed units produced } & 30,000 \text { units }\end{array}$$

A)$30,000 favorable.
B)$13,750 unfavorable.
C)$16,250 favorable.
D)$30,000 unfavorable.
E)$13,750 favorable.

Question 44

Product A has a sales price of $10 per unit.Based on a 10,000-unit production level,the variable costs are $6 per unit and the fixed costs are $3 per unit.Using a flexible budget for 12,500 units,what is the budgeted operating income from Product A?

A)$12,500.
B)$25,000.
C)$20,000.
D)$30,000.
E)$35,000.

Question 45

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000.Calculate the expected level of operating income if the company produces and sells 13,000 units.

A)$110,500.
B)$85,000.
C)$133,000.
D)$100,000.
E)$50,500.

Question 46

Identify the situation that will result in a favorable variance.

A)Actual revenue is higher than budgeted revenue.
B)Actual revenue is lower than budgeted revenue.
C)Actual income is lower than expected.
D)Actual costs are higher than budgeted costs.
E)Actual expenses are higher than budgeted expenses.

Question 47

Variable budget is another name for:

A)Cash budget.
B)Flexible budget.
C)Fixed budget.
D)Manufacturing budget.
E)Rolling budget.

Question 48

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity),and which presents the differences between actual and budgeted amounts as variances,is called a(n):

A)Sales budget performance report.
B)Flexible budget performance report.
C)Master budget performance report.
D)Static budget performance report.
E)Operating budget performance report.

Question 49

A flexible budget performance report compares the differences between:

A)Actual performance and budgeted performance based on actual sales volume.
B)Actual performance over several periods.
C)Budgeted performance over several periods.
D)Actual performance and budgeted performance based on budgeted sales volume.
E)Actual performance and standard costs at the budgeted sales volume.

Question 50

Sales variance analysis is useful for:

A)Planning purposes only.
B)Budgeting purposes only.
C)Control purposes only.
D)Planning and control purposes.
E)Planning and budgeting purposes.

Question 51

Kyle,Inc.has collected the following data on one of its products.The direct materials price variance is:
$$\begin{array} { l l } \text { Direct materials stardard (4lbs. @ \$1/lb.) } & \$ 4 \text { per firished unit } \\\text { Total direct materials cost variance-unfavorable } & \$ 13,750 \\\text { Actual direct materials used } & 150,000 \text { bs. } \\\text { Actual firushed units produced } & 30,000 \text { units }\end{array}$$

A)$13,750 unfavorable.
B)$16,250 unfavorable.
C)$16,250 favorable.
D)$30,000 unfavorable.
E)$33,000 favorable.

Question 52

Based on a predicted level of production and sales of 12,000 units,a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information,the budgeted amounts of fixed and variable costs for 15,000 units would be:

A)$10,000 of fixed costs and $72,000 of variable costs.
B)$10,000 of fixed costs and $90,000 of variable costs.
C)$12,500 of fixed costs and $90,000 of variable costs.
D)$12,500 of fixed costs and $72,000 of variable costs.
E)$10,000 of fixed costs and $81,000 of variable costs.

Question 53

Which department is often responsible for the direct materials price variance?

A)The accounting department.
B)The production department.
C)The purchasing department.
D)The finance department.
E)The budgeting department.

Question 54

A company provided the following direct materials cost information.Compute the cost variance. Stardard costs assigned:
Direct materials standard cost $( 405,000$ urits@ $\$ 2 / unit)$        $\$ 810,000$
Actual costs
Direct Materials costs incured (403,750urits @ \$2.20/urit)       $\$ 888,250$

A)$2,500 Favorable.
B)$78,250 Favorable
C)$78,250 Unfavorable
D)$80,750 Favorable.
E)$80,750 Unfavorable.

Question 55

Static budget is another name for:

A)Standard budget.
B)Flexible budget.
C)Variable budget.
D)Fixed budget.
E)Master budget.

Question 56

A report based on predicted amounts of revenues and expenses corresponding to the actual level of output is called a:

A)Rolling budget.
B)Production budget.
C)Flexible budget.
D)Merchandise purchases budget.
E)Fixed budget.

