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Exam 23: Flexible Budgets and Standard Costs

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Question 21

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Joseph, Inc., provides the following results of June's operations: $\begin{array}{ll} \text { Direct materials price variance} & \$ 400 \mathrm{~F} \\ \text { Direct materials quanty variance } & 2,000 \mathrm{U} \\\text {Direct Labor rate variance } & 100 \mathrm{U} \\ \text {Direct labor efficiency variance } & 1,200 \mathrm{~F} \\\text { Variable overhead spending variance } & 400 \mathrm{U} \\\text { Variable overhead efficiency variance } & 800 \mathrm{~F} \\\text { Fixed overhead spending variance } & 100 \mathrm{U} \\\text { Fixed overhead volume variance } & 600 \mathrm{~F} \end{array}$ Required: (a) Determine the total overhead cost variance for June. (b) Applying the management by exception approach, which of the variances shown are of greatest concern? Why?

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Question 22

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Zip-up Company provides the following data developed for its master budget: $\begin{array} { l l } \text { Sales price } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 11.00 \text { per unit } \\\text { Costs: } & \\\text { Direct materials } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 3.00 \text { per unit } \\\text { Direct labor } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 4.75 \text { per unit } \\\text { Variable overhead } \ldots \ldots \ldots \ldots \ldots \ldots & \$ 0.50 \text { per unit } \\\text { Factory depreciation } \ldots \ldots \ldots \ldots \ldots & \$ 12,000 \text { per month } \\\text { Supervision } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 13,000 \text { per month } \\\text { Selling expense } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 0.25 \text { per unit } \\\text { Administrative cost } \ldots \ldots \ldots \ldots \ldots \ldots . & \$ 9,000 \text { per month }\end{array}$ Required: Prepare flexible budgets for sales of 20,000, 22,000 and 24,000 units. Use a contribution margin format.

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Question 23

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Fletcher Company collected the following data regarding production of one of its products. Compute the standard quantity allowed for the actual output. $\begin{array}{llr} \text { Direct materrals standard (6 lbs. @ \$2/1b.) } &\$12& \text { per finished unit } \\ \text { Actual direct materials used} &243,000& \text {Ibs. } \\ \text {Actual finished units produced } &40,000& \text {units } \\ \text { Actual cost of direct materials used } &\$483,570\\\end{array}$

Lionaire, Inc. has developed the following standard cost data based on 60,000 direct labor hours, which is 75% of capacity. $\begin{array} { l l } & \text { Per Unit }\\\text { Direct materials (6 lbs. @ \$2.00/lb.) } & \$ 12.00 \\\text { Direct labor (1 hrs. @ \$8.00/hr.) } & 8.00\end{array}$ During the last period, the company operated at 80% of capacity and produced 128,000 units. Actual costs were: $\begin{array} { l l } \text { Direct materials } ( 760,000 \mathrm { lbs } . ) & \$ 1,558,000 \\\text { Direct labor } ( 126,000 \mathrm { hrs } . ) & 1,014,300\end{array}$ Determine the direct materials price and quantity variances and the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. $\begin{array} { l | l } \hline \text { Direct materials: } &\quad \quad \quad \quad \quad \quad \quad \\\hline \text { Price variance } & \\\hline \text { Quanty variance } & \\\hline & \\\hline \text { Direct labor: } & \\\hline \text { Rate variance } & \\\hline \text { Efficiency variance } & \\\hline\end{array}$

Claymore Corp. has the following information about its standards and production activity for September. The controllable variance is: $\begin{array}{lll} \text { Actual total factory overhead incured } &\$28,175\\ \text {Standard factory overhead: } &\\ \text { Variable overhead } &\$3.10&\text { per unit produced }\\ \text { Fixed overhead } &\\ \text { \$ 12,000 / 6,000 estimated units to be produced } &\$2&\text {per unit}\\ \text { Actual units produced } &4,800&\text { units}\\\end{array}$

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

Standard costs are used in the calculation of:

A company's flexible budget for 12,000 units of production showed total contribution margin of $24,000 and fixed costs, $16,000. The operating income expected if the company produces and sells 15,000 units is:

If ending variance account balances are immaterial, they can be closed directly to Cost of Goods Sold.

Variable budget is another name for a flexible budget.

A volume variance is the difference between overhead at maximum volume of production and the standard volume of production.

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

How are unfavorable variances recorded? How are favorable variances recorded?

If Mercury Company's actual overhead incurred during a period was $32,700 and the company reported a favorable overhead controllable variance of $1,200 and an unfavorable overhead volume variance of $900, how much standard overhead cost was assigned to the products produced during the period?

Janitor Supply produces an industrial cleaning powder that requires 40 grams of material at $0.10 per gram and .25 direct labor hours at $12.00 per hour. Overhead is applied at the rate of $18 per direct labor hour. What is the total standard cost for one unit of product that would appear on a standard cost card?

Lavoie Company planned to use 18,500 pounds of material costing $2.50 per pound to make 4,000 units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials quantity variance.

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

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000. Calculate the expected level of operating income if the company produces and sells 13,000 units.

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

Oxford Co. produces and sells two lines of t-shirts, Classic and Mod. Oxford provides the following data. Compute the sales price and the sales volume variances for each product. $\begin{array} { l | l | l } & \text { Budget } & \text { Actual } \\\hline \text { Unit sales price } - \text { Classic } \ldots & \$ 15 & \$ 16 \\\hline \text { Unit sales pric e-Mod } \ldots \ldots & \$ 20 & \$ 19 \\\hline \text { Unit sales-Clas sic } \ldots \ldots \ldots \ldots & 2,400 & 2,500 \\\hline \text { Unit sal es-Mod } \ldots \ldots \ldots \ldots \ldots & 2,000 & 1,900\end{array}$