Fundamentals of Variance Analysis Ch16 Verified Test Bank

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 16 Fundamentals of Variance Analysis

1) In essence, the terms "master budget" and "operating budget" mean the same thing and can be used interchangeably.

2) Variances are the difference between actual results and budgeted results.

3) In general, and holding all other things constant, an unfavorable variance decreases operating profits.

4) A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad.

5) The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.

6) A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period.

7) If the budgeted activity level is greater than the actual activity level, then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.

8) The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.

9) The sales activity variance is the result of a difference between budgeted units sold and actual units sold.

10) The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold.

11) Production cost variances are input variances, while sales activity variances are output variances.

12) The flexible and master budget amounts are the same for fixed marketing and administrative costs.

13) The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output.

14) Both the actual material used and the standard quantity allowed for material are based on the actual output attained. 

15) It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance.

16) The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production.

17) An unfavorable direct labor efficiency variance could be the result of poor supervision or poor scheduling by divisional managers. 

18) Variance analysis for fixed production costs is virtually the same as for variable production costs.

19) The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs. 

20) The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget.

21) When using standard costing, costs are transferred through the production process at their standard costs.

22) Standards and budgets are the same thing.

23) A standard cost system may be used in: (CPA adapted)

A) job-order costing but not process costing.

B) either job-order costing or process costing.

C) process costing but not job-order costing.

D) neither process costing nor job-order costing.

24) Which of the following statements is(are) true?

(A) A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad.

(B) The master budget includes operating budgets (e.g., production budget) and financial budgets (e.g., cash budget).

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) Neither of these is true.

25) An operating budget would not include a:

A) cash budget.

B) sales budget.

C) labor budget.

D) production budget.

26) A variance can best be described as:

A) benchmarks common to other firms in the same industry.

B) differences between planned results and actual results.

C) useful for performance evaluations but not making decisions.

D) generally accepted accounting principles when standards are used.

27) The simplest measure of performance is the variance that compares:  

A) standard material prices with actual material prices.

B) standard direct labor rates with actual direct labor rates.

C) budgeted sales revenue with actual sales revenue.

D) budgeted operating income with actual operating income.

28) In general, the terms favorable and unfavorable are used to describe the effect of a variance on:

A) operating profits.

B) sales revenue.

C) production costs.

D) operating expenses.

29) Which of the following statements regarding variances is(are) false?

(A) In general and holding all other things constant, an unfavorable variance decreases operating profits.

(B) A favorable variance is not always good, and an unfavorable variance is not always bad.

A) Only A is false.

B) Only B is false.

C) Both of these are false.

D) Neither of these is false.

30) Which of the following variances will always be favorable when actual sales exceed budgeted sales?  

A) Variable cost

B) Fixed cost

C) Sales activity

D) Operating profit

31) Which of the following organizational policies is most likely to result in undesirable managerial behavior? (CMA adapted)

A) Raj Chemicals sponsors television coverage of cricket matches between national teams representing India and Pakistan. The expenses of such media sponsorship are not allocated to its various divisions.

B) Felix Eagle, the chief executive officer of Eagle Rock Brewery, wrote a memorandum to his executives stating, "Operating plans are contracts and they should be met without fail."

C) The budgeting process at Lawrence Manufacturing starts with operating managers providing goals for their respective departments.

D) Gallen Lighting holds quarterly meetings of departmental managers to consider possible changes in the budgeted targets due to changing conditions.

32) When a manager is concerned with monitoring total cost, total revenue, and net profit conditioned upon the level of productivity, an accountant should normally recommend: (CPA adapted)

A) Option A

B) Option B

C) Option C

D) Option D

33) Based on past experience, Moss Company has developed the following budget formula for estimating its shipping expenses:

Shipping costs = $16,000 + ($0.50 × lbs. shipped). The company's shipments average 12 lbs. per shipment.

The planned activity and actual activity regarding orders and shipments for the current month are given in the following schedule:

The actual shipping costs for the month amounted to $21,000. The appropriate monthly flexible budget allowance for shipping costs for the purpose of performance evaluation would be: (CMA adapted)

A) $20,680.

