14 (1) (1)

14Student: _______________________________________________________________________________________

1. By convention, short-term financial control is accomplished by all the following except:

A. Comparing actual to budgeted financial results.B. Calculating a series of cost and revenue variances at the end of the period.C. The use of flexible budgets and standard costs.D. Explaining the total operating-income variance for a given period.E. The use of productivity analysis.

2. Operational control systems can be distinguished from financial control systems:

A. In the time horizon: financial-control systems have a long-term perspective.B. Because they focus on the control of basic business processes.C. Because such systems rely on the use of flexible, not static, budgets.D. Because they focus on explaining the total operating income variance for a period.E. They do not include nonfinancial performance indicators.

3. Traditional financial control systems have recently been criticized because:

A. They use flexible, not static, budgets.B. They generally lead to goal-congruent behavior on the part of managers.C. They focus more in improving basic business processes than short-term financial results.D. They fail to incorporate nonfinancial performance indicators into the evaluation process.E. They use static, not flexible, budgets.

4. One important short-term goal for a company is to earn the projected operating income for the period. Attainment of this goal is measured by comparing the actual operating income to the:

A. Flexible-budget operating income.B. Prior period's operating income.C. The income reflected in the company's balanced scorecard.D. Master budget operating income.E. Industry average operating income.

5. The total operating-income variance for a period reveals whether a company has achieved:

A. The sales level budgeted for the period.B. An adequate return on investment (assets) during the period.C. Control of basic business processes.D. Control of total expenses for the period.E. The master budgeted operating income for the period.

6. Another name for the total operating-income variance for a period is:

A. Flexible-budget variance.B. Master (static) budget variance.C. Sales-volume variance.D. Production-volume variance.E. Sales-mix variance.

7. Authoritative standards (within the context of a standard cost system) are determined primarily by:

A. Distributors.B. Employees.C. Customers.D. Suppliers.E. Managers.

8. The arrival of new manufacturing techniques such as automation, flexible manufacturing systems, and cluster or cell manufacturing has:

A. Emphasized the importance of direct labor variances.B. Not had an effect on the importance of direct labor variances.C. De-emphasized the importance of direct labor variances.D. Made direct labor variances obsolete.E. Eliminated the need to calculate and report direct materials variances.

9. An organization's overall management accounting and control system:

A. Includes the planning function.B. Is also referred as the organization's core performance-measurement system.C. Is separate from its operational control system.D. Includes nonfinancial, but not financial, performance measures.E. Focuses on strategic, not operational, control.

10. The "flexible budget" can best be described as a budget that adjusts:

A. Revenues for sales-dollar changes.B. Revenues and expenses for changes in output.

C. Expenses for changes in budgeted output between two periods.D. For efficiency, but not selling price and cost variances.E. For selling price and cost variances, but not efficiency variances.

11. Which of the following is different in a flexible budget compared to the master budget for a period?

A. Selling price per unit.B. Variable cost per unit.C. Budgeted fixed cost.D. Sales volume.

12. A flexible-budget variance measures the impact on short-term operating profit of:

A. Changes in sales volume.B. Changes in output during the period.C. Differences in sales mix—budgeted versus actual.D. Selling price and cost differences—actual versus budgeted.E. Selling price, but not cost differences—actual versus budgeted.

13. A "standard cost" is a predetermined amount (e.g., cost) that:

A. Should be incurred under relatively efficient operating conditions.B. Will be incurred for an operation or a specific objective.C. Must occur for an operation or a specific objective.D. Cannot be changed once it is established by management.E. Is useful for planning and control but not inventory valuation purposes.

14. Differences in expectation levels lead to two basic types of standards in a standard cost system:

A. Ideal and real.B. Ideal and currently attainable.C. Normal and conceptual.D. Attainable and real.E. Current and future.

15. An organization planned to use $82 of material per unit of output, but it actually used $80 per unit. During this period, the company planned to make 1,200 units, but actually produced only 1,000 units. The flexible budget amount for materials is:

A. $80,000.B. $82,000.C. $96,000.D. $98,400.

16. A "currently attainable standard" emphasizes:

A. Ideal or theoretical performance.B. Past performance of the organization.C. Future performance of the organization's primary competitors.D. Maximum performance.E. Relatively efficient operating performance.

17. An organization subject to intense competitive pressures would most likely use:

A. Ideal standards for its operations.B. Real standards for its operations.C. Caution in even using standards.D. A mix of types of standards.E. Standards that are not modified over time.

18. A materials efficiency variance can be caused by all of the following except:

A. Actual output volume of the period (i.e., units produced).B. Performance of the workers in using the materials.C. Quality of the materials.D. Skill level of the workers using the materials.E. Inadequate employee supervision.

19. A standard cost system:

A. Cannot be used in conjunction with a job-cost system.B. Is not permissible for financial-reporting purposes.C. Is most easily introduced in conjunction with a process-cost system.D. Is useful for planning but not control purposes.E. Is useful for cost control but not planning purposes.

20. A ______________ standard gets progressively tighter over time.

A. Peak-efficiency.B. Currently attainable.C. Benchmarked.D. Flexible-budget.E. Continuous-improvement.

21. Using continuous-improvement standards likely has the effect(s) of all the following except:

A. Reductions in inefficiencies.B. Reduced product defects.C. Constantly decreasing standard levels.D. Improved productivity.E. Increasing pressure on employees and managers.

22. A total variable cost variance (such as for direct materials) can be broken down into separate variances that evaluate:

A. Price and efficiency.B. Units and cost.C. Volume and productivity.D. Sales volume versus sales mix.E. Efforts and results.

23. A standard cost system should be designed to generate and report variances:

A. Coincidental with regular reporting intervals.B. As soon as possible.C. Only when significant in amount.D. Only when negative in impact.E. Only when requested by decision-makers.

24. Which of the following benefits is not typically associated with a move to a just-in-time (JIT) manufacturing system?

A. Raw materials are delivered as close as possible to time of production.B. Existence of long-term contracts with selected suppliers.C. Reduction in employee training and education costs.D. Decreases in manufacturing lead time.E. Improved customer-response time (CRT).

25. The way managers and employees who are affected by a standard cost system perceive the system will:

A. Be of little consequence on the success of the system if correctly implemented.B. Generally be minimal in impact on the implementation of the system.C. Affect its success or failure in implementing the system.D. Be difficult to assess.E. Not matter in the long run.

26. For control purposes, it is usually preferable to calculate the materials price variance:

A. At point of purchase.B. At point of production.C. At the end of the period.D. Only if the materials quantity variance is significant in amount.E. Only if it is controllable by operating managers.

27. The difference between the actual operating income of the period and master budgeted operating income for the period is the:

A. Total flexible-budget variance.B. Sales-volume variance.C. Sales price variance.D. Operating income flexible-budget variance.E. Total operating income variance.

28. The difference between the actual sales volume for a period and the flexible-budget sales volume is:

A. The total sales-volume variance for the period.B. The total production-volume variance for the period.C. The sales price variance for the period.D. The operating-income sales volume variance for the period.E. A flexible-budget variance.

29. The difference between the flexible-budget operating income and the actual operating income in a period is the:

A. Sales-mix variance.B. Sales-volume variance.C. Sales price variance.D. Operating income flexible-budget variance.E. Total operating income variance.

30. The difference between the total actual sales revenue of a period and the total flexible-budget sales revenue for the units sold during the period is the:

A. Total flexible-budget variance.B. Sales volume variance.C. Selling price variance.D. Operating income flexible-budget variance.E. Operating income variance.

31. A standard that assumes perfect implementation and maximum efficiency is called a(n):

A. Currently attainable standard.B. Practical standard.C. Efficiency standard.D. Normal standard.E. Ideal standard.

32. A standard that sets the performance criterion at a level that workers with proper training and experience can attain most of the time without extraordinary effort is a(n):

A. Currently attainable standard.B. Practical standard.C. Efficiency standard.D. Ideal standard.

33. The total variable cost flexible-budget variance for any given period:

A. Is the difference between actual total variable cost incurred and master budgeted total variable cost.B. Is decomposable into sales-volume and sales-mix components.C. Is decomposable into production-volume and production-mix components.D. Can be broken down into flexible-budget variances for major costs such as materials, labor, variable overhead, and variable selling

expenses.

34. The flexible-budget variable cost variance includes all of the following except:

A. Direct materials variances.B. Sales price variance.C. Variable selling and administrative expenses variances.D. Direct labor variances.E. Variable overhead variances.

35. Which one of the following is the difference in direct material costs between the actual amount incurred and the total standard cost in the flexible budget for the units manufactured during the period?

A. Direct materials price variance.B. Direct materials mix variance.C. Direct materials usage variance.D. Direct materials flexible-budget variance.E. Direct materials efficiency variance.

36. For a direct material, which one of the following is the difference between the actual and standard unit price of the direct material multiplied by the actual quantity of the material purchased?

A. Direct materials price variance.B. Direct materials volume variance.C. Direct materials usage variance.D. Direct materials flexible-budget variance.E. Direct materials mix variance.

37. Which one of the following, for each direct material used in production, is the difference between the actual units of material used and the total standard units of the direct material that should have been used for the units of the product manufactured during the period, multiplied by the standard unit price of the direct materials?

A. Direct materials sales-volume variance.B. Direct materials rate variance.C. Direct materials usage variance.D. Direct materials flexible-budget variance.E. Direct materials mix variance.

38. Which one of the following is the difference between the actual and standard hourly wage rate multiplied by the actual direct labor hours worked during a period?

A. Total direct labor standard cost variance.B. Direct labor efficiency variance.C. Direct labor usage variance.D. Direct labor flexible-budget variance.E. Direct labor rate variance.

39. Which one of the following is the difference between the actual and standard direct labor hours for the units manufactured, multiplied by the standard hourly wage rate per hour?

A. Direct labor price variance.B. Direct labor efficiency variance.C. Total direct labor standard cost variance.D. Direct labor flexible-budget variance.E. Direct labor operating-income variance.

40. The primary purpose of calculating standard cost variances each period is:

A. To achieve financial control regarding operating activities.B. To facilitate the recording of manufacturing costs during a period.C. To adjust reported income to flexible-budget income.D. To diagnose the problems of operating problems as well as what should be done to correct such problems.

41. A firm uses a JIT inventory system and has an unfavorable selling price variance for the period just ended. If the proportion of the total variable manufacturing costs to total sales in both the flexible budget and the actual operating results is 70%:

A. The firm has an unfavorable total variable manufacturing cost variance.B. The firm has a favorable total variable manufacturing cost variance.C. The firm has an unfavorable total flexible-budget variance.D. The firm has a favorable contribution margin variance.E. The firm has a favorable total flexible-budget variance.

42. The effect on sales, expenses, or operating income of changes in units sold is measured by the:

A. Flexible-budget variance.B. Sales-volume variance.C. Sales price variance.D. Operating income flexible-budget variance.E. Production-volume variance.

43. The difference between actual and standard cost caused by the difference between the actual number of resource-units used and the standard number of resource-units that should have been used for the output of the period is called the:

A. Controllable variance.B. Master budget variance.C. Flexible-budget variance.D. Quantity (or efficiency) variance.E. Price variance.

44. Which of the following is not a plausible cause of a direct labor efficiency variance?

A. Poor scheduling of work.B. Inadequate supervision of workers.C. Materials used are different from those specified.D. Failure to update the standard cost to conform to wage provisions in the union contract.E. Batch sizes during the period were different from standard.

45. The direct materials usage ratio for a given period is:

A. Defined as the ratio of quantity purchased to quantity used.B. Defined as the inverse of the materials quantity variance for the period.C. Entered into its own variance account at the end of the period.D. A useful indicator of performance by the manufacturing department.E. A useful indicator of performance of the purchasing department.

46. A favorable cost variance of significant magnitude:

A. Is the result of exceptional planning.B. May lead to future improvements in production methods if the variance is investigated to determine its underlying cause(s).C. Is strong evidence of excellent operating performance.D. Is strong evidence of tight financial control.E. Does not need to be investigated as to its underlying cause.

47. A flexible budget contains:

A. Cost targets based on actual output for the period.B. Cost targets based on planned output for the period.C. Actual costs incurred for the actual output of the period.D. Costs and revenues for the difference between planned and actual output.E. Costs based on actual output of the period, and revenue based on master budgeted output.

48. A favorable price variance for direct materials indicates that:

A. Lower-quality materials were purchased.B. The materials standard is likely out of date.C. A lower price than expected was paid for the materials.D. Less material was used in production this period than should have been used.E. There will most likely be an unfavorable materials efficiency (quantity) variance.

49. A manufacturer planned to use $82 of materials per unit produced, but in the most recent period it actually used $80 of material per unit produced. During this same period, the company planned to produce 1,200 units, but actually produced only 1,000 units. The flexible-budget variance for materials is:

A. $2,000 favorable.B. Impossible to determine without additional information.C. $14,000 unfavorable.D. $16,400 unfavorable.E. $2,400 unfavorable.

50. All of the following are limitations of short-term financial performance indicators except:

A. Employees and managers can take actions that improve short-term financial performance at the expense of long-term performance.B. Focusing on individual cost variances can result in optimum local but not global (i.e., firm-wide) performance.C. Operating personnel may not readily understand or be able to interpret financial-performance indicators.D. Senior managers typically find non-financial performance indicators more useful than summary financial-performance indicators.

51. Flexible budgets and standard costs are useful for assessing:

A. Strategic performance during the most recent period.B. Operating performance during the period.C. Short-term financial performance.D. Management control.

52. For operational control, a management accounting system should include:

A. Performance measures associated with basic business processes.B. Only financial-control measures, such as standard cost variances.C. High-level financial metrics such as return on investment (ROI) or return on sales (ROS).D. A combination of short-term and strategic financial-performance metrics.

53. Which of the following is not considered a basic business process?

A. Operating processes.B. Customer-management processes.C. Innovation processes.D. Social/regulatory processes.E. Just-in-time (JIT) processes.

54. Which of the following is not an anticipated benefit of switching to a JIT production system?

A. Reduction in inventory holding costs.B. Reduction of monitoring costs associated with the production system.C. Reduction in customer-response time.D. Increased sales due to increases in quality and customer satisfaction.E. Reduction in internal failure costs, such as the cost of reworking defective outputs.

55. Customer-response time (CRT) is defined as:

A. The time between when a customer places an order and the time when the order is received by the customer.B. The elapsed time between initial customer contact and the time a customer places an order.C. The time between when a customer places an order and when that order is manufactured.D. The time between when an order is started into production and when that order is completed.

56. The term "processing cycle efficiency" (PCE):

A. Like manufacturing cycle time, is a measure of operational efficiency.B. Is defined as the ratio of manufacturing lead time to delivery time.C. Is defined as manufacturing lead time minus delivery time.D. Is defined as the ratio of customer-response time to order-delivery time.E. Is at an optimum level when PCE = 0.

57. Which of the following is not indicated as an advantage of using nonfinancial performance measures, relative to financial performance measures, as part of an operational control system?

A. Nonfinancial performance indicators are readily understandable by operating personnel.B. Nonfinancial performance indicators can be viewed as drivers of future financial performance.C. Nonfinancial performance indicators direct attention to precise problem areas that need attention.D. Nonfinancial performance measures are more reliable than financial performance measures.

58. Which of the following statements about processing cycle efficiency (PCE) is not true:

A. It is defined as the ratio of processing time to non-processing time.B. It is a measure of operating process efficiency.C. It is based on the relationship between actual processing time and total production time.D. It incorporates notions of "value-added" and "non-value-added," as discussed in the development of activity-based cost (ABC) systems.E. The optimum value of PCE is 1.

