Exam 23: Flexible Budgets and Standard Cost Systems

Elite Brand 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 cost variance.

An efficiency variance measures how well the business uses its materials or human resources.

Onyx Company has prepared a static budget at the beginning of the month. At the end of the month, 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 flexible budget variance for operating income.

The fixed overhead volume variance is a volume variance, not a cost variance.

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. Every candle requires 2 direct labor hours at a standard cost of $3 per direct labor hour. During November, 2015, 7,200 large candles were produced using 7,500 pounds costing $45,000. At the end of November, an examination of the labor cost records showed that the company used 15,000 direct labor hours (DLHr)at a cost of $4 per hour. Using the format below, prepare an analysis of the direct labor cost variances.

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

An unfavorable flexible budget variance in variable expenses suggests a(n):

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: 1 pound 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 materials records showed that the company used 7,000 pounds of materials and actual total material costs were $98,000. Calculate the direct materials efficiency variance.

Which of the following statements is true of cost variances and efficiency variances?

Which of the following does the efficiency variance measure?

A standard cost system helps management set performance standards.

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

The management of Alpha Company has calculated the following variances: When determining the total production cost flexible budget variance, calculate the total fixed overhead variance of Alpha Company.

Favorable variances are added to unfavorable variances to create a total favorable variance.

A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual variable expenses per unit were lower than the expected variable costs per unit as per the static budget. This difference results in a(n):

The total fixed overhead variance is obtained by summing up variable overhead cost variance and fixed overhead volume variance.

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

A favorable variance of direct materials cost occurs when the actual direct materials cost incurred is more than the standard direct materials cost determined.

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 company used 25,000 direct labor hours and actual total direct labor costs were $375,000. The direct labor efficiency variance was $75,000 U. Which of the following would be a logical explanation for this variance?

In a standard costing system, each item has a cost standard and a quantity standard.