Question 1

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

Accepted Answer

The answer of Earth,Inc.,is developing flexible budgets for each department...

Question 2

Outdoors,Inc.,manufactures steel hitches for camping trailers.The company's direct labor rates have been set by the terms of the current labor contract.Direct labor rate standards have been assigned for each job classification.In May 20xx,a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes.A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in May.Standard time for the same work output is 32 hours.The apprentice earned $6.25 per hour in May.The standard direct labor rate for machine operators working on turret lathes is $10 per hour.
a. From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a regular machine operator during the training period.)
b. Did the company benefit financially from the situation? Why or why not? (Show calculations.)

Accepted Answer

The answer of Outdoors,Inc.,manufactures steel hitches for camping trailers.The company's...

Question 3

The variable overhead spending variance is also called the variable overhead efficiency variance.

Accepted Answer

A) True 
 B)False

Question 4

Performance reports normally include all of the following except

Accepted Answer

A)  standard costs. 
B)  normal capacity. 
C)  total plantwide overhead costs. 
D)  budgeted costs.

Question 5

The Silent Door Company manufactures soundproof doors.Each door requires two pieces of 16-gauge sheet steel measuring 94 inches by 50 inches.The standard cost of each piece of steel is $150.During the month of July,2,040 doors were started and completed,and there were no beginning or ending work in process inventories.Accounting records revealed that 4,200 pieces of sheet steel were purchased during July at a cost of $623,700.All 4,200 pieces were used during the month.Compute the direct materials price and direct materials quantity variances for July production,assuming the price variance is isolated at the time of purchase.Note whether the variances are favorable or unfavorable.Round to the nearest dollar.

Accepted Answer

The answer of The Silent Door Company manufactures soundproof doors.Each...

Question 6

The direct materials price standard is determined by averaging costs of current purchases.

Accepted Answer

A) True 
 B)False

Question 7

Underfoot Products uses standard costing.The following information about overhead was generated during May: $$\begin{array} { l l } 
\text { Standard variable overhead rate } & \$ 2 \text { per machine hour } \
\text { Standard fixed overhead rate } & \$ 1 \text { per machine hour } \
\text { Actual variable overhead costs } & \$ 390,000 \
\text { Actual fixed overhead costs } & \$ 175,000 \
\text { Budgeted fixed overhead costs } & \$ 190,000 \
\text { Standard machine hours per unit produced } & 10 \
\text { Good units produced } & 18,000 \
\text { Actual machine hours } & 200,000
\end{array}$$ 
Compute the fixed overhead budget variance.

Accepted Answer

A)  $5,000 (F) 
B)  $5,000 (U) 
C)  $10,000 (F) 
D)  $15,000 (F)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Variance analysis includes all of the following except

Accepted Answer

A)  taking corrective action. 
B)  investigating all variances. 
C)  developing performance measures to track activities causing the variance. 
D)  identification of the cause.

Question 10

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

Accepted Answer

A)  the direct materials price variance. 
B)  the direct materials quantity variance. 
C)  the standard direct materials cost. 
D)  nothing; the two components should be added together.

Question 11

The total overhead variance is the difference between standard variable overhead costs and standard fixed overhead costs.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Fredman Company has a standard costing system and keeps all its costs up to date.The company's main product is copper wind chimes,which are made in a single department.The standard variable costs for one wind chime (unit)are as follows:
 $$\begin{array} { | l r | } 
\hline \text { Direct materials ( } 3 \text { yards at } \$ 12.50 \text { per yard) } & \$ 37.50 \
\text { Direct labor } ( 2 \text { hours at } \$ 9.00 \text { per hour) } & 18.00 \
\text { Variable overhead } ( 2 \text { hours } @ \$ 5.00 \text { per direct labor hour) } & 10.00 \
\text { Standard variable cost per unit } & \$ 65.50 \
\hline
\end{array}$$
 The company's normal capacity is 10,000 direct labor hours.Its budgeted fixed overhead costs for the year were $44,000.During the year,it produced and sold 4,900 wind chimes and it purchased 15,000 yards of direct materials; the purchase cost was $12.40 per yard.The average labor rate was $9.10 per hour,and 10,050 direct labor hours were worked.The company's actual variable overhead costs for the year were $48,900,and its fixed costs were $45,000.
Using the data given,compute the following using formulas or diagram form:
1.Direct materials cost variances:
a.Direct materials price variance
b.Direct materials quantity variance
c.Total direct materials cost variance

