Question 1

Cost variances are ignored under management by exception.

Accepted Answer

A) True 
 B)False

Question 2

A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.

Accepted Answer

A) True 
 B)False

Question 3

Static budget is another name for:

Accepted Answer

A)  Variable budget. 
B)  Master budget. 
C)  Flexible budget. 
D)  Standard budget. 
E)  Fixed budget. 
A)  Variable budget. 
B)  Master budget. 
C)  Flexible budget. 
D)  Standard budget. 
E)  Fixed budget.

Question 4

Whidbey Co. fixed budget for the year is shown below:
 $\begin{array}{|l|c|c|}
\hline \text { Sales (50,000 units) } & & \$ 1,300,000 \
\hline \text { Cost of goods sold: } & & \
\hline \text { Direct materials } & \$ 150,000 & \
\hline \text { Direct labor} & 450,000 & \
\hline\text { Overhead (includes } \$ 2 \text { per unit variable } \
\text { overhead) }& 240,000 & 840,000 \
\hline \text { Gross profit } & & \$ 460,000 \
\hline \text { Selling expenses: } & & \
\hline \text { Sales commissions (all variable) } & 60,000 & \
\hline \text { Rent (all fixed) } & 40,000 & \
\hline \text { Insurance (all fixed) } & 35,000 & \ 
\hline \text {General and administrative expenses:  } & & \
\hline \text { Salaries (all fixed) } & 72,000 & \
\hline & 54,000 & \
\hline \text { Depreciation (all fixed) ...... } & 31,000 & 292,000 \
\hline\text { Net income from operations }&&\$168,000\ 
\hline
\end{array}$  Prepare a flexible budget for Whidbey Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format.

Accepted Answer

The answer of Whidbey Co. fixed budget for the year...

Question 5

Firenze Company's fixed budget for the first quarter of the calendar year appears below. Prepare flexible budgets that show variable costs per unit, fixed costs and two different flexible budgets for sales volumes of 22,000 and 24,000.
 $$\begin{array} { l | l | l } 
\text { Sales (20,000 units) } & & \$ 800,000 \
\hline \text { Cost d goods sold: } & & \
\hline \text { Direct materials } & \$ 160,000 & \
\hline \text { Direct labor } & 150,000 & \
\hline \text { Variable overhead } & 100,000 & \
\hline \text { Fixed overhead } & 120,000 & 530,000 \
\hline \text { Gross profit } & & \$ 270,000 \
\hline \text { Selling expenses: } & & \
\hline \text { Sales commistions (all variable) } & 40,000 & \
\hline \text { Advertising (all fixed) } & 50,000 & \
\hline \text { General and administrative expenses: } & & \
\hline \text { Salaries (all fixed) } & 80,000 & \
\hline \text { Rent (all fixed) } & 30,000 & \
\hline \text { Depreciation (all fixed) } & 20,000 & 220,000 \
\hline \text { Net income from operations } & & \$ 50,000 \
\hline & &
\end{array}$$

Accepted Answer

The answer of Firenze Company's fixed budget for the first...

Question 6

Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:

Accepted Answer

A)  $12,500 of fixed costs and $90,000 of variable costs. 
B)  $10,000 of fixed costs and $72,000 of variable costs. 
C)  $10,000 of fixed costs and $81,000 of variable costs. 
D)  $10,000 of fixed costs and $90,000 of variable costs. 
E)  $12,500 of fixed costs and $72,000 of variable costs. 
A)  $12,500 of fixed costs and $90,000 of variable costs. 
B)  $10,000 of fixed costs and $72,000 of variable costs. 
C)  $10,000 of fixed costs and $81,000 of variable costs. 
D)  $10,000 of fixed costs and $90,000 of variable costs. 
E)  $12,500 of fixed costs and $72,000 of variable costs.

Question 7

A company's flexible budget for 30,000 units of production showed sales of $90,000, variable costs of $36,000, and fixed costs of $23,000. Prepare a flexible budget for 25,000 units assuming it is within the same relevant range of production.

Accepted Answer

None

Question 8

Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are:

Accepted Answer

A)  $125,000 fixed and $123,000 variable. 
B)  $102,500 fixed and $150,000 variable. 
C)  $125,000 fixed and $102,500 variable. 
D)  $150,000 fixed and $123,000 variable. 
E)  $150,000 fixed and $102,500 variable. 
A)  $125,000 fixed and $123,000 variable. 
B)  $102,500 fixed and $150,000 variable. 
C)  $125,000 fixed and $102,500 variable. 
D)  $150,000 fixed and $123,000 variable. 
E)  $150,000 fixed and $102,500 variable.

