Deck 21: Flexible Budgets and Standard Costing

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Cost variances are ignored under management by exception.

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

Another name for a static budget is a variable budget.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

Fixed budgets are also known as flexible budgets.

Question 17

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

Question 18

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

Question 19

Variable budget is another name for a flexible budget.

Question 20

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

Question 21

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

Question 22

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 23

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

Question 24

Standard costs are used to measure:

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 25

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

Question 26

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 27

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

Question 28

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

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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 33

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

Question 34

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

Question 35

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 36

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

Question 37

An unfavorable variance is recorded with a debit.

Question 38

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 39

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) Cost variance analysis.

Question 40

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

Question 41

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 42

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 43

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 44

Kermit Enterprises has collected the following data on one of its products:
$\begin{array}{ll}\text { Direct materials standard (4 lbs. @ \$1/lb.) } & \$ 4 \text { per finished unit } \\\text { Total direct materials cost variance-favorable } & \$ 7,500 \\\text { Actual direct materials used } & 150,000 \mathrm{lbs} \\\text { Actual finished units produced } & 30,000 \text { units }\end{array}$

-The direct materials price variance is:

A) $30,000 favorable.
B) $30,000 unfavorable.
C) $22,500 favorable.
D) $37,500 unfavorable.
E) $37,500 favorable.

Question 45

Variable budget is another name for:

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

Question 46

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 47

A performance report compares the differences between:

A) Actual results and predicted results.
B) Actual results over several periods.
C) Predicted results over several periods.
D) Predicted results over several levels of activity.
E) Predicted results and standard results.

Question 48

Based on predicted production of 22,000 units, a company anticipates $15,000 of fixed costs and $27,500 of variable costs. The flexible budget amounts of fixed and variable costs for 16,000 units are:

A) $10,910 fixed and $20,000 variable.
B) $10,910 fixed and $27,500 variable.
C) $20,000 fixed and $15,000 variable.
D) $15,000 fixed and $20,000 variable.
E) $15,000 fixed and $27,500 variable.

Question 49

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 50

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

-The direct materials price variance is:

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

Question 51

Kermit Enterprises has collected the following data on one of its products:
$\begin{array}{ll}\text { Direct materials standard (4 lbs. @ \$1/lb.) } & \$ 4 \text { per finished unit } \\\text { Total direct materials cost variance-favorable } & \$ 7,500 \\\text { Actual direct materials used } & 150,000 \mathrm{lbs} \\\text { Actual finished units produced } & 30,000 \text { units }\end{array}$

-The direct materials quantity variance is:

A) $30,000 favorable.
B) $30,000 unfavorable.
C) $22,500 favorable.
D) $37,500 unfavorable.
E) $37,500 favorable.

Question 52

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 53

Static budget is another name for:

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

Question 54

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

-The actual cost of the direct materials used is:

A) $133,750
B) $150,000
C) $106,250
D) $158,750
E) $120,000

Question 55

The entry to record the material variances would include a:

A) Credit to Goods in Process for $133,750.
B) Debit to Direct Material Price Variance for $13,750.
C) Credit to Direct Material Quantity Variance for $13,750.
D) Debit to Goods in Process for $120,000.
E) Debit to Raw Materials for $120,000.

Question 56

An internal report that compares actual cost and sales amounts with budgeted amounts and identifies the differences between them as favorable or unfavorable variances is called a:

A) Performance report.
B) Production report.
C) Budget report.
D) Variance report.
E) Standard report.

Question 57

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

-The direct materials quantity variance is:

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

Question 58

Sales 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 59

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 60

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 61

The following company information is available:

The direct materials price variance is:

A) $10,000 unfavorable.
B) $13,200 unfavorable.
C) $9,600 unfavorable.
D) $3,600 unfavorable.
E) $13,200 favorable.

Question 62

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 efficiency variance for August?

A) $10,376 unfavorable.
B) $2,104 unfavorable.
C) $2,104 favorable.
D) $12,480 unfavorable.
E) $12,480 favorable.

Question 63

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 64

The following company information is available for January:

The direct material quantity variance is:

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

Question 65

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 labor rate variance?

A) $22,000 unfavorable.
B) $16,000 unfavorable.
C) $6,000 unfavorable.
D) $16,000 favorable.
E) $22,000 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 price variance?

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

Question 67

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

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

Question 68

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 69

The standard materials cost to produce one 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 material cost variance?

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

Question 70

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) $10,376 unfavorable.
B) $2,104 unfavorable.
C) $2,104 favorable.
D) $12,480 unfavorable.
E) $12,480 favorable.

Question 71

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 72

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

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

Question 73

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 efficiency variance?

A) $22,000 unfavorable.
B) $16,000 unfavorable.
C) $6,000 unfavorable.
D) $16,000 favorable.
E) $22,000 favorable.

Question 74

The following company information is available:
$$\begin{array} { l l } \text { Direct materials used for production } & 712 \text { pounds } \\\text { Standard quantity for units produced } & 750 \text { pounds } \\\text { Standard cost per pound of direct material } & \$ 48 \\\text { Actual cost per pound of direct material } & \$ 50\end{array}$$
The direct materials quantity variance is:

A) $1,824 favorable.
B) $1,424 favorable.
C) $400 favorable.
D) $1,824 unfavorable.
E) $1,424 unfavorable.

Question 75

The entry to record the labor costs and variances would include a:

A) debit to Goods in Process for $198,000.
B) credit to Factory Payroll for $192,000.
C) debit to Direct Labor Cost Variance for $6,000.
D) credit to Direct Labor Cost Variance for $6,000.
E) credit to Direct Labor Efficiency Variance for $16,000.

Question 76

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

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

Question 77

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) $3,600 unfavorable.
E) $13,200 favorable.

Question 78

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

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

Question 79

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 cost variance for August?

A) $10,376 unfavorable.
B) $2,104 unfavorable.
C) $2,104 favorable.
D) $12,480 unfavorable.
E) $12,480 favorable.

Question 80

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) $22,000 unfavorable.
B) $16,000 unfavorable.
C) $6,000 unfavorable.
D) $16,000 favorable.
E) $22,000 favorable.