2.Direct labor cost variances:
a.Direct labor rate variance
b.Direct labor efficiency variance
c.Total direct labor cost variance

3.Variable overhead variances:
a.Variable overhead spending variance
b.Variable overhead efficiency variance
c.Total variable overhead variance

4.Fixed overhead variances:
a.Fixed overhead budget variance
b.Fixed overhead volume variance
c.Total fixed overhead variance

Accepted Answer

The answer of Fredman Company has a standard costing system...

Question 14

The fixed overhead volume variance measures the use of existing facilities and capacity.

Accepted Answer

A) True 
 B)False

Question 15

When actual capacity exceeds expected capacity,the result is a(n)

Accepted Answer

A)  favorable fixed overhead volume variance. 
B)  favorable materials quantity variance. 
C)  unfavorable overhead variance. 
D)  unfavorable materials quantity variance.

Question 16

If the actual amount of direct materials used equals the standard amount of direct materials that should have been used,the difference between the standard cost and actual cost of direct materials is called the

Accepted Answer

A)  price variance. 
B)  rate variance. 
C)  quantity variance. 
D)  efficiency variance.

Question 17

Sweet Dreams manufactures candy.Its records revealed the following data: $$\begin{array} { l l } 
\text { Standard variable overhead rate } & \$ 2 \text { per machine hour } \
\text { Standard fixed overhead rate } & \$ 1 \text { per machine hour } \
\text { Actual variable overhead costs } & \$ 361,000 \
\text { Actual fixed overhead costs } & \$ 175,000 \
\text { Budgeted fixed overhead costs } & \$ 190,000 \
\text { Standard machine hours per unit produced } & 10 \
\text { Good units produced } & 18,000 \
\text { Actual machine hours } & 200,000
\end{array}$$ 
The total variable overhead variance is

Accepted Answer

A)  $3,200 (U). 
B)  $3,200 (F). 
C)  $3,600 (F). 
D)  $0.

Question 18

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

Accepted Answer

A)  direct labor rate variance. 
B)  direct labor efficiency variance. 
C)  total direct labor cost variance. 
D)  direct labor quantity variance.

Question 19

Predetermined overhead costs are the same as standard costs.

Accepted Answer

A) True 
 B)False

Question 20

The Lennon Company uses a standard costing system and a flexible budget.At a normal level of activity of 15,000 units and 45,000 standard direct labor hours,the standard direct labor cost would be $270,000.During June,44,050 hours were worked to produce 14,000 units at an actual direct labor cost of $352,000.The direct labor efficiency variance in June was

Accepted Answer

A)  $20,300 (U). 
B)  $12,300 (U). 
C)  $12,300 (F). 
D)  $15,300 (U).

Exam 23: Standard Costing and Variance Analysis

The variable overhead spending variance is also called the variable overhead efficiency variance.

Performance reports normally include all of the following except

The direct materials price standard is determined by averaging costs of current purchases.

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

Variance analysis includes all of the following except

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

The total overhead variance is the difference between standard variable overhead costs and standard fixed overhead costs.

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

The fixed overhead volume variance measures the use of existing facilities and capacity.

When actual capacity exceeds expected capacity,the result is a(n)

If the actual amount of direct materials used equals the standard amount of direct materials that should have been used,the difference between the standard cost and actual cost of direct materials is called the

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

Predetermined overhead costs are the same as standard costs.