Exam 23: Flexible Budgets and Standard Cost Systems

Onyx Company has prepared a static budget at the beginning of the month. At the end of the month, the following information has been retrieved from the records. Static budget: Sales volume: 2,000 units: Price: $50 per unit Variable expense: $12 per unit: Fixed expenses: $25,000 per month Operating income: $51,000 Actual results: Sales volume: 1,800 units: Price: $58 per unit Variable expense: $16 per unit: Fixed expenses: $35,000 per month Operating income: $40,600 Calculate the sales volume variance for variable expenses.

The fixed overhead volume variance shows why the fixed overhead is underallocated or overallocated because it is a cost variance.

Quality Brand Products uses standard costing to manage their direct costs and their overhead costs. Overhead costs are allocated based on direct labor hours. In the first quarter, Quality Brand had an unfavorable efficiency variance for their variable overhead costs. Which of the following scenarios would be a reasonable explanation for that variance?

When a manufacturing company uses standard costing system, the direct material cost variance will be recorded at the time of issue of raw material for production.

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

The static budget is used to compute flexible budget variance or price and efficiency variances.

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound Direct labor: 4 hours per unit; $15 per hour During the first quarter, Emerald produced 5,000 units of this product. Actual direct materials and direct labor costs were $65,000 and $325,000, respectively. For the purposes of preparing the flexible budget, what is the total standard direct labor cost at a production volume of 5,000 units?

The Carolina Products Company has completed the flexible budget analysis for the 2^nd quarter, which is as given below. Which of the following statements would be a correct interpretation of the flexible budget variance for fixed expenses?

The Carolina Products Company has completed the flexible budget analysis for the 2^nd quarter, which is as given below. Which of the following would be a correct interpretation of the sales volume variance for variable expenses?

Onyx Company has prepared a static budget at the beginning of the month. At the end of the month, the following information has been retrieved from the records. 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 Calculate the flexible budget variance for fixed expenses.

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 would have led to a(n):

Atlace Manufacturers uses a standard costing system. The T-account for overhead is shown below: In addition to the above, Atlace calculated the following overhead variances: Variable overhead Cost variance: $5,000 F Variable overhead Efficiency variance: $4,850 U Fixed overhead Cost variance: $1,200 F Fixed overhead Volume variance: $3,350 U Give journal entry to close the overhead account and record the overhead variances.

The fixed overhead cost variance measures the difference between actual fixed overhead and budgeted fixed overhead to determine the controllable portion of total fixed overhead variance.

What do cost variances measure?

The favorable variances have credit balances. They are contra-expenses and therefore decrease the expense Cost of Goods Sold.

An unfavorable flexible budget variance in operating income might be due to a(n):

Grace Company is a manufacturer of candles. The standard direct materials quantity required to produce one large candle is 1 pound at a cost of $5 per pound. During November, 2015, 7,200 large candles were produced using 7,500 pounds of direct materials which cost $45,000. Using the format below, prepare an analysis of the direct materials variances.

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound Direct labor: 4 hours per unit; $15 per hour Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the direct labor cost variance was $75,000 F. Which of the following would be a logical explanation for this variance?

Elite Brands Company uses standard costs for their manufacturing division. Standards specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data: Calculate the variable overhead efficiency variance.

Discount Sales Company uses standard costing to manage their direct costs and their overhead costs. Overhead costs are allocated based on direct labor hours. In the first quarter, Discount Sales had a favorable efficiency variance for their variable overhead costs. Which of the following scenarios would be a reasonable explanation for that variance?