B) $20,920.

C) $20,800.

D) $22,150.

34) The purpose of the flexible budget is to:

A) allow management some latitude in meeting goals.

B) eliminate cyclical fluctuations in production reports by ignoring variable costs.

C) compare actual and budgeted results at virtually any level of production.

D) reduce the total time in preparing the annual budget.

35) The basic difference between a master budget and a flexible budget is that a:

A) flexible budget considers only variable costs but a master budget considers all costs.

B) flexible budget allows management latitude in meeting goals whereas a master budget is based upon a fixed standard.

C) master budget is for an entire production facility but a flexible budget is applicable to single departments only.

D) master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.

36) The slope of the flexible budget line is the: 

A) selling price per unit.

B) variable cost per unit.

C) fixed cost per unit.

D) contribution margin per unit.

37) The intercept of the flexible budget line is: 

A) sales.

B) variable costs.

C) fixed costs.

D) contribution margin.

38) When using a flexible budget, what will happen to variable costs on a per-unit basis as production increases within the relevant range?

A) Decrease

B) Increase

C) Remain unchanged

D) Fixed costs are not considered in flexible budgeting

39) The Valenti Company uses flexible budgeting for cost control. Valenti produced 10,800 units of product during October, incurring indirect material costs of $13,000. Valenti's master budget reflected indirect material costs of $180,000 at a production volume of 144,000 units. What was the indirect material cost variance for October? 

A) $1,100 favorable

B) $1,100 unfavorable

C) $2,000 favorable

D) $500 favorable

40) James Manufacturing has the following information available for July:

What was James's actual sales revenue for July?  

A) $156,000

B) $169,000

C) $180,000

D) $191,000

41) James Manufacturing has the following information available for July:

What was James's flexible budget sales revenue for July?

A) $139,000.

B) $156,000.

C) $169,000.

D) $180,000.

42) James Manufacturing has the following information available for July:

What was James's flexible budget contribution margin for July?

A) $39,000.

B) $45,000.

C) $52,000.

D) $58,000.

43) James Manufacturing has the following information available for July:

What was James's master budget sales revenue?

A) $124,000.

B) $148,000.

C) $156,000.

D) $180,000.

44) James Manufacturing has the following information available for July:

What was James's master budget contribution margin?

A) $52,000.

B) $47,500.

C) $45,000.

D) $39,000.

45) James Manufacturing has the following information available for July:

What was James's activity variance for variable manufacturing costs?

A) $4,000.

B) $14,000.

C) $24,000.

D) $34,000.

46) James Manufacturing has the following information available for July:

Was James's activity variance for variable manufacturing costs favorable or unfavorable?

A) Favorable

B) Unfavorable

47) In analyzing company operations, the controller of the Carson Corporation found a $250,000 favorable flexible budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by: (CMA adapted)

A) the total flexible budget variance.

B) the total static budget variance.

C) changes in unit selling prices.

D) changes in the number of units sold.

48) The difference between operating profits in the master budget and operating profits in the flexible budget is called the:

A) sales activity variance.

B) flexible budget variance.

C) production volume variance.

D) total operating profit variance.

49) Which of the following statements is(are) true regarding the sales activity variance?

(A) The sales activity variance is the actual selling price per unit times the difference between the budgeted units and actual units.

(B) If the sales activity variance for sales revenue is unfavorable, then the contribution margin sales activity variance will be unfavorable.

A) Only A is true.

B) Only B is true.

C) Neither of these is true.

D) Both of these are true.

50) The sales price variance is the difference between the actual sales revenues and the:

A) budgeted selling price multiplied by the budgeted number of units sold.

B) budgeted selling price multiplied by the actual number of units sold.

C) actual selling price multiplied by the budgeted number of units sold.

D) actual selling price multiplied by the actual number of units sold.

51) Which of the following statements is not true regarding the fixed production cost variance?

A) The fixed production cost variance is the difference between actual and budgeted costs.

B) With respect to this variance, fixed costs are affected by activity levels within a relevant range.

