Q&A Hero

Q: A budget performance report that includes variances can have variances caused by both price differences and quantity differences.

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

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

Q: Companies promoting continuous improvement strive to achieve practical standards rather than ideal standards.

Q: When standard costs are used, factory overhead is assigned to products with a predetermined standard overhead rate.

Q: Standard costs provide a basis for assessing the reasonableness of actual costs incurred for producing a product or service.

Q: Standard material, labor, and overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants.

Q: At the end of the accounting period, immaterial variances are closed to _____________.

Q: The fixed overhead variance can be broken down into the _________________ variance and the _________________ variance.

Q: The sum of the variable overhead spending variance, the variable overhead efficiency variance, the fixed overhead spending variance is the ____________________________.

Q: The difference between the actual overhead cost incurred and the standard overhead applied is the __________________________.

Q: If actual price per unit of materials is greater than the standard price per unit of materials, the direct materials price variance is _______________________.

Q: In preparing flexible budgets, the costs that remain constant in total are _______________ costs. Those costs that change in total are _______________ costs.

Q: The difference between the flexible budget sales and the fixed budget sales is called the __________________________ variance.

Q: The difference between the actual sales and the flexible budget sales is called the ______________________ variance.

Q: A _______________________ contains relevant information that compares actual results to planned activities.

Q: A favorable variance for a cost means that when compared to the budget, the actual cost is ____________________ than the budgeted cost.

Q: A management approach that emphasizes significant differences from plans is known as ___________________.

Q: In the analysis of variances, management commonly focuses on four categories of production costs: __________________ cost, ___________________ cost; _____________ cost; and _________________ cost.

Q: Direct materials variances are called price and quantity variances. However, when referring to direct labor, these variances are usually called _________________ and _____________ variances.

Q: Differences between actual costs and standard costs are known as _______________. These differences may be subdivided into ______________ and _________________.

Q: A standard that takes into account the reality that some loss usually occurs with any process under normal application of the process is known as a _______________ standard.

Q: Companies promoting continuous improvement strive to achieve _____________ standards by eliminating inefficiencies and waste.

Q: __________ are preset costs for delivering a product or service under normal conditions.

Q: Gates Company collected the following data regarding production of one of its products. Compute the variable overhead cost variance, the variable overhead spending variance, the variable overhead efficiency variance, the fixed overhead cost variance, the fixed overhead spending variance, and the fixed overhead volume variance.

Q: Gates Company reports the following information regarding the production on one of its products for the month. Compute the direct labor cost variance, the direct labor rate variance, the direct labor efficiency variance and identify each as either favorable or unfavorable. Direct labor standard (2 hrs. @ $15/hr.) $30 per finished unit Actual direct labor hours 60,800 hrs. Actual finished units produced 30,000 units Actual cost of direct labor $905,920

Q: Gates Company reports the following information regarding the production on one of its products for the month. Compute the direct materials cost variance, the direct materials price variance, the direct materials quantity variance and identify each as either favorable or unfavorable. Direct materials standard (6 lbs. @ $3/lb.) $18 per finished unit Actual direct materials used 179,000 lbs. Actual finished units produced 30,000 units Actual cost of direct materials used $554,900

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Q: Chips Co. assigned direct labor cost to its products in May for 1,300 standard hours of direct labor at the standard $8 per hour rate. The direct labor rate variance for the month was $200 favorable and the direct labor efficiency variance was $150 favorable. Prepare the journal entry to charge Goods in Process Inventory for the standard labor cost of the goods manufactured in May and to record the direct labor variances. Assuming that the direct labor variances are immaterial, prepare the journal entry that Chips would make to close the variance accounts.

Q: Cheshire, Inc. allocates fixed overhead at a rate of $18 per direct labor hour. This amount is based on 90% of capacity or 3,600 direct labor hours for 6,000 units. During May, Cheshire produced 5,500 units. Budgeted fixed overhead is $66,000, and overhead incurred was $67,000. Required: Determine the volume variance for May.

Q: Selected information from Michaels Company's flexible budget is presented below: Operating Levels 80% 90% 100% Budgeted production in units 4,800 5,400 6,000 Budgeted labor (standard hours) Budgeted overhead: 9,600 10,800 12,000 Variable overhead $86,400 $97,200 $108,000 Fixed overhead 63,600 63,600 63,600 Michaels 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, Michaels 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.

