Factory Overhead - Fixed 1.50 ($120,000 / 80,000 Units) s1

1. The purpose of a flexible budget is to A. allow management some latitude in meeting goals. B. eliminate cyclical fluctuations in production reports by ignoring variable costs. C. compare actual and budgeted results at virtually every level of production. D. reduce the total time in preparing the annual budget.

2. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per Style R table is $7.20 based on 8 square feet of vinyl at a cost of $.90 per square foot. A production run of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of $.85 per square foot, a total cost of $7,055. The quantity variance resulting from this production run was A. $255 favorable. B. $255 unfavorable. C. $270 favorable. D. $270 unfavorable.

= (8,300 × $0.90) – (8,000 × $0.9)

= $270 U

3. RHO Company, which began its operations on January 1, produces a single product that sells for $10.25 per unit. Standard capacity is 80,000 units per year. This year, 80,000 units were produced and 70,000 units were sold. Manufacturing costs and selling and administrative expenses follow: Fixed costs Variable costs Raw materials — $2.00 per unit produced Direct labor — $1.50 per unit produced Factory overhead $120,000 1.00 per unit produced Selling and administrative 80,000 0.50 per unit sold What is the standard cost of manufacturing a unit of product? A. $4.50 B. $5.00 C. $5.50 D. $6.00

Raw materials $2.00 Direct labor 1.50 Factory overhead - variable 1.00 Factory overhead - fixed 1.50 ($120,000 / 80,000 units) Standard unit manufacturing cost $6.00

4. Which one of the following items is ignored when establishing an ideal standard?

A. Cost of materials B. Cost of electricity C. Vacation time D. Sick time

Not 100% sure about 4

5. Belo, Inc. uses a standard cost system. Overhead cost information for Product CO for the month of October follows: Total actual overhead incurred $14,750 Fixed overhead budgeted $1,800 Total standard overhead rate per direct labor hour $4.25 Variable overhead rate per direct labor hour $3.75 Standard hours allowed for actual production 3,400 What is the overall (net) overhead variance? A. $100 favorable B. $100 unfavorable C. $300 favorable D. $300 unfavorable

= $14,750 – (3,400 × $4.25) = $300 Unfavorable

6. What type of direct material variances for price and quantity will arise if the actual number of pounds of materials used exceeds standard pounds allowed but actual cost is less than standard cost? Quantity Price A. Favorable Favorable B. Unfavorable Unfavorable C. Favorable Unfavorable D. Unfavorable Favorable

The use of material in excess of standard will create an unfavorable usage (quantity) variance. If the actual cost of the material is less than standard cost, this gives rise to a favorable price variance.

95 7. Beres Corporation has developed the following flexible budget formula for annual indirect labor cost: Total costs = $9,600 + $0.75 per machine hour Operating budgets for the current month are based on 30,000 hours of planned machine time. The amount of indirect labor costs included in this planned budget is A. $2,425. B. $22,500. C. $23,300. D. $32,100.

Annual fixed costs of $9,600 / 12 = monthly fixed cost $ 800 30,000 machine hours × $.75 per machine hour 22,500 Indirect labor cost budgeted for the month $23,300

8. Carlson Co. has a standard material price of $2.80 per unit. During the month of August, the cost of direct materials was $2.50 per unit for the 500 units produced. The formula ($2.50 – $2.80) _ 500 yields the ______variance for Carlson Co. A. combined price-quantity B. materials price C. volume D. mix

9. Donellan Company has a standard and flexible budgeting system and uses a two variance method of analysis of overhead variances. Selected data for the February production activity follows: Budgeted fixed factory overhead costs $70,000 Actual factory overhead incurred $250,000 Variable overhead rate per direct labor hour $7 Standard direct labor hours 25,000 Actual direct labor hours 26,006 The controllable variance for February is

A. $5,000 favorable. B. $5,000 unfavorable. C. $7,000 favorable. D. $7,000 unfavorable.

Actual factory overhead - standard overhead budgeted for actual level of production = controllable variance

Budgeted fixed overhead $ 70,000 Standard direct labor hours $25,000 Variable overhead rate per hour x 7 Variable overhead budgeted 175,000 Total overhead budgeted $245,000 Actual overhead incurred 250,000 Budget variance--unfavorable $ 5,000

10. If the total materials variance (actual cost of materials used compared with the standard cost of the standard amount of materials required) for a given operation is favorable, why must this variance be further evaluated as to price and usage? A. There’s no need to further evaluate the total materials variance if it’s favorable. B. Generally accepted accounting principles require that all variances be analyzed in three stages. C. All variances must appear in the annual report to equity owners for proper disclosure. D. Evaluating a favorable variance helps management determine why the variance occurred.

