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**MANAGEMENT** **ADVISORY** **SERVICES** NORMAL COSTING One-Way **Variance** Actual Overhead 25 Hayward applies overhead at $5 per machine hour During March it worked 10,000 hours **and** overapplied overhead **by** $3,000 Actual overhead was (E) a $53,000 c $47,000 b $50,000 d none of the above L & H 10e **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** 44 Antaya Company uses the equation $375,000 + $1.20 per direct labor hour to budget manufacturing overhead Antaya has budgeted 75,000 direct labor hours for the year Actual results were 81,000 direct labor hours, $388,000 fixed overhead, **and** $98,600 variable overhead The total overhead **variance** for the year is (E) a $14,400 c $37,200 b $15,600 d $30,000 L & H 10e Applied Overhead 36 Gonzalez Company uses the equation $520,000 + $2 per direct labor hour to budget manufacturing overhead Gonzalez has budgeted 150,000 direct labor hours for the year Actual results were 150,000 direct labor hours **and** $817,500 total manufacturing overhead The total overhead applied for the year is (E) a $300,000 c $817,500 b $520,000 d $820,000 L & H 10e 37 Gonzales Company uses the equation $540,000 + $2 per direct labor hour to budget manufacturing overhead Gonzalez has budgeted 160,000 direct labor hours for the year Actual results were 160,000 direct labor hours **and** $857,500 total manufacturing overhead The total overhead **variance** for the year is (E) a $2,500 favorable c $2,500 unfavorable b $12,500 favorable d Some other number D, L & H 9e Over-Applied 24 Spooner applies overhead based on direct labor cost It had budgeted manufacturing overhead of $50,000 **and** budgeted direct labor of $25,000 Actual overhead was $52,500, actual labor cost was $27,000 Overhead was (E) a overapplied **by** $1,500 c overapplied **by** $2,500 b overapplied **by** $2,000 d underapplied **by** $2,000 L & H 10e 37 Gonzalez Company uses the equation $520,000 + $2 per direct labor hour to budget manufacturing overhead Gonzalez has budgeted 150,000 direct labor hours for the year Actual results were 150,000 direct labor hours **and** $817,500 total manufacturing overhead The total overhead **variance** for the year is (E) a $2,500 favorable c $2,500 unfavorable b $12,500 favorable d some other number L & H 10e CMA EXAMINATION QUESTIONS Nil Co uses a predetermined factory O/H application rate based on direct labor cost For the year ended December 31, Nil’s budgeted factory O/H was $600,000, based on a budgeted volume of 50,000 direct labor hours, at a **standard** direct labor rate of $6 per hour Actual factory O/H amounted to $620,000, with actual direct labor cost of $325,000 For the year, over-applied factory O/H was (M) a $20,000 c $30,000 b $25,000 d $50,000 AICPA 1186 II-29 30 Nil Co uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour Actual manufacturing overhead amounted to $620,000, with actual direct labor cost of $325,000 For the year, manufacturing overhead was: (M) A overapplied **by** $20,000 C overapplied **by** $30,000 B underapplied **by** $22,000 D underapplied **by** $30,000 G & N 10e Watson Company uses a predetermined factory overhead application rate based on direct labor cost Watson's budgeted factory overhead was $756,000 based on a budgeted volume of 60,000 direct labor hours, at a **standard** direct labor rate of $7.20 per hour Actual factory overhead amounted to $775,000 with actual direct labor cost of $450,000 for the year ended December 31 How much was Watson's overapplied factory overhead? (M) A $12,500 C $19,000 B $18,000 D $37,000 Gleim Under-Applied The Kelley Company uses a predetermined overhead rate of $9 per direct labor hour to apply overhead During the year, 30,000 direct labor hours were worked Actual overhead **costs** for the year were $240,000 The overhead **variance** is (E) a $27,000 overlapped c $30,000 underapplied b $26,670 underapplied d $24,000 overapplied H&M Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** 