Questions 1–20: Select the one best answer to each question.
1. The purpose of a flexible budget is to
A. allow management some latitude in meeting goals.
B. eliminate cyclical fluctuations in production reports by ignoring variable costs.
C. compare actual and budgeted results at virtually every level of production.
D. reduce the total time in preparing the annual budget.
2. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per Style R table is $7.20 based on 8 square feet of vinyl at a cost of $.90 per square foot. A production run of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of $.85 per square foot, a total cost of $7,055. The quantity variance resulting from this production run was
A. $255 favorable. C. $270 favorable.
B. $255 unfavorable. D. $270 unfavorable.
3. RHO Company, which began its operations on January 1, produces a single product that sells for $10.25 per unit. Standard capacity is 80,000 units per year. This year, 80,000 units were produced and 70,000 units were sold.
Manufacturing costs and selling and administrative expenses follow:
Fixed costs Variable costs
Raw materials — $2.00 per unit produced
Direct labor — $1.50 per unit produced
Factory overhead $120,000 1.00 per unit produced
Selling and administrative 80,000 0.50 per unit sold
What is the standard cost of manufacturing a unit of product?
A. $4.50 C. $5.50
B. $5.00 D. $6.00
4. Which one of the following items is ignored when establishing an ideal standard?
A. Cost of materials C. Vacation time
B. Cost of electricity D. Sick time
5. Belo, Inc. uses a standard cost system. Overhead cost information for Product CO for the month of October follows:
Total actual overhead incurred $14,750
Fixed overhead budgeted $1,800
Total standard overhead rate per direct labor hour $4.25
Variable overhead rate per direct labor hour $3.75
Standard hours allowed for actual production 3,400
What is the overall (net) overhead variance?
A. $100 favorable C. $300 favorable
B. $100 unfavorable D. $300 unfavorable
6. What type of direct material variances for price and quantity will arise if the actual number of pounds of materials used exceeds standard pounds allowed but actual cost is less than standard cost?
Quantity Price
A. Favorable Favorable
B. Unfavorable Unfavorable
C. Favorable Unfavorable
D. Unfavorable Favorable
7. Beres Corporation has developed the following flexible budget formula for annual indirect labor cost:
Total costs = $9,600 + $0.75 per machine hour
Operating budgets for the current month are based on 30,000 hours of planned machine time. The amount of indirect labor costs included in this planned budget is
A. $2,425. C. $23,300.
B. $22,500. D. $32,100.
8. Carlson Co. has a standard material price of $2.80 per unit. During the month of August, the cost of direct materials was $2.50 per unit for the 500 units produced. The formula ($2.50 – $2.80) 500 yields the _______ variance for Carlson Co.
A. combined price-quantity C. volume
B. materials price D. mix
9. Donellan Company has a standard and flexible budgeting system and uses a two variance method of analysis of overhead variances. Selected data for the February production activity follows:
Budgeted fixed factory overhead costs $70,000
Actual factory overhead incurred $250,000
Variable overhead rate per direct labor hour $7
Standard direct labor hours 25,000
Actual direct labor hours 26,006
The controllable variance for February is
A. $5,000 favorable. C. $7,000 favorable.
B. $5,000 unfavorable. D. $7,000 unfavorable.
10. If the total materials variance (actual cost of materials used compared with the standard cost of the standard amount of materials required) for a given operation is favorable, why must this variance be further evaluated as to price and usage?
A. There’s no need to further evaluate the total materials variance if it’s favorable.
B. Generally accepted accounting principles require that all variances be analyzed in three stages.
C. All variances must appear in the annual report to equity owners for proper disclosure.
D. Evaluating a favorable variance helps management determine why the variance occurred.
11. The Johns Company budgeted overhead at $125,000 for the period for Department A based on a budgeted volume of 50,000 direct labor hours. At the end of the period, the factory overhead control account for Department A had a balance of $126,000. The actual (and allowed) direct labor hours were 52,000. What was the overapplied (underapplied) overhead for the period?
A. $(4,000) C. $(6,500)
B. $4,000 D. $6,500
12. Ben’s Climbing Gear, Inc. has direct material costs as follows:
Actual units of direct materials used 20,000
Standard price per unit of direct materials $2.50
Direct material quantity variance—favorable $5,000
What was Ben’s standard quantity of material?
A. $18,000 C. $22,000
B. $20,000 D. $24,000
13. Overapplied factory overhead would result if
A. the plant was operated at greater than normal capacity.
B. the plant was operated at less than normal capacity.
C. factory overhead costs incurred were greater than overhead costs charged to production.
D. factory overhead costs incurred were less than overhead costs charged to production.
14. The direct labor costs for Boundary Company follow:
Standard direct labor hours 34,000
Actual direct labor hours 33,500
Direct labor efficiency variance—favorable $12,000
Direct labor rate variance—favorable $15,075
Total payroll $252,925
What was Boundary’s standard direct labor rate?
A. $3.87 C. $10.50
B. $8.00 D. $12.00
15. Elgin Company’s budgeted fixed factory overhead costs are $50,000 per month, plus a variable factory overhead rate of $4.00 per direct labor hour. The standard direct labor hours allowed for October production were 20,000. An analysis of the factory overhead indicates that in October, Elgin had an unfavorable budget (controllable)
variance of $1,500 and a favorable volume variance of $500. Elgin uses a two-variance analysis of overhead variances.
The actual factory overhead that Elgin incurred in October is
A. $126,500. C. $128,500.
B. $128,000. D. $131,500.
16. Thomas Company uses a standard cost system. Information for raw materials for product RBI for the month of October follows:
Standard unit price $1.75
Actual purchase price per unit $1.60
Actual quantity purchased 4,000 units
Actual quantity used 3,900 units
Standard quantity allowed for actual production 3,800 units
What is the materials purchase price variance for Thomas Company?
A. $15 favorable C. $600 favorable
B. $15 unfavorable D. $600 unfavorable
17. What type of standard cost is the absolute minimum cost possible under the best conceivable operating conditions?
A. Practical C. Attainable
B. Ideal D. Normal
18. The fixed overhead application rate is a function of a predetermined normal activity level. If standard hours allowed for good output equal this normal activity level for a given period, the volume variance will be
A. zero.
B. favorable.
C. unfavorable.
D. either favorable or unfavorable depending on the budgeted overhead.
19. Alyisa Corporation uses a standard cost system. Direct labor information for product CER for the month of May is as follows:
Standard rate $8.00 per hour
Actual rate paid $8.20 per hour
Standard hours allowed for actual production 1,200 hours
Labor efficiency variance $800 unfavorable
What are actual hours worked?
A. 1,100 C. 1,330
B. 1,300 D. 1,400
20. A company experienced $21,000 in actual factory overhead incurred. During the same period, budgeted factory overhead based on actual hours worked was $19,300. The difference between these two amounts, $1,700, is called the _______ variance.
A. volume C. efficiency
B. budget D. quantity
