Exam 23: Flexible Budgets and Standard Costs

Companies use techniques like time-and-motion studies, and consult industry "best practices" when developing standards. This is referred to as benchmarking.

A standard cost is a carefully predetermined cost that usually is expressed on a per-unit basis.

Raymie Food Products is famous for their specialty fruit cake. The main ingredient of the cake is dried fruit, which Raymie purchases by the pound. In addition, the production requires a certain amount of direct labor. Raymie uses a standard cost system, and at the end of the first quarter, there was an unfavorable labor price variance. Which of the following would be a logical explanation for that 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 sales volume variance for sales revenues?

When completing a standard costing income statement, unfavorable variances for direct materials or direct labor will go to reduce the "cost of goods sold at standard cost."

A standard cost system helps management set performance standards.

When completing a standard costing income statement, favorable variances for direct materials or direct labor will go to reduce the "cost of goods sold at standard cost."

Zennick Fashion Products uses standard costs for their manufacturing division. Standards specify 3.0 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data: Production volume: 1,000 units Estimated variable overhead costs: \ 120,000 Estimated direct labor hours: 3,000 hours At the end of the year, actual data were as follows: Production volume: 1,500 units Actual variable overhead costs: \ 174,300 Actual direct labor hours: 4,200 hours - At the end of the year, the spending (price) variance for variable overhead is favorable.

The static budget is NEVER used to compute flexible budget variance or price and efficiency variances.

When a manufacturing company uses standard costing accounting, the Manufacturing overhead account records the actual amounts of both variable and fixed overhead as debits to the account.

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 usage of direct labor would be to:

When a manufacturing company uses standard costing methodology in their journal entries and accounts, a favorable variance has the effect of being a contra expense.

A company was experiencing slow production rates, and lower production volumes than demanded by management, so a new factory manager was hired. Upon investigation, she found that the workers were poorly motivated and not closely supervised. Midway through the quarter, she started an incentive program and paid out cash bonuses when workers hit their production targets. Within a short time, production output increased, but the bonuses had to be charged to the direct labor budget, and she was worried about the impact of these costs on operating income. This situation could have produced which of the following variances?

For standard costing methodology, good business practices would emphasize using unfavorable variances as a way of assigning blame to the responsible managers, and favorable variances as a way of rewarding managers.

Atlantic Manufacturing Company uses standard costing methodology in their journal entries and accounts. Atlantic produced 3,000 units of product during the month. Data on standard costs and Actuals are as follows: The journal entry to transfer the cost to Finished goods from Work in process is to:

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. Actual direct materials costs were $29,750. Actual direct labor costs were $184,800. For purposes of calculating the flexible budget variances, what is the direct labor cost variance?

Which of the following is an example of a materials price standard?

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

Which of the following is an example of a labor efficiency standard?

The sales volume variance results from the fact that the actual selling price is different than the budgeted selling price.