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Exam 13: Budgeting and Standard Cost Systems

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Question 71

True/False

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If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $1,000 favorable.

A) True
B) False

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Question 72

Multiple Choice

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The unfavorable volume variance may be due to all of the following factors except:

A) failure to maintain an even flow of work.
B) machine breakdowns.
C) unexpected increases in the cost of utilities.
D) failure to obtain enough sales orders.

E) A) and B)
F) All of the above

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Question 73

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The budgeted direct materials purchases are based on the sum of (1) the materials needed for production and (2) the desired ending materials inventory, less (3) the estimated beginning materials inventory.

The standard factory overhead rate of Quaker Inc. is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows: $\begin{array}{lll}\$ 250,000 & 25,000 \text { hours at } \$ 10 & \text { Standard } \\202,500 & \text { Variable factory overhead } & \text { Actual: } \\60,000 & \text { Fixed factory overhead } &\end{array}$ Refer to the information provided for Quaker Inc. What is the amount of the fixed factory overhead volume variance?

Budgets are normally used by both profit-making businesses and nonprofit organizations.

Standard and actual costs for direct materials for the manufacture of 1,000 units of product were as follows: $\begin{array}{ll}1,450 \mathrm{lbs.} @ \$ 8.10 & \text { Actual costs } \\1,500 \mathrm{lbs.} @ \$ 8.00 & \text { Standard costs }\end{array}$ Determine the (a) quantity variance, (b) price variance, and (c) total direct materials cost variance.

Once a static budget has been determined, it is changed regularly as the underlying activity changes.

Prepare a monthly flexible selling expense budget for Prater Company for sales volumes of $300,000, $400,000, and $500,000, based on the following data: $\begin{array}{ll}5 \% \text { of sales } & \text { Sales commissions } \\\$ 70,000 \text { per month } & \text { Sales managet's salary } \\\$ 75,000 \text { per month } & \text { Advertising expense } \\1 \% \text { of sales } & \text { Shipping expense } \\\$ 2,100 \text { per month plus } 1 / 2 \% \text { of sales } & \text { Miscellaneous selling expense }\end{array}$

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the direct labor time variance was $1,700 favorable.

Compute the standard cost for one hat, based on the following standards for each hat: $\begin{array}{lrr} \text { 3 / 4 yard of fabric at \( \$ 4.00 \) per yard } & \text { Standard Material Quantity } \\ \text { 1 hour at \( \$ 5.75 \) per hour} & \text { Standard Labor:} \\ \text { \( \$ 2.90 \) per direct labor hour } & \text { Factory Overhead: } \\\end{array}$

The standard factory overhead rate is $7.50 per machine hour ($6.20 for variable factory overhead and $1.30 for fixed factory overhead) based on 100% capacity of 80,000 machine hours. The standard cost and the actual cost of factory overhead for the production of 15,000 units during August were as follows: $\begin{array}{lll}\$ 360,000 & \text { Variable factory overhe ad } & \text { Actual } \\104,000 & \text { Fixed factory overhead } & \\450,000 & 60,000 \text { hours at } \$ 7.50 &\text { Standard } \end{array}$ What is the amount of the variable factory overhead controllable variance?

Employees view budgeting more positively when goals are established for them by senior management.

The standard costs and actual costs for direct materials, direct labor, and factory overhead for the manufacture of 2,500 units of product are as follows: $\begin{array}{ll}\text { StandardCosts } \\7,500 \text { hours } \$ 12 & \text { Directlabor } \\\\\text { Actual Costs } \\7,400 \text { hours } \$ 11.40 & \text { Direct labor }\end{array}$ The amount of the direct labor time variance is:

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Which of the following budgets is prepared using the production budget?

Changes in technology, machinery, or production methods may make past cost data irrelevant for future operations.

Variances from standard costs are usually reported to:

Answer Corporation uses standard cost system. The standard costs and actual costs for direct materials, direct labor, and factory overhead for the manufacture of 2,500 units of product are as follows: $\begin{array}{ll}\text { StandardCosts } \\ 2,500 \text { kilograms@\$8 }& \text { Direct labor } \\7,500 \text { hours @ } \$ 12 & \text { Direct material } \\\\\text { Actual Costs } & \\2,600 \text { kilograms } @ \$ 8.75 & \text { Direct material } \\7,400 \text { hours } \$ 11.40 & \text { Direct labor } \\\text { Factory overhead(100\% capacity- } 10,000 \text { hrs.) : } &\end{array}$ Variable cost @ $2 per hour Total variable cost, $18,000 Fixed cost @ $0.80 per hour Total fixed cost, $8,000 Refer to the information provided for Answer Corporation. The amount of the direct labor rate variance is:

In most businesses, cost standards are established principally by accountants.

Which of the following budgets provides the starting point for the preparation of the direct labor cost budget?