38 Bonds Company uses the equation $300,000 + $1.75 per direct labor hour to budget manufacturing overhead Bonds has budgeted 125,000 direct labor hours for the year Actual results were 110,000 direct labor hours, $297,000 fixed overhead, **and** $194,500 variable overhead The total overhead **variance** for the year is (E) a $1,000 c $35,000 b $48,000 d $36,000 L & H 10e 29 Malcolm Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs On September 1, the estimates for the month were: Manufacturing overhead $17,000 Direct labor hours 13,600 During September, the actual results were: Manufacturing overhead $18,500 Direct labor hours 12,000 The cost records for September will show: G & N 10e A Overapplied overhead of $1,500 C Overapplied overhead of $3,500 B Underapplied overhead of $1,500 D Underapplied overhead of $3,500 Actual Direct Labor Hours 30 Hoyt Company applies overhead at $6 per direct labor hour In March Hoyt incurred overhead of $144,000 Under-applied overhead was $6,000 How many direct labor hours did TYV work? (E) a 25,000 c 23,000 b 24,000 d 22,000 D, L & H 9e MNO Company applies overhead at P5 per direct labor hour In March 2001, MNO incurred overhead of P120,000 Under-applied overhead was P5,000 How many direct labor hours did MNO work? (E) A 25,000 C 24,000 B 22,000 D 23,000 RPCPA 1001 Margolos, Inc ends the month with a volume **variance** of $6,360 unfavorable If budgeted fixed factory O/H was $480,000, O/H was applied on the basis of 32,000 budgeted machine hours, **and** budgeted variable factory O/H was $170,000, what were the actual machine hours (AH) for the month? (M) a 32,424 c 31,687 b 32,000 d 31,576 J.B Romal CMA EXAMINATION QUESTIONS **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** 41 Pinnini Co uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs Last year, Pinnini Company incurred $225,000 in actual manufacturing overhead cost The Manufacturing Overhead account showed that overhead was overapplied $14,500 for the year If the predetermined overhead rate was $5.00 per direct labor hour, how many hours did the company work during the year? (M) A 45,000 hours C 42,100 hours B 47,900 hours D 44,000 hours G & N 10e 42 Parsons Co uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs Last year Parsons incurred $250,000 in actual manufacturing overhead cost The Manufacturing Overhead account showed that overhead was overapplied in the amount of $12,000 for the year If the predetermined overhead rate was $8.00 per direct labor hour, how many hours were worked during the year? (M) A 31,250 hours C 32,750 hours B 30,250 hours D 29,750 hours G & N 10e Three-Way **Variance** Variable Overhead Spending **Variance** 39 Bonds Company uses the equation $300,000 + $1.75 per direct labor hour to budget manufacturing overhead Bonds has budgeted 125,000 direct labor hours for the year Actual results were 110,000 direct labor hours, $297,000 fixed overhead, **and** $194,500 variable overhead The variable overhead spending **variance** for the year is (E) a $2,000 c $47,000 b $3,000 d $48,000 L & H 10e 29 Baxter Corporation's master budget calls for the production of 5,000 units of its product monthly The master budget includes indirect labor of $144,000 annually; Baxter considers indirect labor to be a variable cost During the month of April, 4,500 units of product were produced, **and** indirect labor **costs** of $10,100 were incurred A performance report utilizing flexible budgeting would report a spending **variance** for indirect labor of: (E) A $1,900 unfavorable C $1,900 favorable B $700 favorable D $700 unfavorable G & N 10e Fixed Overhead Budget **Variance** 40 Bonds Company uses the equation $300,000 + $1.75 per direct labor hour to budget manufacturing overhead Bonds has budgeted 125,000 direct labor hours for the year Actual Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** results were 110,000 direct labor hours, $297,000 fixed overhead, **and** $194,500 variable overhead The fixed