Q&A Hero

Q: A company has two departments, Aa and Bb, that incur delivery expenses. An analysis of the total delivery expense of $9,000 indicates that Dept. Aa had a direct expense of $1,000 for deliveries. None of the $9,000 is a direct expense to Dept. Bb. The analysis also indicates that 60% of regular delivery requests originate in Dept. Aa and 40% in Dept. Bb. The delivery expenses that should be charged to Dept. Aa and Dept. Bb, respectively, are: Aa Bb A. $4,500 $4,500 B. $5,800 $3,200 C. $5,500 $3,500 D. $5,500 $4,500 E. $5,400 $3,600

Q: A difficult problem in calculating the total costs and expenses of a department is: A. Determining the gross profit ratio. B. Assigning direct costs to the department. C. Assigning indirect expenses to the department. D. Determining the amount of sales of the department. E. Determining the direct expenses of the department.

Q: The salaries of employees who spend all their time working in one department are: A. Variable expenses B. Indirect expenses C. Direct expenses D. Responsibility expenses E. Unavoidable expenses

Q: Expenses that are not easily associated with a specific department, and which are incurred for the benefit of more than one department, are: A. Fixed expenses B. Indirect expenses C. Direct expenses D. Uncontrollable expenses E. Variable expenses

Q: Expenses that are easily traced and assigned to a specific department because they are incurred for the sole benefit of that department are called: A. Direct expenses B. Indirect expenses C. Controllable expenses D. Uncontrollable expenses E. Fixed expenses

Q: An expense that does not require allocation between departments is a(n): A. Common expense. B. Indirect expense. C. Direct expense. D. Administrative expense. E. Overhead expense.

Q: Regardless of the system used in departmental cost analysis: A. Direct costs are allocated, indirect costs are not. B. Indirect costs are allocated, direct costs are not. C. Both direct and indirect costs are allocated. D. Neither direct nor indirect costs are allocated. E. Total departmental costs will always be the same.

Q: A department that incurs costs without directly generating revenues is a: A. Service center B. Production center C. Profit center D. Cost center E. Performance center

Q: An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a: A. Departmental accounting system. B. Cost accounting system. C. Service accounting system. D. Revenue accounting system. E. Standard accounting system.

Q: A profit center: A. Incurs costs but does not directly generate revenues. B. Incurs costs and directly generates revenues. C. Has a manager who is evaluated solely on efficiency in controlling costs. D. Incurs only indirect costs and directly generates revenues. E. Incurs only indirect costs and generates revenues.

Q: A unit of a business that not only incurs costs but also generates revenues is called a: A. Performance center. B. Profit center. C. Cost center. D. Responsibility center. E. Expense center.

Q: Which of the following is most likely to be considered a profit center? A. An individual retail store in a large chain. B. The grocery department of a Walmart Supercenter or Target Superstore. C. The maintenance department of a large retail operation. D. The personnel office of a business. E. A stand-alone eye clinic.

Q: Which of the following would not be considered a cost center? A. Accounting department. B. Purchasing department. C. Research department. D. Advertising department. E. Pharmacy in a grocery store.

Q: Profit margin measures how efficiently an investment center generates sales from its invested assets.

Q: Return on investment for a given investment center can be split into two components: profit margin and investment turnover.

Q: Cycle efficiency is the ratio of value-added time to total cycle time.

Q: Cycle time is a financial measure commonly used to evaluate a companys production processes.

Q: At the end of the accounting period, immaterial variances are closed to _____________________.

Q: The fixed overhead variance can be broken down into the _________________ variance and the _________________ variance.

Q: The sum of the variable overhead spending variance, the variable overhead efficiency variance, and the fixed overhead spending variance is the ____________________________.

Q: The difference between the actual overhead cost incurred and the standard overhead applied is the __________________________.

Q: If actual price per unit of materials is greater than the standard price per unit of materials, the direct materials price variance is _______________________.

Q: In preparing flexible budgets, the costs that remain constant in total are _______________ costs. Those costs that change in total are _______________ costs.

Q: The difference between the flexible budget sales and the fixed budget sales is called the __________________________ variance.

Q: The difference between the actual sales and the flexible budget sales is called the ______________________ variance.

Q: A _______________________ contains relevant information that compares actual results to planned activities.

Q: A favorable variance for a cost means that when compared to the budget, the actual cost is ____________________ than the budgeted cost.

Q: A management approach that emphasizes significant differences from plans is known as ___________________.

Q: In the analysis of variances, management commonly focuses on four categories of production costs: __________________ cost, ___________________ cost; _________________cost; and _________________ cost.

