Problem #1 -

In a flexible budget, direct labor cost is $90,000 and total cost is $122,400 for 12,000 units. Determine

the direct labor cost for 15,000 units.

The variable cost for any activity is calculated by multiplying the variable cost per unit by the activity level.

Problem #2 -

A variation of fiscal year budgeting, called _____, maintains a 12-month projection into the future and is

revised at the end of every month.

a.responsibility budgeting

b.continuous budgeting

c.zero-based budgeting

d.residual budgeting

Feedback

For control purposes, annual budgets are usually subdivided into shorter time periods, such as quarters of a year, months, or weeks.

Problem #3 - Correct

Which of the following statements is true about a static budget?

d.A static budget is prepared by first identifying the relevant activity level and then adjusting for the

actual level.

Feedback

Correct. A static budget shows the expected results of a responsibility center for only one activity level.

Problem #4 -

A budgetary unit of a company is called:

a.an activity-based center.

b.a service cost center.

c.a responsibility center.

d.a residual cost center.

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Each budgetary unit is led by a manager who has to ensure that the center’s budgeted goals are achieved.

Problem #4 - Correct

Which of the following statements is true about a flexible budget?

a.A flexible budget does not adjust for changes in activity levels.

b.A flexible budget helps in comparing actual costs to the budgeted costs of actual levels.

c.A flexible budget shows the expected results of a responsibility center for only one activity level.

d.A flexible budget is used by many service companies to reduce fixed overhead budget variance.

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Correct. A flexible budget helps in comparing actual costs to the budgeted costs of actual levels.

Problem #1 - Correct

A variation of fiscal year budgeting, called _____, maintains a 12-month projection into the future and is

revised at the end of every month.

a.responsibility budgeting

b.residual budgeting

c.zero-based budgeting

d.continuous budgeting

Feedback

Correct. A variation of fiscal year budgeting, called continuous budgeting, maintains a 12-month projection into the future and revised at the end of every month.

The method of developing budget estimates that requires managers to estimate sales, production, and other operating data as though operations are being started for the first time has the benefit of taking a fresh view of operations each year.

Problem #1 -

A budgetary unit of a company is called:

a.a service cost center.

Each budgetary unit is led by a manager who has to ensure that the center’s budgeted goals are achieved.

Problem #4 -

In a flexible budget, direct material cost is $100,000, supervisor’s salary is $20,000, and total cost is

$122,400 for 8,000 units. Determine the total cost for 10,000 units.

a.$120,000

b.$125,000

c.$150,000

d.$145,000

Feedback

The fixed and variable cost components of the costs being budgeted should be identified.

Problem #1 -

Sparrow Inc. is a sugar manufacturing company. Its production budget for the year 2016 is 1,280 tons.

estimates its beginning balance of sugarcane to be 500 TMT and its ending balance of sugarcane to be

900 TMT. What is the estimated amount of sugarcane to be purchased to meet the production budget?

a.4,600 TMT of sugarcane

b.6,400 TMT of sugarcane

c.5,400 TMT of sugarcane

d.3,600 TMT of sugarcane

Feedback

The direct materials purchases budget estimates the quantities of direct materials to be purchased to support budgeted production and desired inventory levels.

Problem #2 -

Which of the following budgets reflects the budgeted operating activities of a company?

a.A cash budget

b.A capital expenditure budget

c.A budgeted balance sheet

d.A budgeted income statement

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A budgeted income statement allows management to assess the effects of estimated sales, costs, and expenses on profits for a year.

Problem #3 -

Which of the following budgets is the starting point for a master budget?

d.A capital expenditure budget

Feedback

A master budget begins with preparing the operating budgets, which form the budgeted income statement.

Problem #4 -

The _____ reflect the budgeted investing and financing activities of a company.

d.selling and administrative expenses budgets

Feedback

The budgets that reflect the budgeted investing and financing activities of a company include the cash budget and the capital expenditure budget.

Problem #4 -

Epic Racket Inc. manufactures badminton rackets. The production budget for April for the rackets is 25,000 units. The rackets are produced in two departments, Department A and Department B. The estimated direct labor hours required for each racket are 0.15 hours per unit in Department A and 0.75 hours per unit in Department B. The direct labor rate for Department A is $25 per hour and for Department B is $18 per hour. Determine the total direct labor cost budget for April. a.$33,750

b.$785,410

c.$525,250

d.$431,250

Feedback

The direct labor cost budget estimates the direct labor hours and related cost needed to support budgeted production.

