6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 12 Flexible Budgets and Variance Analysis
1) Flexible budgets are designed to show different possible costs for one anticipated level of output.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 491
Objective: 1
2) All master budgets are prepared for only one level of activity.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 491
Objective: 1
3) In a flexible budget, the fixed costs will remain constant regardless of different levels of activity shown
in the budget.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 491
Objective: 1
4) A performance report should include variances that indicate the difference between expected future
results and desired results.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 495
Objective: 3
5) If actual revenues and expenses exceed expected revenues and expenses, all variances in the
performance report will be favourable.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 495
Objective: 3
6) One cause of a flexible-budget variance might be a difference between expected and actual hourly
wages for factory workers.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 495
Objective: 3
7) As the terms are used in the budgeting process, it is possible for a company to be effective at the same
time it is inefficient.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 495
Objective: 3
8) Flexible budgets evaluate whether operations are effective or not.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 491
Objective: 1
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Objective: 2
18) Underapplied overhead is always the difference between the budgeted overhead and the overhead
applied.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 493
Objective: 1
Use the following information to answer the next question(s):
The standard cost sheet for one of the Vitton Company's products is presented below.
Direct materials (4 feet @ $6.00)
Direct labour (1 hour @ $12.00)
Variable overhead (1 hour @ $5.00)
Fixed overhead (1 hour @ $3.00*)
Standard unit cost
$24.00
12.00
5.00
3.00
$44.00
10,000
$241,800
$131,250
$ 48,000
$ 40,000
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$30
$15
$3
$20,000
$10,000
26) What are the total manufacturing costs for 10,000 units?
A) $150,000
B) $20,000
C) $170,000
D) $180,000
Answer: C
Diff: 1
Type: MC
Page Ref: 501
27) What are the total manufacturing costs for 15,000 units?
A) $30,000
B) $245,000
C) $225,000
D) $270,000
Answer: B
Diff: 1
Type: MC
Page Ref: 501
28) What are the total selling and administrative expenses for 10,000 units?
A) $30,000
B) $40,000
C) $180,000
D) $210,000
Answer: B
Diff: 2
Type: MC
Page Ref: 501
29) What are the total selling and administrative expenses for 15,000 units?
A) $300,000
B) $ 45,000
C) $ 55,000
D) $270,000
Answer: C
Diff: 2
Type: MC
Page Ref: 501
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$120
$60
$12
$80,000
$40,000
32) What are the total manufacturing costs for 10,000 units?
A) $600,000
B) $80,000
C) $680,000
D) $720,000
Answer: C
Diff: 2
Type: MC
Page Ref: 592
33) What are the total manufacturing costs for 15,000 units?
A) $120,000
B) $980,000
C) $900,000
D) $1,080,000
Answer: B
Diff: 3
Type: MC
Page Ref: 501
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34) What are the total selling and administrative expenses for 10,000 units?
A) $120,000
B) $160,000
C) $720,000
D) $840,000
Answer: B
Diff: 2
Type: MC
Page Ref: 501
35) What are the total selling and administrative expenses for 15,000 units?
A) $1,200,000
B) $180,000
C) $220,000
D) $1,080,000
Answer: C
Diff: 2
Type: MC
Page Ref: 501
36) What is the net income for 10,000 units?
A) $360,000
B) $480,000
C) $1,200,000
D) $1,080,000
Answer: A
Diff: 2
Type: MC
Page Ref: 501
37) What is the net income for 15,000 units?
A) $1,800,000
B) $720,000
C) $1,620,000
D) $600,000
Answer: D
Diff: 2
Type: MC
Page Ref: 501
The total traceable costs of the account billing activity centre is $245,000. Cost behaviour analysis indicates
that fixed costs are $75,000. Activity analysis indicates that the cost driver for account billing activity is the
number of lines printed, and the total lines printed is 2,500,000.
38) What is the variable cost per line?