Q: Direct materials variances are called price and quantity variances. However, when referring to direct labor, these variances are usually called _________________ and _____________ variances.

Q: Differences between actual costs and standard costs are known as ___________________. These differences may be subdivided into _________________ and _________________.

Q: A standard that takes into account the reality that some loss usually occurs with any process under normal application of the process is known as a __________________ standard.

Q: Companies promoting continuous improvement strive to achieve _____________ standards by eliminating inefficiencies and waste.

Q: ______________________ are preset costs for delivering a product or service under normal conditions.

Q: Chips Co. assigned direct labor cost to its products in May for 1,300 standard hours of direct labor at the standard $8 per hour rate. The direct labor rate variance for the month was $200 favorable and the direct labor efficiency variance was $150 favorable. Prepare the journal entry to charge Goods in Process Inventory for the standard labor cost of the goods manufactured in May and to record the direct labor variances. Assuming that the direct labor variances are immaterial, prepare the journal entry that Chips would make to close the variance accounts.

Q: Cheshire, Inc., allocates fixed overhead at a rate of $18 per direct labor hour. This amount is based on 90% of capacity or 3,600 direct labor hours for 6,000 units. During May, Cheshire produced 5,500 units. Budgeted fixed overhead is $66,000, and overhead incurred was $67,000. Required: Determine the volume variance for May.

Q: Selected information from Michaels Company's flexible budget follows: Operating Levels 80% 90% 100% Budgeted production in units 4,800 5,400 6,000 Budgeted labor (standard hours) 9,600 10,800 12,000 Budgeted overhead: Variable overhead $86,400 $97,200 $108,000 Fixed overhead 63,600 63,600 63,600 Michaels Company applies overhead to production at a rate of $31.25 per unit based on a normal operating level of 80% of capacity. For the current period, Michaels Company produced 5,400 units and incurred $62,000 of fixed overhead costs and $96,000 of variable overhead costs. The company used 11,000 labor hours to produce the 5,400 units. Calculate the variable overhead spending and efficiency variances and the fixed overhead spending and volume variances. Indicate whether each variance is favorable or unfavorable.

Q: During November, Heim Company allocated overhead to products at the rate of $26 per direct labor hour. This figure was based on 80% of capacity or 1,600 direct labor hours. However, Heim Company operated at only 70% of capacity, or 1,400 direct labor hours. Budgeted overhead at 70% of capacity is $38,900, and overhead actually incurred was $38,000. What is the company's volume variance for November? (Indicate whether the variance is favorable or unfavorable.)

Q: A company's flexible budget for 36,000 units of production showed variable overhead costs of $54,000 and fixed overhead costs of $50,000. The company actually incurred total overhead costs of $95,300 while operating at a volume of 32,000 units. What is the controllable variance?

Q: If Blue Jay Enterprises actual overhead incurred during a period was $49,050 and the company reported an unfavorable overhead controllable variance of $1,800 and a favorable overhead volume variance of $1,350, how much standard overhead cost was assigned to the products produced during the period?

Q: If Falcon 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?

Q: Make the necessary general journal entries to record the above standard and actual costs, and all variances.

Q: Calculate the direct materials price and quantity variances, direct labor rate and efficiency variances, and the overhead controllable and volume variances. In each case, state whether the variance is favorable or unfavorable.

Q: Actual costs and quantities: Direct materials used 38,000 feet @ $6.20 per foot Direct labor hours used 50,660 hours Direct labor rate per hour $16 Factory overhead $211,600 25,000 units were produced during the period. Standard costs and quantities per unit: Direct materials 5 ft. @ $6.10 per ft. Direct labor 2 hours @ $17 per hour Factory overhead (based on budgeted production of 24,500 units)

Q: Manatee Corp. has developed standard costs based on a predicted operating level of 352,000 units of production, which is 80% of capacity. Variable overhead is $281,600 at this level of activity, or $0.80 per unit. Fixed overhead is $440,000. The standard costs per unit are: Direct materials (0.5 lbs. @ $1/lb.) $0.50 per unit Direct labor (1 hour @ $6/hour) $6.00 per unit Overhead (1 hour @ $2.05/hour) $2.05 per unit Manatee actually produced 330,000 units at 75% of capacity and actual costs for the period were: Direct materials (162,000 lbs.) $ 170,100 Direct labor (329,500 hours) $2,042,900 Fixed overhead $ 438,000 Variable overhead $ 262,000 Calculate the following variances and indicate whether each variance is favorable or unfavorable: (1) Direct labor efficiency variance: $__________________ (2) Direct materials price variance: $__________________ (3) Controllable overhead variance: $__________________