Question 9

Hassock Corp. produces woven wall hangings. It takes 2 hours of direct labor to produce a single wall hanging. Hassock's standard labor cost is $12 per hour. During August, Hassock produced 10,000 units and used 21,040 hours of direct labor at a total cost of $250,376. What is Hassock's labor efficiency variance for August?

Accepted Answer

A)  $12,480 favorable. 
B)  $14,584 unfavorable. 
C)  $10,376 unfavorable. 
D)  $12,480 unfavorable. 
E)  $4,160 favorable. 
A)  $12,480 favorable. 
B)  $14,584 unfavorable. 
C)  $10,376 unfavorable. 
D)  $12,480 unfavorable. 
E)  $4,160 favorable.

Question 10

When standard manufacturing costs are recorded in the accounts and the cost variances are immaterial at the end of the accounting period, the cost variances should be:

Accepted Answer

A)  Closed to cost of goods sold. 
B)  Written off as a selling expense. 
C)  Ignored. 
D)  Carried forward to the next accounting period. 
E)  Allocated between cost of goods sold, finished goods, and work in process. 
A)  Closed to cost of goods sold. 
B)  Written off as a selling expense. 
C)  Ignored. 
D)  Carried forward to the next accounting period. 
E)  Allocated between cost of goods sold, finished goods, and work in process.

Question 11

The sum of the variable overhead spending variance, the variable overhead efficiency variance, the fixed overhead spending variance is the ________.

Accepted Answer

controllab

Question 12

A fixed budget performance report never provides useful information for evaluating variances.

Accepted Answer

A) True 
 B)False

Question 13

Selected information from Richards Company's flexible budget is presented below:
 $\begin{array}{|l|l|l|l|}
&\text { Operating Levels }\
\hline & \underline{80 \%} & \underline{90 \%} & \underline{100 \%} \
\hline \text { Budgeted production in units } & 4,800 & 5,400 & 6,000 \
\hline \text { Budgeted labor (standard hours) } & 9,600 & 10,800 & 12,000 \
\hline \text { Budgeted overhead: } & & & \
\hline \text { Variable overhead } & \$ 86,400 & \$ 97,200 & \$ 108,000 \
\hline \text { Fixed overhead } & 63,600 & 63,600 & 63,600
\end{array}$ 
 Richards Company applies overhead to production at a rate of $31.25 per unit based on a normal operating level of 80% of capacity. For the current period, Richards Company produced 5,400 units and incurred $62,000 of fixed overhead costs and $96,000 of variable overhead costs. The company used 11,000 labor hours to produce the 5,400 units. Calculate the variable overhead spending and efficiency variances, and the fixed overhead spending and volume variances. Indicate whether each variance is favorable or unfavorable.

Accepted Answer

None

Question 14

The variable overhead spending variance, the fixed overhead spending variance, and the variable overhead efficiency variance can be combined to find the:

Accepted Answer

A)  Quantity variance. 
B)  Controllable variance. 
C)  Volume variance. 
D)  Price variance. 
E)  Production variance. 
A)  Quantity variance. 
B)  Controllable variance. 
C)  Volume variance. 
D)  Price variance. 
E)  Production variance.

Question 15

Beluga Corp. has developed standard costs based on a predicted operating level of 352,000 units of production, which is 80% of capacity. Variable overhead is $281,600 at this level of activity, or $0.80 per unit. Fixed overhead is $440,000. The standard costs per unit are:
$\begin{array}{llr}
  \text { Direct materials (0.5 lbs. @ \$1/1b.) } &  \text { \$0.50 per unit } \
 \text {  Direct labor (1 hour@\$6/hour)} &  \text { \$6.00 per unit } \
 \text { Overhead (1 hour @\$2.05/hour) } &  \text { \$2.05 per unit } 
\end{array}$
 
Beluga actually produced 330,000 units at 75% of capacity and actual costs for the period were:
 $\begin{array}{|l|c|}
\hline \text { Direct materials }(162,00 & \$ 170,100 \
\hline \text { Direct labor }(329,500 \text { hours) .............. } & \$ 2,042,900 \
\hline \text { Fixed overhead } & \$ 438,000 \
\hline\text { Variable overhead } & \$262,0000 \
\hline
\end{array}$ Calculate the following variances and indicate whether each variance is favorable or unfavorable:
(1) Direct labor efficiency variance: $_
(2) Direct materials price variance: $________
(3) Controllable overhead variance: $________

Accepted Answer

None

Question 16

When there is a difference between the actual volume of production and the standard volume of production, which of the following, based solely on fixed overhead, occurs:

Accepted Answer

A)  Volume variance. 
B)  Production variance. 
C)  Quantity variance. 
D)  Overhead cost variance. 
E)  Controllable variance. 
A)  Volume variance. 
B)  Production variance. 
C)  Quantity variance. 
D)  Overhead cost variance. 
E)  Controllable variance.