overhead budget **variance** for the year is (E) a $2,000 c $47,000 b $3,000 d $48,000 L & H 10e 46 Antaya Company uses the equation $375,000 + $1.20 per direct labor hour to budget manufacturing overhead Antaya has budgeted 75,000 direct labor hours for the year Actual results were 81,000 direct labor hours, $388,000 fixed overhead, **and** $98,600 variable overhead The fixed overhead budget **variance** for the year is (E) a $13,000 c $17,000 b $47,000 d $30,000 L & H 10e Volume **Variance** ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget manufacturing overhead ABC has budgeted 125,000 direct labor hours for the year Actual results were 110,000 direct labor hours, P297,000 fixed overhead, **and** P194,500 variable overhead What is the fixed overhead volume **variance** for the year? (M) A P35,000 unfavorable C P2,000 favorable B P36,000 unfavorable D P3,000 favorable RPCPA 1001 41 Bonds Company uses the equation $300,000 + $1.75 per direct labor hour to budget manufacturing overhead Bonds has budgeted 125,000 direct labor hours for the year Actual results were 110,000 direct labor hours, $297,000 fixed overhead, **and** $194,500 variable overhead The fixed overhead volume **variance** for the year is (E) a $39,000 c $33,000 b $3,000 d $36,000 L & H 10e 47 Antaya Company uses the equation $375,000 + $1.20 per direct labor hour to budget manufacturing overhead Antaya has budgeted 75,000 direct labor hours for the year Actual results were 81,000 direct labor hours, $388,000 fixed overhead, **and** $98,600 variable overhead The fixed overhead volume **variance** for the year is (E) a $1,400 c $15,600 b $13,000 d $30,000 L & H 10e Fixed OH Budget Variance, Volume **Variance** & Variable OH Spending **Variance** CMA EXAMINATION QUESTIONS **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** Over-(Under) Applied Overhead 34 Waldorf had a $10,000 unfavorable fixed overhead budget variance, a $6,000 unfavorable variable overhead spending variance, **and** a $2,000 favorable volume **variance** The total overhead was (E) a $14,000 overapplied c $18,000 overapplied b $14,000 underapplied d $18,000 underapplied L & H 10e Variable Overhead Spending **Variance** 35 Bacon had a $18,000 unfavorable volume variance, a $5,000 unfavorable fixed overhead budget variance, **and** $12,000 total under-applied overhead The variable overhead spending **variance** was (E) a $11,000 favorable c $11,000 unfavorable b $1,000 favorable d $23,000 unfavorable D, L & H 9e Fixed Overhead Budget **Variance** 32 Daly had a $9,000 favorable volume variance, a $7,500 unfavorable variable overhead spending variance, **and** $6,000 total overapplied overhead The fixed overhead budget **variance** was (E) a $4,500 favorable c $4,500 unfavorable b $8,000 favorable d $8,000 unfavorable L & H 10e 141.ABC had a P28,000 favorable volume variance, a P25,000 unfavorable variable overhead spending variance, **and** P12,000 total overapplied overhead The fixed overhead budget **variance** was a P9,000 favorable c P9,000 unfavorable b P26,000 favorable d P26,000 unfavorable Pol Bobadilla 49 Rhoda had a $2,000 favorable volume variance, a $7,000 unfavorable variable overhead spending variance, **and** $3,000 total underapplied overhead The fixed overhead budget **variance** was (E) a $2,000 favorable c $2,000 unfavorable b $8,000 favorable d $8,000 unfavorable L & H 10e 16 XYZ had an $8,000 unfavorable volume variance, a $11,500 unfavorable variable overhead spending variance, **and** $1,500 total underapplied overhead The fixed overhead budget **variance** was (E) a $18,000 favorable c $17,500 unfavorable b $21,000 favorable d $21,000 unfavorable L & H 10e Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** Volume **Variance** 50 Katrina Inc had a $30,000 favorable fixed overhead budget variance, a $44,000 unfavorable variable overhead spending variance, **and** $44,000 total underapplied overhead The volume **variance** was (E) a $30,000 overapplied c $58,000 overapplied