Q: Direct materials (5 lbs. @ $4/lb.) $20.00 Direct labor (2 hrs. @ $8.75/hr.) 50 Variable overhead (2 hrs. @ $3/hr.) 6.00 Fixed overhead (2 hrs. @ $7/hr.) 14.00 Total cost per unit $57.50 The actual production achieved in the current year was 60% of capacity, or 30,000 units. The actual costs were: Direct materials (150,350 lbs.) $616,435 Direct labor (59,800 hrs.) 520,260 Variable overhead 192,000 Fixed overhead 552,000 Calculate the following variances and indicate whether each is favorable or unfavorable: Direct materials: Price variance _________________________ Quantity variance _________________________ Direct labor: Rate variance _________________________ Efficiency variance _________________________ Variable overhead: Spending variance _________________________ Efficiency variance _________________________ Fixed overhead Spending variance _________________________ Volume variance _________________________

Q: Raisen, Inc.s budget included the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units: Total variable overhead $240,000 Total fixed overhead Total overhead $800,000 The standard cost per unit when operating at this same 80% capacity level is:

Q: Falcon Company's output for a period was assigned the standard direct labor cost of $17,160. If the company had a favorable direct labor rate variance of $1,000 and an unfavorable direct labor efficiency variance of $275, what was the total actual cost of direct labor incurred during the period?

Q: Prepare the journal entry to record the direct materials purchases and the issuance of direct materials into production.

Q: Calculate the direct materials price and quantity variances and indicate whether each is favorable or unfavorable.

Q: Tiger, Inc., has developed the following standard cost data based on 60,000 direct labor hours, which is 75% of capacity: Per Unit Direct materials (6 lbs. @ $2/lb.) $ 12 Direct labor (1 hrs. @ $8/hr.) 8 During the last period, the company operated at 80% of capacity and produced 128,000 units. Actual costs were: Direct materials (760,000 lbs.) $1,558,000 Direct labor (126,000 hrs.) 1,014,300 Determine the direct materials price and quantity variances and the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Q: The following information describes production activities of the Central Corp.: Raw materials used 16,000 lbs. at $4.05 per lb. Factory payroll 5,545 hours for a total of $72,085 30,000 units were completed during the year Budgeted standards for each unit produced: 1/2 lb. of raw material at $4.15 per lb. 10 minutes of direct labor at $12.50 per hour Compute the direct materials price and quantity and the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Q: In producing 700 units of Product CBA last period, Cobalt Company used 5,000 pounds of Material H, costing $34,250. The company has established the standard of using 7.2 pounds of Material H per unit of CBA, at a price of $7.50 per pound. a. Calculate the materials price and quantity variances associated with producing the 700 units, and indicate whether they are favorable or unfavorable. b. Record the entry for the material used and related variances for Cobalt. c. Assume these variances are immaterial and prepare the entry to close them out at the end of the year.

Q: DT Co. produces picture frames. It takes 3 hours of direct labor to produce a frame. DT's standard labor cost is $11 per hour. During March, DT produced 4,000 frames and used 12,400 hours at a total cost of $133,920. a. What is DT's labor rate variance for March? b. What is DTs direct labor efficiency variance for March? c. Record the labor costs and the variances for DT.

Q: Calculate the direct materials quantity variance.

Q: Calculate the direct materials price variance.

Q: Big Bend Co. fixed budget for the year is shown below: Sales (50,000 units) $1,300,000 Cost of goods sold: Direct materials $150,000 Direct labor 450,000 Overhead (includes $2 per unit variable overhead) 240,000 840,000 Gross profit $ 460,000 Selling expenses: Sales commissions(all variable) 60,000 Rent (all fixed) 40,000 Insurance (all fixed) 35,000 General and administrative expenses: Salaries (all fixed) 72,000 Rent (all fixed) 54,000 Depreciation (all fixed) 31,000 292,000 Net income from operations $ 168,000 Prepare a flexible budget for Big Bend Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format.

Q: Selling price per unit ($1,500,000/30,000) $50.00 Variable costs per unit Direct materials ($540,000/30,000) $18.00 Direct labor ($300,000/30,000) 00 Indirect materials ($15,000/30,000) 0.50 Indirect labor ($21,000/30,000) 0.70 Utilities ($54,000 x 0.2)/30,000 0.36 Maintenance ($33,000 x 0.4)/30,000 0.44 Commissions ($45,000/30,000) 1.50 Wages ($15,000/30,000) Total ($960,000/30,000) Contribution margin ($540,000/30,000) Fixed costs: Depreciation $180,000 Salaries 90,000 Utilities ($54,000 x 0.8) 43,200 Maintenance ($33,000 x 0.6) 19,800 Advertising 60,000 Rent Total fixed costs Operations at 60% of capacity, or 22,500 units: Sales = 22,500 x $50 = $1,125,000 Total variable costs = 22,500 x $32 = $720,000 Operations at 75% of capacity, or 28,125 units Sales = 28,125 x $50 = $1,406,250 Total variable costs = 28,125 x $32 = $900,000 60% of Capacity 75% of Capacity Sales $1,125,000 $1,406,250 Total variable costs 720,000 900,000 Total fixed costs Income from operations

