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Exam 13: Management Accounting for Cost Control and Performance Evaluation Flexible Budgets and Variance Analysis

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Question 51

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Latimer Textiles Inc. Latimer Textiles Inc. incurred actual variable overhead expenses of $27 000 in the current year for the production of 8000 units. Variable overhead was applied at a rate of $1.75 per direct labour hour and 2 direct labour hours were budgeted for each unit. The company used 17 400 direct labour hours for production. -What was Latimer's variable overhead spending variance?

A) $3450 U
B) $3450 F
C) $2450 U
D) $2450 F

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Question 52

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The flexible budget variance:

A) directs management's attention to specific reasons for why budgeted income differed from actual income.
B) compares the static budget to the flexible budget.
C) removes any differences between budgeted operating income and actual income that are attributable to differences in budgeted and actual volume.
D) is most often used to determine whether or not there is sufficient demand for a company's product.

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Question 53

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Miller Company has an unfavourable materials price variance.Which of the following would be the least likely reason for this variance?

For purposes of the calculation for the direct materials usage variance when the quantity of materials purchased and used are different,which quantity of materials is relevant?

JAX Inc. In early 2009, US company JAX Inc. had budgeted for the production and sales of 6000 units at a sales price of $20 per unit. The following information is available regarding the standard cost for each unit: Number of units produced $\begin{array}{ll}\quad \text { and sold: } & 6800 \text { units } \\\text { Sales revenue: } & \$ 149600(\$ 22 \text { per unit) } \\\text { Direct materials cost: } & \$ 43384(14960 \text { lbs purchased and used at } \$ 2.90 \text { per lb) } \\\text { Direct labour cost: } & \$ 59024(210800 \text { minutes at } \$ .28 \text { per minute }) \end{array}$ -What was JAX Inc.'s direct labour efficiency variance for 2009?

Which of the following statements is false regarding variance analysis in the modern manufacturing environment?

Which of the following statements is true regarding variance analysis in the modern manufacturing environment?

Latimer Textiles Inc. Latimer Textiles Inc. incurred actual variable overhead expenses of $27 000 in the current year for the production of 8000 units. Variable overhead was applied at a rate of $1.75 per direct labour hour and 2 direct labour hours were budgeted for each unit. The company used 17 400 direct labour hours for production. -What was Latimer's variable overhead efficiency variance?

Rogers Rods & Reels Ltd. US-based Rogers Rods & Reels Ltd. manufactures and sells various types of fishing equipment. At the end of 2008, Rogers had estimated for the production and sale of 15 000 bass fishing rods. Each rod has a standard calling for 1.5 pounds of direct material at a standard cost of $8.00 per pound and 15 minutes of direct labour time at a standard cost of $.18 per minute. During 2009, Rogers actually produced and sold 16 000 rods. These 16 000 rods had an actual direct materials cost of $179 200 (25 600 pounds at $7.00 per pound) and an actual direct labour cost of $44 800 (224 000 minutes at $.20 per minute) . Each rod sells for $50. -What is Rogers' flexible budget variance?

What was Coppelli's sales price variance for 2009?

At the end of the current year,Bowman Products has the following information available comparing the cost of direct materials on its flexible budget with the actual cost of direct materials: $\begin{array}{lr} &\underline{ \text { Flexible budget}} &\underline{\text {Actual results} } &\underline{ \text { Difference} } &\\ \text { Direct materials } &\$24000&\$30000&(6000)\\\end{array}$ Sally Vincent,the company's controller,has requested a meeting with Hank Rowland,the operations manager,asking him to explain why direct materials costs were more than what had been budgeted. What two kinds of variance analysis should Hank do before his meeting with Sally? What would each of these variances measure?

