Question 1

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The contribution margin expected if the company produces and sells 16,000 units is:

Accepted Answer

A)  $48,000. 
B)  $64,000. 
C)  $40,000. 
D)  $24,000. 
E)  $18,000.

Question 2

Whidbey Co. fixed budget for the year is shown below:
 $\begin{array}{|l|r|r|}
 \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 $ per unit variable } &\
\text {overhead)  } &\underline{240,000}&\underline{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 \text {Rent (all fixed)  } &54,000\
\hline \text {Depreciation (all fixed)  } &\underline{31,000}&\underline{292,000}\
\hline \text { Net income from operations } &&\underline{\$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 3

A cost variance is the difference between actual cost and standard cost.

Accepted Answer

A) True 
 B)False

Question 4

Parallel Enterprises has collected the following data on one of its products. During the period the company produced 25,000 units. The direct materials quantity variance is: $$\begin{array} { l l } 
\text { Direct materials standard ( } 7 \mathrm {~kg} @ \$ 2 / \mathrm { kg } ) & \$ 14 \text { per finished unit } \
\text { Actual cost of materials purchased } & \$ 322,500 \
\text { Actual direct materials purchared and used } & 150,000 \mathrm {~kg}
\end{array}$$

Accepted Answer

A)  $27,500 unfavorable. 
B)  $50,000 unfavorable. 
C)  $50,000 favorable. 
D)  $22,500 unfavorable. 
E)  $22,500 favorable.

Question 5

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 6

Based on a predicted level of production and sales of 30,000 units, a company anticipates total contribution margin of $105,000, fixed costs of $40,000, and operating income of $65,000. Based on this information, the budgeted operating income for 28,000 units would be:

Accepted Answer

A)  $52,000. 
B)  $135,333. 
C)  $58,000. 
D)  $72,500. 
E)  $105,000.

Question 7

One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

Another name for a static budget is a variable budget.

Accepted Answer

A) True 
 B)False

Question 10

A company provided the following direct materials cost information. Compute the direct materials quantity variance.

Accepted Answer

A)  $78,250 Favorable. 
B)  $2,750 Unfavorable 
C)  $2,750 Favorable. 
D)  $2.500 Favorable. 
E)  $2,500 Unfavorable.

Question 11

The anticipated costs incurred under normal conditions to produce a specific product or to perform a specific service are:

Accepted Answer

A)  Variable costs. 
B)  Fixed costs. 
C)  Standard costs. 
D)  Product costs. 
E)  Period costs.

Question 12

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of contribution margin for 20,000 units would be:

Accepted Answer

A)  $99,000. 
B)  $90,000. 
C)  $66,000. 
D)  $150,000. 
E)  $60,000.

Question 13

Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units. What is the direct materials quantity variance?

Accepted Answer

A)  $400 unfavorable. 
B)  $450 unfavorable. 
C)  $2,500 unfavorable. 
D)  $2,550 unfavorable. 
E)  $2,950 unfavorable.

Question 14

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of operating income for 20,000 units would be:

Accepted Answer

A)  $30,000. 
B)  $60,000. 
C)  $69,000. 
D)  $150,000. 
E)  $32,727.

Question 15

Fletcher Company collected the following data regarding production of one of its products. Compute the standard quantity allowed for the actual output. $$\begin{array} { l rl} 
\text { Direct materlals stardard (6lbs. @ \$2/16.) } & \$ 12 & \text { per finished unit } \
\text { Actual direct materials used } & 243,000 & \text { lbs. } \
\text { Actual finished units produced } & 40,000 & \text { units }\
\text { Actual cost of direct materials used}&\$483,570\
\end{array}$$

Accepted Answer

A)  243,000 pounds. 
B)  240,000 pounds. 
C)  40,000 pounds. 
D)  480,000 pounds. 
E)  80,000 pounds.

Question 16

Fletcher Company collected the following data regarding production of one of its products. Compute the direct materials quantity variance. $$\begin{array} { l rl} 
\text { Direct materlals stardard (6lbs. @ \$2/16.) } & \$ 12 & \text { per finished unit } \
\text { Actual direct materials used } & 243,000 & \text { lbs. } \
\text { Actual finished units produced } & 40,000 & \text { units }\
\text { Actual cost of direct materials used}&\$483,570\
\end{array}$$

Accepted Answer

A)  $2,430 unfavorable. 
B)  $3,570 unfavorable. 
C)  $2,430 favorable. 
D)  $6,000 unfavorable. 
E)  $3,570 favorable.

Question 17

Lionaire, Inc. has developed the following standard cost data based on 60,000 direct labor hours, which is 75% of capacity.
 $$\begin{array} { | l | l | } 
\hline & \text { Per Unit } \
\hline \text { Direct materials (61bs. @\$2.00/1b.) } & \$ 12.00 \
\hline \text { Direct labor (1hrs.@\$8.00/hr.) } & 8.00 \
\hline
\end{array}$$ During the last period, the company operated at 80% of capacity and produced 128,000 units. Actual costs were:
 $$\begin{array} { | l | l | } 
\hline \text { Direct materials } ( 760,000 \mathrm { lbs } . ) & \$ 1,558,000 \
\hline \text { Direct labor } ( 126,000 \mathrm { hrs } . ) & 1,014,300 \
\hline
\end{array}$$ Determine the direct materials price and quantity variances and the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.
 $$\begin{array} { | l | l | } 
\hline \text { Direct materials: } &\quad\quad\quad\quad \
\hline \text { Price variance } & \
\hline \text { Quantity variance } & \
\hline & \
\hline \text { Direct labor: } & \
\hline \text { Rate variance } & \
\hline \text { Efficiency variance } & \
\hline
\end{array}$$

Accepted Answer

The answer of Lionaire, Inc. has developed the following standard...

Question 18

The difference between the actual cost incurred and the standard cost is called the:

Accepted Answer

A)  Flexible variance. 
B)  Price variance. 
C)  Cost variance. 
D)  Controllable variance. 
E)  Volume variance.

Question 19

The purchasing department is usually responsible for the price paid for materials.

Accepted Answer

A) True 
 B)False

Question 20

While companies strive to achieve ideal standards, reality implies that some loss of materials usually occurs with any process.

Accepted Answer

A) True 
 B)False

Exam 8: Flexible Budgets and Standard Costs

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The contribution margin expected if the company produces and sells 16,000 units is:

A cost variance is the difference between actual cost and standard cost.

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

Based on a predicted level of production and sales of 30,000 units, a company anticipates total contribution margin of $105,000, fixed costs of $40,000, and operating income of $65,000. Based on this information, the budgeted operating income for 28,000 units would be:

One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.

Another name for a static budget is a variable budget.

A company provided the following direct materials cost information. Compute the direct materials quantity variance.

The anticipated costs incurred under normal conditions to produce a specific product or to perform a specific service are:

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of contribution margin for 20,000 units would be:

Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units. What is the direct materials quantity variance?

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of operating income for 20,000 units would be:

The difference between the actual cost incurred and the standard cost is called the:

The purchasing department is usually responsible for the price paid for materials.

While companies strive to achieve ideal standards, reality implies that some loss of materials usually occurs with any process.