C) The flexible budget's fixed costs equal the master budget's fixed costs.

D) Fixed costs are treated as period costs for purposes of this variance.

52) Which of the following is the name of a form providing standard quantities of inputs required to produce a unit of output and the standard prices for the inputs?

A) Static budget

B) Standard cost sheet

C) Variance account

D) Master budget

53) If the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage?

A) There is no need to further evaluate the total materials variance if it is favorable.

B) Generally accepted accounting principles require that all variances be analyzed in three stages.

C) All variances must appear in the annual report to equity owners for proper disclosure.

D) A further evaluation lets management evaluate the activities of the purchasing and production functions.

54) Which department is customarily held responsible for an unfavorable materials quantity variance?

A) Quality control

B) Purchasing

C) Engineering

D) Production

55) When are the following direct materials variances ideally reported?

A) Option A

B) Option B

C) Option C

D) Option D

56) In the general model, a price variance is calculated as:

A) (AP × AQ) – (AP × SQ)

B) (AP × SQ) – (SP × SQ)

C) (AP × AQ) – (SP × AQ)

D) (AP × AQ) – (SP × SQ)

57) In the general model, an efficiency variance is calculated as:

A) (SP × AQ) – (SP × SQ)

B) (AP × SQ) – (SP × SQ)

C) (AP × AQ) – (SP × SQ)

D) (AP × AQ) – (SP × AQ)

58) Which of the following direct labor variances uses the standard hours allowed for the actual number of units produced?

A) Option A

B) Option B

C) Option C

D) Option D

59) Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?

A) The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals.

B) The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid unskilled workers.

C) Because of the production schedule, workers from other production areas were assigned to assist this particular process.

D) Defective materials caused more labor to be used in order to produce a standard unit.

60) Which variance will be unfavorable due to employees working more hours than allowed for the actual number of units produced?

A) Price (rate)

B) Efficiency

C) Sales activity

D) Production volume

61) In general, the direct labor efficiency variance is the responsibility of the:

A) purchasing agent.

B) company president.

C) production manager.

D) industrial engineering.

62) The variable overhead price variance is due to:

A) price items only.

B) efficiency items only.

C) both price and efficiency items.

D) neither price or efficiency items.

63) If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable, then the variable overhead efficiency variance is:

A) favorable.

B) unfavorable.

C) either favorable or unfavorable.

D) neither favorable nor unfavorable.

64) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. 

What is the direct materials price variance for November?

A) $14,250

B) $14,400

C) $16,000

D) $17,100

65) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. 

Is the direct materials price variance favorable or unfavorable?

A) Favorable

B) Unfavorable

66) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. 

What is the direct materials efficiency variance for November?

A) $14,250

B) $14,400

C) $16,000

D) $17,100

67) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.

Is the direct materials efficiency variance favorable or unfavorable?

A) Favorable

B) Unfavorable

68) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. 

What is the direct labor rate variance for November?

A) $1,800

B) $1,900

C) $2,000

D) $2,200

69) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.

Is the direct labor rate variance favorable or unfavorable?

A) Favorable

B) Unfavorable

70) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. 

What is the direct labor efficiency variance for November?

A) $1,800

B) $1,900

C) $2,000

D) $2,090

71) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. 

Is the direct labor efficiency variance favorable or unfavorable?

A) Favorable

B) Unfavorable

72) The following information summarizes the standard cost for producing one metal tennis racket frame at Spaulding Industries. In addition, the variances for one month's production are given. Assume that all inventory accounts have zero balances at the beginning of the month.

What were the actual direct labor hours worked during the month?

A) 5,000

B) 4,800

C) 4,200

D) 4,000

73) The following information summarizes the standard cost for producing one metal tennis racket frame at Spaulding Industries. In addition, the variances for one month's production are given. Assume that all inventory accounts have zero balances at the beginning of the month.

What was the actual quantity of materials used during the month?

A) 2,156

B) 2,100

C) 2,225

D) 1,975

74) The following information summarizes the standard cost for producing one metal tennis racket frame at Spaulding Industries. In addition, the variances for one month's production are given. Assume that all inventory accounts have zero balances at the beginning of the month.

