Exam 23: Flexible Budgets and Standard Cost Systems

Kevin Company prepared the following static budget for the year 2015: If a flexible budget was prepared at a volume of 7,000, calculate the amount of operating income.

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

A variance is the difference between an actual amount and a budgeted amount.

A company is setting its direct materials and direct labor standards for its leading product. Materials cost from the supplier are $5 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square foot. Basic wages of the assembly line personnel are $10 per hour. Payroll taxes are approximately 20% of wages. Benefits amount to $2 per hour. How much is the direct material cost standard (per square foot)?

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 Sales Revenue.

The production manager of a company was experiencing a high defect rate on the assembly line, which was slowing production and causing wastage of valuable materials. He decided to purchase a higher grade of material that would be more reliable, but he was worried that the cost of the new material might negatively affect operating income. This situation would have produced a(n):

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 flexible budget variance for variable 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):

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 2014, 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. The direct materials efficiency variance was $2,000 F. Which of the following would be a logical explanation for this variance?

Allen Manufacturing makes staplers. The budgeted selling price is $12 per stapler, the variable costs are $4 per stapler, and budgeted fixed costs are $12,000. What is the budgeted operating income for 5,000 staplers?

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 sales volume variance for fixed expenses.

Setting standard costs is a function done within a company's production department and does not require any input from other departments.

The production manager of a company was experiencing a high defect rate on the assembly line, which was slowing production and causing wastage of valuable materials. He decided to recruit some highly skilled production workers from another company to bring down the defect rate, but was worried that the higher wages of these workers might negatively affect operating income. This situation would have produced a(n):

Zenith Fashions uses standard costs for their manufacturing division. From the following data, calculate the fixed overhead allocated to production based on direct labor hours (DLHr).

Global Engineering's actual operating income for the current year is $55,000. The flexible budget operating income for actual sales volume is $48,000, while the static budget operating income is $53,000. What is the sales volume variance for operating income?

Accurate Tax Returns budgets 2 direct labor hours for every tax return that it prepares, at a standard cost of $32 an hour. During the most recent year, 500 returns were completed with the labor cost totaling $18,000. The actual labor cost was $36 per hour during that period. The actual number of labor hours was 1,000. What was the direct labor cost variance?

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

Under a standard costing system, while recording the use of direct materials in the production process, Work-in-Process Inventory is debited with:

When a manufacturing company uses standard costing system the Work-in-Process account records all transactions at standard cost amounts.

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 sales revenue?