A) $0.068
B) $0.098
C) $0.030
D) Cannot be determined
Answer: A
Diff: 2
Type: MC
Page Ref: 501
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Units
Sales
Variable costs
Contribution margin
Fixed costs
Operating income
Master
Budget
16,000
$160,000
96,000
$ 64,000
40,000
$ 24,000
Actual
18,000
$180,000
117,000
$ 63,000
38,000
$ 25,000
$10
$9
2 pounds
31,000 pounds
15,000 units
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$20
$22
2 hours
9,500 hours
5,000 units
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The Clamen Company makes table lamps, for which the following standards have been developed:
Direct materials
Direct labour
Standard Inputs
Expected for Each
Unit of Output
20 pounds
6 hours
During October, production of 100 lamps was expected, but 110 lamps were actually completed.
Direct materials purchased and used were 2,100 pounds at an actual price of $2.20 per pound.
Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00.
59) The standard cost of direct material for each lamps produced is
A) $48.00.
B) $40.00.
C) $44.00.
D) $21.00.
Answer: B
Diff: 2
Type: MC
Page Ref: 501
60) The direct-material price variance for October is
A) $420 unfavourable.
B) $420 favourable.
C) $400 favourable.
D) $400 unfavourable.
Answer: A
Diff: 2
Type: MC
Page Ref: 501
61) The direct-material usage variance for October is
A) $220 unfavourable.
B) $220 favourable.
C) $200 unfavourable.
D) $200 favourable.
Answer: D
Diff: 2
Type: MC
Page Ref: 501
62) The direct-labour price variance for the month of October is
A) $600 unfavourable.
B) $600 favourable.
C) $590 unfavourable.
D) $590 favourable.
Answer: C
Diff: 2
Type: MC
Page Ref: 501
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Direct Material
Product X
3 pounds
$4.00 per pound
?
$5.00 per pound
$400 U
$800 F
?
200 units
Direct Material
Product Y
4 pounds
?
3 pounds
$10.00 per pound
$900 F
?
$4,200 F
300 units
64) For product X, the actual quantity used per unit was
A) 1.0 pound.
B) 2.0 pounds.
C) 3.0 pounds.
D) 3.5 pounds.
Answer: B
Diff: 2
Type: MC
Page Ref: 501
65) For Product X, the flexible-budget variance was
A) $800 unfavourable.
B) $800 favourable.
C) $1,200 favourable.
D) $400 favourable.
Answer: D
Diff: 2
Type: MC
Page Ref: 496
Objective: 4
66) For Product X, the total actual quantity used was
A) 600 pounds.
B) 500 pounds.
C) 400 pounds.
D) 300 pounds.
Answer: C
Diff: 2
Type: MC
Page Ref: 501
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72) When actual volume is less than expected volume, fixed overhead is
A) favourable.
B) underapplied.
C) overapplied.
D) indeterminable.
Answer: B
Diff: 1
Type: MC
Page Ref: 491
Objective: 1
73) The costing system that uses actual direct labour and materials cost but uses standards for applying
overhead is called
A) actual costing.
B) standard costing.
C) variance costing.
D) normal costing.
Answer: D
Diff: 1
Type: MC
Page Ref: 511
Objective: 8
74) Which costing methods generate fixed overhead volume variances?
A) Normal and standard.
B) Standard and actual.
C) Actual and normal.
D) Actual, normal, and standard.
Answer: A
Diff: 1
Type: MC
Page Ref: 511
Objective: 8
A company had the following information pertaining to two different cases:
Case X
$130,000
Case Y
$230,000
$ 24
11,000
$ 10,000 F
$ 6,000 U
$ 14
6,000
$ 20,000 U
$ 8,000 F
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Case X
$130,000
Case Y
$230,000
$ 24
11,000
$ 10,000 F
$ 6,000 U
14
6,000
$ 20,000 U
$ 8,000 F
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86) The differences between the master budget amounts and the amounts in the flexible budget.
Answer: Activity-level variances
Diff: 1
Type: SA Page Ref: 491
Objective: 1
87) The degree to which a goal, objective, or target is met.
Answer: Effectiveness
Diff: 1
Type: SA Page Ref: 491
Objective: 1
88) The degree to which inputs are used in relation to a given level of outputs.
Answer: Efficiency
Diff: 1
Type: SA Page Ref: 491
Objective: 1
89) The cost most likely to be attained.