What was the actual price per unit paid for the direct material during the month, assuming all materials purchased were put into production?

A) $4.34

B) $4.22

C) $4.11

D) $4.00

75) Data on Gantry Company's direct labor costs are given below:

What was Gantry's actual direct labor rate?

A) $3.60

B) $3.80

C) $4.00

D) $5.80

76) Data on Gantry Company's direct labor costs are given below:

What was Gantry's standard direct labor rate?

A) $3.54

B) $3.80

C) $4.00

D) $5.80

77) Batson Company produces Trivets. Based on its master budget, the company should produce 1,000 Trivets each month, working 2,500 direct labor hours. During May, only 900 Trivets were produced. The company worked 2,400 direct labor hours. The standard hours allowed for May production would be:

A) 2,500 hours.

B) 2,400 hours.

C) 2,250 hours.

D) 1,800 hours.

78) Information on Kimble Company's direct labor costs for the month of January is as follows:

What is Kimble's direct labor rate variance?

A) $17,250

B) $20,700

C) $18,750

D) $21,000

79) Information on Kimble Company's direct labor costs for the month of January is as follows:

Is the direct labor rate variance favorable or unfavorable?

A) Favorable

B) Unfavorable

80) The following data pertains to the direct materials cost for the month of October:

What is the direct materials efficiency variance?

A) $950 favorable

B) $950 unfavorable

C) $1,000 favorable

D) $1,000 unfavorable

81) The Fellowes Company has developed standards for direct labor. During June, 75 units were scheduled and 100 were produced. Data related to direct labor are:

What is the direct labor rate variance for June?

A) $30 unfavorable.

B) $31 favorable.

C) $31 unfavorable.

D) $30 favorable.

82) When computing standard cost variances, the difference between actual and standard prices multiplied by actual quantity yields a(n): (CMA adapted)

A) combined price and quantity variance.

B) efficiency variance.

C) price variance.

D) quantity variance.

83) Shawn Incorporated planned to produce 3,000 units of its single product, Megatron, during November. The standard specifications for one unit of Megatron include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Megatron. The accountant computed a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that: (CMA adapted)

A) more materials were purchased than were used.

B) more materials were used than were purchased.

C) the actual cost of materials was less than the standard cost.

D) the actual usage of materials was less than the standard allowed.

84) Miller Company planned to produce 3,000 units of its single product, Tallium, during November. The standards for one unit of Tallium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Tallium. There was a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that: (CMA adapted)

A) more materials were purchased than were used.

B) more materials were used than were purchased.

C) the actual cost per pound for materials was less than the standard cost per pound.

D) the actual usage of materials was less than the standard allowed.

85) An unfavorable direct labor efficiency variance could be caused by: (CMA adapted)

A) an unfavorable materials quantity variance.

B) an unfavorable variable overhead rate variance.

C) a favorable materials quantity variance.

D) a favorable variable overhead rate variance.

86) Variable manufacturing overhead is applied to products on the basis of standard direct labor hours. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance will be: (CMA adapted)

A) favorable.

B) unfavorable.

C) either favorable or unfavorable.

D) zero.

87) Given the following information in standard costing:

What is the direct labor rate variance?

A) $3,160 favorable.

B) $3,160 unfavorable.

C) $2,360 favorable.

D) $2,360 unfavorable.

88) Information for Bonanza Company's direct labor cost for February is as follows:

What were the standard direct labor hours for February?

A) 70,000.

B) 69,000.

C) 72,000.

D) 71,400.

89) The standard unit cost is used in the calculation of which of the following variances? (CPA adapted)

A) Option A

B) Option B

C) Option C

D) Option D

90) A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result from: (CMA adapted)

A) machine efficiency problems.

B) product mix production changes.

C) labor efficiency problems.

D) the purchase of lower-than-standard-quality materials.

91) Excess direct labor wages resulting from overtime premium will be disclosed in which type of variance? (CPA adapted)

A) Yield.