Problem #1 - Correct

Standards that can be achieved only under perfect operating conditions, such as no idle time, no

machine breakdowns, and no materials spoilage, are called _____.

a.semi-variable standards

b.theoretical standards

c.normal standards

d.secondary standards

Feedback

Correct. Standards that can be achieved only under perfect operating conditions, such as no idle time, no machine breakdowns, and no materials spoilage, are called ideal standards or theoretical standards.

Problem #2 -

Which of the following statements describes ideal standards?

a.Ideal standards are standards that can be achieved only under perfect operating conditions.

b.Ideal standards are standards that allow for normal production difficulties and mistakes.

c.Ideal standards are standards that can be attained with reasonable effort.

d.Ideal standards are standards that are unattainable even under perfect operating conditions.

Feedback

Ideal standards are also known as theoretical standards.

Problem #1 - Correct

_____ standards allow for normal production difficulties and mistakes.

Correct. Normal standards allow for normal production difficulties and mistakes.

Problem #1 - Correct

The difference between actual and standard costs is called _____.

Correct. The difference between actual and standard costs is called cost variance.

Problem #2 -

A report that summarizes actual costs, standard costs, and the differences for the units produced is

called a(n) _____.

a.responsibility report

c.budget performance report

A report that summarizes actual costs, standard costs, and the differences for the units produced compares actual performance against estimates.

Problem #3 - Correct

Total factory overhead variance is separated into a _____.

Correct. Total factory overhead variance is separated into a controllable and volume variance.

Problem #4 -

Canary Inc., a footwear company, has a sector that produces flip-flops. It estimates that it will produce

800 flip-flops per month. The standard cost per unit to produce a flip-flop includes direct materials of

$4.5, direct labor of $1.0, and factory overhead of $3.0. During the month of June, it produced 1,000

flip-flops for which it incurred $4,000 for direct material, $1,100 for direct labor, and $3,500 for factory

overhead. What is the direct materials cost variance for Canary Inc.?

The actual and standard direct materials costs may differ because of either a price difference or a quantity difference.

Problem #1 -

Which of the following is a reason for a difference between standard direct labor cost and actual direct

labor cost?

For control purposes, each product cost variance is separated into two additional variances. In case of direct labor variance, one of the two additional variance is time variance.

Problem #2 - Correct

Total direct material variance is separated into a price variance and _____.

a.time variance

b.rate variance

c.controllable variance

d.quantity variance

Feedback

Correct. Total direct material variance is separated into a price variance and quantity variance.

Problem #3 - Correct

A(n) _____ occurs when actual cost is less than standard cost.

Correct. A favorable cost variance occurs when actual cost is less than standard cost.

Problem #4 -

Ninon Inc. is into a garment industry. One of Ninon Inc.’s sectors produces t-shirts. The standard cost

per t-shirt includes direct materials of $5, direct labor of $0.5, and factory overhead of $3.5. Determine

the total standard cost for 500 t-shirts.

. Standard cost includes direct labor, direct material, and factory overhead.

Problem #1 - Correct

Turquoise Inc., a manufacturing company has a sector that manufactures candles. It produced 25,000 units of candles in a month. It requires 0.25 hours per unit. The standard labor rate is $5 per hour. The actual direct labor time was 8,000 hours, and the actual direct labor cost for the period was $36,000. Calculate the direct labor rate variance.

a.$4,000 favorable

b.$5,000 favorable

c.$3,500 unfavorable

d.$4,500 unfavorable

Feedback

Correct. Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Actual hours = ($36,000 ÷ 8,000) – $5.0) × 8,000 hours = $4,000 favorable

Since the actual rate per hour is less than the standard rate per hour, the variance is favorable.

Problem #2 - Correct

Which of the following equations is used to calculate direct labor rate variance?

a.Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Actual hours

b.Direct labor rate variance = (Actual rate per hour + Standard rate per hour) × Standard hours

c.Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Standard hours

d.Direct labor rate variance = (Actual rate per hour + Standard rate per hour) × Actual hours

Feedback

Correct. Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Actual hours

Problem #3 -

Which of the following equations is used to calculate direct labor time variance?

d.Direct labor time variance = (Actual direct labor hours – Standard direct labor hours) × Actual rate

per hour

Feedback

If the actual direct labor hours for the units produced exceeds the standard direct labor hours, the variance is unfavorable.