b $30,000 underapplied d $58,000 underapplied L & H 10e 33 Acme had a $6,000 favorable fixed overhead budget variance, a $2,500 unfavorable variable overhead spending variance, **and** $1,000 total overapplied overhead The volume **variance** was (E) a $4,500 overapplied c $2,500 overapplied b $4,500 underapplied d $2,500 underapplied L & H 10e 142.Acme had a P22,000 favorable fixed overhead budget variance, a P15,000 unfavorable variable overhead spending variance, **and** P2,000 total overapplied overhead The volume **variance** was a P13,000 overapplied c P5,000 overapplied b P13,000 underapplied d P5,000 underapplied Pol Bobadilla Comprehensive Questions 38 through 41 are based on the following information D, L & H 9e Alcatraz Company uses the equation $400,000 + $1.75 per direct labor hour to budget manufacturing overhead Alcatraz has budgeted 125,000 direct labor hours for the year Actual results were 110,000 direct labor hours, $397,000 fixed overhead, **and** $194,500 variable overhead 38 The total overhead **variance** for the year is (M) a $2,000 c $47,000 b $3,000 d $48,000 39 The variable overhead spending **variance** for the year is (M) a $2,000 c $47,000 b $3,000 d $48,000 40 The fixed overhead budget **variance** for the year is (E) a $2,000 c $47,000 b $3,000 d $48,000 CMA EXAMINATION QUESTIONS **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** 41 The fixed overhead volume **variance** for the year is (M) a $2,000 c $47,000 b $3,000 d $48,000 Questions 44 through 47 are based on the following information D, L & H 9e Hughes Company uses the equation $375,000 + $1.20 per direct labor hour to budget manufacturing overhead Hughes had budgeted 75,000 direct labor hours for the year Actual results were 81,000 direct labor hours, $397,000 fixed overhead, **and** $94,500 variable overhead 44 The total overhead **variance** for the year is (M) a $2,700 c $22,000 b $10,700 d $30,000 45 The variable overhead spending **variance** for the year is (M) a $2,700 c $22,000 b $10,700 d $30,000 46 The fixed overhead budget **variance** for the year is (E) a $2,700 c $22,000 b $10,700 d $30,000 47 The fixed overhead volume **variance** for the year is (M) a $1,400 c $15,600 b $13,000 d $30,000 ACTIVITY-BASED COSTING Questions 116 thru 120 are based on the following information Horngren Munoz, Inc produces a special line of plastic toy racing cars Munoz, Inc produces the cars in batches To manufacture a batch of the cars, Munoz, Inc must set up the machines **and** molds Setup **costs** are batch-level **costs** because they are associated with batches rather than individual units of products A separate Setup Department is responsible for setting up machines **and** molds for different styles of car Setup overhead **costs** consist of some **costs** that are variable **and** some **costs** that are fixed with respect to the number of setup-hours The following information pertains to June 2004 Units produced **and** sold Actual Amounts 15,000 Static-budget Amounts 11,250 Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** Batch size (number of units per batch) Setup-hours per batch Variable overhead cost per setup-hour Total fixed setup overhead **costs** **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** 250 $40 $14,400 225 5.25 $38 $14,000 11 What is the static-budget **variance** of variable costs? (E) a $1,200 favorable c $20,000 favorable b $18,800 unfavorable d $1,200 unfavorable 12 Calculate the efficiency **variance** for variable setup overhead **costs** (D) a $1,500 unfavorable c $975 unfavorable b $525 favorable d $1,500 favorable Calculate the spending **variance** for variable setup overhead **costs** (D) a $1,500 unfavorable c $975 unfavorable b $525 favorable d $1,500 favorable Calculate the flexible-budget **variance** for variable setup overhead **costs** (M) a $1,500 unfavorable c $975 unfavorable b $525 favorable d $1,500 favorable Calculate the spending **variance** for fixed setup overhead **costs** (E) a $3,200 unfavorable c $3,600 unfavorable b $400 unfavorable d $400 favorable Calculate the production-volume **variance** for fixed setup overhead costs.