Question 57

Based on predicted production of 12,000 units,a company anticipates $150,000 of fixed costs and $123,000 of variable costs.The flexible budget amounts of fixed and variable costs for 10,000 units are:

A)$125,000 fixed and $102,500 variable.
B)$125,000 fixed and $123,000 variable.
C)$102,500 fixed and $150,000 variable.
D)$150,000 fixed and $123,000 variable.
E)$150,000 fixed and $102,500 variable.

Question 58

Bartels Corp.produces woodcarvings.It takes 2 hours of direct labor to produce a carving.Bartels' standard labor cost is $12 per hour.During August,Bartels produced 10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376.What is Bartels' labor rate variance for August?

A)$2,000 favorable.
B)$2,104 unfavorable.
C)$2,104 favorable.
D)$4,160 favorable.
E)$2,000 unfavorable.

Question 59

A company's flexible budget for 12,000 units of production showed sales,$48,000; variable costs,$18,000; and fixed costs,$16,000.The operating income expected if the company produces and sells 16,000 units is:

A)$ 2,667.
B)$14,000.
C)$18,667.
D)$24,000.
E)$35,000.

Question 60

A planning budget based on a single predicted amount of sales or production volume is called a:

A)Sales budget.
B)Standard budget.
C)Flexible budget.
D)Fixed budget.
E)Variable budget.

Question 61

A company has established 5 pounds of Material M at $2 per pound as the standard for the material in its Product A.The company has just produced 1,000 units of this product,using 5,200 pounds of Material M that cost $9,880.The direct materials price variance is:

A)$520 unfavorable.
B)$400 unfavorable.
C)$120 favorable.
D)$520 favorable.
E)$400 favorable

Question 62

A company's flexible budget for 48,000 units of production showed variable overhead costs of $72,000 and fixed overhead costs of $64,000.The company incurred overhead costs of $122,800 while operating at a volume of 40,000 units.The total controllable cost variance is:

A)$ 1,200 favorable.
B)$ 1,200 unfavorable.
C)$13,200 favorable.
D)$13,200 unfavorable.
E)$15,200 favorable.

Question 63

Bradford Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units.The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units.What is the direct materials price variance?

A)$ 400 unfavorable.
B)$ 450 unfavorable.
C)$2,500 unfavorable.
D)$2,550 unfavorable.
E)$2,950 unfavorable.

Question 64

A job was budgeted to require 3 hours of labor per unit at $8.00 per hour.The job consisted of 8,000 units and was completed in 22,000 hours at a total labor cost of $198,000.What is the total labor cost variance?

A)$2,000 unfavorable.
B)$3,000 unfavorable.
C)$6,000 unfavorable.
D)$8,000 unfavorable.
E)$9,000 unfavorable.

Question 65

A company uses the following standard costs to produce a single unit of output. $$\begin{array} { l l l l } \text { Direct materals } & 6 \text { pourds at } \$ 0.90 \text { per pound } & = & \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = & \$ 6.00 \\\text { Marufacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = &\$ 2.40\end{array}$$ During the latest month,the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output.Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked.Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400.Based on this information,the direct materials quantity variance for the month was:

A)$1,800 favorable
B)$5,800 unfavorable
C)$5,800 favorable
D)$1,800 unfavorable
E)$1,000 favorable

Question 66

Bradford Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units.The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units.What is the direct materials quantity variance?

A)$ 400 unfavorable.
B)$ 450 unfavorable.
C)$2,500 unfavorable.
D)$2,550 unfavorable.
E)$2,950 unfavorable.

Question 67

Overhead cost variance is:

A)The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level.
B)The difference between the actual overhead incurred during a period and the standard overhead applied.
C)The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit.
D)The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service.
E)The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate.

Question 68

The following company information is available.The direct materials quantity variance is:

A)$10,000 unfavorable.
B)$13,200 unfavorable.
C)$ 9,600 unfavorable.
D)$10,000 favorable.
E)$13,200 favorable.