11. The Johns Company budgeted overhead at $125,000 for the period for Department A based on a budgeted volume of 50,000 direct labor hours. At the end of the period, the factory overhead control account for Department A had a balance of $126,000. The actual (and allowed) direct labor hours were 52,000. What was the overapplied (underapplied) overhead for the period? A. $(4,000) B. $4,000 C. $(6,500) D. $6,500

Actual factory overhead incurred - factory overhead applied = over- or underapplied factory overhead

Budgeted overhead / budgeted direct labor hours = $125,000 / 50,000 = factory overhead application rate per direct labor $ 2.50 hour Actual and allowed direct labor hours x 52,000 Factory overhead applied $130,000 Actual factory overhead incurred 126,000 Overapplied factory overhead for the period $ 4,000

12. Ben’s Climbing Gear, Inc. has direct material costs as follows: Actual units of direct materials used 20,000 Standard price per unit of direct materials $2.50 Direct material quantity variance—favorable $5,000 What was Ben’s standard quantity of material? A. $18,000 B. $20,000 C. $22,000 D. $24,000

$5,000 F = ($20,000 - standard quantity of materials allowed) x $2.50 $2,000 F* = $20,000 - standard quantity of materials allowed $22,000** = standard quantity of materials allowed

* 5,000 F/ 2.50 ** 20,000 + 2,000 (note that the favorable variance is added to the actual quantity to arrive at the standard quantity because by definition, a favorable variance occurs when standard quantities exceed actual quantities.)

13. Overapplied factory overhead would result if A. the plant was operated at greater than normal capacity. B. the plant was operated at less than normal capacity. C. factory overhead costs incurred were greater than overhead costs charged to production. D. factory overhead costs incurred were less than overhead costs charged to production.

14. The direct labor costs for Boundary Company follow: Standard direct labor hours 34,000 Actual direct labor hours 33,500 Direct labor efficiency variance—favorable $12,000 Direct labor rate variance—favorable $15,075 Total payroll $252,925 What was Boundary’s standard direct labor rate? A. $3.87 B. $8.00 C. $10.50 D. $12.00

Labor efficiency variance = (actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour

$12,000 F = (33,000 -34,000) x standard labor rate per hour

Actual hours 33,500 Standard hours 34,000 Standard hours allowed in excess of actual hours 500 hours Efficiency variance: $12,000 / 500 hours = $24.00 standard rate

15. Elgin Company’s budgeted fixed factory overhead costs are $50,000 per month, plus a variable factory overhead rate of $4.00 per direct labor hour. The standard direct labor hours allowed for October production were 20,000. An analysis of the factory overhead indicates that in October, Elgin had an unfavorable budget (controllable) variance of $1,500 and a favorable volume variance of $500. Elgin uses a two-variance analysis of overhead variances. The actual factory overhead that Elgin incurred in October is A. $126,500. B. $128,000. C. $128,500. D. $131,500.

Controllable variance = Actual factory overhead - Standard overhead budgeted for actual activity level*

$1,500 U = Actual factory overhead - $130,000 Actual factory overhead = $131,500 (Unfavorable variance indicates that actual factory overhead exceeds budgeted amounts.)

* Standard direct labor hours 20,000 Variable overhead rate per hour x $4.00 Variable overhead budgeted $ 80,000 Fixed overhead budgeted 50,000 Total overhead budgeted $130,000

97 16. Thomas Company uses a standard cost system. Information for raw materials for product RBI for the month of October follows: Standard unit price $1.75 Actual purchase price per unit $1.60 Actual quantity purchased 4,000 units Actual quantity used 3,900 units Standard quantity allowed for actual production 3,800 units What is the materials purchase price variance for Thomas Company? A. $15 favorable B. $15 unfavorable C. $600 favorable D. $600 unfavorable

Materials purchase price variance = (actual unit price of materials - standard unit price of materials) x actual quantity of materials purchased

Materials purchase price variance = ($1.60 - $1.75) x 4,000

Actual unit price $1.60 Standard unit price 1.75 Excess of standard price over actual $ .15 Quantity purchased 4,000 units Purchase price variance (favorable - standard price exceeds actual) $ 600

17. What type of standard cost is the absolute minimum cost possible under the best conceivable operating conditions? A. Practical B. Ideal C. Attainable D. Normal

18. The fixed overhead application rate is a function of a predetermined normal activity level. If standard hours allowed for good output equal this normal activity level for a given period, the volume variance will be A. zero. B. favorable. C. unfavorable. D. either favorable or unfavorable depending on the budgeted overhead.

19. Alyisa Corporation uses a standard cost system. Direct labor information for product CER for the month of May is as follows: Standard rate $8.00 per hour Actual rate paid $8.20 per hour Standard hours allowed for actual production 1,200 hours Labor efficiency variance $800 unfavorable What are actual hours worked? A. 1,100 B. 1,300 C. 1,330 D. 1,400

Labor efficiency variance = (actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour

$ 800 U = (actual number of labor hours worked - 1,200) x $8.00

Standard hours  standard rate: 1,200 hours  $8 $9,600 Efficiency variance (unfavorable) 800 Actual hours (X)  $8 $10,400

$10,400 X = = 1,300 hours $8

20. A company experienced $21,000 in actual factory overhead incurred. During the same period, budgeted factory overhead based on actual hours worked was $19,300. The difference between these two amounts, $1,700, is called the ______variance.

A. volume B. budget C. efficiency D. quantity