Question 17

A product has a sales price of $20. Based on a 15,000-unit production level, the variable costs are
$12 per unit and the fixed costs are $6 per unit. Using a flexible budget for an actual production and sales level of 18,000 units, what is the budgeted operating income?

Accepted Answer

Fixed costs = $6 * 15,000 units = $90,00

Question 18

LJ Co. produces picture frames. It takes 3 hours of direct labor to produce a frame. LJ's standard labor cost is $11.00 per hour. During March, LJ produced 4,000 frames and used 12,400 hours at a total cost of $133,920. What is LJ's labor rate variance for March?

Accepted Answer

None

Question 19

A direct labor cost variance can be divided into price and quantity variances, which are almost always called controllable and volume variances.

Accepted Answer

A) True 
 B)False

Question 20

Tiger, Inc. budgeted the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units:
 $$\begin{array} { l | c } 
\text { Total variable overhead } \ldots \ldots \ldots \ldots \ldots \ldots & \$ 240,000 \
\hline \text { Total fixed overhead } \ldots \ldots \ldots \ldots \ldots \ldots & \underline { \mathbf { 5 6 0 , 0 0 0 } } \
\hline \text { Total overhead } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 800,000
\end{array}$$ The standard cost per unit when operating at this same 80% capacity level is:
 $\begin{array}{|l|c|}
\hline \text {  Direct materials (5 lbs. @\$4/1b.) }& \$ 20.00 \
\hline \text { Direct labor (2 hrs. @ \$8.75 hr.) } & 17.50 \
\hline \text { Variable overhead (2 hrs. @ \$3/hr.) } & 6.00 \
\hline \text { Fixed overhead (2 hrs. @\$7hr.) } & 14.00 \
\hline\text { Total cost per unit }&\$57.50
\end{array}$ The actual production achieved in the current year was 60% of capacity, or 30,000 units. The actual costs were:
 $$\begin{array} { l | l } 
\text { Direct materials } ( 150,350 \text { lbs.) } \ldots \ldots \ldots \ldots \ldots & \$ 616,435 \
\hline \text { Direct labor } ( 59,800 \text { hrs.) } \ldots \ldots \ldots \ldots \ldots \ldots & 520,260 \
\hline \text { Variable overhead } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 192,000 \
\hline \text { Fired overhead } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 552,000
\end{array}$$ Calculate the following variances and indicate whether each is favorable or unfavorable.
 $\begin{array} { l | l } 
\text { Direct materials: } & \
\hline \text { Price variance } & \
\hline \text { Quantity variance } & \
\hline \text { Direct labor: } & \
\hline \text { Rate variance } & \
\hline
\end{array}$
$\begin{array} { l | l } 
\hline \text { Efficiency variance } & \
\hline \text { Variable overhead: } & \
\hline \text { Spending variance } & \
\hline \text { Efficiency variance } & \
\hline \text { Fixed overhead: } & \
\hline \text { Spending variance } & \
\hline \text { Volume variance } &
\end{array}$

Accepted Answer

None

Exam 23: Flexible Budgets and Standard Costs

Cost variances are ignored under management by exception.

A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.

Static budget is another name for:

A company's flexible budget for 30,000 units of production showed sales of $90,000, variable costs of $36,000, and fixed costs of $23,000. Prepare a flexible budget for 25,000 units assuming it is within the same relevant range of production.

Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are:

When standard manufacturing costs are recorded in the accounts and the cost variances are immaterial at the end of the accounting period, the cost variances should be:

The sum of the variable overhead spending variance, the variable overhead efficiency variance, the fixed overhead spending variance is the ________.

A fixed budget performance report never provides useful information for evaluating variances.

The variable overhead spending variance, the fixed overhead spending variance, and the variable overhead efficiency variance can be combined to find the:

When there is a difference between the actual volume of production and the standard volume of production, which of the following, based solely on fixed overhead, occurs:

A product has a sales price of $20. Based on a 15,000-unit production level, the variable costs are $12 per unit and the fixed costs are $6 per unit. Using a flexible budget for an actual production and sales level of 18,000 units, what is the budgeted operating income?

LJ Co. produces picture frames. It takes 3 hours of direct labor to produce a frame. LJ's standard labor cost is $11.00 per hour. During March, LJ produced 4,000 frames and used 12,400 hours at a total cost of $133,920. What is LJ's labor rate variance for March?

A direct labor cost variance can be divided into price and quantity variances, which are almost always called controllable and volume variances.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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