Armstrong Products Refer to the Armstrong Products information below. Armstrong Products applies fixed overhead at a rate of $3 per direct labour hour. Each unit produced is expected to take 2 direct labour hours. Armstrong expected production in the current year to be 10 000 units but 9000 units were actually produced. Actual direct labour hours were 19 000 and actual fixed overhead costs were $62 000. -Armstrong's fixed overhead volume variance is:

Mary’s Fine Fashions US company Mary’s Fine Fashions manufactures and sells various types of women’s clothing. At the end of 2008, Mary had estimated for the production and sale of 25 000 short-sleeve shirts. Each shirt has a standard calling for 2.5 yards of direct material at a standard cost of $1.25 per yard and 12 minutes of direct labour time at a standard cost of $.20 per minute. During 2009, the company actually produced and sold 23 000 shirts. These 23 000 shirts had an actual direct materials cost of $77 142 (59 340 yards at $1.30 per yard) and an actual direct labour cost of $63 250 (253 000 minutes at $.25 per minute) . Each shirt sells for $20. -What is Mary's net income (loss) based on a flexible budget?

JAX Inc. In early 2009, US company JAX Inc. had budgeted for the production and sales of 6000 units at a sales price of $20 per unit. The following information is available regarding the standard cost for each unit: Number of units produced $\begin{array}{ll}\quad \text { and sold: } & 6800 \text { units } \\\text { Sales revenue: } & \$ 149600(\$ 22 \text { per unit) } \\\text { Direct materials cost: } & \$ 43384(14960 \text { lbs purchased and used at } \$ 2.90 \text { per lb) } \\\text { Direct labour cost: } & \$ 59024(210800 \text { minutes at } \$ .28 \text { per minute }) \end{array}$ -What was JAX Inc.'s direct materials price variance for 2009?

Carlton Corporation Carlton Corporation produces and sells faux-leather handbags. In the current year, the company budgeted for the production and sale of 1000 handbags; however, 900 handbags were actually produced and sold. Each bag has a standard requiring 2 metres of material at a cost of $4.00 per metre and 1 hour of assembly time at a cost of $9.50 per hour. Actual costs for the production of 900 bags were $7215 for materials (1850 metres purchased and used @ $3.90 per metre) and $10 125 for labour (1125 hours @ $9.00 per hour) . -Carlton's direct materials price variance is:

Atkinson Landscaping Atkinson Landscaping applies variable overhead based on direct labour hours. At the beginning of the current year, Atkinson had estimated the following: $\begin{array}{lr}\text { Estimated variable overhead } & \$ 56000 \\\text { Estimated units of production } & 10000 \text { units } \\\text { Standard direct labour hours per unit } & 2.5 \text { hours }\end{array}$ During the year, 11 000 units were produced using a total of 27 200 direct labour hours and actual overhead costs were $60 000. -Atkinson's variable overhead efficiency variance for the year was:

Supreme Catering At the end of January, Supreme Catering prepared the following budget for the upcoming month of February estimating that they would serve 3000 people: $\begin{array}{lr} \text { Sales revenue per guest } &\$20\\ \text { Variable costs per guest} &8\\ \text { Total fixed costs } &\$5000\\\end{array}$ During February, there were 2700 guests actually served. Actual costs incurred were $27 000 for variable costs and $6500 for fixed costs. Each guest was charged $20. -Supreme Catering's flexible budget variance for February would show a variance of:

Unified Products Inc.makes and sells a unique product.At the beginning of the current year,the company had anticipated selling 10 000 of these units;however,11 000 units were actually produced and sold.Below is the company's static budget as well as actual results for the year: $\begin{array}{c}\begin{array}{lll}\\\\\text {Sales revenue}\\\text {Variable costs:}\\\text {Direct materials}\\\text {Direct labour}\\\text {Overhead}\\\text {Contribution margin}\\\text {Fixed costs}\\\text {Net income}\end{array}\begin{array}{lll}\text {(static budget) }&\text {(actual results)}\\\underline{\text { at 10000 units}}& \underline{\text {at 11000 units}}\\\$ 800000 & \$ 902000 \\\\90000 & 103400 \\100000 & 121000 \\50000 & 60500 \\\hline 560000 & 617100 \\200000 & 210000 \\\hline \$ 360000 & \$ 407100\end{array}\end{array}$ Required: A. Prepare a flexible budget for the year. B. Calculate the flexible budget variance for the year. Indicate whether it is favourable or unfavourable. C. Calculate the sales price variance for the year. Indicate whether it is favourable or unfavourable

Smith Corp.has a $6 000 favourable flexible budget variance for January.If January's flexible budget net income was $100 000,which of the following statements is true?

When managers use the process called 'management by exception':