Q: During November, Heim Company allocated overhead to products at the rate of $26.00 per direct labor hour. This figure was based on 80% of capacity or 1,600 direct labor hours. However, Heim Company operated at only 70% of capacity, or 1,400 direct labor hours. Budgeted overhead at 70% of capacity is $38,900, and overhead actually incurred was $38,000. What is the company's volume variance for November? (Indicate whether the variance is favorable or unfavorable)

Q: A company's flexible budget for 36,000 units of production showed variable overhead costs of $54,000 and fixed overhead costs of $50,000. The company actually incurred total overhead costs of $95,300 while operating at a volume of 32,000 units. What is the controllable variance?

Q: Manatee 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: Direct materials (0.5 lbs. @ $1/1b.) $0.50 per unit Direct labor (1 hour @ $6/hour) . $6.00 per unit Overhead (1 hour @ $2.05/hour) $2.05 per unit Manatee actually produced 330,000 units at 75% of capacity and actual costs for the period were: Direct materials (162,000 lbs.) . $ 170,100 Direct labor (329,500 hours) . $2,042,900 Fixed overhead $ 438,000 Variable overhead . $ 262,000 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: $__________________

Q: Falcon Company's output for a period was assigned the standard direct labor cost of $17,160. If the company had a favorable direct labor rate variance of $1,000 and an unfavorable direct labor efficiency variance of $275, what was the total actual cost of direct labor incurred during the period?

Q: Fairfield Co. collected the following information about its production activities for the current year. a. Compute the direct materials price and quantity variances and indicate whether each is favorable or unfavorable. b. Prepare the journal entry to record the issuance of direct materials into production. Actual costs and quantities: Direct materials used 95,000 lbs. @ $6.30 per lb. Units completed during the year, 50,000 units Standard costs and quantities: Price per lb. of direct material, $6.05 Two lbs. of direct material per unit

Q: The following information describes production activities of the Central Corp.: Raw materials used 16,000 lbs. at $4.05 per lb. Factory payroll ... 5,545 hours for a total of $72,085 30,000 units were completed during the year Budgeted standards for each unit produced: 1/2 lb. of raw material at $4.15 per lb. 10 minutes of direct labor at $12.50 per hour Compute the direct materials price and quantity and the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Q: In producing 700 units of Product CBA last period, Cobalt Company used 5,000 pounds of Material H, costing $34,250. The company has established the standard of using 7.2 pounds of Material H per unit of CBA, at a price of $7.50 per pound. Calculate the materials price and quantity variances associated with producing the 700 units, and indicate whether they are favorable or unfavorable:

Q: Jacques Company planned to use 18,000 pounds of material costing $2.50 per pound to make 4,000 units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials quantity variance.

Q: Jacques Company planned to use 18,000 pounds of material costing $2.50 per pound to make 4,000 units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials price variance.

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Q: Thomas Co. provides the following fixed budget data for the year: Sales (20,000 units) . $600,000 Cost of sales: Direct materials .. $200,000 Direct labor 160,000 Variable overhead .. 60,000 Fixed overhead .. 80,000 500,000 Gross profit . $100,000 Operating expenses: Fixed .. $12,000 Variable . 40,000 52,000 Income from operations .. $ 48,000 The company's actual activity tor the year follows: Sales (21,000 units) . $651,000 Cost of goods sold: Direct materials .. $231,000 Direct labor 168,000 Variable overhead .. 73,500 Fixed overhead .. 77,500 550,000 Gross profit . $101,000 Operating expenses: Fixed . 12,000 Variable . 39,500 51,500 Income from operations . $ 49,500 Required: Prepare a flexible budget performance report for the year using the contribution margin format.

Q: 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?

Q: Casco Co. planned to produce and sell 40,000 units. At that volume level, variable costs are determined to be $320,000 and fixed costs are $30,000. The planned selling price is $10 per unit. Casco actually produced and sold 42,000 units. Using a contribution margin format: (a) Prepare a fixed budget income statement for the planned level of sales and production. (b) Prepare a flexible budget income statement for the actual level of sales and production.

Q: Based on predicted production of 25,000 units, Best Co. anticipates $175,000 of fixed costs and $137,500 of variable costs. What are the flexible budget amounts of total costs for 20,000 and 30,000 units?

