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Exam 8: Flexible Budgets and Standard Costing

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Question 31

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The difference between the actual overhead cost incurred and the standard overhead applied is the __________________________.

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overhead c...

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Question 32

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

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Question 33

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Define standard costs.How do they assist management?

Raisen, Inc.'s budget included the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units: $\begin{array}{lr}\text { Total variable overhead } & \$ 240,000 \\\text { Total fixed overhead } & \underline{560,000 }\\\text { Total overhead } & \$ 800,000\end{array}$ The standard cost per unit when operating at this same 80% capacity level is: $\begin{array} {l r } \text { Direct materials (51bs.@\$4/lb.) } & \$ 20.00 \\ \text { Directlabor(2hrs.@\$8.75/hr.) } &17.50 \\ \text { Variable overhead (2hrs.@, \$3/hr.) } &6.00 \\ \text { Fixed overhead (2hrs.@, \$7/hr:) } &\underline {14.00 }\\ \text { Total cost per unit } &\underline {\$ 57.50 }\\\end{array}$ The actual production achieved in the current year was 60% of capacity, or 30,000 units.The actual costs were: $\begin{array}{lr}\text { Direct materials ( } 150,350 \mathrm{lbs} \text { ) } & \$ 616,435 \\\text { Direct labor }(59,800 \mathrm{hrs}) & 520,260 \\\text { Variable overhead } & 192,000 \\\text { Fixed overhead } & 552,000\end{array}$ Calculate the following variances and indicate whether each is favorable or unfavorable: $\begin{array}{llcc} \text { Direct materials: } \\ &\text { Price variance } \\ \hline & \text { Quantity variance } \\\hline \text { Direct labor: } \\ & \text {Rate variance} \\ \hline& \text { Efficiency variance } \\\hline \text {Variable overhead: } \\ & \text {Spending variance} \\ \hline& \text { Efficiency variance } \\\hline \text { Fixed overhead } \\ & \text {Spending variance } \\\hline & \text { Volume variance } \\\hline\end{array}$

In the analysis of variances, management commonly focuses on four categories of production costs: __________________ cost, ___________________ cost; _________________cost; and _________________ cost.

A company had a $56,000 unfavorable direct material quantity variance during a time period when the standard price per pound of direct material was $7 and the actual price per pound of direct material was $7.50.If the standard quantity of direct material allowed for production was 52,000 pounds, how many pounds of direct material were actually used during this period?

The following information describes a company's use of direct labor in a recent period: $\begin{array} { l r } \text { Actual hours used } & 45,000 \\\text { Actual rate per hour } & \$ 15 \\\text { Standard rate per hour } & \$ 14 \\\text { Standard hours for units produced } & 47,000\end{array}$ -The direct labor rate variance is:

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

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

Big Bend Co.fixed budget for the year is shown below: $\begin{array}{lr}\text { Sales (50,000units) }&&\$ 1,300,000\\\text { Cost of goods sold: }\\\text { Direct materials } & \$ 150,000 \\\text { Direct labor } & 450,000 \\\text { Overhead (includes } \$ 2 \text { per unit } & \underline { 240,000}& \underline { 840,000}\\ \text { variable overhead) } \\ \text { Gross profit } &&\$ 460,000\\\\\\\text { Selling expenses: }\\\text { Selling expenses: }\\\text { Sales commissions(all variable) } & 60,000 \\\text { Rent (all fixed) } & 40,000 \\\text { Insurance (all fixed) } & 35,000 \\\text { eneral and administrative expenses: } & \\\text { Salaries (all fixed) } & 72,000 \\\text { Rent (all fixed) } & 54,000 \\\text { Depreciation (all fixed) } & \underline {31,000}& \underline { 292,000 }\\\text { Net income from operations }&&\underline { \$ 168,000}\\\end{array}$ Prepare a flexible budget for Big Bend Co.that shows a detailed budget for its actual sales volume of 42,000 units.Use the contribution margin format.

In preparing flexible budgets, the costs that remain constant in total are _______________ costs.Those costs that change in total are _______________ costs.

Fixed budgets are also known as flexible budgets.

When recording variances in a standard cost system:

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

Montaigne Corp. has the following information about its standards and production activity in November: $\begin{array}{llcc} \text { Actual total factory overhead incurred } &\text { \$ 28,175} \\ \text { Standard factory overhead: } & \\ \text { Variable overhead } &\text { \$ 3.10 per unit } \\&\text { produced } \\ \text { Fixed overhead } & \\ \text { ( \$ 12,000 / 6,000 estimated units to be produced) } &\text { \$2 per unit } \\ \text { Actual units produced } &\text { 4,800 units } \\\end{array}$ -Regarding overhead costs, as volume increases:

Explain variance analysis.Describe how variance analysis assists managers.

What are the four steps in the effective management of variance analysis?

A company's budget for 60,000 units of production showed sales of $96,000, variable costs of $36,000, and fixed costs of $26,000.What operating income would be expected if the company produces and sells 70,000 units?

Bartels Corp.produces woodcarvings.It takes two 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?

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.