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Exam 21: Flexible Budgets and Standard Costing

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Question 1

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Cost variances are ignored under management by exception.

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If actual price per unit of materials is greater than the standard price per unit of materials, the direct materials price variance is _______________________.

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

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

Landlubber Company established a standard direct materials cost of 1.5 gallons at $2 per gallon for one unit of its product. During the past month, actual production was 6,500 units. The material quantity variance was $700 favorable and the material price variance was $470 unfavorable. The entry to charge Goods in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include:

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:

Whistler Company determined that in the production of their products last period, they had a favorable price variance and an unfavorable quantity variance for direct materials. What might be the cause of this pattern of variances?

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

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:

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

Flexible budgets may be prepared before or after an actual period of activity. Why would management prepare such budgets at differing time frames?

A fixed budget is also called a _____________ budget.

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?

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

Actual fixed overhead for Kapok Company during March was $92,780. The flexible budget for fixed overhead this period is $89,000 based on a production level of 5,000 units. If the company actually produced 4,200 units, what is the fixed overhead spending variance for March?

Chips Co. assigned direct labor cost to its products in May for 1,300 standard hours of direct labor at the standard $8 per hour rate. The direct labor rate variance for the month was $200 favorable and the direct labor efficiency variance was $150 favorable. Prepare the journal entry to charge Goods in Process Inventory for the standard labor cost of the goods manufactured in May and to record the direct labor variances. Assuming that the direct labor variances are immaterial, prepare the journal entry that Chips would make to close the variance accounts.

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:

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

Casco Co. planned to produce and sell 40,000 units. At that volume level, variable costs are determined to be $320,000 and fixed costs are $30,000. The planned selling price is $10 per unit. Casco actually produced and sold 42,000 units. Required: Using a contribution margin format: (a) Prepare a fixed budget income statement for the planned level of sales and production. (b) Prepare a flexible budget income statement for the actual level of sales and production. (c) Which budget should we use to compare to actual results and why?

The difference between the actual sales and the flexible budget sales is called the ______________________ variance.