Problem #4 -

Which of the following equations is used to calculate direct material price variance?

a.Direct materials price variance = (Actual price – Standard price) × Standard quantity

b.Direct materials price variance = (Actual quantity – Standard quantity) × Actual price

c.Direct materials price variance = (Actual quantity – Standard quantity) × Standard price

d.Direct materials price variance = (Actual price – Standard price) × Actual quantity

Feedback

If the actual price per unit exceeds the standard price per unit, the variance is unfavorable.

Problem #1 - Correct

Which of the following equations is used to calculate direct labor time variance?

a.Direct labor time variance = (Actual direct labor hours – Standard direct labor hours) × Actual rate

per hour

d.Direct labor time variance = (Actual direct labor hours + Standard direct labor hours) × Actual rate

per hour

Feedback

Correct. Direct labor time variance = (Actual direct labor hours – Standard direct labor hours) × Standard rate per hour

Actual quantity, standard quantity, and standard price are required to determine direct materials quantity variance.

Problem #3 - Correct

Which of the following equations is used to calculate direct labor rate variance?

a.Direct labor rate variance = (Actual rate per hour + Standard rate per hour) × Actual hours

b.Direct labor rate variance = (Actual rate per hour + Standard rate per hour) × Standard hours

c.Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Standard hours

d.Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Actual hours

Feedback

Correct. Direct labor rate variance = (Actual rate per hour – Standard rate per hour) × Actual hours

Problem #4 -

The direct materials quantity variance in a company is caused by the inferior quality of direct material,

and after doing research it is found that this variance is controllable. Which of the following

departments will be held responsible for the variance?

a.The Operating Department

b.The Production Department

c.The Sales Department

d.The Purchasing Department

Feedback

The department that will be held responsible for the direct material variance caused by the inferior quality of direct material is also responsible for buying raw materials.

Problem #2 -

Roadster Company manufactures kids' bikes. It had estimated that it would manufacture 190 bikes per month. The standard set for direct labor hour per bike was 14 hours, the standard rate per direct labor was $20 per hour. During January, it was able to manufacture 200 bikes for which it took 2,850 direct labor hours and the rate was $22 per hour. The direct labor time variance is _____. a.$500 favorable

b.$1,500 favorable

c.$1,000 unfavorable

d.$750 unfavorable

Feedback

Actual direct labor hours, standard direct labor hours, and standard rate per hour are required to calculate direct labor time variance.

Problem #3 -

Which of the following equations is used to calculate direct materials quantity variance?

a.Direct materials quantity variance = (Actual price + Standard price) × Standard quantity

b.Direct materials quantity variance = (Actual price – Standard price) × Actual quantity

c.Direct materials quantity variance = (Actual quantity – Standard quantity) × Standard price

d.Direct materials quantity variance = (Actual quantity – Standard quantity) × Actual price

Feedback

If the actual quantity for the units produced exceeds the standard quantity, the variance is unfavorable.

Problem #1 -

Which of the following statements is true regarding process yield?

a.Process yield is the most appropriate way to assess performance in the service industry.

b.Process yield is measured as the percentage of units from a process that pass inspection.

c.Process yields of various processes are added to compute overall process yield if several processes

are required to manufacture a product.

d.Process yield of 100% is possible irrespective of the nature of the process.

Feedback

Process yield measures the efficiency of a process.

Problem #2 -

Which of the following is a reason for an unfavorable fixed factory overhead volume variance?

a.The use of low quality direct materials in the production process

For production levels less than 100% of normal capacity, the volume variance is unfavorable.

Problem #3 -

Which of the following is the correct formula to calculate process yield?

a.Units failing inspection / Units entering process

b.Units failing inspection / Units passing inspection

c.Units entering process / Total units produced

d.Units passing inspection / Units entering process

Feedback

. Process yield measures the efficiency of a process.

Standard hours for 100% of normal capacity 2,500 direct labor hours

Standard hours for actual units produced 1,800 direct labor hours

Fixed factory overhead rate $1.60

a.$1,000 unfavorable variance

b.$1,120 unfavorable variance

c.$1,600 favorable variance

d.$900 favorable variance

Feedback

. For production levels less than 100% of normal capacity, the volume variance is unfavorable. For production levels more than 100% of normal capacity, the volume variance is favorable.