59. A flexible-budget variance for any fixed cost:

A. Is defined as the difference between flexible-budget fixed cost and the level of fixed costs reflected in the master (static) budget.B. Is undefined, except when actual output equals budgeted output.C. Is typically zero, because the volume assumed in the flexible budget and the master budget for fixed costs is identical.D. Is the difference between budgeted fixed cost and actual fixed cost.

60. The total operating-income variance for any period:

A. Is unaffected by variances between actual and budgeted sales volume.B. Can be decomposed into a total flexible-budget variance and a sales-volume variance.C. Can be decomposed into a total flexible-budget variance and a sales price variance.D. Is equal to the sum of selling and administrative expense variances plus the total sales-volume variance for the period.E. Equals the sum of the total flexible-budget variance plus the sales-mix variance for the period.

61.

Information concerning Johnston Co.'s direct materials costs was as follows:

The actual purchase price per pound is:

A. $6.12.B. $6.15.C. $6.50.D. $6.75.E. $7.13.

62. Information concerning Johnston Co.'s direct materials costs was as follows:

The direct materials usage variance is:

A. $307.50 unfavorable.B. $307.50 favorable.C. $322.50 unfavorable.D. $322.50 favorable.E. $532.50 favorable.

63. Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in digital equipment, Flex 10. Information concerning its operation in June was as follows:

The actual purchase price per pound of PPS used is:

A. $5.20.B. $5.76.C. $6.24.D. $6.84.E. $7.20.


The standard cost per pound of PPS is:

A. $5.20.B. $5.76.C. $6.24.D. $6.84.E. $7.20.

65.

Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in digital equipment, Flex 10. Information concerning its operation in June was as follows:

The direct materials purchase-price variance is:

A. $51,840 favorable.B. $56,160 favorable.C. $62,208 favorable.D. $64,840 favorable.E. $72,000 favorable.


The cost of PPS in the flexible budget for the output of the period is:

A. $259,200.B. $280,800.C. $311,040.D. $324,000.E. $360,000.

67. Lucky Company's direct labor information for the month of February is as follows:

The actual direct labor rate per hour is:

A. $12.00.B. $12.30.C. $12.60.D. $13.20.E. $13.50.


The standard direct labor rate per hour is:

A. $12.00.B. $12.30.C. $12.60.D. $13.20.E. $13.50.


The total standard direct labor cost for the period is:

A. $738,000.B. $747,000.C. $756,000.D. $765,000.E. $774,900.


The direct labor rate variance is:

A. $36,900 unfavorable.B. $37,800 unfavorable.C. $55,350 unfavorable.D. $56,700 unfavorable.E. $73,800 unfavorable.


The direct labor flexible-budget variance is:


72. Minmax Co.'s direct labor information for February is as follows:


A. $13.44.B. $13.65.C. $13.78.D. $14.00.E. $14.35.



A. $13.44.B. $13.65.C. $13.78.D. $14.00.E. $14.35.


The total standard direct labor cost for the units manufactured in February is:

A. $458,640.B. $470,400.C. $477,750.D. $478,240.E. $490,000.

75.

Minmax Co.'s direct labor information for February is as follows:

The direct labor efficiency variance in February is:



The total direct labor flexible-budget variance in February is:

A. $7,350 favorable.B. $7,840 favorable.C. $30,870 favorable.D. $30,870 unfavorable.E. $31,360 favorable.

77. Europa Company manufactures only one product. Presented below is direct labor information for November.

The actual direct labor hours worked during November was:

A. 18,720.B. 19,200.C. 20,800.D. 22,400.E. 22,464.


The total standard direct labor hours in November for the output produced are:

A. 18,720.B. 19,200.C. 20,800.D. 22,400.E. 22,464.


The direct labor rate variance for November is:

A. $26,624.00 unfavorable.B. $31,948.80 unfavorable.C. $39,936.00 favorable.D. $71,884.80 favorable.E. $103,833.60 favorable.

80.

Europa Company manufactures only one product. Presented below is direct labor information for November.

The direct labor efficiency variance for November is:





82. Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms x $12.00 per kilogram) = $60.00/unit. Direct labor (3.5 hours x $20.00 per hour) = $70.00/unit. All materials were issued at the beginning of processing. The operating data shown below were taken from the records for December:

The actual direct materials purchase price per kilogram is:

A. $11.80.B. $11.96.C. $12.04.D. $12.20.E. $12.50.


The actual total cost of direct materials used in production is:

A. $458,068.B. $459,862.C. $461,132.D. $462,938.E. $478,400.


The direct materials usage variance for December is:

A. $1,800 unfavorable.B. $1,800 favorable.C. $59,400 unfavorable.D. $59,400 favorable.


The direct labor rate variance for December is:

A. $1,590 favorable.B. $5,650 favorable.C. $7,790 unfavorable.D. $24,410 unfavorable.E. $59,410 unfavorable.


The direct labor efficiency variance for December is:

A. $1,590 favorable.B. $5,650 favorable.C. $7,240 unfavorable.D. $59,410 unfavorable.


The direct labor flexible-budget variance of the period is:

A. $1,590 favorable.B. $5,650 unfavorable.

C. $7,040 unfavorable.D. $9,830 unfavorable.

88. Kennedy Inc. has the following data for its operation in August:

What was the actual purchase price per unit?

A. $3.35.B. $3.40.C. $3.72.D. $3.80.E. $3.85.


What was the direct materials usage variance in August?

A. $180 unfavorable.B. $360 unfavorable.C. $540 favorable.D. $540 unfavorable.E. $720 unfavorable.

90. Matinna Co. maintains no inventories and has the following data pertaining to one of its direct materials in July:

All materials purchased during the month were issued to production. What was the direct materials purchase-price variance for July?

A. $1,500 favorable.B. $3,000 unfavorable.C. $3,000 favorable.D. $7,500 unfavorable.E. $7,500 favorable.


What was the company's direct materials flexible-budget (FB) variance for July?


92.

Prokp Co.'s records for April disclosed the following data relating to direct labor:

Prokp's standard direct labor rate per hour in April was:

A. $16.00.B. $18.00.C. $20.00.D. $24.00.E. $26.67.

93. Prokp Co.'s records for April disclosed the following data relating to direct labor:

Prokp's total standard direct labor hours for units produced in April were:

A. 890.B. 900.C. 1,000.D. 1,100.E. 1,110.


Prokp's total standard direct labor cost for the output in April was:

A. $17,600.B. $21,600.C. $22,400.D. $24,000.E. $26,400.

95. Marv Company's direct labor costs for manufacturing its only product were as follows for October:

The direct labor efficiency variance for October was:

A. $3,000 unfavorable.B. $20,000 favorable.C. $23,000 favorable.D. $30,000 unfavorable.E. $50,000 unfavorable.


The direct labor rate variance for October was:


97.

Marv Company's direct labor costs for manufacturing its only product were as follows for October:

The total direct labor variance for October was:

A. $7,000 unfavorable.B. $9,000 favorable.C. $9,000 unfavorable.D. $32,000 favorable.E. $54,000 unfavorable.

98. Mandy Company has the following direct labor costs last month:

What was Mandy's standard direct labor rate per hour?

A. $43.20.B. $45.60.C. $48.00.D. $52.20.


What was Mandy's actual direct labor rate per hour?

A. $43.20.B. $45.60.C. $48.00.D. $52.20.E. $54.00.


What was Mandy's direct labor rate variance?

A. $15,120 unfavorable.B. $20,880 unfavorable.C. $23,490 unfavorable.D. $42,480 favorable.


What was Mandy's direct labor flexible-budget variance?

A. $15,120 unfavorable.B. $20,800 unfavorable.C. $36,720 favorable.D. $42,480 favorable.E. $79,920 favorable.

102. A company's flexible budget for 15,000 units of production showed sales of $48,000; variable costs of $18,000; and fixed costs of $12,000. The operating income in the master budget for 20,000 units is:

A. $8,000.B. $13,500.C. $24,000.D. $28,000.E. $30,000.

103. A company's master budget for October is to manufacture and sell 30,000 units for a total of $270,000 with total variable costs of $180,000 and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units and generated $45,000 of operating income in October. The flexible-budget operating income in October is:

A. $27,000.B. $70,400.C. $72,000.D. $83,520.E. $86,400.

104. A company's master budget for October is to manufacture and sell 30,000 units for a total of $270,000 with total variable costs of $180,000 and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units and generated $45,000 of operating income in October. The operating income flexible-budget (FB) variance is:


105. A company's master budget for October is to manufacture and sell 30,000 units for a total of $270,000 with total variable costs of $180,000 and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units and generated $45,000 of operating income in October. The sales volume variance, in terms of operating income, for October is:

A. $3,600 favorable.B. $6,000 favorable.C. $15,400 favorable.D. $21,000 favorable.

106. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The actual amount of operating income earned in September was:

A. $15,000.B. $40,000.C. $63,000.D. $78,000.E. $105,000.

107. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total amount of variable costs in the flexible budget for September was:

A. $129,000.B. $192,000.C. $200,000.D. $208,000.E. $255,000.

108. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U); and, sales volume variance, in terms of contribution margin, $27,000U). The amount of operating income in the flexible budget (FB) for September was:

A. $40,000.B. $48,000.C. $56,000.D. $70,000.E. $78,000.

109. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U.The budgeted fixed cost is:

A. $30,000.B. $45,000.C. $71,000.D. $78,000.E. $93,000.

110. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The sales volume variance, in terms of operating income, is:


111. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The master budget operating income for September was:

A. $78,000.B. $105,000.C. $108,000.D. $110,000.E. $135,000.

112. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total number of budgeted units reflected in the master budget for September was:

A. 36,000 units.B. 40,000 units.C. 45,000 units.D. 48,000 units.E. 50,000 units.

113. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total sales revenue in the master budget for September was:

A. $300,000.B. $327,000.C. $350,000.D. $375,000.E. $425,000.

114. Shoemaker Perkins Company uses a standard cost system and had 400 pounds of raw material X15 on hand on September 1. The standard cost is $10 per pound. The standard calls for 2 pounds of material X15 for each unit of the product manufactured. The company manufactured 600 units of the product in September, and had 500 pounds of Material X-15 in stock on September 30. The actual price for Material X-15 purchased during the month was $1 per pound below the standard cost. The material usage variance in September was $3,000 unfavorable. What is the purchase-price variance for Material X in September?


115. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $30,000 Favorable. Direct labor efficiency variance = $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What was the direct labor flexible-budget (FB) variance for the month?

A. $20,000 unfavorable.B. $25,000 unfavorable.C. $37,500 favorable.D. $62,500 unfavorable.E. $80,000 unfavorable.

116. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $30,000 Favorable; direct labor efficiency variance = $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What were the total standard hours allowed for the units manufactured during the month?

A. 1,000.B. 2,500.C. 4,000.D. 5,000.E. 6,000.

117. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance $30,000 Favorable; direct labor efficiency variance $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What were the total actual direct hours worked?

A. 1,000.B. 3,000.C. 4,000.D. 5,000.E. 6,000.

118. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $30,000 Favorable; direct labor efficiency variance = $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the

company used 25 percent more direct labor hours than the standard allowed. What was the actual hourly rate for direct labor?

A. $30.B. $36.C. $44.D. $50.E. $56.

119. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance $30,000 Favorable. Direct labor efficiency variance 50,000 Unfavorable Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. How many units of the product were produced during the past month?

A. 800.B. 1,000.C. 1,200.D. 1,500.E. 2,000.

120. Ventura uses a just-in-time (JIT) manufacturing system for all of its materials, components, and products. The master budget of the company for June called for use of 11,000 square feet of materials, while the flexible budget for the actual output of the month had 10,000 square feet of materials at a standard cost of $9.60 per square foot. Company records show that the actual price paid for the materials used in June was $9.50 per square foot, and that the direct materials purchase-price variance for the month was $1,040. The actual total quantity of materials purchased during the month was:

A. 10,000 square feet.B. 10,400 square feet.C. 11,000 square feet.D. 13,840 square feet.E. 14,880 square feet.

121. Ventura uses a just-in-time (JIT) manufacturing system for all of its materials, components, and products. The master budget of the company for June called for use of 11,000 square feet of materials, while the flexible budget for the actual output of the month had 10,000 square feet of materials at a standard cost of $9.60 per square foot. Company records show that the actual price paid for the materials used in June was $9.50 per square foot, and that the direct materials purchase-price variance for the month was $1,040. The materials usage (quantity) variance for June was:

A. $3,800 unfavorable.B. $3,840 unfavorable.C. $5,700 unfavorable.D. $5,760 unfavorable.E. $8,560 favorable.

122. Pokeman Bunch Inc., manufactures PokeMonster figures and has the following data from its operation for the year just completed.

The column heading identified as A is:

A. Selling price variance.B. Efficiency variance.C. Flexible-budget (FB) variances.D. Sales-volume variance.E. Production-volume variance.


The column heading identified as B is:



The amount C is:

A. $72,000.B. $74,400.C. $75,000.D. $90,000.E. $111,000.


The amount D is:

A. $12,000.B. $15,000.C. $16,500.D. $18,000.E. $33,000.


The amount E is:

A. $61,500.B. $76,500.C. $79,500.D. $88,500.E. $91,500.


The amount F is:

A. $4,500.B. $6,000.C. $7,500.D. $9,000.E. $10,000.

128.

Pokeman Bunch Inc., manufactures PokeMonster figures and has the following data from its operation for the year just completed.

The total operating-income variance is:

A. $500 favorable.B. $1,500 unfavorable.C. $1,500 favorable.D. $2,500 unfavorable.E. $3,000 favorable.


The sales-volume variance in terms of operating income is:


130. Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit. During July, the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. Precilla's standard price per pound of direct materials is:

A. $4.00.B. $5.00.C. $6.00.D. $10.00.E. $12.00.

131. Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit. During July, the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. The number of pounds of direct materials used to produce July's output was:

A. 12,000 pounds.B. 20,000 pounds.C. 24,000 pounds.D. 25,000 pounds.E. 40,000 pounds.

132. Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit. During July, the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase.The direct materials purchase-price variance in July is:


133. Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked. The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour. Ally's direct labor rate variance for July is:


134. Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500

hours worked. The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour. Ally's direct labor efficiency variance for July is:


135. Roncy Manufacturing uses enhanced powder plastics (EPP) to manufacture high-pressure boards, Dura-Plastic. Information concerning its operation in June was as follows:

The standard cost per ounce of EPP is:

A. $6.22.B. $6.30.C. $6.65.D. $6.84.E. Greater than $7.00.


The direct materials usage (efficiency) variance for June was:

A. $13,300 unfavorable.B. $26,600 unfavorable.C. $29,925 unfavorable.D. $34,020 unfavorable.


The direct materials purchase-price variance is for June was:


138. Luanna Inc. manufactures game consoles. Some of the company's data was misplaced. Use the following information to replace the lost data.

The amount A is:

A. $102,080.B. $103,440.

C. $105,600.D. $108,000.


The amount B is:

A. $100,300.B. $102,000.C. $103,440.D. $105,600.


The amount C is:

A. $38,790.B. $59,490.C. $65,050.D. $83,140.


The amount D is:

A. $26,920.B. $33,720.C. $35,620.D. $42,450.

142. Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable. Direct labor efficiency variance = $70,000 (?) The standard calls for 3 direct labor hours per unit of output at $28 per labor hour. The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August. What were the total standard hours allowed for the units manufactured in August?

A. 10,000.B. 12,000.C. 12,500.D. 15,000.E. 15,625.

143. Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable. Direct labor efficiency variance = $70,000 (?) The standard calls for 3 direct labor hours per unit of output at $28 per labor hour. The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August. What was the average direct labor hourly rate the Division paid in August?