Question 69

A company has established 5 pounds of Material M at $2 per pound as the standard for the material in its Product A.The company has just produced 1,000 units of this product,using 5,200 pounds of Material M that cost $9,880.The direct materials quantity variance is:

A)$400 unfavorable.
B)$120 favorable.
C)$400 favorable.
D)$520 favorable.
E)$520 unfavorable

Question 70

A company uses the following standard costs to produce a single unit of output. $$\begin{array} { l l l l } \text { Direct materals } & 6 \text { pourds at } \$ 0.90 \text { per pound } & = & \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = & \$ 6.00 \\\text { Marufacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = \$ 2.40\end{array}$$ During the latest month,the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output.Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked.Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400.Based on this information,the direct labor efficiency variance for the month was:

A)$3,650 favorable
B)$2,450 favorable
C)$1,200 unfavorable
D)$1,200 favorable
E)$2,450 unfavorable

Question 71

A company uses the following standard costs to produce a single unit of output. $$\begin{array} { l l l l } \text { Direct materals } & 6 \text { pourds at } \$ 0.90 \text { per pound } & = & \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = & \$ 6.00 \\\text { Marufacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = &\$ 2.40\end{array}$$ During the latest month,the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output.Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked.Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400.Based on this information,the direct materials price variance for the month was:

A)$6,000 unfavorable
B)$1,800 favorable
C)$1,000 favorable
D)$5,800 unfavorable
E)$1,800 unfavorable

Question 72

A company uses the following standard costs to produce a single unit of output. $$\begin{array} { l l l l } \text { Direct materals } & 6 \text { pourds at } \$ 0.90 \text { per pound } & = & \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = & \$ 6.00 \\\text { Marufacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = &\$ 2.40\end{array}$$ During the latest month,the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output.Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked.Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400.Based on this information,the direct labor rate variance for the month was:

A)$1,200 favorable
B)$3,650 favorable
C)$2,450 favorable
D)$3,650 unfavorable
E)$1,200 unfavorable

Question 73

Use the following data to find the direct labor cost variance. $$\begin{array} { l l } \text { Direct labor standard (4 hrs. @ \$7hr) } & \$ 28 \text { per urit } \\\text { Actual hours worked per urit } & 3.5 \text { hours } \\\text { Actual urits produced } & 3,500 \text { urits } \\\text { Actual rate per hour } & \$ 7.50\end{array}$$

A)$ 6,125 unfavorable.
B)$ 7,000 unfavorable.
C)$ 7,000 favorable.
D)$12,250 favorable.
E)$ 6,125 favorable.

Question 74

The following company information is available for January.The direct materials price variance is:

A)$5,000 favorable.
B)$ 300 favorable.
C)$5,200 unfavorable.
D)$5,000 unfavorable.
E)$5,200 favorable.

Question 75

The difference between the total budgeted fixed overhead cost and the fixed overhead applied to production using the predetermined overhead rate is the:

A)Production variance.
B)Volume variance.
C)Overhead cost variance.
D)Quantity variance.
E)Controllable variance.

Question 76

Adams Co.uses the following standard to produce a single unit of its product: variable overhead (2 hrs.@ $3/hr.)$6.Actual data for the month show variable overhead costs of $150,000,and 24,000 units produced.The total variable overhead variance is:

A)$6,000F.
B)$6,000U.
C)$78,000U.
D)$78,000F.
E)$0.

Question 77

The following information describes a company's usage of direct labor in a recent period.The direct labor efficiency variance is:

A)$28,000 unfavorable.
B)$28,000 favorable.
C)$45,000 unfavorable.
D)$45,000 favorable.
E)$17,000 unfavorable.

Question 78

The sum of the variable overhead spending variance,the variable overhead efficiency variance,and the fixed overhead spending variance is the:

A)Production variance.
B)Quantity variance.
C)Volume variance.
D)Price variance.
E)Controllable variance.

Question 79

The following information describes a company's usage of direct labor in a recent period.The direct labor rate variance is:

A)$28,000 favorable.
B)$28,000 unfavorable.
C)$45,000 unfavorable.
D)$45,000 favorable.
E)$17,000 unfavorable.

Question 80

The standard materials cost to produce 1 unit of Product M is 6 pounds of material at a standard price of $50 per pound.In manufacturing 8,000 units,47,000 pounds of material were used at a cost of $51 per pound.What is the total direct materials cost variance?

A)$48,000 unfavorable.
B)$51,000 favorable.
C)$51,000 unfavorable.
D)$ 3,000 favorable.
E)$ 3,000 unfavorable.