Q: Stanton Co. produces and sells two lines of t-shirts, Deluxe and Mega. Stanton provides the following data. Compute the sales price and the sales volume variances for each product. Budget Actual Unit sales price Deluxe . $15 $16 Unit sales priceMega . $20 $19 Unit salesDeluxe 2,400 2,500 Unit salesMega .. 2,000 1,900

Q: Abrams, Inc., provides the following results of March's operations: Direct materials price variance .. $ 400F Direct materials quantity variance . 2,000U Direct labor rate variance .. 100U Direct labor efficiency variance .... 1,200F Variable overhead spending variance 400U Variable overhead efficiency variance .. 800F Fixed overhead spending variance . 100U Fixed overhead volume variance ... 600F Required: (a) Determine the total overhead cost variance for March. (b) Applying the management by exception approach, which of the variances shown are of greatest concern? Why?

Q: What is the overhead volume variance? What would be the cause of a favorable volume variance?

Q: Whistler Company determined that in the production of their products last period; they had a favorable price variance and an unfavorable quantity variance for direct materials. What might be the cause of this pattern of variances?

Q: Flexible budgets may be prepared before or after an actual period of activity. Why would management prepare such budgets at differing time frames?

Q: Should both favorable and unfavorable variances be investigated, or only the unfavorable ones? Explain.

Q: What are the four steps in the effective management of variance analysis?

Q: Presented below are terms preceded by letters a through h and followed by a list of definitions 1 through 8. Enter the letter of the term with the definition, using the space preceding the definition. (a) Unfavorable variance (b) Fixed budget performance report (c) Overhead cost variance (d) Budgetary control (e) Spending variance (f) Flexible budget performance report (g) Quantity variance (h) Favorable variance __________(1) Difference in sales or costs, when the actual value is compared to the budgeted value, that contributes to a lower income. __________(2) A report that compares results with fixed budgeted amounts and identifies the differences as favorable or unfavorable variances. __________(3) The difference between the actual price of an item and its standard price. __________(4) Difference in sales or costs, when the actual value is compared to the budgeted value, that contributes to a higher income. __________(5) Use of budgets by management to monitor and control the operations of a company. __________(6) Difference between actual quantity of an input and the standard quantity of the input. __________(7) Difference between the total overhead cost applied to products and the total overhead cost actually incurred. __________(8) A report that compares actual revenues and costs with their variable budgeted amounts based on actual sales volume (or other level of activity) and identifies the differences as variances.