Answer: Standard cost
Diff: 1
Type: SA Page Ref: 491
Objective: 1
90) A carefully determined cost per unit that should be attained.
Answer: Standard cost
Diff: 1
Type: SA Page Ref: 491
Objective: 1
91) Levels of performance that can be achieved by realistic levels of effort.
Answer: Currently attainable standards
Diff: 1
Type: SA Page Ref: 491
Objective: 1
92) The difference between the actual overhead incurred and the overhead applied.
Answer: Under/overapplied overhead
Diff: 1
Type: SA Page Ref: 491
Objective: 1
93) The amount of fixed manufacturing overhead applied to each unit of production.
Answer: Fixed-overhead rate
Diff: 1
Type: SA Page Ref: 501
94) A variance that appears whenever actual production deviates from the expected volume of
production used in computing the fixed-overhead rate.
Answer: fixed overhead volume variance
Diff: 1
Type: SA Page Ref: 508
Objective: 7
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95) A cost system that applies actual direct materials and actual direct-labour costs to products or services
but uses standards for applying overhead.
Answer: Normal costing
Diff: 1
Type: SA Page Ref: 511
Objective: 8
96) Assigning the variances to the inventories and cost of goods sold related to the production during the
period the variances arose.
Answer: Prorating the variance
Diff: 1
Type: SA Page Ref: 511
Objective: 9
97) Given the following data:
Direct
Material
$15 per foot
$17 per foot
Direct
Labour
$15 per hour
$14 per hour
4 feet
1,750 feet
400 units
2 hours
850 hours
Required: Compute the price, usage and flexible-budget variances for direct material and labour. Indicate
whether each variance is favourable or unfavourable.
Answer:
Direct material:
Price variance = ($17 - $15) 1,750 = $3,500 unfavourable
Usage variance = [1,750 - (400 4)] $15 = $2,250 unfavourable
Flexible-budget variance = $3,500 U + $2,250 U = $5,750 unfavourable
Direct labour:
Price variance = ($14 - $15) 850 = $850 favourable
Usage variance = [850 - (400 2)] $15 = $750 unfavourable
Flexible-budget variance = $850 F - $750 U = $100 favourable
Diff: 3
Type: ES
Page Ref: 501
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98) The following data are for the month of August for Murdock Corporation, a company that makes
saucers.
Direct material
Direct labour
Standard Inputs
Expected for Each
Unit of Output
10 pounds
3 hours
Standard
Price per
Unit of Input
$ 6 per pound
$10 per hour
During the month of August, the company actually produced 1,000 saucers, which is 50 units less than
expected. Direct material purchased and used amounted to 10,500 pounds at a cost of $6.25 per pound.
Actual direct labour was 2,900 hours at an actual cost of $10.50 per hour.
Required:
a. What is the standard cost per saucer for direct material and direct labour?
b. Compute the price and usage variances for direct material and direct labour.
Answer:
a. Direct material standard cost:
10 $6 = $60 per unit
Direct labour standard cost:
3 $10 = $30 per unit
b.
Direct material:
Price variance = ($6.25 - $6.00) 10,500 = $2,625 unfavourable
Usage variance = (10,500 - 10,000) $6 = $3,000 unfavourable
Direct labour:
Price variance = ($10.50 - $10.00) 2,900 = $1,450 unfavourable
Usage variance = (2,900 - 3,000) $10.00 = $1,000 favourable
Diff: 3
Type: ES
Page Ref: 501
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99) The following data pertain to June operations for the Harley Company:
Direct material
Direct labour
Actual Inputs
for Each Unit
of Output
10 yards
2 hours
Actual Price
per Unit
of Input
$ 8 per yard
$10 per hour
Actual output was 750 units. The Company's per unit standards call for 9 yards of direct material at $9.00
per yard and 3 hours of direct labour at $10.50 per hour.
Required: Compute the price and usage variances for direct material and direct labour.