B) Quantity.

C) Labor efficiency.

D) Labor rate.

92) The budget for the month of May was for 9,000 units at a direct materials cost of $15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of $81,000. Actual output for the month was 8,500 units with $127,500 in direct materials and $77,775 in direct labor expense. The direct labor standard of 45 minutes was obtained throughout the month. Variance analysis of the performance for the month of May would show a(n): (CMA adapted)

A) favorable materials efficiency (quantity) variance of $7,500.

B) favorable direct labor efficiency variance of $1,275.

C) unfavorable direct labor efficiency variance of $1,275.

D) unfavorable direct labor price (rate) variance of $1,275.

93) Jackson Company uses a standard cost system. The following information pertains to direct labor for product B for the month of October:

What were the actual hours worked for the month of October?

A) 1,800.

B) 1,810.

C) 2,190.

D) 2,200.

94) The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed for actual output equal this predetermined activity level for a given period, the volume variance will be: (CPA adapted)

A) zero.

B) favorable.

C) unfavorable.

D) either favorable or unfavorable, depending on the budgeted overhead.

95) The following information is available for Baxter Manufacturing for April:

What is the fixed overhead price (spending) variance for April?

A) $200.

B) $400.

C) $300.

D) $240.

96) The following information is available for Baxter Manufacturing for April:

Is the fixed overhead price (spending) variance for April favorable or unfavorable?

A) Favorable.

B) Unfavorable.

97) The following information is available for Baxter Manufacturing for April:

What is the production volume variance?

A) $200.

B) $400.

C) $300.

D) $240.

98) The following information is available for Baxter Manufacturing for April:

Is the production volume variance for April favorable or unfavorable?

A) Favorable.

B) Unfavorable.

99) The following information is available for the Danske Company:

Danske Company had total underapplied overhead of $15,000. Additional information is as follows:

What is the actual total overhead for the period?

A) $50,000.

B) $45,000.

C) $80,000.

D) $87,000.

100) The following information is available for the Danske Company:

Danske Company had total underapplied overhead of $15,000. Additional information is as follows:

What is the fixed overhead price (spending) variance for May?

A) $1,000 unfavorable.

B) $3,000 unfavorable.

C) $2,000 unfavorable.

D) $2,000 favorable.

101) The following information is available for the Danske Company:

Danske Company had total underapplied overhead of $15,000. Additional information is as follows:

What is the production volume variance for May?

A) $2,000.

B) $3,000.

C) $6,000.

D) $9,000.

102) The following information is available for the Danske Company:

Danske Company had total underapplied overhead of $15,000. Additional information is as follows:

Is the production volume variance favorable or unfavorable?

A) Favorable.

B) Unfavorable.

103) Which one of the following variances is of least significance from a behavioral control perspective? (CMA adapted)

A) Unfavorable materials quantity variance amounting to 20% of the quantity allowed for the output attained.

B) Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained.

C) Favorable materials price variance obtained by purchasing raw materials from a new vendor.

D) Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%.

104) The production volume variance is computed by calculating the difference between the:

A) actual fixed overhead and applied fixed overhead.

B) actual fixed overhead and budget at actual level of activity reached.

C) actual fixed overhead and budget at denominator level of activity planned.

D) budget at actual levels of activity reached and fixed overhead applied.

105) Which of the following is not an alternative name for the production volume variance?

A) Capacity variance.

B) Idle capacity variance.

C) Denominator variance.

D) Fixed overhead efficiency variance.

106) The production volume variance must be computed when a company uses:

A) activity-based costing.

B) process costing.

C) job-order costing.

D) full-absorption costing.

107) Which of these variances is least significant for cost control?

A) Labor price variance.

B) Material quantity variance.

C) Fixed overhead price variance.

D) Production volume variance.

108) A debit balance in the direct labor efficiency variance account indicates that

A) standard hours exceed actual hours.

B) actual hours exceed standard hours.

C) standard rate and standard hours exceed actual rate and actual hours.

D) actual rate and actual hours exceed standard rate and standard hours.

109) If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the:

A) raw materials inventory account is understated.