(M) a $3,200 unfavorable c $3,600 unfavorable b $400 unfavorable d $400 favorable STATIC BUDGET **VARIANCE** Questions 48 thru 50 are based on the following information Horngren Abernathy Corporation used the following data to evaluate their current operating system The company sells items for $10 each **and** used a budgeted selling price of $10 per unit Actual Budgeted Units sold 92,000 units 90,000 units Variable **costs** $450,800 $432,000 Fixed **costs** $ 95,000 $100,000 10 What is the static-budget **variance** of revenues? a $20,000 favorable c $2,000 favorable b $20,000 unfavorable d $2,000 unfavorable CMA EXAMINATION QUESTIONS What is the static-budget **variance** of operating income? (E) a $3,800 favorable c $6,200 favorable b $3,800 unfavorable d $6,200 unfavorable Questions 51 thru 53 are based on the following information Horngren Bates Corporation used the following data to evaluate their current operating system The company sells items for $10 each **and** used a budgeted selling price of $10 per unit Actual Budgeted Units sold 495,000 units 500,000 units Variable **costs** $1,250,000 $1,500,000 Fixed **costs** $ 925,000 $ 900,000 13 What is the static-budget **variance** of revenues? a $50,000 favorable c $5,000 favorable b $50,000 unfavorable d $5,000 unfavorable 14 What is the static-budget **variance** of variable costs? a $200,000 favorable c $250,000 favorable b $50,000 unfavorable d $250,000 unfavorable 15 What is the static-budget **variance** of operating income? (E) a $175,000 favorable c $225,000 favorable b $195,000 unfavorable d $325,000 unfavorable FLEXIBLE BUDGET **VARIANCE** Total Manufacturing Cost Flexible Budget 16 Aebi Corporation currently produces cardboard boxes in an automated process Expected production per month is 20,000 units, direct-material **costs** are $0.60 per unit, **and** manufacturing overhead **costs** are $9,000 per month Manufacturing overhead is allocated based on units of production What is the flexible budget for 10,000 **and** 20,000 units, respectively? (E) a $10,500; $16,500 c $15,000; $21,000 b $10,500; $21,000 d none of the above Horngren Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** 17 Hemberger Corporation currently produces baseball caps in an automated process Expected production per month is 20,000 units, direct material **costs** are $1.50 per unit, **and** manufacturing overhead **costs** are $23,000 per month Manufacturing overhead is allocated based on units of production What is the flexible budget for 10,000 **and** 20,000 units, respectively? (E) a $26,500; $41,500 c $38,000; $53,000 b $26,500; $53,000 d none of the above Horngren * Based on normal capacity operations, Sta Ana Company employs 25 workers in its Refining Department, working hours a day, 20 days per month at a wage rate of P6 per hour At normal capacity, production in the department is 5,000 units per month Indirect materials average P0.25 per direct labor hour; indirect labor cost is 12½% of direct labor cost; **and** other overhead are P0.15 per direct labor hour The flexible budget at the normal capacity activity level follows: Direct materials P 4,000 Direct labor 24,000 Fixed factory overhead 1,200 Indirect materials 1,000 Indirect labor 3,000 Other overhead 600 Total P 33,800 Cost per unit P 6.76 The total production cost for one month at 80% capacity is (M) a P20,760 c P27,280 b P21,500 d P30,160 RPCPA 1082 CMA EXAMINATION QUESTIONS **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** Questions 36-38 are based on the following information: G & N 10e Barrick Company has established a flexible budget for manufacturing overhead based on direct labor-hours Total budgeted **costs** at 200,000 direct labor-hours are as follows: Variable **costs** (total): Packing supplies $120,000 Indirect labor $180,000 Fixed **costs** (total): Utilities $100,000 Rent $ 40,000 Insurance $ 20,000 36 The flexible budget for factory overhead would show that the variable factory overhead cost per direct labor-hour is: A $1.80 C $0.90 B $1.50 D $0.60 37 At an activity level of 170,000 direct labor-hours, the flexible budget for factory overhead would show the budgeted amount for utilities as: A $ 85,000 C $160,000 B $140,000 D $100,000 38 If Barrick Company plans to operate at 190,000 direct labor-hours during the next period, the flexible budget would show indirect labor **costs** of: A $171,000 C $114,000 B $180,000 D $270,000 Questions 39-41 are based on the following information: G & N 10e Wicks Company has established a flexible budget for manufacturing overhead based on direct labor-hours Budgeted **costs** at 100,000 direct labor-hours are as follows: Variable **costs** (total): Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** Packing supplies Indirect labor Fixed **costs** (total): Utilities Rent Insurance **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** $70,000 $90,000 $50,000 $20,000 $10,000 39 The flexible budget for factory overhead would show that the variable overhead per direct labor-hour is: A $1.90 C $0.90 B $1.60 D $0.70 Questions 116 **and** 117 are based on the following information CMA 0695 3-26 & 27 Clear Plus, Inc manufactures **and** sells boxes of pocket protectors The static master budget **and** the actual results for May 1995 appear below Actual Static Budget Unit sales 12,000 10,000 Sales $132,000 $100,000 Variable **costs** of sales 70,800 60,000 Contribution margin 61,200 40,000 Fixed **costs** 32,000 30,000 Operating income $ 29,200 $ 10,000 20 40 At an activity level of 70,000 direct labor-hours, the flexible budget would show the budgeted amount for utilities as: A $35,000 C $80,000 B $70,000 D $50,000 41 If Wicks Company plans to operate at 90,000 direct labor-hours during the next period, the flexible budget would show indirect labor **costs** of: A $144,000 C $90,000 B $63,000 D $81,000 Manufacturing Cost **Variance** 18 A defense contractor for a government space project has incurred $2,500,000 in actual design **costs** to date for a guidance system whose total budgeted design cost is $3,000,000 If the design phase of the project is 60% complete, what is the amount of the contractor's current overrun or savings on this design work? (M) A $300,000 savings C $500,000 savings B $500,000 overrun D $700,000 overrun CIA 0596 III-87 19 A manufacturing firm planned to manufacture **and** sell 100,000 units of product during the year at a variable cost per unit of $4.00 **and** a fixed cost per unit of $2.00 The firm fell short of its goal **and** only manufactured 80,000 units at a total incurred cost of $515,000 The firm’s manufacturing cost **variance** was (D) a $85,000 favorable c $5,000 favorable b $35,000 unfavorable d $5,000 unfavorable CMA 1293 3-25 Operating Income CMA EXAMINATION QUESTIONS The operating income for Clear Plus, Inc using a flexible budget for May 1995 is a $12,000 c $30,000 b $19,200 d $18,000 21 Which one of the following statements concerning Clear Plus, Inc.’s actual results for May 1995 is correct? a The flexible budget **variance** is $8,000 favorable b The sales price **variance** is $32,000 favorable c The sales volume **variance** is $8,000 favorable d The fixed cost flexible budget **variance** is $4,000 favorable Comprehensive THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 74 THROUGH 77 Horngren The actual information pertains to the month of August As part of the budgeting process Alloway’s Fencing Company developed the following static budget for August Alloway is in the process of preparing the flexible budget **and** understanding the results Actual Results Flexible Budget Static Budget Sales volume (in units) # 20,000 # 25,000 Sales revenues $1,000,000 $ $1,250,000 Variable **costs** 512,000 $ 600,000 Contribution margin 488,000 $ 650,000 Fixed **costs** 458,000 $ 450,000 Operating profit $ 30,000 $ $ 