Answer:
Direct material:
Price variance = ($8 - $9) (10 750) = $7,500 favourable
Usage variance = [7,500 - (750 9)] $9 = $6,750 unfavourable
Direct labour:
Price variance = ($10.00 - $10.50) (750 2) = $750 favourable
Usage variance = [1,500 - (750 3)] $10.50 = $7,875 favourable
Diff: 3
Type: ES
Page Ref: 501
100) Fill in the missing information in the following table:
Direct
Material
3.5 pounds
$6 per pound
3 pounds
(a)
$1,400 F
(b)
$400 U
Direct
Labour
(c)
$17 per hour
4 hours
$16 per hour
$1,500 U
$600 F
(d)
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101) Washington, Inc. has budgeted fixed factory overhead costs at $150,000 per month and variable
factory overhead at a rate of $6 per direct-labour hour. The standard direct-labour hours allowed for
January production were 18,000. An analysis of the factory overhead indicates that during January there
was an unfavourable flexible budget variance of $5,000 and a favourable production volume variance of
$3,000.
Required:
a. Compute the actual factory overhead cost for January.
b. Calculate the applied overhead cost for January.
Answer:
a. $5,000 + $150,000 + (18,000 $6) = $263,000
b. (18,000 $6) + $150,000 + $3,000 = $261,000
Diff: 3
Type: ES
Page Ref: 501
102) Warren Company's overhead cost information is given below:
Standard applied overhead
Budgeted overhead based on
standard machine hours allowed
Budgeted overhead based on
actual machine hours used
Actual overhead
$152,000
162,000
170,000
166,000
Required:
a. Compute the total overhead variance.
b. Calculate the flexible-budget variance.
c. Determine the fixed overhead volume variance.
Answer:
a. $166,000 - $152,000 = $14,000 unfavourable
b. $166,000 - $162,000 = $4,000 unfavourable
c. $162,000 - $152,000 = $10,000 unfavourable
Diff: 3
Type: ES
Page Ref: 501
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100,000 units
95,000 units
$200,000
$207,500
$9
$395,000
.50 hour
$8.00
46,500 hours
$8.25
Required:
Compute the following variances:
a. Direct-labour flexible-budget variance
b. Variable factory overhead flexible-budget variance
c. Fixed factory overhead flexible-budget variance
d. Fixed factory overhead production-volume variance
Answer:
a. (46,500 $8.25) - (95,000 .5 $8.00) = $3,625 unfavourable
b. $395,000 - (95,000 .5 $9) = $32,500 favourable
c. $207,500 - $200,000 = $7,500 unfavourable
d. $200,000 - (95,000 $2*) = $10,000 unfavourable
*$200,000/100,000 units = $2 per unit
Diff: 3
Type: ES
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104) The Walton Manufacturing Company has developed the following standards for one of their
products, a walnut fern stand.
_______________________________________________________
STANDARD VARIABLE COST CARD
One Walnut Fern Stand
Materials: 5 square feet x $8 per square foot
$40.00
Direct labour: 2 hours x $10/DLH
20.00
Variable manufacturing overhead: 2 hours x $5/DLH 10.00
Total standard variable cost per unit
$70.00
_______________________________________________________
The company records materials price variances at the time of purchase. The following activity occurred
during the month of April:
Materials purchased:
Materials used:
Units produced:
Direct labour:
Actual variable
manufacturing overhead:
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b.
Direct labour rate variance:
(Actual Rate - Standard Rate) x actual labour hours
($9 - $10) x 2,200 = $2,200 Favourable
Direct labour efficiency variance:
(Actual Labour Hours - Standard Labour Hours Allowed) x Standard Rate
(AH - SH) x SR = (2,200 hours - 1,800) x $10 = $4,000 Unfavourable
c.
Variable manufacturing overhead spending variance:
[Actual Variable Overhead - (Actual Hours x Standard Variable Overhead Rate)]
= ($10,500 - (2,200 x $5 per hour) = $500 Favourable
Variable manufacturing overhead efficiency variance:
= (AQ - SQ) x SVOR
= (2,200 - 1,800) x $5 per hour = $2,000 Unfavourable
Diff: 3
Type: ES
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105) The Garson Company manufactures roofing shingles. The production process involves heating and
compressing asphalt into sheets and then rolling coarse sand into the hot asphalt. The sheets are then
cooled, cut into shingles, and packaged.