B) price variance is recognized when materials are purchased.

C) company does not follow generally accepted accounting principles.

D) price variance is recognized when materials are placed into production.

110) The Elon Company had great difficulty in controlling overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget and she has hired you to implement this budgeting program. After some effort, you develop the following cost formulas for the company's machining department. These costs are based on a normal operating range of 15,000 to 23,000 machine-hours per month:

During March, the first month after your preparation of the above data, the machining department worked 18,000 machine-hours and produced 9,000 units of product. The actual costs of this production were:

The department had originally been budgeted to work 19,000 machine-hours during March.

Required:

Prepare a performance report for the machining department for the month of March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.

111) The Ornate Company has the following information pertaining to the month of March:

Required:

Prepare a performance report for March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.

112) Fargo Company manufactures special electrical equipment and parts. Eastern employs a standard cost accounting system with separate standards established for each product.

A special transformer is manufactured in the Transformer Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer was computed at $67.00 as shown below.

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used. During October, 800 transformers were produced. This was below expectations because a work stoppage occurred at the copper supplier and shipments were delayed.

The following costs were incurred in October: 

Required:

Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable. 

a. Direct materials price variance for both iron and copper.

b. Direct material efficiency variance for both iron and copper

c. Direct labor rate variance.

d. Direct labor efficiency variance.

113) Jemco Corporation makes automotive engines. For the most recent month, budgeted production was 6,000 engines. The standard power cost is $8.80 per machine-hour. The company's standards indicate that each engine requires 6.1 machine-hours. Actual production was 6,400 engines. Actual machine-hours were 38,730 machine-hours. Actual power cost totaled $350,628. 

Required:

Determine the rate and efficiency variances for the variable overhead power cost and indicate whether those variances are unfavorable or favorable. Show your work.

114) The Rogers Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour.

The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows:

Required:

(Be sure to indicate whether the variances are favorable or unfavorable and show your work.)

a. Compute the direct material price variance.

b. Compute the direct material efficiency variance.

c. Compute the direct labor price (rate) variance.

d. Compute the direct labor efficiency variance.

115) The Atlas Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours:

During April, 85,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relate to April:

Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work.

Actual overhead incurred totaled $1,378,000; $518,000 variable and $860,000 fixed.

All inventories are carried at standard cost. 

Required:

(Be sure to indicate whether the variances are favorable or unfavorable and show your work.) 

a. Compute the variable overhead price variance.

b. Compute the variable overhead efficiency variance.

116) Horton Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product are as follows:

The following operating data were taken from the records for November:

Required:

(Be sure to indicate whether the variances are favorable or unfavorable and show your work.) 

a. What is the direct labor rate variance for November?

b. What is the direct labor efficiency variance for November?

c. What is the actual kilograms of material used in the production process during November?

d. Assume the purchasing department is responsible for the material price variance, what is the actual price paid per kilogram of material during November (assume no increase/decrease in inventory during the month)?

117) The following standards have been established for a raw material used to make product JN36:

The following data pertain to a recent month's operations:

Required:

a. What is the materials price variance for the month?

b. What is the materials quantity variance for the month?

118) The data below relate to a product of Bellingham Company.

Required:

(Be sure to indicate whether the variances are favorable or unfavorable and show your work.) 

a. Compute the direct material price variance.

b. Compute the direct material usage variance.

c. Compute the direct labor rate variance.

d. Compute the direct labor efficiency variance.

119) The following data have been provided by Vegas Corporation:

Required:

Compute the variable overhead rate variances for lubricants and for supplies. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work.

120) The following data for November have been provided by Mazzio Corporation, a producer of precision drills for oil exploration:

Required:

Compute the variable overhead rate variances for indirect labor and for power for November. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work.

121) Shum Company manufactures special electrical equipment and parts. Shum employs a standard cost accounting system with separate standards established for each product.

A special transformer is manufactured in the Transformer Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer was computed at $67.00 as shown below.

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used. During October, 800 transformers were produced. This was below expectations because a work stoppage occurred at the copper supplier and shipments were delayed.