Q: Presented below are terms preceded by letters a through j and followed by a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition. (a) Cost variance (b) Volume variance (c) Price variance (d) Quantity variance (e) Standard costs (f) Controllable variance (g) Fixed budget (h) Flexible budget (i) Variance analysis (j) Management by exception __________ (1) The difference between the total budgeted overhead cost and the overhead cost that was allocated to products using the predetermined fixed overhead rate. __________ (2) A planning budget based on a single predicted amount of sales or production volume; unsuitable for evaluations if the actual volume differs from the predicted volume. __________ (3) Preset costs for delivering a product, component, or service under normal conditions. __________ (4) A process of examining the differences between actual and budgeted sales or costs and describing them in terms of the amounts that resulted from price and quantity differences. __________ (5) The difference between actual and budgeted sales or cost caused by the difference between the actual price per unit and the budgeted price per unit. __________ (6) A budget prepared based on predicted amounts of revenues and expenses corresponding to the actual level of output. __________ (7) The difference between actual and budgeted cost caused by the difference between the actual quantity and the budgeted quantity. __________ (8) The combination of both overhead spending variances (variable and fixed) and the variable overhead efficiency variance. __________ (9) A management process to focus on significant variances and give less attention to areas where performance is close to the standard. __________ (10) The difference between actual cost and standard cost, made up of a price variance and a quantity variance.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the variable overhead efficiency variance. Direct labor standard (2 hrs. @ $13/hr.) $26.00 per finished unit Actual direct labor hours 81,000 hrs. Budgeted units 42,000 units Actual finished units produced 40,000 units Standard variable OH rate (2 hrs. @ $14.30/hr.) $28.60 per finished unit Standard fixed OH rate ($336,000/42,000 units) $8.00 per unit Actual cost of variable overhead costs incurred $1,140,000 Actual cost of fixed overhead costs incurred $ 338,000 A. $14,300 favorable. B. $18,000 favorable. C. $18,000 unfavorable. D. $18,300 unfavorable. E. $14,300 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the variable overhead spending variance. Direct labor standard (2 hrs. @ $13/hr.) $26.00 per finished unit Actual direct labor hours 81,000 hrs. Budgeted units 42,000 units Actual finished units produced 40,000 units Standard variable OH rate (2 hrs. @ $14.30/hr.) $28.60 per finished unit Standard fixed OH rate ($336,000/42,000 units) $8.00 per unit Actual cost of variable overhead costs incurred $1,140,000 Actual cost of fixed overhead costs incurred $ 338,000 A. $18,300 favorable. B. $18,000 favorable. C. $18,000 unfavorable. D. $18,300 unfavorable. E. $14,300 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the fixed overhead cost variance. Direct labor standard (2 hrs. @ $13/hr.) $26.00 per finished unit Actual direct labor hours 81,000 hrs. Budgeted units 42,000 units Actual finished units produced 40,000 units Standard variable OH rate (2 hrs. @ $14.30/hr.) $28.60 per finished unit Standard fixed OH rate ($336,000/42,000 units) $8.00 per unit Actual cost of variable overhead costs incurred $1,140,000 Actual cost of fixed overhead costs incurred $ 338,000 A. $18,300 favorable. B. $18,000 favorable. C. $18,000 unfavorable. D. $18,300 unfavorable. E. $14,300 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the variable overhead cost variance. Direct labor standard (2 hrs. @ $13/hr.) $26.00 per finished unit Actual direct labor hours 81,000 hrs. Budgeted units 42,000 units Actual finished units produced 40,000 units Standard variable OH rate (2 hrs. @ $14.30/hr.) $28.60 per finished unit Standard fixed OH rate ($336,000/42,000 units) $8.00 per unit Actual cost of variable overhead costs incurred $1,140,000 Actual cost of fixed overhead costs incurred $ 338,000 A. $18,000 favorable. B. $4,000 favorable. C. $18,000 unfavorable. D. $18,300 favorable. E. $14,300 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the direct labor efficiency variance. Direct labor standard (2 hrs. @ $13/hr.) $26 per finished unit Actual direct labor hours 81,000 hrs. Actual finished units produced 40,000 units Actual cost of direct labor $1,093,500 A. $13,000 favorable. B. $40,500 favorable. C. $53,500 favorable. D. $13,000 unfavorable. E. $40,500 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the direct labor rate variance. Direct labor standard (2 hrs. @ $13/hr.) $26 per finished unit Actual direct labor hours 81,000 hrs. Actual finished units produced 40,000 units Actual cost of direct labor $1,093,500 A. $53,500 unfavorable. B. $40,500 favorable. C. $53,500 favorable. D. $13,000 unfavorable. E. $40,500 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the direct labor cost variance. Direct labor standard (2 hrs. @ $13/hr.) $26 per finished unit Actual direct labor hours 81,000 hrs. Actual finished units produced 40,000 units Actual cost of direct labor $1,093,500 A. $53,500 unfavorable. B. $40,500 favorable. C. $53,500 favorable. D. $13,000 unfavorable. E. $40,500 unfavorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the direct materials quantity variance. Direct materials standard (6 lbs. @ $2/lb.) $12 per finished unit Actual direct materials used 243,000 lbs. Actual finished units produced 40,000 units Actual cost of direct materials used $483,570 A. $2,430 unfavorable. B. $3,570 unfavorable. C. $2,430 favorable. D. $6,000 unfavorable. E. $3,570 favorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the direct materials price variance. Direct materials standard (6 lbs. @ $2/lb.) $12 per finished unit Actual direct materials used 243,000 lbs. Actual finished units produced 40,000 units Actual cost of direct materials used $483,570 A. $2,430 unfavorable. B. $3,570 unfavorable. C. $2,430 favorable. D. $6,000 unfavorable. E. $3,570 favorable.

Q: Cabot Company collected the following data regarding production of one of its products. Compute the direct materials cost variance. Direct materials standard (6 lbs. @ $2/lb.) $12 per finished unit Actual direct materials used 243,000 lbs. Actual finished units produced 40,000 units Actual cost of direct materials used $483,570 A. $6,000 favorable. B. $3,570 unfavorable. C. $2,430 favorable. D. $6,000 unfavorable. E. $3,570 favorable.

Q: Brewer Company specializes in selling used cars. During the month, the dealership sold 22 cars at an average price of $15,000 each. The budget for the month was to sell 20 cars at an average price of $16,000. Compute the dealerships sales volume variance for the month. A. $22,000 unfavorable. B. $10,000 favorable. C. $22,000 favorable. D. $32,000 unfavorable. E. $32,000 favorable.

Q: Brewer Company specializes in selling used cars. During the month, the dealership sold 22 cars at an average price of $15,000 each. The budget for the month was to sell 20 cars at an average price of $16,000. Compute the dealerships sales price variance for the month. A. $22,000 unfavorable. B. $10,000 favorable. C. $22,000 favorable. D. $32,000 unfavorable. E. $32,000 favorable.