200,000 22 The flexible budget will report for variable **costs** (E) a $512,000 c $480,000 b $600,000 d $640,000 Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** 23 80 What is the total flexible-budget **variance** (D)? (E) a $120 unfavorable c $680 favorable b $0 d $3,320 favorable 24 81 What is the total sales-volume **variance** (E)? (E) a $7,480 unfavorable c $1,880 favorable b $2,800 unfavorable d $7,480 favorable The flexible budget will report for the fixed **costs** (E) a $458,000 c $360,000 b $450,000 d $572,500 The flexible-budget **variance** for variable **costs** is (E) a $32,000 unfavorable c $32,000 favorable b $120,000 unfavorable d $120,000 favorable 82 What is the total static-budget variance? (E) a $5,200 favorable b $3,320 favorable 77 The PRIMARY reason for low operating profits was (M) a the variable-cost **variance** b increased fixed **costs** c a poor **management** accounting system d lower sales volume than planned STATIC BUDGET VS FLEXIBLE BUDGET THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 78 THROUGH 82 Horngren Peters’ Company manufacturers tires Some of the company's data was misplaced Use the following information to replace the lost data: Units sold Revenues Variable **costs** Fixed **costs** Operating income Actual Results #225,000 $84,160 Flexible-Budget Variances Sales-Volume Variances $2,000 F Flexible Budget #225,000 (A) $2,800 U Static Budget #206,250 (B) (C) $400 U $31,720 $4,680 F $36,400 $16,560 $1,720 F $18,280 $18,280 $35,480 (D) $32,160 (E) $30,280 78 What amounts are reported for revenues in the flexible-budget (A) **and** the static-budget (B), respectively? (E) a $82,160; $79,360 c $84,960; $88,960 b $82,160; $84,960 d $84,960; $83,360 79 What are the actual variable **costs** (C)? (E) a $36,400 b $32,120 CMA EXAMINATION QUESTIONS c $31,320 d $27,040 c $1,880 unfavorable d $1,880 favorable **STANDARD** COST Unit Cost * Based on normal capacity operations, Sta Ana Company employs 25 workers in its Refining Department, working hours a day, 20 days per month at a wage rate of P6 per hour At normal capacity, production in the department is 5,000 units per month Indirect materials average P0.25 per direct labor hour; indirect labor cost is 12½% of direct labor cost; **and** other overhead are P0.15 per direct labor hour The flexible budget at the normal capacity activity level follows: Direct materials P 4,000 Direct labor 24,000 Fixed factory overhead 1,200 Indirect materials 1,000 Indirect labor 3,000 Other overhead 600 Total P 33,800 Cost per unit P 6.76 The cost per unit at 60% capacity is (M) a P6.00 c P6.82 b P6.50 d P6.92 RPCPA 1082 **Standard** Total Cost Cascade Company, which has a $3 **standard** cost per unit **and** budgeted production at 1,000 units, actually produced 1,200 units Total **standard** cost for the period is a $3,000 b $3,600 c An amount that cannot be determined without knowing the variances for the period Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** d None of the above **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** D, L & H 9E MATERIALS **VARIANCE** **Standard** DM Cost per Unit 21 RTW Co manufactures a “one-size-fits-all” ready-to-wear outfit **and** uses a **standard** cost system Each unit of finished outfit contains two yards of fabric that cost P75 per yard Based on experience, a 20% loss on fabric input is incurred For each unit of outfit, the **standard** materials cost is (E) a P150.00 c P187.50 b P180.00 d P200.00 RPCPA 1094 25 Dahl Co uses a **standard** costing system in connection with the manufacture of a “one size fits all” article of clothing Each unit of finished product contains yards of direct material However, a 20% direct material spoilage calculated on input quantities occurs during the manufacturing process The cost of the direct material is $3 per yard The **standard** direct material cost per unit of finished product is (M) a $4.80 c $7.20 b $6.00 d $7.50 AICPA adapted 26 Fleece Company uses a standard-costing