A. $24.00.B. $26.00.C. $28.00.D. $30.00.E. $31.25.

144. Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable. Direct labor efficiency variance = $70,000 (?) The standard calls for 3 direct labor hours per unit of output at $28 per labor hour. The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August. How many units of the product were produced in August?

A. 4,000.B. 4,250.C. 4,500.D. 4,750.E. 5,000.

145. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: (4 kilograms x $10.00 per kilogram) $40.00/unit. Labor: (4 hours x $18.00 per hour) $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The actual direct materials purchase price per kilogram in July was:

A. $8.80.B. $9.90.C. $10.00.D. $10.10.E. $11.80.

146. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: 4 kilograms/unit x $10.00 per kilogram = $40.00/unit; labor: 4 hours/unit x $18.00 per hour = $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The actual total cost of direct materials used in production during July was:

A. $282,150.B. $287,850.C. $297,000.D. $300,000.E. $303,000.

147. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: materials: 4 kilograms/unit x $10.00 per kilogram = $40.00/unit; labor: 4 hours/unit x $18.00 per hour = $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The direct materials usage variance for July was:

A. $3,000 favorable.B. $43,000 favorable.C. $12,000 unfavorable.

D. $15,000 unfavorable.


The direct labor rate variance for July is:


149. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: 4 kilograms/unit x $10.00 per kilogram = $40.00/unit; labor: (4 hours x $18.00 per hour) $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The direct labor efficiency variance for July was:

A. $6,600 favorable.B. $7,200 unfavorable.C. $8,000 unfavorable.D. $14,400 favorable.E. $79,200 favorable.

150. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: 4 kilograms/unit x $10.00 per kilogram) $40.00/unit; labor: 4 hours/unit x $18.00 per hour = $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The direct labor flexible-budget variance for July was:


151. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows:

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The sales volume variance, measured in terms of direct labor cost, for July was:


152. Landlubber Company has established a standard direct material cost of 1.5 gallons @ $2 per gallon for one unit of its product. During the past month, actual production of this product was 6,500 units. The direct materials usage (efficiency) variance was $700 (favorable) and the materials price variance (calculated at point of production) was $470 (unfavorable). The entry to charge Work in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include all the following except:

A. A debit to Work in Process Inventory for $19,500.B. A debit to Direct Materials Inventory for $18,800.C. A debit to Direct Materials Price Variance for $470.D. A credit to Direct Material Usage Variance for $700.E. A credit to Work in Process Inventory for $18,800.

153. What four variances may be included as a component of the total variable cost flexible-budget variance for a given period?

154. What is a direct materials usage ratio? For what purpose is this ratio used?

155. What is a direct labor efficiency variance, and what are some of the likely causes of this variance?

156. Rachael Hair Products shows the following budgeted and actual data for the first quarter of the current fiscal year:

Required: (a) What type of financial control system might the company use to determine whether the company met its short-term financial objectives?(b) For the first quarter of the year, what was the total master (static) budget variance?(c) In general, into what two component variances can the master (static) budget variance be decomposed? What is the meaning of each of these two variances?(d) Comment specifically on the financial performance of this company during the 1st quarter.(e) What are the primary limitations of traditional financial-control models?

157. Ann Jacobson's supervisor has asked her to list any concerns she might have about the proposed development of standards to measure performance and to reward superior performance in her department. Ann's department handles customer calls, directing customer

questions and complaints to the appropriate persons within the firm. The company has never before used any performance measure nor paid any performance-related bonuses. It hopes to install a simple but effective system to achieve its twin goals of cost control and performance measurement. Develop the list for Ann based on the information above.

158. Within the context of the material covered in Chapter 14, define the term "sales-volume variance." List some common causes of the sales-volume variance.

159. Discuss some major differences between static and flexible budgets.

160. Klash Company adopted a standard cost system several years ago. The company uses standard costs for all of its inventories. The standard costs for direct materials and labor for its single product are as follows: Materials (12 kilograms/unit x $7.00 per kilogram) = $84.00/unit; direct labor (8 hours/unit x $12.00 per hour) = $96.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December:

Note: number of kilograms issued to production during the period = number of kilograms purchased.Required: (A) Calculate the standard cost of the actual kilograms of material purchased.(B) Calculate the total standard kilograms for the production of the period (that is, for "equivalent units produced with respect to direct materials")(C) Calculate the total standard cost of materials for the production of the period.(D) Calculate the actual price per kilogram of material of material purchased this period.(E) Calculate the direct labor rate variance.

161. Miller has the following information pertaining to its usage of direct labor in a recent period:

Required: Given the above, determine the company's:(A) Direct labor efficiency variance for the period.(B) Direct labor rate variance for the period.(C) Summary journal entry to record accrued labor costs and associated standard cost variances for the period.

162. Sarheen, Inc. maintains no inventories and has collected the following data on one of its products for the most recent period:

Required: Determine:(A) The direct material usage (quantity) variance.(B) The actual cost of the direct materials purchased and used during the period. (Hint: these two amounts are identical.)(C) The direct material price variance.(D) The correct summary journal entry to record direct material costs for this period's production, including associated standard cost variances. (Note: assume that any price variances are recorded at point of production.)

163. McElroy Company has prepared the following master budget for 2010. Although McElroy has the capacity to manufacture 50,000 units, management expected the likely demand for its product to be 40,000 units in 2010; as such, it prepared the master budget to manufacture and sell 40,000 units. In early January 2011, the company was pleasantly surprised to find out that it manufactured and sold 45,000 units in 2010.

Required: Prepare the flexible budget (FB) for the actual operating level achieved in 2010.

164. Balt Company maintains a standard cost system; as such, all inventories, including materials, are carried on the books at standard cost. Last period, Balt used 5,000 pounds of Material H to produce 800 units of Product C8. The company has established a standard of 7 pounds of Material H per unit of C8, at a price of $7.50 per pound of material. During the period the inventory for Material H decreased by 2,000 pounds. The company spent $25,000 during the period to purchase material H.Required: (1) Calculate the direct materials purchase-price variance for the period. (2) Calculate the direct materials usage variance for the period. (3) Provide the correct summary journal entry to record the purchase, on credit, of materials during the period.(4) Provide the correct summary journal to record direct materials cost for materials issued to production during the period.

165. Falcon Company uses a standard cost system; as such, all inventories are carried on the books at standard cost. During the most recent period the company manufactured 12,000 units. The standard cost sheet indicates that the standard direct labor cost per unit is $1.50. The performance report for the period includes an unfavorable direct labor rate variance of $1,000 and a favorable direct labor efficiency variance of $275.Required: What was the total actual cost of direct labor incurred during the period?

166.

Balmer Corporation's master budget for the year is presented below:

During the period, the company actually manufactured and sold 42,000 units.Required:(1) Prepare a flexible budget (FB) for the actual output level achieved during the period.(2) What is the definition of a FB? For what managerial purpose is a FB useful? Be specific about the types of information (and variances) that management can generate, at the end of an accounting period, given a flexible budget and its master (static) budget.

167. Patterson, Inc. wishes to evaluate, in summary fashion, its financial performance for the most recent period. The budget and the actual operating results for this period are presented below.

Required: (A) What was the actual operating income for the period?(B) What is the firm's master budget operating income?(C) What was the flexible-budget operating income for the period?(D) What is the total operating-income variance of the period?(E) What was the sales-volume variance, in terms of operating income, for the period?(F) What are the key elements of the traditional financial control model?(G) What are the primary limitations of the traditional financial control model?

168. Contemporary furniture manufactures office desks. The firm budgeted to sell 5,000 desks at $200 per desk in 2010. Budgeted costs include $80 variable cost per desk, and $200,000 fixed cost/year. In 2010 the company sold 6,000 desks at $190, and incurred $78 variable cost per desk and $220,000 fixed cost for the year.Required: Prepare, in proper form, a variance analysis report identifying both flexible budget and sales-volume variances.

169.

Fill in the unknowns A through S below.

170.

James has the following information pertaining to its usage of direct labor in a recent period:

Required: (A) Calculate the labor efficiency variance for the period.(B) Calculate the labor rate variance for the period.(C) Prepare, in proper form, the journal entry to record wage expense for the period, including any associated standard cost variances.

171. Appliance, Inc. manufactured 10,000 units. The standard cost sheet indicates that the standard direct labor cost per unit is $3.00. The performance report for the period includes a favorable direct labor rate variance of $2,000, and a favorable direct labor efficiency variance of $500.Required: What was the total actual cost of direct labor incurred during the period?

172. The Chen Company uses a standard cost system. As such, all of its inventories are carried on the books at standard, not actual, cost. During the most recent accounting period, the company had the following summary transactions:(A) Purchased, on credit, direct materials; the standard cost of these materials was $30,000, while the actual cost was $32,000.(B) Issued to production direct materials. The standard cost of materials that should have been used for this period's output was $35,000, while the standard cost of materials actually used in production during the period was $33,000.(C) Actual direct labor cost, which has been incurred but not yet paid, for the period was $75,000. The standard direct labor cost for this period's output was $80,000. The direct labor efficiency variance for the period was $10,000(F).(D) For the units completed during the period, the standard direct labor cost was $78,000, while the standard direct materials cost was $34,000.(E) For the units sold during the period, the standard materials cost was $30,000, while the standard direct labor cost was $76,000Required: Given the above information, provide the correct journal entries for the following:(A) Purchase of direct materials(B) Issuance of materials to production.(C) Direct labor cost for the period.(D) The labor and materials cost associated with finished production this period.(E) The labor and materials cost associated with items sold during the period.

173. Define what is meant by the term "just in time production" (JIT). As indicated in your text, management accountants can supply relevant information to management as it considers a move to JIT. In this regard, describe some of the principal advantages of using a JIT system, and then describe some of the incremental costs that would likely be associated with a move to such a system.

174. Chapter 14 argues that a comprehensive management accounting and control system would include nonfinancial as well as financial performance indicators. Two such nonfinancial performance indicators were discussed in conjunction with organizations that adopt a just-in-time (JIT) production philosophy: customer-response time (CRT) and process cycle efficiency (PCE). Explain each of these two performance indicators.

175. Explain the calculation and interpretation of a sales price variance for any given period. How does this variance relate to the total flexible-budget variance for the period?

176. Subscript "a" = actual; subscript "s" = standard; Q = quantity of direct materials issued to production; P = price paid for unit of direct materials.Required: Use the above notation to develop a formula for each of the following standard cost variances: (A) Direct materials price variance (calculated at point of production, not point of purchase).(B) Direct materials usage variance.

(C) Flexible-budget (FB) variance for direct materials.(D) Joint price-quantity variance for direct materials.

177. Chapter 14 introduces you to the concept of operational control systems. Within the context of this discussion, certain limitations of financial control systems were presented. Provide a summary of the primary limitations of short-term financial performance indicators, such as the variances discussed in the main part of the chapter.

14 KEY1. By convention, short-term financial control is accomplished by all the following except:

A. Comparing actual to budgeted financial results.B. Calculating a series of cost and revenue variances at the end of the period.C. The use of flexible budgets and standard costs.D. Explaining the total operating-income variance for a given period.E. The use of productivity analysis.

Blocher - Chapter 14 #1Difficulty: Easy

Learning Objective: 14-1

2. Operational control systems can be distinguished from financial control systems:

A. In the time horizon: financial-control systems have a long-term perspective.B. Because they focus on the control of basic business processes.C. Because such systems rely on the use of flexible, not static, budgets.D. Because they focus on explaining the total operating income variance for a period.E. They do not include nonfinancial performance indicators.

Blocher - Chapter 14 #2Difficulty: Medium


3. Traditional financial control systems have recently been criticized because:

A. They use flexible, not static, budgets.B. They generally lead to goal-congruent behavior on the part of managers.C. They focus more in improving basic business processes than short-term financial results.D. They fail to incorporate nonfinancial performance indicators into the evaluation process.E. They use static, not flexible, budgets.

Blocher - Chapter 14 #3Difficulty: Hard


4. One important short-term goal for a company is to earn the projected operating income for the period. Attainment of this goal is measured by comparing the actual operating income to the:

A. Flexible-budget operating income.B. Prior period's operating income.C. The income reflected in the company's balanced scorecard.D. Master budget operating income.E. Industry average operating income.



5. The total operating-income variance for a period reveals whether a company has achieved:

A. The sales level budgeted for the period.B. An adequate return on investment (assets) during the period.C. Control of basic business processes.D. Control of total expenses for the period.E. The master budgeted operating income for the period.



6. Another name for the total operating-income variance for a period is:

A. Flexible-budget variance.B. Master (static) budget variance.C. Sales-volume variance.D. Production-volume variance.E. Sales-mix variance.



7. Authoritative standards (within the context of a standard cost system) are determined primarily by:

A. Distributors.B. Employees.C. Customers.D. Suppliers.E. Managers.



8. The arrival of new manufacturing techniques such as automation, flexible manufacturing systems, and cluster or cell manufacturing has:

A. Emphasized the importance of direct labor variances.B. Not had an effect on the importance of direct labor variances.C. De-emphasized the importance of direct labor variances.

1,000 units of output x $82/unit standard cost = $82,000

D. Made direct labor variances obsolete.E. Eliminated the need to calculate and report direct materials variances.



9. An organization's overall management accounting and control system:

A. Includes the planning function.B. Is also referred as the organization's core performance-measurement system.C. Is separate from its operational control system.D. Includes nonfinancial, but not financial, performance measures.E. Focuses on strategic, not operational, control.



10. The "flexible budget" can best be described as a budget that adjusts:

A. Revenues for sales-dollar changes.B. Revenues and expenses for changes in output.C. Expenses for changes in budgeted output between two periods.D. For efficiency, but not selling price and cost variances.E. For selling price and cost variances, but not efficiency variances.



11. Which of the following is different in a flexible budget compared to the master budget for a period?

A. Selling price per unit.B. Variable cost per unit.C. Budgeted fixed cost.D. Sales volume.



12. A flexible-budget variance measures the impact on short-term operating profit of:

A. Changes in sales volume.B. Changes in output during the period.C. Differences in sales mix—budgeted versus actual.D. Selling price and cost differences—actual versus budgeted.E. Selling price, but not cost differences—actual versus budgeted.



13. A "standard cost" is a predetermined amount (e.g., cost) that:

A. Should be incurred under relatively efficient operating conditions.B. Will be incurred for an operation or a specific objective.C. Must occur for an operation or a specific objective.D. Cannot be changed once it is established by management.E. Is useful for planning and control but not inventory valuation purposes.



14. Differences in expectation levels lead to two basic types of standards in a standard cost system:

A. Ideal and real.B. Ideal and currently attainable.C. Normal and conceptual.D. Attainable and real.E. Current and future.



15. An organization planned to use $82 of material per unit of output, but it actually used $80 per unit. During this period, the company planned to make 1,200 units, but actually produced only 1,000 units. The flexible budget amount for materials is:

A. $80,000.B. $82,000.C. $96,000.D. $98,400.



16. A "currently attainable standard" emphasizes:

A. Ideal or theoretical performance.B. Past performance of the organization.C. Future performance of the organization's primary competitors.D. Maximum performance.E. Relatively efficient operating performance.



17. An organization subject to intense competitive pressures would most likely use:

A. Ideal standards for its operations.B. Real standards for its operations.C. Caution in even using standards.D. A mix of types of standards.E. Standards that are not modified over time.



18. A materials efficiency variance can be caused by all of the following except:

A. Actual output volume of the period (i.e., units produced).B. Performance of the workers in using the materials.C. Quality of the materials.D. Skill level of the workers using the materials.E. Inadequate employee supervision.