The following data pertain to October's operations:

Required:

Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable. 

a. Variable overhead spending variance.

b. Variable overhead efficiency variance.

c. Fixed overhead spending (budget) variance.

d. Production volume variance.

122) Ole Company manufactures special electrical equipment and parts. Ole employs a standard cost accounting system with separate standards established for each product.

A special transformer is manufactured in the Transformer Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer was computed at $57.00 as shown below.

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used.

During October, 900 transformers were produced. This was below expectations because a work stoppage occurred during contract negotiations with the labor force. Once the contract was settled, the wage rate was increased to $7.25/hour and overtime was scheduled in an attempt to catch up to expected production levels.

The following costs were incurred in October:

600 of the 1,400 hours were subject to overtime premium. The total overtime premium is included in variable overhead in accordance with company accounting practices.

Required:

Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable. 

a. Direct materials price variance.

b. Direct material efficiency (quantity) variance.

c. Direct labor rate variance.

d. Direct labor efficiency variance.

e. Variable overhead spending variance.

f. Variable overhead efficiency variance.

g. Fixed overhead spending (budget) variance.

h. Production volume variance.

123) The Bartok Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour.

The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows:

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.) 

a. Compute the predetermined overhead rate used for the year

b. Compute the budgeted fixed costs for the month.

c. Compute the variable overhead spending variance.

d. Compute the variable overhead efficiency variance.

e. Compute the fixed overhead spending (budget) variance.

f. Compute the production volume variance.

124) The condensed flexible budget of the Evergreen Company for the year is given below:

Direct labor-hours

The company produces a single product that requires 2.5 direct labor-hours to complete. The direct labor wage rate is $7.50 per hour. Three yards of raw material are required for each unit of product, at a cost of $5 per yard.

Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity, but actually worked 48,000 hours during the year, producing 18,500 units.

Actual overhead costs for the year are:

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.)

a. Compute the variable overhead price variance and the variable overhead efficiency variance.

b. Compute the fixed overhead spending (budget) variance and the production volume variance.

125) The condensed flexible budget of the Texas Company for the year is given as $160,000 + $1.25/direct labor hour. The company produces a single product that requires 2.5 direct labor-hours to complete.

Assume that the company chooses 100,000 direct labor-hours as the denominator level of activity, but actually worked 96,000 hours during the year producing 37,000 units.

Actual overhead costs for the year are:

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.)

a. Compute the variable overhead price variance and the variable overhead efficiency variance.

b. Compute the fixed overhead spending (budget) variance and the production volume variance.

126) The following information relates to the month of April for The Trolley Manufacturing Company, which uses a standard cost accounting system.

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.)

a. What is the variable overhead efficiency variance?

b. What is the variable overhead price variance?

c. What is the fixed production volume variance?

127) The data below relate to a product of AirWay Company.

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.)

a. What is the variable overhead efficiency variance?

b. What is the variable overhead price variance?

c. What is the fixed overhead budget variance?

d. What is the fixed production volume variance?

128) The Matten Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours:

During April, 85,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relate to April:

Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work.

Actual overhead incurred totaled $1,378,000; $518,000 variable and $860,000 fixed.

All inventories are carried at standard cost.

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.)

a. Compute the fixed overhead spending (budget) variance.

b. Compute the production volume variance.

129) The following information relates to the month of April for The Kennedy Manufacturing Company, which uses a standard cost accounting system.

Required:

(Be sure to indicate whether the variances are favorable or unfavorable.)

a. What is the variable overhead efficiency variance?

b. What is the fixed overhead spending variance?

c. What is the fixed production volume variance?

130) The Fort Company produces and sells a single product. Standards have been established for the product as follows:

Direct materials: 5 pounds @ $3.50 per pound = $17.50.

Direct labor: 3 hours @ $5.50 per hour = $16.50.

Actual cost and usage figures for the past month follow:

Required:

Prepare journal entries to record:

a. The purchase of raw materials.

b. The usage of raw materials in production.

c. The incurrence of direct labor cost.