Q: Elroy Co. has prepared the following fixed budget for the year, assuming production and sales of 30,000 units. This level of production represents 80% of capacity. ELROY CO. Fixed Budget For Year Ending December 31 Sales $1,500,000 Cost of goods sold: Direct materials $540,000 Direct labor 300,000 Indirect materials (variable) 15,000 Indirect labor (variable) 21,000 Depreciation 180,000 Salaries 90,000 Utilities (80% fixed) 54,000 Maintenance (40% variable) 33,000 1,233,000 Gross profit $ 267,000 Operating expenses: Commissions $ 45,000 Advertising (fixed) 60,000 Wages (variable) 15,000 Rent 30,000 Total operating expenses 150,000 Income from operations $ 117,000 Calculate the following flexible budget amounts at the indicated levels of capacity: Operations at Operations at 60% of Capacity 75% of Capacity Sales ____________ _____________ Total variable costs ____________ _____________ Total fixed costs ____________ _____________ Income from operations ____________ _____________

Q: Perkins Company provides the following data developed for its master budget: Sales price $11 per unit Costs: Direct materials $3 per unit Direct labor $4.25 per unit Variable overhead $0.50 per unit Factory depreciation $12,000 per month Supervision $11,000 per month Selling expense $0.25 per unit Administrative cost $9,000 per month Prepare flexible budgets for sales of 20,000, 22,000, and 24,000 units. Use a contribution margin format.

Q: Thomas Co. provides the following fixed budget data for the year: Sales (20,000 units) $600,000 Cost of sales: Direct materials $200,000 Direct labor 160,000 Variable overhead 60,000 Fixed overhead 80,000 500,000 Gross profit $100,000 Operating expenses: Fixed $ 12,000 Variable 40,000 52,000 Income from operations $ 48,000 The companys actual activity for the year follows: Sales (21,000 units) $651,000 Cost of goods sold: Direct materials $231,000 Direct labor 168,000 Variable overhead 73,500 Fixed overhead 77,500 550,000 Gross profit $101,000 Operating expenses: Fixed 12,000 Variable 39,500 51,500 Income from operations $ 49,500 Prepare a flexible budget performance report for the year using the contribution margin format.

Q: A product has a sales price of $20. Based on a 15,000-unit production level, the variable costs are $12 per unit and the fixed costs are $6 per unit. Using a flexible budget for an actual production and sales level of 18,000 units, what is the budgeted operating income?

Q: Casco Co. planned to produce and sell 40,000 units. At that volume level, variable costs are determined to be $320,000 and fixed costs are $30,000. The planned selling price is $10 per unit. Casco actually produced and sold 42,000 units. Required: Using a contribution margin format: a. Prepare a fixed budget income statement for the planned level of sales and production. b. Prepare a flexible budget income statement for the actual level of sales and production. c. Which budget should we use to compare to actual results and why?

Q: Based on predicted production of 25,000 units, Best Co. anticipates $175,000 of fixed costs and $137,500 of variable costs. What are the flexible budget amounts of total costs for 20,000 and 30,000 units?

Q: A company's budget for 60,000 units of production showed sales of $96,000, variable costs of $36,000, and fixed costs of $26,000. What operating income would be expected if the company produces and sells 70,000 units?

Q: Stanton Co. produces and sells two lines of t-shirts, Deluxe and Mega. Stanton provides the following data: Budget Actual Unit sales price Deluxe $15 $16 Unit sales price Mega $20 $19 Unit sales Deluxe 2,400 2,500 Unit sales Mega 2,000 1,900 Required: Compute the sales price and the sales volume variances for each product.

Q: Abrams, Inc. provides the following results of March's operations: Direct materials price variance $ 400 F Direct materials quantity variance 2,000 U Direct labor rate variance 100 U Direct labor efficiency variance 1,200 F Variable overhead spending variance 400 U Variable overhead efficiency variance 800 F Fixed overhead spending variance 100 U Fixed overhead volume variance 600 F Required: a. Determine the total overhead cost variance for March. b. Applying the management by exception approach, which of the variances shown are of greatest concern? Why? c. Assuming the variances are immaterial and we close them to Cost of Goods Sold, what will the effect be on that account of these variances?