19. A standard cost system:

A. Cannot be used in conjunction with a job-cost system.B. Is not permissible for financial-reporting purposes.C. Is most easily introduced in conjunction with a process-cost system.D. Is useful for planning but not control purposes.E. Is useful for cost control but not planning purposes.



20. A ______________ standard gets progressively tighter over time.

A. Peak-efficiency.B. Currently attainable.C. Benchmarked.D. Flexible-budget.E. Continuous-improvement.



21. Using continuous-improvement standards likely has the effect(s) of all the following except:

A. Reductions in inefficiencies.B. Reduced product defects.C. Constantly decreasing standard levels.D. Improved productivity.E. Increasing pressure on employees and managers.



22. A total variable cost variance (such as for direct materials) can be broken down into separate variances that evaluate:

A. Price and efficiency.B. Units and cost.C. Volume and productivity.D. Sales volume versus sales mix.E. Efforts and results.



23. A standard cost system should be designed to generate and report variances:

A. Coincidental with regular reporting intervals.B. As soon as possible.C. Only when significant in amount.D. Only when negative in impact.E. Only when requested by decision-makers.



24. Which of the following benefits is not typically associated with a move to a just-in-time (JIT) manufacturing system?

A. Raw materials are delivered as close as possible to time of production.B. Existence of long-term contracts with selected suppliers.C. Reduction in employee training and education costs.D. Decreases in manufacturing lead time.E. Improved customer-response time (CRT).



25. The way managers and employees who are affected by a standard cost system perceive the system will:

A. Be of little consequence on the success of the system if correctly implemented.B. Generally be minimal in impact on the implementation of the system.C. Affect its success or failure in implementing the system.D. Be difficult to assess.E. Not matter in the long run.



26. For control purposes, it is usually preferable to calculate the materials price variance:

A. At point of purchase.B. At point of production.C. At the end of the period.D. Only if the materials quantity variance is significant in amount.E. Only if it is controllable by operating managers.



27. The difference between the actual operating income of the period and master budgeted operating income for the period is the:

A. Total flexible-budget variance.B. Sales-volume variance.C. Sales price variance.D. Operating income flexible-budget variance.E. Total operating income variance.



28. The difference between the actual sales volume for a period and the flexible-budget sales volume is:

A. The total sales-volume variance for the period.B. The total production-volume variance for the period.C. The sales price variance for the period.D. The operating-income sales volume variance for the period.E. A flexible-budget variance.



29. The difference between the flexible-budget operating income and the actual operating income in a period is the:

A. Sales-mix variance.B. Sales-volume variance.C. Sales price variance.D. Operating income flexible-budget variance.E. Total operating income variance.



30. The difference between the total actual sales revenue of a period and the total flexible-budget sales revenue for the units sold during the period is the:

A. Total flexible-budget variance.B. Sales volume variance.C. Selling price variance.D. Operating income flexible-budget variance.E. Operating income variance.



31. A standard that assumes perfect implementation and maximum efficiency is called a(n):

A. Currently attainable standard.B. Practical standard.C. Efficiency standard.D. Normal standard.

E. Ideal standard.



32. A standard that sets the performance criterion at a level that workers with proper training and experience can attain most of the time without extraordinary effort is a(n):

A. Currently attainable standard.B. Practical standard.C. Efficiency standard.D. Ideal standard.



33. The total variable cost flexible-budget variance for any given period:

A. Is the difference between actual total variable cost incurred and master budgeted total variable cost.B. Is decomposable into sales-volume and sales-mix components.C. Is decomposable into production-volume and production-mix components.D. Can be broken down into flexible-budget variances for major costs such as materials, labor, variable overhead, and variable selling

expenses.



34. The flexible-budget variable cost variance includes all of the following except:

A. Direct materials variances.B. Sales price variance.C. Variable selling and administrative expenses variances.D. Direct labor variances.E. Variable overhead variances.



35. Which one of the following is the difference in direct material costs between the actual amount incurred and the total standard cost in the flexible budget for the units manufactured during the period?

A. Direct materials price variance.B. Direct materials mix variance.C. Direct materials usage variance.D. Direct materials flexible-budget variance.E. Direct materials efficiency variance.



36. For a direct material, which one of the following is the difference between the actual and standard unit price of the direct material multiplied by the actual quantity of the material purchased?

A. Direct materials price variance.B. Direct materials volume variance.C. Direct materials usage variance.D. Direct materials flexible-budget variance.E. Direct materials mix variance.



37. Which one of the following, for each direct material used in production, is the difference between the actual units of material used and the total standard units of the direct material that should have been used for the units of the product manufactured during the period, multiplied by the standard unit price of the direct materials?

A. Direct materials sales-volume variance.B. Direct materials rate variance.C. Direct materials usage variance.D. Direct materials flexible-budget variance.E. Direct materials mix variance.



38. Which one of the following is the difference between the actual and standard hourly wage rate multiplied by the actual direct labor hours worked during a period?

A. Total direct labor standard cost variance.B. Direct labor efficiency variance.C. Direct labor usage variance.D. Direct labor flexible-budget variance.E. Direct labor rate variance.



39. Which one of the following is the difference between the actual and standard direct labor hours for the units manufactured, multiplied by the standard hourly wage rate per hour?

A. Direct labor price variance.B. Direct labor efficiency variance.C. Total direct labor standard cost variance.D. Direct labor flexible-budget variance.E. Direct labor operating-income variance.



40. The primary purpose of calculating standard cost variances each period is:

A. To achieve financial control regarding operating activities.B. To facilitate the recording of manufacturing costs during a period.C. To adjust reported income to flexible-budget income.D. To diagnose the problems of operating problems as well as what should be done to correct such problems.


Learning Objective: 14-1Learning Objective: 14-6

41. A firm uses a JIT inventory system and has an unfavorable selling price variance for the period just ended. If the proportion of the total variable manufacturing costs to total sales in both the flexible budget and the actual operating results is 70%:

A. The firm has an unfavorable total variable manufacturing cost variance.B. The firm has a favorable total variable manufacturing cost variance.C. The firm has an unfavorable total flexible-budget variance.D. The firm has a favorable contribution margin variance.E. The firm has a favorable total flexible-budget variance.



42. The effect on sales, expenses, or operating income of changes in units sold is measured by the:

A. Flexible-budget variance.B. Sales-volume variance.C. Sales price variance.D. Operating income flexible-budget variance.E. Production-volume variance.



43. The difference between actual and standard cost caused by the difference between the actual number of resource-units used and the standard number of resource-units that should have been used for the output of the period is called the:

A. Controllable variance.B. Master budget variance.C. Flexible-budget variance.D. Quantity (or efficiency) variance.E. Price variance.



44. Which of the following is not a plausible cause of a direct labor efficiency variance?

A. Poor scheduling of work.B. Inadequate supervision of workers.C. Materials used are different from those specified.D. Failure to update the standard cost to conform to wage provisions in the union contract.E. Batch sizes during the period were different from standard.



45. The direct materials usage ratio for a given period is:

A. Defined as the ratio of quantity purchased to quantity used.B. Defined as the inverse of the materials quantity variance for the period.C. Entered into its own variance account at the end of the period.D. A useful indicator of performance by the manufacturing department.E. A useful indicator of performance of the purchasing department.



46. A favorable cost variance of significant magnitude:

A. Is the result of exceptional planning.B. May lead to future improvements in production methods if the variance is investigated to determine its underlying cause(s).

1. Variable cost flexible-budget variance = actual variable cost - FB variable cost2. Actual variable cost = $80,0003. Flexible budget (FB) variable cost = 1,000 units x $82/unit = $82,0004. FB variance = $80,000 - $82,000 = $2,000F

C. Is strong evidence of excellent operating performance.D. Is strong evidence of tight financial control.E. Does not need to be investigated as to its underlying cause.



47. A flexible budget contains:

A. Cost targets based on actual output for the period.B. Cost targets based on planned output for the period.C. Actual costs incurred for the actual output of the period.D. Costs and revenues for the difference between planned and actual output.E. Costs based on actual output of the period, and revenue based on master budgeted output.



48. A favorable price variance for direct materials indicates that:

A. Lower-quality materials were purchased.B. The materials standard is likely out of date.C. A lower price than expected was paid for the materials.D. Less material was used in production this period than should have been used.E. There will most likely be an unfavorable materials efficiency (quantity) variance.



49. A manufacturer planned to use $82 of materials per unit produced, but in the most recent period it actually used $80 of material per unit produced. During this same period, the company planned to produce 1,200 units, but actually produced only 1,000 units. The flexible-budget variance for materials is:

A. $2,000 favorable.B. Impossible to determine without additional information.C. $14,000 unfavorable.D. $16,400 unfavorable.E. $2,400 unfavorable.



50. All of the following are limitations of short-term financial performance indicators except:

A. Employees and managers can take actions that improve short-term financial performance at the expense of long-term performance.B. Focusing on individual cost variances can result in optimum local but not global (i.e., firm-wide) performance.C. Operating personnel may not readily understand or be able to interpret financial-performance indicators.D. Senior managers typically find non-financial performance indicators more useful than summary financial-performance indicators.



51. Flexible budgets and standard costs are useful for assessing:

A. Strategic performance during the most recent period.B. Operating performance during the period.C. Short-term financial performance.D. Management control.



52. For operational control, a management accounting system should include:

A. Performance measures associated with basic business processes.B. Only financial-control measures, such as standard cost variances.C. High-level financial metrics such as return on investment (ROI) or return on sales (ROS).D. A combination of short-term and strategic financial-performance metrics.



53. Which of the following is not considered a basic business process?

A. Operating processes.B. Customer-management processes.C. Innovation processes.D. Social/regulatory processes.E. Just-in-time (JIT) processes.



54. Which of the following is not an anticipated benefit of switching to a JIT production system?

A. Reduction in inventory holding costs.B. Reduction of monitoring costs associated with the production system.C. Reduction in customer-response time.D. Increased sales due to increases in quality and customer satisfaction.E. Reduction in internal failure costs, such as the cost of reworking defective outputs.



55. Customer-response time (CRT) is defined as:

A. The time between when a customer places an order and the time when the order is received by the customer.B. The elapsed time between initial customer contact and the time a customer places an order.C. The time between when a customer places an order and when that order is manufactured.D. The time between when an order is started into production and when that order is completed.



56. The term "processing cycle efficiency" (PCE):

A. Like manufacturing cycle time, is a measure of operational efficiency.B. Is defined as the ratio of manufacturing lead time to delivery time.C. Is defined as manufacturing lead time minus delivery time.D. Is defined as the ratio of customer-response time to order-delivery time.E. Is at an optimum level when PCE = 0.



57. Which of the following is not indicated as an advantage of using nonfinancial performance measures, relative to financial performance measures, as part of an operational control system?

A. Nonfinancial performance indicators are readily understandable by operating personnel.B. Nonfinancial performance indicators can be viewed as drivers of future financial performance.C. Nonfinancial performance indicators direct attention to precise problem areas that need attention.D. Nonfinancial performance measures are more reliable than financial performance measures.



58. Which of the following statements about processing cycle efficiency (PCE) is not true:

A. It is defined as the ratio of processing time to non-processing time.B. It is a measure of operating process efficiency.C. It is based on the relationship between actual processing time and total production time.D. It incorporates notions of "value-added" and "non-value-added," as discussed in the development of activity-based cost (ABC) systems.E. The optimum value of PCE is 1.



59. A flexible-budget variance for any fixed cost:

A. Is defined as the difference between flexible-budget fixed cost and the level of fixed costs reflected in the master (static) budget.B. Is undefined, except when actual output equals budgeted output.C. Is typically zero, because the volume assumed in the flexible budget and the master budget for fixed costs is identical.D. Is the difference between budgeted fixed cost and actual fixed cost.



60. The total operating-income variance for any period:

A. Is unaffected by variances between actual and budgeted sales volume.B. Can be decomposed into a total flexible-budget variance and a sales-volume variance.C. Can be decomposed into a total flexible-budget variance and a sales price variance.D. Is equal to the sum of selling and administrative expense variances plus the total sales-volume variance for the period.E. Equals the sum of the total flexible-budget variance plus the sales-mix variance for the period.



61.

Information concerning Johnston Co.'s direct materials costs was as follows:

1. 2850 pounds x $6.45 = $18,382.502. $18,382.50 - $855 = $17,527.503. $17,527.50/2850 pounds = $6.15

1. 1000 units to manufacture/4000 pounds of direct materials = 1 unit requires 4 pounds direct materials. 2. So, 700 units actually manufactured would have required 2,800 pounds direct materials3. But, actual manufacturing only used 2,750 pounds. 4. 2,800 - 2,750 = 50 pounds not needed. 5. 50 x $6.45 = $322.50 favorable

$224,640/39,000 pounds = $5.76 per pound of PPS used

The actual purchase price per pound is:

A. $6.12.B. $6.15.C. $6.50.D. $6.75.E. $7.13.



62. Information concerning Johnston Co.'s direct materials costs was as follows:

The direct materials usage variance is:

A. $307.50 unfavorable.B. $307.50 favorable.C. $322.50 unfavorable.D. $322.50 favorable.E. $532.50 favorable.




The actual purchase price per pound of PPS used is:

A. $5.20.B. $5.76.C. $6.24.D. $6.84.E. $7.20.



64.

Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in digital equipment, Flex 10. Information concerning its operation in June was as follows:

(39,000p) - [4,000(45,000/5,000)]p = $21,600; p = $7.20

1. Direct materials purchase-price variance = pounds of PPS purchased x (standard cost per pound - actual cost per pound). 2. Standard cost per pound, p: (39,000p) - [4,000(45,000/5,000)]p = $21,600; p = $7.20. 3. 43,200 x ($7.20 - $5.76) = $62,208 favorable

1. Standard price per pound, p: (39,000p) - [4,000(45,000/5,000)]p = $21,600; p = $7.202. PPS cost in flexible budget = 4,000 units produced x 9 pounds PPS per unit x $7.20 = $259,200

The standard cost per pound of PPS is:

A. $5.20.B. $5.76.C. $6.24.D. $6.84.E. $7.20.




The direct materials purchase-price variance is:





The cost of PPS in the flexible budget for the output of the period is:

A. $259,200.B. $280,800.C. $311,040.D. $324,000.E. $360,000.





A. $12.00.

$774,900/61,500 actual direct labor hours worked = $12.60 per hour

1. Difference between actual and standard hours 61,500 - 63,000 = 1,500F. 2. Efficiency variance is caused by difference in hours x standard DL rate per hour. $18,000 var./1,500 hours = $12.00 per hour

1. Standard direct labor rate = $18,000/(63,000 standard - 61,500 actual direct labor hours) = $12.00 per hour. 2. $12.00 per hour x 63,000 standard direct labor hours = $756,000

1. Standard direct labor rate = $18,000/63,000 standard - 61,500 actual direct labor hours = $12.00 per hour. 2. Actual direct labor rate = $774,900/61,500 actual direct labor hours worked = $12.60 per hour3. Labor rate variance = ($12.60 - $12.00)/hour x 61,500 hours = $36,900 unfavorable

B. $12.30.C. $12.60.D. $13.20.E. $13.50.





A. $12.00.B. $12.30.C. $12.60.D. $13.20.E. $13.50.




The total standard direct labor cost for the period is:

A. $738,000.B. $747,000.C. $756,000.D. $765,000.E. $774,900.




The direct labor rate variance is:






1. Standard direct labor rate = $18,000/63,000 standard - 61,500 actual direct labor hours = $12.00 per hour. 2. FB for direct labor, based on output = $12.00 per hour x 63,000 standard direct labor hours = $756,000. 3. FB variance for direct labor = Actual direct labor cost - FB direct labor cost = $774,900 (given) - $756,000 = $18,900 unfavorable

$470,400/33,600 hours worked = $14.00 per hour

33,600 x (14 - r) = $11,760; r = $13.65; or ($470,400 - $11,760)/33,600

1. Standard direct labor rate/hr. = 33,600 x (14 - r) = $11,760; r = $13.65; or ($470,400 - $11,760)/33,600. 2. $13.65 x 35,000 standard direct labor hours (given) = $477,750






A. $13.44.B. $13.65.C. $13.78.D. $14.00.E. $14.35.





A. $13.44.B. $13.65.C. $13.78.D. $14.00.E. $14.35.




The total standard direct labor cost for the units manufactured in February is:

A. $458,640.B. $470,400.C. $477,750.D. $478,240.E. $490,000.




The direct labor efficiency variance in February is:

1. Standard direct labor rate/hr. = 33,600 x (14 - r) = $11,760; r = $13.65; or ($470,400 - $11,760)/33,600. 2. (35,000 - 33,600) hours x $13.65 per hour = $19,110 favorable

1. Standard direct labor rate/hr. = 33,600 x (14 - r) = $11,760; r = $13.65; or ($470,400 - $11,760)/33,600. 2. (35,000 - 33,600) hours x $13.65 per hour = $19,110 favorable. 3. $19,110F - $11,760U (given) = $7,350F, or, $470,400 - (35,000 x $13.65) = 7,350F

$359,424/$16 per direct labor hour = 22,464 actual direct labor hours

6,500 units (given) x 3.20 hours/unit (given) = 20,800





The total direct labor flexible-budget variance in February is:

A. $7,350 favorable.B. $7,840 favorable.C. $30,870 favorable.D. $30,870 unfavorable.E. $31,360 favorable.




The actual direct labor hours worked during November was:

A. 18,720.B. 19,200.C. 20,800.D. 22,400.E. 22,464.




The total standard direct labor hours in November for the output produced are:

A. 18,720.B. 19,200.C. 20,800.D. 22,400.E. 22,464.




1. $359,424/$16 per direct labor hour = 22,464 actual direct labor hours 2. Rate variance = ($19.20 - $16.00)/hour x 22,464 hours = $71,884.80 favorable

1. $359,424/$16 per direct labor hour = 22,464 actual direct labor hours. 2. Standard hours allowed for output produced = 6,500 units (given) x 3.20 hours/unit (given) = 20,800. 4. Direct labor efficiency variance = (22,464 - 20,800) x $19.20 per hour = $31,948.80 unfavorable

1. $359,424/$16 per direct labor hour = 22,464 actual direct labor hours.2. Standard hours allowed for output produced = 6,500 units (given) x 3.20 hours/unit (given) = 20,800. 3. DL rate variance = ($19.20 - $16.00)/hour x 22,464 hours = $71,884.80 favorable. 4. Direct labor efficiency variance = (22,464 - 20,800) x $19.20 per hour = $31,948.80 unfavorable. 5. Direct labor FB variance = Rate variance + Efficiency Variance = $71,884.80F - $31,948.8U = $39,936F

The direct labor rate variance for November is:





The direct labor efficiency variance for November is:










The actual direct materials purchase price per kilogram is:

A. $11.80.B. $11.96.C. $12.04.D. $12.20.

1. Standard cost of materials purchased = (40,000 kilograms x $12 per kilogram) = $480,000. 2. Actual price per kilogram = ($480,000 -$1,600)/40,000 kilograms = $11.96/kilogram

1. Standard cost of materials purchased = (40,000 kilograms x $12 per kilogram) = $480,000. 2. Actual price per kilogram = ($480,000 -$1,600)/40,000 kilograms = $11.96/kilogram. 3. No. of kilograms used = (40,000 - 1,550) kilograms = 38,450 kilograms. 4. Total cost of materials used = 38,450 kilograms x $11.96/kg. = $459,862

1. Actual units of production with respect to materials = 6,700 units + 960 units = 7,660 units. 2. 7,660 units x 5 kilograms/unit = 38,300 standard kg. allowed for production. 3. Actual kg used = 38,450 - standard quantity, 38,300 kg = 150kg. 4. 150kg x $12/kilogram = $1,800U

E. $12.50.




The actual total cost of direct materials used in production is:

A. $458,068.B. $459,862.C. $461,132.D. $462,938.E. $478,400.




The direct materials usage variance for December is:

A. $1,800 unfavorable.B. $1,800 favorable.C. $59,400 unfavorable.D. $59,400 favorable.




The direct labor rate variance for December is:

1. Standard direct labor rate = $20 per hour (given). 2. Actual direct labor rate = ($528,410/26,500 hours) = $19.94 per hour. 3. DL rate variance = [($20.00 - $19.94) x 26,500 hours (given)] = $1,590 favorable

1.Total equivalent units produced = 6,700 + (960 x 0.8) = 7,468 units. 2. 7,468 units x 5 standard hours/unit = 26,138 hours allowed. 3. (26,500 - 26,138 hours) x $20/hour = $7,240 unfavorable

1. Direct labor flexible-budget (FB) variance = Efficiency variance + Labor rate variance. 2. Efficiency variance = [26,500 hrs. - ((6,700 + (960 x 0.8)) x 3.5)] x $20/hour = [26,500 - 26,138] hrs. x $20/hr. = $7,240 unfavorable. 3. Standard direct labor rate = $20 per hour (given). 4. Actual direct labor rate = ($528,410/26,500 hours) = $19.94 per hour. 5. DL rate variance = [($20.00 - $19.94) x 26,500 hours (given)] = $1,590 favorable. 4. $7,240U + $1,590F = $5,650U; alternatively, this variance is calculated as the difference between the actual labor costs of the period and the flexible-budget labor costs.





The direct labor efficiency variance for December is:





The direct labor flexible-budget variance of the period is:

A. $1,590 favorable.B. $5,650 unfavorable.C. $7,040 unfavorable.D. $9,830 unfavorable.



88.

Kennedy Inc. has the following data for its operation in August:

[(1,600 sets x $3.60/set) - $400 favorable purchase price variance]/1,600 sets purchased = $3.35

1. Actual direct materials used = 1,600 sets purchased - 100 sets increase in inventory = 1,500 sets. 2. Standard direct materials used = 700 units x 2 sets per unit = 1,400 sets. 3. Direct materials usage variance = (1,500 - 1,400) sets x $3.60/set = $360 unfavorable

1. Standard cost of units produced = 30,000 units material x $2/unit = $60,000. 2. $60,000 - $4,500F variance = $55,500 standard cost of materials purchased. 3. Purchase-price variance = Actual cost - standard cost = $63,000 (given) - $55,500 = $7,500U

What was the actual purchase price per unit?

A. $3.35.B. $3.40.C. $3.72.D. $3.80.E. $3.85.




What was the direct materials usage variance in August?

A. $180 unfavorable.B. $360 unfavorable.C. $540 favorable.D. $540 unfavorable.E. $720 unfavorable.




All materials purchased during the month were issued to production. What was the direct materials purchase-price variance for July?





What was the company's direct materials flexible-budget (FB) variance for July?

1. Actual direct materials cost = $63,000 (given). 2. Standard direct materials cost = 30,000 x $2.00 per unit = $60,000. 3. Flexible budget variance = $63,000 - $60,000 = $3,000 unfavorable

1. Standard direct labor cost for actual hours worked = $20,000 (given) + $4,000F rate variance = $24,000. 2. Standard direct labor rate per hour in April = $24,000/1000 hours = $24.00/DLH

1. Standard direct labor cost for actual hours worked = $20,000 (given) + $4,000F rate variance = $24,000. 2. Standard direct labor cost for allowed labor hours, based on output = $24,000 - $2,400 unfavorable efficiency variance = $21,600. 3. Standard direct labor rate per hour in April = $24,000/1000 hours = $24.00/DLH. 4. Total standard direct labor hours = $21,600/$24 = 900

1. Standard direct labor cost for actual hours worked = $20,000 (given) + $4,000F rate variance = $24,000. 2. Standard direct labor cost for allowed labor hours, based on output = $24,000 - $2,400 unfavorable efficiency variance = $21,600.





Prokp's standard direct labor rate per hour in April was:

A. $16.00.B. $18.00.C. $20.00.D. $24.00.E. $26.67.




Prokp's total standard direct labor hours for units produced in April were:

A. 890.B. 900.C. 1,000.D. 1,100.E. 1,110.




Prokp's total standard direct labor cost for the output in April was:

A. $17,600.B. $21,600.C. $22,400.D. $24,000.E. $26,400.



95.

Marv Company's direct labor costs for manufacturing its only product were as follows for October:

$20/hour x ([5,000 units x 2 hours/unit] - [$207,000/$18]) = $20/hour x (10,000 - 11,500) hours = $30,000 unfavorable

1. Actual labor hours worked = $207,000/$18 = 11,500 hours. 2. Rate variance = 11,500 hours x ($20 - $18)/hour = $23,000 favorable

1. Labor efficiency variance = $20/hour x ([5,000 units x 2 hours/unit] - [$207,000/$18]) = $20/hour x (10,000 - 11,500) hours = $30,000 unfavorable. 2. Actual labor hours worked = $207,000/$18 = 11,500 hours. 3. Rate variance = 11,500 hours x ($20 - $18)/hour = $23,000 favorable4. Total labor variance = Labor rate variance + labor efficiency variance = $23,000 favorable + $30,000 unfavorable = $7,000 unfavorable. 5. Alternatively, total direct labor variance = actual labor cost - FB direct labor cost = $207,000 - (5,000 units x 2 hours/unit x $20/hour) = $207,000 - $200,000 = $7,000 unfavorable

The direct labor efficiency variance for October was:





The direct labor rate variance for October was:





The total direct labor variance for October was:

A. $7,000 unfavorable.B. $9,000 favorable.C. $9,000 unfavorable.D. $32,000 favorable.E. $54,000 unfavorable.




What was Mandy's standard direct labor rate per hour?

A. $43.20.B. $45.60.C. $48.00.D. $52.20.

1. Direct labor efficiency variance = Ps(Qa - Qs) = $5,760. 2. Ps(3,480 - 3,600) = $5,760. 3. Ps = $5,760/120 hours = $48.00/hour

Pa = $187,920/3,480 hours = $54.00/hour

1. Labor rate variance = Qa(Pa - Ps). 2. Labor rate variance = 3,480 hours ($54.00 - $48.00)/hour = $20,880 unfavorable

1. Direct labor efficiency variance, favorable = Ps(Qa - Qs) = $5,760. 2. Ps(3,480- 3,600) = $5,760. 3. Therefore, standard wage rate per hour,

Ps = $5,760/120 hours = $48.00/hour. 4. Actual wage rate per hour, Pa = $187,920/3,480 hours = $54.00/hour. 5. Labor rate variance = Qa(Pa- Ps) = 3,480 hours ($54.00 - $48.00)/hour = $20,880 unfavorable. 6. Direct labor FB variance = Total direct labor variance = Rate variance +

Efficiency variance = $20,880U + $5,760F = $15,120U. 7. Alternatively, direct labor FB variance = actual direct labor cost - FB for direct labor = $187,920 - (3,600 hours x $48.00/hour) = $187,920 - $172,800 = $15,120U

1. Budgeted contribution margin per unit = ($48,000 - $18,000)/15,000 units = $2.00/unit. 2. Budgeted operating income @ 20,000 units = ($2.00/unit x 20,000 units) - $12,000 = $40,000 - $12,000 = $28,000




What was Mandy's actual direct labor rate per hour?

A. $43.20.B. $45.60.C. $48.00.D. $52.20.E. $54.00.




What was Mandy's direct labor rate variance?

A. $15,120 unfavorable.B. $20,880 unfavorable.C. $23,490 unfavorable.D. $42,480 favorable.




What was Mandy's direct labor flexible-budget variance?




102. A company's flexible budget for 15,000 units of production showed sales of $48,000; variable costs of $18,000; and fixed costs of $12,000. The operating income in the master budget for 20,000 units is:

A. $8,000.B. $13,500.C. $24,000.D. $28,000.E. $30,000.

Blocher - Chapter 14 #102

1. Budgeted contribution margin per unit = ($270,000 - $180,000)/30,000 units = $3.00/unit. 2. FB operating income, October = (32,000 units x $3.00/unit) - $24,000 = $72,000

1. Total FB variance = Actual operating income - FB operating income. 2. Budgeted contribution margin per unit = ($270,000 -$180,000)/30,000 units = $3.00/unit. 3. FB operating income, October = (32,000 units x $3.00/unit) - $24,000 = $72,000. 4. Actual operating income (given) = $45,000. 5. Therefore, total operating income FB variance = $45,000 - $72,000 = $27,000U

1. Master budget sales volume = 30,000 units (given). 2. Actual sales volume = 32,000 units (given). 3. Budgeted contribution margin per unit = ($270,000 - $180,000)/30,000 units = $3.00/unit4. Sales volume variance, expressed in terms of operating income = 2,000 units F x $3.00/unit = $6,000F

Actual operating income = actual sales revenue - actual costs (total) = $240,000 - $225,000 = $15,000

1. Total variable cost flexible-budget (FB) variance = Actual total variable costs - FB variable costs. 2. Actual variable costs = ($225,000 -$25,000) = $200,000. 3. Therefore, FB variable costs = $200,000 - $8,000U variance = $192,000

Difficulty: EasyLearning Objective: 14-3

103. A company's master budget for October is to manufacture and sell 30,000 units for a total of $270,000 with total variable costs of $180,000 and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units and generated $45,000 of operating income in October. The flexible-budget operating income in October is:

A. $27,000.B. $70,400.C. $72,000.D. $83,520.E. $86,400.



104. A company's master budget for October is to manufacture and sell 30,000 units for a total of $270,000 with total variable costs of $180,000 and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units and generated $45,000 of operating income in October. The operating income flexible-budget (FB) variance is:




105. A company's master budget for October is to manufacture and sell 30,000 units for a total of $270,000 with total variable costs of $180,000 and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units and generated $45,000 of operating income in October. The sales volume variance, in terms of operating income, for October is:

A. $3,600 favorable.B. $6,000 favorable.C. $15,400 favorable.D. $21,000 favorable.



106. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The actual amount of operating income earned in September was:

A. $15,000.B. $40,000.C. $63,000.D. $78,000.E. $105,000.



107. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total amount of variable costs in the flexible budget for September was:

A. $129,000.B. $192,000.C. $200,000.D. $208,000.E. $255,000.



1. Total flexible-budget (FB) variance = actual operating income - FB operating income. 2. Actual operating income = actual sales revenue -actual costs (total) = $240,000 - $225,000 = $15,000. 3. Total flexible-budget (FB) variance = $63,000U (given). 4. Therefore, FB operating income = $15,000 + $63,000 = $78,000

1. Flexible-budget sales = $300,000 (given). 2. Total variable cost flexible-budget (FB) variance = Actual total variable costs - FB variable costs. 3. Actual variable costs = ($225,000 - $25,000) = $200,000. 4. Therefore, FB variable costs = $200,000 - $8,000U variance = $192,000. 5. Therefore, flexible-budget contribution margin = $300,000 - $192,000 = $108,000. 6. Total flexible-budget (FB) variance = actual operating income - FB operating income. 7. Actual operating income = actual sales revenue - actual costs (total) = $240,000 - $225,000 = $15,000. 8. Total flexible-budget (FB) variance = $63,000 (U) (given). 9. Therefore, FB operating income = $15,000 + $63,000 = $78,000. 10. Therefore, budgeted fixed costs = FB contribution margin - FB operating profit = $108,000 - $78,000 = $30,000

As long as actual operating activity (here, 40,000 units) is within the relevant range, then the sales volume variance in terms of operating income = sales volume variance in terms of contribution margin. The sales volume variance in terms of contribution margin is $27,000U (given). Therefore, the sales volume variance in terms of operating income is also $27,000U.