Q: Bok Companys output for the current period was assigned a $400,000 standard direct labor cost. The direct labor variances included a $10,000 unfavorable direct labor rate variance and a $4,000 favorable direct labor efficiency variance. What is the actual total direct labor cost for the current period? A. $414,000. B. $386,000. C. $394,000. D. $406,000. E. $410,000.

Q: Bok Companys output for the current period was assigned a $200,000 standard direct materials cost. The direct materials variances included a $5,000 favorable price variance and a $3,000 unfavorable quantity variance. What is the actual total direct materials cost for the current period? A. $208,000. B. $198,000. C. $202,000. D. $192,000. E. $205,000.

Q: For the current period, Boggs Companys manufacturing operations yield a $5,250 unfavorable price variance on its direct materials usage. The actual price per pound is $56.50 and the standard price per pound is $55.00. How many pounds of material are used in the current period? A. 5,393. B. 5,110. C. 3,500. D. 3,750. E. 4,000.

Q: When recording the journal entry for labor, the Goods in Process Inventory account is A. Debited for standard labor cost. B. Debited for actual labor cost. C. Credited for standard labor cost. D. Credited for actual labor cost. E. Not used.

Q: Landlubber Company established a standard direct materials cost of 1.5 gallons at $2 per gallon for one unit of its product. During the past month, actual production was 6,500 units. The material quantity variance was $700 favorable and the material price variance was $470 unfavorable. The entry to charge Goods in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include: A. A debit to Goods in Process for $19,500. B. A credit to Raw Materials for $19,270. C. A debit to Direct Material Price Variance for $470. D. A credit to Direct Material Quantity Variance for $700. E. All of the choices are correct.

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

Q: When recording variances in a standard cost system: A. Only unfavorable material variances are debited. B. Only unfavorable material variances are credited. C. Both unfavorable material and labor variances are credited. D. All unfavorable variances are debited. E. All unfavorable variances are credited.

Q: The following information relating to a company's overhead costs is available. Based on this information, the total overhead variance is: Budgeted fixed overhead rate per machine hour $0.50 Actual variable overhead $73,000 Budgeted variable overhead rate per machine hour $2.50 Actual fixed overhead $17,000 Budgeted hours allowed for actual output achieved 32,000 Based on this information, the total overhead variance is: A. $7,000 favorable. B. $6,000 favorable. C. $1,000 unfavorable. D. $6,000 unfavorable. E. $1,000 favorable.

Q: Quantity variances for direct cost categories (direct materials and direct labor) are based on differences between the actual inputs used and the standard inputs allowed for the actual output achieved. A key difference in the analysis of quantity variances for direct cost categories and the analysis of the efficiency variance for variable overhead is: A. An efficiency variance for variable overhead cannot be calculated. B. The flexible-budget variance for variable overhead is always equal to the efficiency variance for variable overhead. C. The efficiency variance for variable overhead is based on the cost effectiveness in using the cost-allocation base. D. The flexible-budget variance for variable overhead is always equal to the spending variance for variable overhead. E. There is no key difference between the analysis of quantity variances for direct cost categories and the analysis of the efficiency variance for variable overhead; they should be evaluated in exactly the same manner.

Q: Adams, Inc. uses the following standard to produce a single unit of its product: overhead (2 hrs. @ $3/hr.) $ 6. The flexible budget for overhead is $100,000 plus $1 per direct labor hour. Actual data for the month show overhead costs of $150,000, and 24,000 units produced. The overhead volume variance is: A. $10,000 favorable. B. $12,000 favorable. C. $ 4,000 unfavorable. D. $16,000 unfavorable. E. $36,000 unfavorable.

Q: Price Company's flexible budget shows $10,710 of overhead at 75% of capacity, which was the operating level achieved during May. However, the company applied overhead to production during May at a rate of $2.00 per direct labor hour based on a budgeted operating level of 6,120 direct labor hours (90% of capacity). If overhead actually incurred was $11,183 during May, the controllable variance for the month was: A. $ 473 unfavorable. B. $ 473 favorable. C. $1,530 favorable. D. $1,530 unfavorable. E. $1,057 favorable.

Q: Regarding overhead costs, as volume increases: A. Unit fixed cost increases, unit variable cost decreases. B. Unit fixed cost decreases, unit variable cost increases. C. Unit variable cost decreases, unit fixed cost remains constant. D. Unit fixed cost decreases, unit variable cost remains constant. E. Both unit fixed cost and unit variable cost remain constant.