Exam 23: Flexible Budgets and Standard Costs

Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows: Materials: 1.5 pounds per unit; \ 4.00 per pound Labor: 2.0 hours per unit; \ 18.00 per hour - During the first quarter, Faas produced 5,000 units of this product. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $29,750. The direct materials price variance was $1,750 U. Which of the following would be a logical explanation for this variance?

A static budget presents financial data at several different volume levels

Atlantic Manufacturing Company uses standard costing methodology in their journal entries and accounts. Standards for manufacturing overhead are as follows: Variable overhead: \ 30 per direct labor hour Fixed overhead: \ 10 per direct labor hour Actual overhead incurred (variable and fixed): $45,600 Other data provided: Standards for direct labor are as follows: Hours per unit 0.5 Price per hour $18.00 Actual direct labor for the month: 1,200 hours for a total cost of $24,000 Planned production for the month: 3,000 units The journal entry to allocate overhead (both variable and fixed) to production would be to:

Which of the following BEST describes flexible budget variance?

The Carolina Products Company has just completed a flexible budget analysis of 2^nd quarter operating income, as shown here: - Based on the above data, which of the following statements would be a correct interpretation of the flexible budget variance for fixed expenses?

Flexible budgets are budgets that summarize cost and revenue information at various volume levels within a relevant range.

Atlantic Manufacturing Company uses standard costing methodology in their journal entries and accounts. Standards for direct labor are as follows: Hours per unit 0.5 Price per hour \ 18.00 Actual direct labor for the month: 1,200 hours for a total cost of $24,000 Planned production for the month: 3,000 units The journal entry to record the payment of direct labor wages would be to:

Cardinal Corporation produces birdhouses. It takes 1 hour of direct labor to produce a birdhouse. Cardinal's standard labor cost is $15 per hour. During June, Cardinal produced 10,000 birdhouses and used 10,250 hours of direct labor at a total cost of $143,500. What is Cardinal's direct labor price variance for June?

A static budget is prepared for one level of sales volume.

When a company is using standard costs, an unfavorable variance is NOT necessarily an indication that a manager is doing a poor job.

Portobello Company prepared the following static budget for the coming month: Static Budget Units/volume 5,000 Per Unit Sales revenue \ 3.00 \ 15,000 Variable expenses \ 1.80 9,000 Contribution margin 6,000 Fixed expenses 5,000 Operating income/(1oss) \ 1,000 - If a flexible budget was prepared at a volume of 6,000, how much would the operating income be?

Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is analyzing actual results versus budget using flexible budget methodology. Data are as follows: Static budget: Sales volume: 1,000 units Price: $70 per unit Variable expense: $32 per unit Fixed expenses: $37,500 per month Operating income: $500 Actual results: Sales volume: 990 units Price: $74 per unit Variable expense: $35 per unit Fixed expenses: $33,000 per month Operating income: $5,610 - Based on the above data, how much was the flexible budget variance for fixed expenses?

Onyx Company prepared a static budget at the beginning of the month. It's the end of the month and the company is analyzing actual results versus budget using flexible budget methodology. Data are as follows: Static budget: Sales volume: 1,000 units Price: $70 per unit Variable expense: $32 per unit Fixed expenses: $37,500 per month Operating income: $500 Actual results: Sales volume: 990 units Price: $74 per unit Variable expense: $35 per unit Fixed expenses: $33,000 per month Operating income: $5,610 - Based on the above data, how much was the flexible budget variance for sales revenue?

The procurement manager was able to bring down the cost of direct materials by purchasing materials of a slightly lower grade quality than the company had used previously. The lower grade of materials, however, meant a higher defect rate on the assembly line, and higher wastage of materials during production, which in turn lowered operating income. This situation could have produced which of the following variances?

The flexible budget is based on the actual number of outputs.

Standard costs help motivate employees by serving as benchmarks against which their performance is measured.

The Carolina Products Company has just completed a flexible budget analysis of 2^nd quarter operating income, as shown here: - Based on the above data, which of the following statements would be a correct interpretation of the sales volume variance for operating income?

A favorable sales volume variance in sales revenue suggests a(n):

Artscapes Company is setting its direct materials and direct labor standards for its leading product. Materials cost from the supplier are $4.50 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square foot. Basic wages of the assembly line personnel are $12.00 per hour. Payroll taxes are approximately 20% of wages. Benefits amount to $3.00 per hour. How much is the direct labor price standard (per hour)?

A company is analyzing month-end results compared to both static and flexible budgets. This month the actual sales volume was lower than projected in the static budget. What kind of variance would that produce?