1. Master budget operating income = actual operating income - total operating-income variance2. Actual operating income = actual sales revenue - actual costs (total) = $240,000 - $225,000 = $15,0003. Total flexible-budget variance (given) = $63,000U 4. As long as actual operating activity (here, 40,000 units) is within the relevant range, then the sales volume variance in terms of operating income = sales volume variance in terms of contribution margin. The sales volume variance in terms of contribution margin is $27,000U (given). Therefore, the sales volume variance in terms of operating income is also $27,000U. 5. Total operating-income variance = total flexible-budget variance + sales-volume variance = $63,000U + $27,000U = $90,000U. 6. Therefore, master budget operating income = $15,000 + $90,000 = $105,000

108. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U); and, sales volume variance, in terms of contribution margin, $27,000U). The amount of operating income in the flexible budget (FB) for September was:

A. $40,000.B. $48,000.C. $56,000.D. $70,000.E. $78,000.



109. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U.The budgeted fixed cost is:

A. $30,000.B. $45,000.C. $71,000.D. $78,000.E. $93,000.



110. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The sales volume variance, in terms of operating income, is:




111. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The master budget operating income for September was:

A. $78,000.B. $105,000.C. $108,000.D. $110,000.E. $135,000.



112. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total number of budgeted units reflected in the master budget for September was:

1. Budgeted contribution margin per unit = FB contribution margin/actual sales volume2. FB contribution margin = FB sales revenue - FB variable costs. 3. Actual variable costs = ($225,000 - $25,000) = $200,000. 4. Therefore, FB variable costs = $200,000 - $8,000U variance = $192,000. 5. FB contribution margin = $300,000 (given) - $192,000 = $108,000. 6. Budgeted contribution margin/unit = $108,000/40,000 units (given) = $2.70/unit. 8. Sales volume variance = Budgeted contribution margin/unit x (MB - Actual) units sold. 9. $27,000U (given) = $2.70/unit x (X - 40,000) units. 10. $27,000/$2.70 = 10,000 units, so X = 50,000 units

1. Budgeted sp/unit = FB sales (given)/actual sales volume = $300,000/40,000 units = $7.50/unit. 2. Budgeted contribution margin/unit = $108,000/40,000 units (given) = $2.70/unit. 3. Sales volume variance = Budgeted contribution margin/unit x (MB - Actual) units sold. 4. $27,000U (given) = $2.70/unit x (X - 40,000) units. 5. $27,000/$2.70 = 10,000 units, so X = 50,000 units. 5. MB sales revenue = MB sales volume x budgeted selling price/unit = 50,000 units x $7.50/unit = $375,000

1. Efficiency variance = Ps x (Qa - Qs), where Qa = pounds of material issued to production; $3,000U = $10/lb. x (Qa - 1,200) lbs.; therefore,

Qa = 1,500 lbs. (used in production). 2. Pounds of material purchased = pounds used in production + increase in ending materials inventory =

1,500 lbs. + 100 lbs. = 1,600 lbs. 3. Purchase-price variance = Qa x (Pa - Ps), where Qa = actual pounds of material purchased = 1,600 lbs. x

($9.00 - $10.00)/lb. = $1,600F

Direct labor flexible-budget (FB) variance = total direct labor standard cost variance = labor rate variance + labor efficiency variance = $30,000F + $50,000U = $20,000U.

A. 36,000 units.B. 40,000 units.C. 45,000 units.D. 48,000 units.E. 50,000 units.



113. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total sales revenue in the master budget for September was:

A. $300,000.B. $327,000.C. $350,000.D. $375,000.E. $425,000.



114. Shoemaker Perkins Company uses a standard cost system and had 400 pounds of raw material X15 on hand on September 1. The standard cost is $10 per pound. The standard calls for 2 pounds of material X15 for each unit of the product manufactured. The company manufactured 600 units of the product in September, and had 500 pounds of Material X-15 in stock on September 30. The actual price for Material X-15 purchased during the month was $1 per pound below the standard cost. The material usage variance in September was $3,000 unfavorable. What is the purchase-price variance for Material X in September?




115. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $30,000 Favorable. Direct labor efficiency variance = $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What was the direct labor flexible-budget (FB) variance for the month?




116. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $30,000 Favorable; direct labor efficiency variance = $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What were the total standard hours allowed for the units manufactured during the month?

A. 1,000.B. 2,500.C. 4,000.D. 5,000.

1. Excess hours worked, based on units produced = $50,000U variance/$50 per hour (the standard wage rate) = 1,000 hours. 2. This excess represents 25% of standard hours allowed; therefore, standard hours allowed = 1,000 hours/0.25 = 4,000 hours.

1. Excess hours worked, based on units produced = $50,000U variance/$50 per hour (the standard wage rate) = 1,000 hours. 2. This excess represents 25% of standard hours allowed; therefore, standard hours allowed = 1,000 hours/0.25 = 4,000 hours. 3. Therefore, actual hours = 4,000 standard hours + excess 1,000 hours = 5,000 hours

1. Rate variance = $30,000F (given) 2. $30,000F/5,000 actual hours = $6/hour F variance. 3. Standard rate $50/hour - $6/hour F variance = $44.00/hour actual rate.

1. Excess hours worked, based on units produced = $50,000U variance/$50 per hour (the standard wage rate) = 1,000 hours. This excess represents 25% of standard hours allowed; therefore, standard hours allowed = 1,000 hours/0.25 = 4,000 hours. 2. Standard number of labor hours per unit produced = 5 (given). 3. Therefore, actual units produced = 4,000 hours/5 hours per unit = 800 units

1. Purchase-price variance = Qa x (Pa - Ps). 2. $1,040 = Qa x ($9.50 - $9.60)/square foot. 3. Qa = $1,040/$0.10 per unit = 10,400 square feet

E. 6,000.



117. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance $30,000 Favorable; direct labor efficiency variance $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What were the total actual direct hours worked?

A. 1,000.B. 3,000.C. 4,000.D. 5,000.E. 6,000.



118. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $30,000 Favorable; direct labor efficiency variance = $50,000 Unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. What was the actual hourly rate for direct labor?

A. $30.B. $36.C. $44.D. $50.E. $56.



119. Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance $30,000 Favorable. Direct labor efficiency variance 50,000 Unfavorable Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly rate is $50. During the month, the company used 25 percent more direct labor hours than the standard allowed. How many units of the product were produced during the past month?

A. 800.B. 1,000.C. 1,200.D. 1,500.E. 2,000.



120. Ventura uses a just-in-time (JIT) manufacturing system for all of its materials, components, and products. The master budget of the company for June called for use of 11,000 square feet of materials, while the flexible budget for the actual output of the month had 10,000 square feet of materials at a standard cost of $9.60 per square foot. Company records show that the actual price paid for the materials used in June was $9.50 per square foot, and that the direct materials purchase-price variance for the month was $1,040. The actual total quantity of materials purchased during the month was:

A. 10,000 square feet.B. 10,400 square feet.C. 11,000 square feet.D. 13,840 square feet.E. 14,880 square feet.



121. Ventura uses a just-in-time (JIT) manufacturing system for all of its materials, components, and products. The master budget of the company for June called for use of 11,000 square feet of materials, while the flexible budget for the actual output of the month had 10,000 square feet of materials at a standard cost of $9.60 per square foot. Company records show that the actual price paid for the materials used in June was $9.50 per square foot, and that the direct materials purchase-price variance for the month was $1,040. The materials usage (quantity) variance for June was:

Materials usage variance = Ps x (Qa - Qs) = $9.60/square feet x (10,400 - 10,000) square feet = $3,840 U

1. Flexible-budget (FB) sales volume = actual sales volume (given) = 1,500 units2. Sales-volume variance, in units = FB sales volume - Master budget sales volume = 1,500 units - 1,200 units = 300 units. 3. Budgeted selling price per unit = $18,000/300 units = $60/unit. 4. Therefore, flexible-budget sales dollars = 1,500 units x $60/unit = $90,000

A. $3,800 unfavorable.B. $3,840 unfavorable.C. $5,700 unfavorable.D. $5,760 unfavorable.E. $8,560 favorable.




The column heading identified as A is:





The column heading identified as B is:





The amount C is:

A. $72,000.B. $74,400.C. $75,000.D. $90,000.E. $111,000.




1. Budgeted variable cost/unit = $60,000/1,200 units = $50/unit. 2. FB variable cost (total) = $50/unit x 1,500 units = $75,000. 3. Flexible-budget (FB) sales volume = actual sales volume (given) = 1,500 units. 4. Sales-volume variance, in units = FB sales volume - Master budget sales volume = 1,500 units - 1,200 units = 300 units. 5. Budgeted selling price per unit = $18,000/300 units = $60/unit. 6. Flexible-budget sales dollars = 1,500 units x $60/unit = $90,000. 7. Therefore, FB contribution margin = $90,000 - $75,000 = $15,000

1. Actual contribution margin = FB contribution margin - FB contribution margin. 2. Budgeted variable cost/unit = $60,000/1,200 units = $50/unit. 3. FB variable cost (total) = $50/unit x 1,500 units = $75,000. 4. Flexible-budget (FB) sales volume = actual sales volume (given) = 1,500 units. 5. Sales-volume variance, in units = FB sales volume - Master budget sales volume = 1,500 units - 1,200 units = 300 units. 6. Budgeted selling price per unit = $18,000/300 units. = $60/unit. 7. Flexible-budget sales dollars = 1,500 units x $60/unit = $90,000. 8. Therefore, FB contribution margin = $90,000 - $75,000 = $15,000. 9. Actual contribution margin = FB contribution margin - FB contribution margin = $15,000 - $1,500 = $13,500. 10. Actual total variable cost = Actual sales (given) - Actual contribution margin (above) = $93,000 -$13,500 = $79,500

1. Actual contribution margin = FB contribution margin - FB contribution margin. 2. Budgeted variable cost/unit = $60,000/1,200 units = $50/unit. 3. FB variable cost (total) = $50/unit x 1,500 units = $75,000. 4. Flexible-budget (FB) sales volume = actual sales volume (given) = 1,500 units. 5. Sales-volume variance, in units = FB sales volume - Master budget sales volume = 1,500 units - 1,200 units = 300 units. 6. Budgeted selling price per unit = $18,000/300 units. = $60/unit. 7. Flexible-budget sales dollars = 1,500 units x $60/unit = $90,000. 8. Therefore, FB contribution margin = $90,000 - $75,000 = $15,000. 9. Actual contribution margin = FB contribution margin - FB contribution margin = $15,000 - $1,500 = $13,500. 10. Actual fixed costs = Actual contribution margin - actual fixed costs (given) = $13,500 - $7,500 = $6,000

The amount D is:

A. $12,000.B. $15,000.C. $16,500.D. $18,000.E. $33,000.




The amount E is:

A. $61,500.B. $76,500.C. $79,500.D. $88,500.E. $91,500.




The amount F is:

A. $4,500.B. $6,000.C. $7,500.D. $9,000.E. $10,000.

Blocher - Chapter 14 #127

1. Master budget operating income = master budget contribution margin - master budget fixed costs = (1,200 units x [$15,000/1,500 units]) -$5,000 = (1,200 units x $10/unit) - $5,000 = $7,000. 2. Total operating-income variance = actual operating income - master budget operating income = $7,500 (given) - $7,000 = $500F

1. Sales volume variance, in operating income = FB operating income - Master budget operating income = $10,000 - $7,000 = $3,000F. 2. Alternatively, sales-volume variance = (actual sales volume - master budget sales volume) x budgeted contribution margin per unit = (1,500 units - 1,200 units) x ($60 - $50)/unit = $3,000F

1. Standard direct materials cost per unit produced = $10.00. 2. Standard number of pounds of material per unit produced = 2. 3. Therefore, standard price per pound of material = $10.00/2 = $5.00

Difficulty: MediumLearning Objective: 14-3


The total operating-income variance is:





The sales-volume variance in terms of operating income is:




130. Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit. During July, the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. Precilla's standard price per pound of direct materials is:

A. $4.00.B. $5.00.C. $6.00.D. $10.00.E. $12.00.



131. Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit. During July, the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. The number of pounds of direct materials used to produce July's output was:

A. 12,000 pounds.B. 20,000 pounds.C. 24,000 pounds.D. 25,000 pounds.E. 40,000 pounds.

1. Materials usage variance = Ps x (Qa - Qs). 2. $5,000 U = $5/lb. x (Qa - 24,000) lbs. 3. Qa = 24,000 + 1,000 = 25,000 lbs.

1. Actual price = $210,000/40,000lbs. = $5.25/lb. 2. Standard price = $120,000/12,000 units = $10/unit. 3. $10/unit/2lbs per unit = $5 standard price/lb. 4. 40,000 lbs. x ($5.25 - $5.00)/lb. = $10,000U

Direct labor rate variance = Qa x (Pa - Ps) = 5,500 hours (given) x ([$242,000/5,500 hours] - $40.00)/hour = 5,500 hours x ($44.00 -

$40.00)/hour = $22,000U

Labor efficiency variance = Ps x (Qa - Qs) = $40.00/hr. (given) x (5,500 hrs. - [1,800 units x (6,000 hrs./2,000units]) = $40.00/hr. x (5,500 -

5,400) hours = $4,000U

Standard cost per oz. of material = Standard cost for materials issued to production (given)/actual oz. of materials issued to production = $478,800/72,000 oz. = $6.65



132. Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit. During July, the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase.The direct materials purchase-price variance in July is:




133. Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked. The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour. Ally's direct labor rate variance for July is:




134. Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked. The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour. Ally's direct labor efficiency variance for July is:





The standard cost per ounce of EPP is:

A. $6.22.B. $6.30.C. $6.65.D. $6.84.E. Greater than $7.00.




1. Materials usage variance = Ps x (Qa - Qs) = $6.65/oz. x (72,000 - Qs) oz. 2. Qs = standard quantity of material/unit of output x # of units of

output this period = 7.5 oz. per unit x 9,000 units = 67,500 oz. 3. Therefore, usage variance = $6.65/oz. x (72,000 - 67,500) oz. = $29,925U

1. Materials purchase-price variance = Qa x (Pa - Ps), where Qa = quantity of materials purchased

2. Purchase-price variance = 76,000 (given) x ([$574,560/76,000] - $6.65) = 76,000 oz. x ($7.56 - $6.65) = $69,160U

Flexible-budget (FB) sales revenue = actual sales revenue + unfavorable FB selling price variance = $103,840 + $1,760 = $105,600

The direct materials usage (efficiency) variance for June was:





The direct materials purchase-price variance is for June was:





The amount A is:

A. $102,080.B. $103,440.C. $105,600.D. $108,000.




1. Budgeted selling price per unit = $105,600/1,760 units = $60.00/unit. 2. Master budget sales revenue = 1,700 units x $60.00/unit = $102,000

1. Sales revenue - total variable costs - total fixed costs = operating profit. 2. Total variable costs = sales revenue - total fixed costs - operating profit = $103,840 - $20,700 - $44,350 = $38,790

1. Master budget sales - master budget variable costs - master budget fixed costs = master budget operating income = $102,000 - $47,600 - X = $25,000; therefore, budgeted fixed costs = $29,400. 2. Fixed costs in the flexible budget (FB) = Fixed costs in the master budget (MB) = $29,400. 3. Budgeted variable cost/unit = MB variable costs/MB sales volume = $47,600/1,700 units = $28.00. 4. Variable costs in the FB = actual sales volume x budgeted variable cost per unit = 1,760 units x $28.00/unit = $49,280. 5. FB operating income = FB sales - FB variable costs - FB fixed costs = $105,600 - $49,280 - $29,400 = $26,920

1. Labor efficiency variance in hours = $70,000/$28.00/hr. = 2,500 hours. 2. 2,500 hours = 20% of actual hours. 3. Actual hours = 2,500/0.2 = 12,500 hours. 4. Therefore, standard hours allowed for units manufactured = 12,500 x 1.20 = 15,000 hours

The amount B is:

A. $100,300.B. $102,000.C. $103,440.D. $105,600.




The amount C is:

A. $38,790.B. $59,490.C. $65,050.D. $83,140.




The amount D is:

A. $26,920.B. $33,720.C. $35,620.D. $42,450.



142. Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable. Direct labor efficiency variance = $70,000 (?) The standard calls for 3 direct labor hours per unit of output at $28 per labor hour. The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August. What were the total standard hours allowed for the units manufactured in August?

