Exam 23: Flexible Budgets and Standard Cost Systems

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. How much is the direct labor efficiency variance?

Flexible budget variance is the difference between the:

Only unfavorable variances should be investigated, if substantial, to determine their causes.

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 would have produced a(n):

A flexible budget summarizes revenues and expenses for various levels of sales volume within a relevant range.

Wood Designs Company, a custom cabinet manufacturing company, is setting standard costs for one of its products. The main material is cedar wood, sold by the square foot. The current cost of cedar wood is $4.00 per square foot from the supplier. Delivery costs are $0.25 per board foot. Carpenters' wages are $25.00 per hour. Payroll costs are $3.60 per hour and benefits are $5.00 per hour. How much is the direct materials cost standard (per square foot)?

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 sales revenues?

Kevin Company prepared the following static budget for the year 2015: If a flexible budget was prepared at a volume of 6,000, calculate the amount of operating income.

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 labor cost variance. Which of the following would be a logical explanation for that variance?

Atlace Manufacturers uses standard costing system. Standards for direct materials are as follows: The company plans to produce 3,000 units of product, and has purchased 10,000 pounds of raw materials for a net cost of $48,000. Give the journal entry to record this transaction.

The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with her factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This situation would have produced a(n):

Atlace Manufacturers uses standard costing system. 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 Standards for direct labor are as follows: Hours per unit 0.5, Direct labor cost per hour $18.00 Actual direct labor for the month: 1,200 hours for a total cost of $24,000 Actual and planned production for the month: 3,000 units The journal entry to allocate overhead cost (both variable and fixed)to production would be:

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 operating income.