131) The following standards have been established for a raw material used in the production of product U98:

The following data pertain to a recent month's operations:

Required:

a. What is the materials price variance for the month?

b. What is the materials quantity variance for the month?

c. Prepare journal entries to record the purchase and use of the raw material during the month. (All raw materials are purchased on account.)

132) The standards for product J42 call for 3.6 feet of a raw material that costs $14.00 per feet. Last month, 5,500 feet of the raw material were purchased for $76,175. The actual output of the month was 1,260 units of product J42. A total of 4,800 feet of the raw material were used to produce this output.

Required:

a. What is the materials price variance for the month?

b. What is the materials quantity variance for the month?

c. Prepare journal entries to record the purchase and use of the raw material during the month. (All raw materials are purchased on account.)

133) Compound Y23Z is used by Overton Corporation to make one of its products. The standard cost of compound Y23Z is $38.70 per ounce and the standard quantity is 4.6 per unit of output. Data concerning the compound in the most recent month appear below:

The raw material was purchased on account.

Required:

a. Record the purchase of the raw material in a journal entry.

b. Record the use of the raw material in production in a journal entry.

134) The standards for product A22G specify 8.2 direct labor-hours per unit at $11.90 per direct labor-hour. Last month 200 units of product A22G were produced using 1,700 direct labor-hours at a total direct labor wage cost of $20,060.

Required:

a. What was the labor rate variance for the month?

b. What was the labor efficiency variance for the month?

c. Prepare a journal entry to record direct labor costs during the month, including the direct labor variances.

135) Angler Corporation has provided the following data concerning its direct labor costs for November:

Required:

Prepare the journal entry to record the incurrence of direct labor costs.

136) The Norris Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour.

The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows:

Required:

Prepare the journal entries to record the following:

a. Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained).

b. Recognition of direct labor.

137) Darren Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product are as follows:

The following operating data were taken from the records for November:

Required:

Prepare the journal entries to record the following:

a. Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained).

b. Recognition of direct labor.

138) The Fox Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour.

The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows:

Required:

Prepare the journal entries to record the following:

a. Incurring actual overhead.

b. Application of overhead to production.

c. Closing of overhead accounts and recognizing variances.

d. Transferring production to finished goods.

139) The Morocco Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour.

The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows:

Required:

Prepare the journal entries to record the following:

a. Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained).

b. Recognition of direct labor.

c. Incurring actual overhead.

d. Application of overhead to production.

e. Closing of overhead accounts and recognizing variances.

f. Transferring production to finished goods.

140) Explain two reasons for preparing a variance analysis.

141) Explain the difference between operating budgets, financial budgets, and flexible budgets.

142) Explain the difference between the sales volume variance and the production volume variance.

143) Explain how standards and budgets are different.

144) Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

145) The Tennison Company uses a standard cost system in which manufacturing overhead costs are applied to units of the company's single product on the basis of standard direct labor-hours (DLHs). The standard cost card for the product follows:

The following data pertain to last year's activities:

∙ The company manufactured 18,000 units of product during the year. A total of 70,200 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 18,000 units.

∙ The company worked 29,250 direct labor-hours during the year at a cost of $7.80 per hour.

∙ The denominator activity level was 22,500 direct labor-hours.

∙ Budgeted fixed manufacturing overhead costs were $135,000 while actual manufacturing overhead costs were $133,200.

∙ Actual variable overhead costs were $61,425.

Required:

a. Compute the direct materials price and quantity variances for the year.

b. Compute the direct labor rate and efficiency variances for the year.

c. Compute the variable overhead rate and efficiency variances for the year.

d. Compute the fixed manufacturing overhead budget and volume variances for the year.

146) Angie Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours. At standard, each unit of product requires one machine-hour to complete. The standard variable overhead is $1.75 per machine-hour and Budgeted Fixed Manufacturing Costs are $300,000 per year. The denominator level of activity is 150,000 machine-hours, or 150,000 units. Actual data for the year were as follows:

Required:

a. What are the predetermined variable and fixed manufacturing overhead rates for the year?

b. Compute the variable overhead rate and efficiency variances for the year.