A. 10,000.B. 12,000.C. 12,500.D. 15,000.E. 15,625.



1. Labor efficiency variance in hours = $70,000/$28.00/hr. = 2,500 hours. 2. 2,500 hours = 20% of actual hours. 3. Actual hours = 2,500/0.2 = 12,500 hours. 4. $25,000U/12,500 hours = $2/hour U. 5. Therefore, Pa = $28.00 + $2.00 = $30.00

1. Labor efficiency variance in hours = $70,000/$28.00/hr. = 2,500 hours. 2. 2,500 hours = 20% of actual hours. 3. Actual hours = 2,500/.2 = 12,500 hours. 4. Therefore, Qs = 12,500 x 1.20 = 15,000 hours. 5. Standard number of labor hours per unit produced = 3 (given). 6. Therefore,

number of units produced in August = 15,000 hours/3 hours per unit = 5,000

1. Materials purchase-price variance = Qa x (Pa - Ps). 2. $3,000U = 30,000 kg. x (Pa - $10/kg.)

3. $303,000 = 30,000 x Pa. 4. Pa = $303,000/30,000kg. = $10.10/kg.

143. Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable. Direct labor efficiency variance = $70,000 (?) The standard calls for 3 direct labor hours per unit of output at $28 per labor hour. The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August. What was the average direct labor hourly rate the Division paid in August?

A. $24.00.B. $26.00.C. $28.00.D. $30.00.E. $31.25.



144. Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable. Direct labor efficiency variance = $70,000 (?) The standard calls for 3 direct labor hours per unit of output at $28 per labor hour. The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August. How many units of the product were produced in August?

A. 4,000.B. 4,250.C. 4,500.D. 4,750.E. 5,000.



145. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: (4 kilograms x $10.00 per kilogram) $40.00/unit. Labor: (4 hours x $18.00 per hour) $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The actual direct materials purchase price per kilogram in July was:

A. $8.80.B. $9.90.C. $10.00.D. $10.10.E. $11.80.




1. Materials purchase-price variance = Qa x (Pa - Ps). 2. $3,000U = 30,000 kg. x (Pa - $10/kg.). 3. $303,000 = 30,000 x Pa. 4. Pa =

$303,000/30,000kg. = $10.10/kg. 5. Actual cost of materials issued to production = # kg. of material issued to production x actual cost per kg. = (30,000 units purchased - 1,500 kg. increase in ending inventory of materials) x $10.10/kg. = 28,500 kg. x $1.10/kg. = $287,850

1. Direct materials usage variance = Ps x (Qs - Qa). 2. Qs = [7,200 units + 1,000 units] x 4 kg. per unit = 32,800 kg. 3. Qa = Purchases -

increase in ending inventory of materials = 30,000 - 1,500 = 28,500 kg. 4. Therefore, Ps = $10/kg. x (32,800 - 28,500) kg. = $43,000F

Direct labor rate variance = Qa x (Pa - Ps) = 28,000 hours x ([$525,000/28,500 hours] - $18/hr.) = 28,000 hours x ($18.75 - $18.00)/hour =

$21,000U

The actual total cost of direct materials used in production during July was:

A. $282,150.B. $287,850.C. $297,000.D. $300,000.E. $303,000.



147. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: materials: 4 kilograms/unit x $10.00 per kilogram = $40.00/unit; labor: 4 hours/unit x $18.00 per hour = $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The direct materials usage variance for July was:





The direct labor rate variance for July is:




149.

Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: 4 kilograms/unit x $10.00 per kilogram = $40.00/unit; labor: (4 hours x $18.00 per hour) $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

1. Labor efficiency variance = Ps x (Qs - Qa). 2. Qs = [7,200 + (0.90 x 1,000)] x 4 hours per unit = 8,100 units x 4 hours/unit = 32,400 hours.

3. Labor efficiency variance = $18/hour x (32,400 - 28,000) hours = $79,200F

1. Direct labor flexible-budget variance = total direct labor variance = direct labor rate variance + direct labor efficiency variance = $21,000U + $79,200F = $58,200 F. 2. Alternatively, direct labor FB variance = actual direct labor cost - FB for direct labor = $525,000 - (32,400 hours x $18/hour) = $525,000 - $583,200 = $58,200 F. 3. Labor efficiency variance = Ps x (Qs - Qa). 4. Qs = [7,200 + (0.90 x 1,000)] x 4 hours per

unit = 8,100 units x 4 hours/unit = 32,400 hours (see 2 above)

The direct labor efficiency variance for July was:

A. $6,600 favorable.B. $7,200 unfavorable.C. $8,000 unfavorable.D. $14,400 favorable.E. $79,200 favorable.



150. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials: 4 kilograms/unit x $10.00 per kilogram) $40.00/unit; labor: 4 hours/unit x $18.00 per hour = $72.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The direct labor flexible-budget variance for July was:




151. Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows:

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

The sales volume variance, measured in terms of direct labor cost, for July was:

A. $6,600 favorable.

The sales volume variance for any income statement item = flexible-budget (FB) direct labor cost - master budget (MB) direct labor cost = standard direct labor cost per unit x (actual output - master budget output) = $72.00/unit (given) x ([7,200 + (1,000 x 0.90)] - 8,000) units = $72.00/unit x (8,100 - 8,000) units = $7,200F

1. Standard direct materials cost for output of the period = 6,500 units x 1.5 gal./unit x $2/gal. = $19,500. 2. The credit to the direct materials inventory account is at standard cost of the actual gallons used in production. Therefore, the $19,270 actual cost is the credit to accounts payable and not a debit to inventory.

Please see Feedback for answers.

Feedback: The total variable cost flexible-budget (FB) variance includes the following component variances: (1) Direct materials variances, (2) Direct labor variances, (3) Variable overhead variances, and (4) Variable selling and administrative expenses variances.


Feedback: The materials usage ratio for a period is defined as the ratio of the quantity of materials used over the quantity of materials purchased. This ratio is used to judge the performance of the purchasing department, particularly in situations where the goal is to minimize inventory holdings. Also, one can view the materials usage ratio as a complement of the direct materials purchase-price variance. Together, these two performance metrics give a fuller (and therefore more accurate) picture of the operating performance of the purchasing department because it signals the need to balance savings in purchase price against increased costs associated with larger inventory holdings.


Feedback: The direct labor efficiency variance is the difference in total standard cost for the direct labor hours used in production and the total standard direct labor hours for the units manufactured during the period. Typical causes of this variance include the following: (a) Employees not following standard operating procedures (b) Poor scheduling procedures (c) Inadequate supervision (d) Machinery and equipment not kept in proper working condition (e) Use of nonstandard materials (f) Batch sizes different than standard (g) Employee's skill levels differ from those envisioned in the standard (h) Inadequate training of employees or supervisors (i) The labor standard is out of date/antiquated

B. $7,200 favorable.C. $51,000 unfavorable.D. $57,600 unfavorable.E. $72,000 unfavorable.



152. Landlubber Company has established a standard direct material cost of 1.5 gallons @ $2 per gallon for one unit of its product. During the past month, actual production of this product was 6,500 units. The direct materials usage (efficiency) variance was $700 (favorable) and the materials price variance (calculated at point of production) was $470 (unfavorable). The entry to charge Work in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include all the following except:

A. A debit to Work in Process Inventory for $19,500.B. A debit to Direct Materials Inventory for $18,800.C. A debit to Direct Materials Price Variance for $470.D. A credit to Direct Material Usage Variance for $700.E. A credit to Work in Process Inventory for $18,800.



153. What four variances may be included as a component of the total variable cost flexible-budget variance for a given period?



154. What is a direct materials usage ratio? For what purpose is this ratio used?



155. What is a direct labor efficiency variance, and what are some of the likely causes of this variance?



156. Rachael Hair Products shows the following budgeted and actual data for the first quarter of the current fiscal year:

Required: (a) What type of financial control system might the company use to determine whether the company met its short-term financial objectives?(b) For the first quarter of the year, what was the total master (static) budget variance?(c) In general, into what two component variances can the master (static) budget variance be decomposed? What is the meaning of each of these two variances?(d) Comment specifically on the financial performance of this company during the 1st quarter.(e) What are the primary limitations of traditional financial-control models?


Feedback: (a) The company might, at the end of the period, prepare a flexible budget, which would reflect the operating income that would have been achieved if selling price, variable cost per unit, and total fixed costs were the same as budget. The total variance to be explained by the control system is the difference between the actual operating income earned and the operating income reflected in the master (static) budget. Flexible budgets and standard costs are the "tools" of a conventional financial-control system: these items allow us to explain the total operating-income variance for any given accounting period.(b) Given the information above, we calculate the total operating-income variance as $7,500 U. That is, actual income ($22,500) was $7,500 less than operating income reflected in the master budget that was prepared prior to the start of the period ($30,000). As noted above in (a), this total variance is also referred to as the total master (or static) budget variance for the period. This difference is called the total operating-income variance or the master budget variance.(c) The existence of a flexible budget, plus standard cost information, allows the company to break down (i.e., decompose) the total operating-income variance into interpretable components. A first-level breakdown would include a total flexible-budget variance and a sales volume variance. The former variance reflects the impact on operating income of differences in selling price, variable cost per unit, and total fixed cost. The latter variance reflects the impact on operating income of sales volume being different from planned sales volume. As explained in the text, the total flexible-budget variance can be further decomposed into its constituent parts. The key to the traditional financial-control model is to use standard costs and flexible budgets to explain differences between actual and budgeted operating income.(d) Short-term financial performance has two broad elements: effectiveness and efficiency. The variance-decomposition model presented in the chapter allows us to address these issues separately. If the master budget represents its goal for sales, we can say that Rachael Hair was not effective during the 1st quarter of the year; sales volume was 1,000 units less than budgeted (planned). The other performance dimension is efficiency. In this context, we define efficiency in terms of resource consumption: an efficient operation wastes no resources. Since sales were only 9,000 units, budgeted costs at that level (flexible budget) are the appropriate basis for comparison to actual costs. Variable costs were $1,000 over budget, and fixed costs exceeded budget by $3,000. This would indicate wasted resources, even though operating income is $500 above flexible budget amount. This $500 favorable variance is a result of the average unit sales price rising to $15.50, a gain of $0.50 per unit over the master budget (and flexible budget) unit price of $15.(e) The following are among the limitations of short-term financial-performance indicators (and by extension short-term financial-control systems):1. The construction, application, and use of a standard cost system, such as described in Chapter 14, may be quite expensive. (In addition, the benefits of such systems are being called into question today.)2. Financial-performance indicators tell us "what happened," but are not necessarily good for predicting future performance. In other words, such indicators are backward, not forward, looking. Nonfinancial performance indicators, by contrast, can be leading indicators of future financial performance.3. Operating personnel may have difficulty understanding financial-performance metrics, including the variances discussed in Chapter 14. That is, these individuals may not find such information useful for improving operating performance.4. Financial-performance indicators fail to focus on improving basic business processes, which one can argue should be the goal of a comprehensive control system. Basic business processes include the following: operating processes; customer-management processes; innovation processes; and, social-legal-environmental processes.5. An over focus on individual variances may result in local, but not global, optimization in terms of performance. For example, achieving significant cost savings on direct materials may lead to unfavorable cost variances "down stream." The net result could very well be less-than-optimum total performance.6. When short-term performance indicators are used, including short-term financial performance indicators, managers and employees are encouraged to take actions that increase short-term performance, regardless of the impact on long-term or strategic performance. In brief, short term financial performance indicators can lead to behavior that is not goal-congruent.


Feedback: (Note: The format of students answer could vary significantly, but core ideas in brackets should be present.) (1) (Information needs) Will we be told about the system in advance? Who will tell us? When will they tell us? (2) (Participation) Do we get to help make up the standards? Will we get help doing that? Is the company serious about getting our input? (3) (Standards) What should be the minimum level of performance? How do we measure our work? Can quality be measured, as well as quantity? (4) (Rewards and Punishment) How much can we earn with good performance? What happens if we don't meet the minimum standard?


Feedback: The sales volume variance reflects the effect on operating income of actual sales volume differing from planned sales volume (as reflected in the master budget). For any income statement item, the sales volume variance can be defined as the difference between the amount reflected in the flexible budget (FB) and the corresponding amount in the master budget. As such, this variance holds constant: selling price per unit, variable cost per unit, and total fixed costs. Some common causes of the sales-volume variance are: 1. Ineffective marketing and promotion campaigns. 2. Inappropriate selling price (either too high or too low). 3. Inaccurate sales forecast (i.e., inappropriate budgeted sales figure). 4. Loss of market share to competitors. 5. Change in the market for the product in question. That is, total demand for the product increased or decreased more than anticipated. 6. Failure by the firm to achieve planned improvements in quality and/or timeliness of delivery (CRT, etc.).


Learning Objective: 14-1Learning Objective: 14-2Learning Objective: 14-6

157. Ann Jacobson's supervisor has asked her to list any concerns she might have about the proposed development of standards to measure performance and to reward superior performance in her department. Ann's department handles customer calls, directing customer questions and complaints to the appropriate persons within the firm. The company has never before used any performance measure nor paid any performance-related bonuses. It hopes to install a simple but effective system to achieve its twin goals of cost control and performance measurement. Develop the list for Ann based on the information above.



158. Within the context of the material covered in Chapter 14, define the term "sales-volume variance." List some common causes of the sales-volume variance.



159. Discuss some major differences between static and flexible budgets.


Feedback: A static budget is prepared before an operating period starts and presents the operating plan and goals of the period. The revenues and expenses included in a static budget are for a single pre-specified level of operations. For control (i.e., feedback) purposes, a flexible budget can be prepared after the operating period is over to determine the revenues and expenses that would have been achieved for the actual sales volume for the period. The flexible budget is more useful than a static budget for evaluating performance because it compares the actual amounts with budgeted costs and revenue that should have been realized at the actual output volume.


Feedback: Note—this problem requires knowledge of process costing, in particular, the notion of "equivalent units of production."



160. Klash Company adopted a standard cost system several years ago. The company uses standard costs for all of its inventories. The standard costs for direct materials and labor for its single product are as follows: Materials (12 kilograms/unit x $7.00 per kilogram) = $84.00/unit; direct labor (8 hours/unit x $12.00 per hour) = $96.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December:

Note: number of kilograms issued to production during the period = number of kilograms purchased.Required: (A) Calculate the standard cost of the actual kilograms of material purchased.(B) Calculate the total standard kilograms for the production of the period (that is, for "equivalent units produced with respect to direct materials")(C) Calculate the total standard cost of materials for the production of the period.(D) Calculate the actual price per kilogram of material of material purchased this period.(E) Calculate the direct labor rate variance.