Q: Folsom Custom Skis, founded by Jordon Grano, sells skis at an average price of approximately $1,300 per pair. At this price the company is breaking even. Jordan hopes to double his companys sales in the near future. Could the company make a profit if the current cost structure and sales price per pair of skis remained the same while sales volume doubled?

Q: How are unfavorable variances recorded?

Q: What is the overhead volume variance? What would be the cause of a favorable volume variance?

Q: Provide at least one cause of direct labor rate and efficiency variances and provide an example of how this might occur.

Q: Whistler Company determined that in the production of their products last period, they had a favorable price variance and an unfavorable quantity variance for direct materials. What might be the cause of this pattern of variances?

Q: Flexible budgets may be prepared before or after an actual period of activity. Why would management prepare such budgets at differing time frames?

Q: Should both favorable and unfavorable variances be investigated, or only the unfavorable ones? Explain.

Q: What are the four steps in the effective management of variance analysis?

Q: Presented below are terms preceded by letters (a) through (h) and followed by a list of definitions (1) through (8). Enter the letter of the term with the definition, using the space preceding the definition. (a) Unfavorable variance (b) Fixed budget performance report (c) Overhead cost variance (d) Budgetary control (e) Spending variance (f) Flexible budget performance report (g) Efficiency variance (h) Favorable variance __________(1) Difference in sales or costs, when the actual value is compared to the budgeted value, that contributes to a lower income. __________(2) A report that compares results with fixed budgeted amounts and identifies the differences as favorable or unfavorable variances. __________(3) The difference between the actual price of an item and its standard price. __________(4) Difference in sales or costs, when the actual value is compared to the budgeted value, that contributes to a higher income. __________(5) Use of budgets by management to monitor and control the operations of a company. __________(6) Difference between actual quantity of an input and the standard quantity of the input. __________(7) Difference between the total overhead cost applied to products and the total overhead cost actually incurred. __________(8) A report that compares actual revenues and costs with their variable budgeted amounts based on actual sales volume (or other level of activity) and identifies the differences as variances.

Q: Presented below are terms preceded by letters (a) through (j) and followed by a list of definitions (1) through (10). Enter the letter of the term with the definition, using the space preceding the definition. (a) Cost variance (b) Volume variance (c) Price variance (d) Quantity variance (e) Standard costs (f) Controllable variance (g) Fixed budget (h) Flexible budget (i) Variance analysis (j) Management by exception __________ (1) The difference between the total budgeted overhead cost and the overhead cost that was allocated to products using the predetermined fixed overhead rate. __________ (2) A planning budget based on a single predicted amount of sales or production volume; unsuitable for evaluations if the actual volume differs from the predicted volume. __________ (3) Preset costs for delivering a product, component, or service under normal conditions. __________ (4) A process of examining the differences between actual and budgeted sales or costs and describing them in terms of the amounts that resulted from price and quantity differences. __________ (5) The difference between actual and budgeted sales or cost caused by the difference between the actual price per unit and the budgeted price per unit. __________ (6) A budget prepared based on predicted amounts of revenues and expenses corresponding to the actual level of output. __________ (7) The difference between actual and budgeted cost caused by the difference between the actual quantity and the budgeted quantity. __________ (8) The combination of both overhead spending variances (variable and fixed) and the variable overhead efficiency variance. __________ (9) A management process to focus on significant variances and give less attention to areas where performance is close to the standard. __________ (10) The difference between actual cost and standard cost, made up of a price variance and a quantity variance.

Q: When standard manufacturing costs are recorded in the accounts and the cost variances are immaterial at the end of the accounting period, the cost variances should be: A. Carried forward to the next accounting period. B. Allocated between cost of goods sold, finished goods, and goods in process. C. Closed to cost of goods sold. D. Written off as a selling expense. E. Ignored.

Q: Landlubber Company established a standard direct materials cost of 1.5 gallons at $2 per gallon for one unit of its product. During the past month, actual production was 6,500 units. The material quantity variance was $700 favorable and the material price variance was $470 unfavorable. The entry to charge Goods in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include: A. A credit to Goods in Process for $19,270. B. A debit to Raw Materials for $19,500. C. A debit to Direct Material Price Variance for $470. D. A debit to Direct Material Quantity Variance for $700. E. A credit to Goods in Process for $19,500.

Q: When recording variances in a standard cost system: A. Only unfavorable material variances are debited. B. Only unfavorable material variances are credited. C. Both unfavorable material and labor variances are credited. D. All unfavorable variances are debited. E. All unfavorable variances are credited.