The following standard costs were developed:
STANDARD COST CARD
PER SHINGLE
Materials:
Asphalt
Sand
Direct labour
Variable overhead
Fixed overhead
2 lbs. x $0.08/lb.
2 lbs. x $0.02/lb.
.01 hrs. x $7.00/hr.
.01 hrs. x $3.00/hr.
$0.16
0.04
0.07
0.03
?
The following information is available regarding the company's operations for the period.
Shingles produced:
Materials purchased:
Asphalt:
Sand:
Materials used:
Asphalt:
Sand:
Direct labour:
Manufacturing overhead incurred:
Variable:
Fixed:
500,000
800,000 pounds @ $0.07 per pound
900,000 pounds @ $0.03 per pound
775,000 pounds
850,000 pounds
5,100 hours costing $36,000
$16,500
$48,000
Budgeted fixed manufacturing overhead for the period is $60,000 and the standard fixed overhead rate is
based on expected capacity of 6,000 direct labour hours.
a. Calculate the standard fixed manufacturing overhead rate.
b. Complete the standard cost card for roofing shingles.
c. Calculate the following variances:
Materials price and usage variances
Labour rate and efficiency variances
Variable manufacturing overhead spending and efficiency variances
Fixed manufacturing overhead budget and volume variances
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Answer:
a.
SFOR = Estimated Fixed Overhead/Estimated Direct Labour Hours
= $60,000/6,000 DLH = $10 per DLH
b.
$0.16
0.04
0.07
0.03
0.10
$0.40
c.
Materials price variance asphalt:
(AP - SP) x AQ Purchased
= ($0.07 - $0.08) x 800,000 lbs. = $8,000 Favourable
Materials price variance sand:
(AP - SP) x AQ Purchased
= ($0.03 - $0.02) x 900,000 lbs. = $9,000 Unfavourable
Materials usage variance asphalt:
(AQ - SQ) x SP = (775,000 lbs. - 1,000,000 lbs.) x $0.08
= $18,000 Favourable
Materials usage variance sand:
(AQ - SQ) x SP = (850,000 lbs. - 1,000,000 lbs.) x $0.02
= $3,000 Favourable
Direct labour rate variance:
(AR - SR) x AH
= ($7.06*/hr. - $7.00/hr.) x 5,100 DLH = $300 Unfavourable
*rounded
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Type: ES
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106) The Fenmore Company uses standard costing for direct materials and direct labour. Management
would like to use standard costing for variable and fixed overhead also.
The following monthly cost functions were developed for manufacturing overhead items:
OVERHEAD ITEM
COST FUNCTION
Indirect materials
Indirect labour
Repairs and maintenance
Utilities
Insurance
Rent
Depreciation
The cost functions are considered reliable within a relevant range of 30,000 to 55,000 direct labour hours.
Fenmore expects to operate at 40,000 direct labour hours per month.
Information for the month of September is as follows:
Actual Overhead Costs Incurred:
Indirect materials
Indirect labour
Repairs and maintenance
Utilities
Insurance
Rent
Depreciation
Total
$ 4,500
17,000
8,000
10,000
2,100
4,000
20,000
$65,600
42,000
44,000
a. Calculate the standard manufacturing overhead rate based upon expected capacity showing the
breakdown between the fixed overhead rate and the variable overhead rate.
b. Calculate the variable manufacturing overhead spending variance.
c. Calculate the variable manufacturing overhead efficiency variance.
d. Calculate the fixed manufacturing overhead budget variance.
e. Calculate the fixed manufacturing overhead volume variance.
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Answer:
a. Predetermined manufacturing overhead rate:
Manufacturing overhead items:
Indirect materials
$0.10 per DLH
Indirect labour
0.40 per DLH
Repairs and maintenance
0.20 per DLH
Utilities
0.25 per DLH
Insurance
$ 2,000
Rent
4,000
Depreciation
20,000 ____________
Variable manufacturing overhead
Fixed manufacturing overhead
$26,000
Type: ES
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