161.

Miller has the following information pertaining to its usage of direct labor in a recent period:


Feedback:


Required: Given the above, determine the company's:(A) Direct labor efficiency variance for the period.(B) Direct labor rate variance for the period.(C) Summary journal entry to record accrued labor costs and associated standard cost variances for the period.



162. Sarheen, Inc. maintains no inventories and has collected the following data on one of its products for the most recent period:

Required: Determine:(A) The direct material usage (quantity) variance.(B) The actual cost of the direct materials purchased and used during the period. (Hint: these two amounts are identical.)(C) The direct material price variance.(D) The correct summary journal entry to record direct material costs for this period's production, including associated standard cost variances. (Note: assume that any price variances are recorded at point of production.)

Feedback:




163. McElroy Company has prepared the following master budget for 2010. Although McElroy has the capacity to manufacture 50,000 units, management expected the likely demand for its product to be 40,000 units in 2010; as such, it prepared the master budget to manufacture and sell 40,000 units. In early January 2011, the company was pleasantly surprised to find out that it manufactured and sold 45,000 units in 2010.

Required: Prepare the flexible budget (FB) for the actual operating level achieved in 2010.

Feedback:


Feedback: (1) Direct materials purchase-price variance:




164. Balt Company maintains a standard cost system; as such, all inventories, including materials, are carried on the books at standard cost. Last period, Balt used 5,000 pounds of Material H to produce 800 units of Product C8. The company has established a standard of 7 pounds of Material H per unit of C8, at a price of $7.50 per pound of material. During the period the inventory for Material H decreased by 2,000 pounds. The company spent $25,000 during the period to purchase material H.Required: (1) Calculate the direct materials purchase-price variance for the period. (2) Calculate the direct materials usage variance for the period. (3) Provide the correct summary journal entry to record the purchase, on credit, of materials during the period.(4) Provide the correct summary journal to record direct materials cost for materials issued to production during the period.



165. Falcon Company uses a standard cost system; as such, all inventories are carried on the books at standard cost. During the most recent period the company manufactured 12,000 units. The standard cost sheet indicates that the standard direct labor cost per unit is $1.50. The performance report for the period includes an unfavorable direct labor rate variance of $1,000 and a favorable direct labor efficiency variance of $275.Required: What was the total actual cost of direct labor incurred during the period?

Feedback:


Feedback: (1) Flexible budget (FB) based on actual output level achieved (42,000 units):

(2) A flexible budget (FB) contains budgeted costs and revenues for the actual output level achieved. That is, the original master budget for the period is "flexed" to the actual sales volume achieved during the period. For control purposes, flexible budgets can be used at the end of a period to break down and therefore explain the total master (static) budget variance for the period. This total variance is also referred to as the total operating-income variance. The existence of a FB allows us to decompose the total operating-income variance into a total flexible-budget variance and a sales-volume variance. The former variance is a function of a total variable cost FB variance, a selling price variance, and a total fixed cost (spending) variance. Variable cost FB budget variances, such as those for labor and materials, can further be broken down into price (P) and efficiency (Q) components. In short, the FB variance relates to selling price effects and spending effects for variable and for fixed cost elements, while the sales volume variance estimates the impact on profit of letting sales volume vary from the original budget while holding other factors constant. None of the insight provided by these component variances would be possible in the absence of the FB results.



166. Balmer Corporation's master budget for the year is presented below:

During the period, the company actually manufactured and sold 42,000 units.Required:(1) Prepare a flexible budget (FB) for the actual output level achieved during the period.(2) What is the definition of a FB? For what managerial purpose is a FB useful? Be specific about the types of information (and variances) that management can generate, at the end of an accounting period, given a flexible budget and its master (static) budget.



167. Patterson, Inc. wishes to evaluate, in summary fashion, its financial performance for the most recent period. The budget and the actual operating results for this period are presented below.

Required: (A) What was the actual operating income for the period?(B) What is the firm's master budget operating income?


Feedback:

(A) Actual operating income = $88,000 (B) Master budget operating income = $200,000 (C) Flexible-budget operating income = $120,000 (D) Operating income variance = $112,000 U = $88,000 - $200,000 (E) Sales volume variance, in terms of operating income = $120,000 -$200,000 = $80,000U (F) The key elements of the traditional financial-control model are flexible budgets and standard costs. Together, these two items allow us to decompose the total operating-income variance for a period into its constituent parts. As seen above, the total operating-income variance for a period can be broken down into a total flexible-budget (FB) variance and a sales-volume variance. The former can then be broken down into selling price, variable cost, and fixed cost variances, with each variable cost variance capable of being broken down into its price and quantity components.(G) The following are among the limitations of short-term financial-performance indicators (and by extension short-term financial-control systems):1. The construction, application, and use of a standard cost system, such as described in Chapter 14, may be quite expensive. (In addition, the benefits of such systems are being called into question today.)2. Financial-performance indicators tell us "what happened," but are not necessarily good for predicting future performance. In other words, such indicators are backward, not forward, looking. Nonfinancial performance indicators, by contrast, can be leading indicators of future financial performance.3. Operating personnel may have difficulty understanding financial-performance metrics, including the variances discussed in Chapter 14. That is, these individuals may not find such information useful for improving operating performance.4. Financial-performance indicators fail to focus on improving basic business processes, which one can argue should be the goal of a comprehensive control system. Basic business processes include the following: operating processes; customer-management processes; innovation processes; and, social-legal-environmental processes.5. Focusing too much on individual variances may result in local, but not global, optimization in terms of performance. For example, achieving significant cost savings on direct materials may lead to unfavorable cost variances "down stream." The net result could very well be less-than-optimum total performance.6. When short-term performance indicators are used, including short-term financial performance indicators, managers and employees are encouraged to take actions that increase short-term performance, regardless of the impact on long-term or strategic performance. In brief, short term financial performance indicators can lead to behavior that is not goal-congruent.


Feedback:


(C) What was the flexible-budget operating income for the period?(D) What is the total operating-income variance of the period?(E) What was the sales-volume variance, in terms of operating income, for the period?(F) What are the key elements of the traditional financial control model?(G) What are the primary limitations of the traditional financial control model?



168. Contemporary furniture manufactures office desks. The firm budgeted to sell 5,000 desks at $200 per desk in 2010. Budgeted costs include $80 variable cost per desk, and $200,000 fixed cost/year. In 2010 the company sold 6,000 desks at $190, and incurred $78 variable cost per desk and $220,000 fixed cost for the year.Required: Prepare, in proper form, a variance analysis report identifying both flexible budget and sales-volume variances.



169.

Fill in the unknowns A through S below.

Feedback:


Feedback:




170. James has the following information pertaining to its usage of direct labor in a recent period:

Required: (A) Calculate the labor efficiency variance for the period.(B) Calculate the labor rate variance for the period.(C) Prepare, in proper form, the journal entry to record wage expense for the period, including any associated standard cost variances.



171. Appliance, Inc. manufactured 10,000 units. The standard cost sheet indicates that the standard direct labor cost per unit is $3.00. The performance report for the period includes a favorable direct labor rate variance of $2,000, and a favorable direct labor efficiency variance of $500.Required: What was the total actual cost of direct labor incurred during the period?

Feedback:


Feedback:


Feedback: 1. Definition: JIT can be viewed as a particular operating strategy. We can define a JIT process as one in which production at any stage of the process does not occur until an order is received from a customer—either internal or external. In this sense, the system is described as demand-pull, rather than push. Two characteristics of JIT systems can be observed: (a) the relentless pursuit of quality by all elements of the value chain, which leads to (b) significant reductions in the amount of inventories held.2. Principal benefits of adopting a JIT system include the following: (a) decreased production costs, because of increased quality (e.g., cost of rework and internal failure costs are decreased as quality increases), (b) reduction in out-of-pocket costs for carrying inventory (e.g., reductions in clerical and recordkeeping costs, as well as reductions in information-processing costs), (c) reduction in opportunity costsassociated with holding inventory, (d) increases in sales volume and market share attributable to increases in product/service quality, (e) increases in sales volume and market share attributable to reductions in cycle/processing times (alternatively, increased profitability because of faster customer-response time (CRT)).3. Principal costs associated with a move to a JIT system: (a) educational and training costs for employees, both initial and on-going, (b) changes in the management accounting and control system (to monitor appropriate activities related to the success of a JIT system), and (c) cost of redesigning or reconfiguring the production layout (e.g., conversion to cellular manufacturing or flexible manufacturing systems)




172. The Chen Company uses a standard cost system. As such, all of its inventories are carried on the books at standard, not actual, cost. During the most recent accounting period, the company had the following summary transactions:(A) Purchased, on credit, direct materials; the standard cost of these materials was $30,000, while the actual cost was $32,000.(B) Issued to production direct materials. The standard cost of materials that should have been used for this period's output was $35,000, while the standard cost of materials actually used in production during the period was $33,000.(C) Actual direct labor cost, which has been incurred but not yet paid, for the period was $75,000. The standard direct labor cost for this period's output was $80,000. The direct labor efficiency variance for the period was $10,000(F).(D) For the units completed during the period, the standard direct labor cost was $78,000, while the standard direct materials cost was $34,000.(E) For the units sold during the period, the standard materials cost was $30,000, while the standard direct labor cost was $76,000Required: Given the above information, provide the correct journal entries for the following:(A) Purchase of direct materials(B) Issuance of materials to production.(C) Direct labor cost for the period.(D) The labor and materials cost associated with finished production this period.(E) The labor and materials cost associated with items sold during the period.



173. Define what is meant by the term "just in time production" (JIT). As indicated in your text, management accountants can supply relevant information to management as it considers a move to JIT. In this regard, describe some of the principal advantages of using a JIT system, and then describe some of the incremental costs that would likely be associated with a move to such a system.



174. Chapter 14 argues that a comprehensive management accounting and control system would include nonfinancial as well as financial performance indicators. Two such nonfinancial performance indicators were discussed in conjunction with organizations that adopt a just-in-time (JIT) production philosophy: customer-response time (CRT) and process cycle efficiency (PCE). Explain each of these two performance indicators.

Feedback: As indicated in the text, both CRT and PCE are measures that the accountant can develop and monitor in conjunction with a move to JIT. Both of these measures focus on time-based performance, presumably a critical success factor for those organizations embracing JIT.Customer Response Time (CRT)Total CRT can be defined as the lapse of time (e.g., in days) between when a customer receives and order and when the customer placed that order. Insights into better managing CRT are possible once we break the measure down into its components. For example: CRT = Receipt Time + Manufacturing Lead Time + Delivery Time. Receipt time is the time-lapse between when a customer places an order and when that order is received by the manufacturing department. Manufacturing lead time (also called manufacturing cycle time, or production cycle time) is defined as the amount of time between when manufacturing receives an order and when that order is completed. Note that manufacturing lead time can be further broken down into the following two components: (1) Waiting time, that is, the lapse of time between when an order is received by the manufacturing department and when that order is set up to run, and (2) Manufacturing time, which is the difference in time between when the customer's order is set up and when that order is completed. Delivery time is then defined as the amount of time between the time a job is finished and the time that the order is received by the customer.Processing Cycle Efficiency (PCE)PCE is an alternative (and complementary) measure of process efficiency. This performance metric captures the relationship between actual processing time and total production time. In formula form, we can write: PCE = Processing time/Total manufacturing time. PCE = Processing time/(Processing time + Moving time + Storage time + Inspection time). PCE = Value-added-time/(Value-added time + Non-value-added time). Note that the higher the PCE, the greater the efficiency (up to the maximum value of 1.0).


Feedback: The sales price variance is essentially calculated by holding quantity constant and letting the selling price vary. The resulting amount, for a given product, represents the impact on operating income of selling the product at an amount different from that envisioned when the master (static) budget was developed. The selling price variance is therefore = actual volume of sales x (budgeted selling price per unit - actual selling price per unit). The selling price variance is one component of the total flexible budget variance for a given period. Other components include the total variable cost flexible budget variance, the total fixed cost variance. Together, this set of three variances explains the total flexible-budget variance for the period, that is, the difference between actual operating income and the flexible-budget operating income.


Feedback: (A) Materials price variance = Qa x (Pa - Ps)

(B) Materials usage variance = Ps x (Qa - Qs)

(C) FB variance for direct materials = total direct materials variance for the period = materials price variance + materials quantity variance = [Qa x (Pa - Ps)] + [Ps x (Qa - Qs)] = (Qa x Pa) - (Qa x Ps) + (Ps x Qa) - (Ps x Qs) = (Qa x Pa) - (Ps x Qs) = Actual materials cost - FB (i.e.,

standard) materials cost(D) Joint price/efficiency variance for direct materials = (difference between actual and standard price per unit) x (difference between actual quantity used and the standard quantity allowed for this period's output) = (Pa - Ps) + (Qa - Qs)


Feedback: As indicated in the text, the traditional model of (short-term) financial control relied on the use of flexible budgets, standard costs, and variances similar to the ones presented in the early part of Chapter 14. As such, the focus of financial control was on short-term financial results. A comprehensive management accounting and control system will likely have both financial (both short-term and long-term) performance indicators as well as nonfinancial performance indicators. The latter are important for a number of reasons, including the following:(1) The construction, application, and use of a standard cost system, such as described in Chapter 14, may be quite expensive. (In addition, the benefits of such systems are being called into question today.)(2) Financial-performance indicators tell us "what happened," but are not necessarily good for predicting future performance. In other words, such indicators are backward, not forward, looking. Nonfinancial performance indicators, by contrast, can be leading indicators of future financial performance.(3) Operating personnel may have difficulty understanding financial-performance metrics, including the variances discussed in Chapter 14. That is, these individuals may not find such information useful for improving operating performance.(4) Financial-performance indicators fail to focus on improving basic business processes, which one can argue should be the goal of a comprehensive control system. Basic business processes include the following: operating processes; customer-management processes; innovation processes; and, social-legal-environmental processes.(5) An over focus on individual variances may result in local, but not global, optimization in terms of performance. For example, achieving significant cost savings on direct materials may lead to unfavorable cost variances "down stream." The net result could very well be less-than-optimum total performance.



175. Explain the calculation and interpretation of a sales price variance for any given period. How does this variance relate to the total flexible-budget variance for the period?



176. Subscript "a" = actual; subscript "s" = standard; Q = quantity of direct materials issued to production; P = price paid for unit of direct materials.Required: Use the above notation to develop a formula for each of the following standard cost variances: (A) Direct materials price variance (calculated at point of production, not point of purchase).(B) Direct materials usage variance.(C) Flexible-budget (FB) variance for direct materials.(D) Joint price-quantity variance for direct materials.



177. Chapter 14 introduces you to the concept of operational control systems. Within the context of this discussion, certain limitations of financial control systems were presented. Provide a summary of the primary limitations of short-term financial performance indicators, such as the variances discussed in the main part of the chapter.

(6) When short-term performance indicators are used, including short-term financial performance indicators, managers and employees are encouraged to take actions that increase short-term performance, regardless of the impact on long-term or strategic performance. In brief, short term financial performance indicators can lead to behavior that is not goal-congruent.



14 SummaryCategory # of Questions

Blocher - Chapter 14 177Difficulty: Easy 70Difficulty: Hard 12Difficulty: Medium 95Learning Objective: 14-1 8Learning Objective: 14-2 11Learning Objective: 14-3 119Learning Objective: 14-4 25Learning Objective: 14-5 6Learning Objective: 14-6 18

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