system in relation to its manufacture of scarves Each finished scarf contains 1.5 yards of direct materials However, a 25% direct materials spoilage, which is calculated based on input quantities, occurs during the manufacturing process The cost of the direct materials is $2.00 per yard The **standard** direct materials cost per unit of finished product is (M) A $2.25 C $3.75 B $3.00 D $4.00 Gleim * Hankies Unlimited has a signature scarf for ladies that is very popular Certain production **and** marketing data are indicated below: Cost per yard of cloth P36.00 Allowance for rejected scarf 5% of production Yards of cloth needed per scarf 0.475 yard Airfreight from supplier P0.60/yard Motor freight to customers P0.90 /scarf Purchase discounts from supplier 3% Sales discount to customers 2% The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf Rejects have no market value Materials are used at the start of production CMA EXAMINATION QUESTIONS Calculate the **standard** cost of cloth per scarf that Hankies Unlimited should use in its cost sheets (D) a P16.87 c P18.21 b P17.76 d P17.30 RPCPA 0594 Alejo Company is a chemical manufacturer that supplies industrial users The company plans to introduce a new chemical solution **and** needs to develop a **standard** product cost for this new solution The new chemical solution is made **by** combining a chemical compound (nyclin) **and** a solution (salex), boiling the mixture, adding a second compound (protet), **and** bottling the resulting solution in 20-liter containers The initial mix, which is 20 liters in volume consists of 24 kilograms of nyclyn **and** 19.2 liters of salex A 20% reduction in volume occurs during the boiling process The solution is then cooled slightly before 10 kilograms of protet are added: the addition of protet does not affect the total liquid volume The purchase prices of the raw materials used in the manufacture of this new chemical solution are as follows: Nyclyn P15.00 per kilogram Salex P21.00 per kilogram Protet P28.00 per kilogram The total **standard** materials cost of 20 liters of the product is (D) A P1,043,20 C P1,304.00 B P834.56 D P1,234.00 Pol Bobadilla Material Price **Variance** Based on Quantity Purchased 27 Garland Company uses a **standard** cost system The **standard** for each finished unit of product allows for pounds of plastic at $0.72 per pound During December, Garland bought 4,500 pounds of plastic at $0.75 per pound, **and** used 4,100 pounds in the production of 1,300 finished units of product What is the materials purchase price **variance** for the month of December? (E) a $117 unfavorable c $135 unfavorable b $123 unfavorable d $150 unfavorable CMA Samp Q3-11 18 The **standard** price of a material is $2 per pound The company bought 2,000 pounds at $1.90 per pound **and** used 1,700 pounds **Standard** use was 1,800 pounds The material price **variance** was (E) a $170 favorable c $200 favorable b $180 favorable d $400 favorable D, L & H 9e Page of 168 **MANAGEMENT** **ADVISORY** **SERVICES** 38 The **standard** usage for raw materials is pounds at $4 per pound ABC Company spent $13,940 in purchasing 3,400 pounds ABC used 3,150 pounds to produce 600 units of finished product The material price **variance** is (E) a $340 unfavorable c $600 unfavorable b $400 unfavorable d $1,340 unfavorable D, L & H 9e 40 Last month 75,000 pounds of direct material were purchased **and** 71,000 pounds were used If the actual purchase price per pound was $0.50 more than the **standard** purchase price per pound, then the material price **variance** was: (E) a $2,000 F c $37,500 U b $37,500 F d $35,500 U G & N 9e 42 PRECISION Instruments established a **standard** cost for raw materials at P25 per unit During the period just ended, a total of 10,000 units were purchased of which 50% was at P24.70 each, 20% was at P24.90 each, **and** the balance was at P25.60 each The raw materials cost **variance** is a favorable (an unfavorable) (M) a P100 c P(100) b P900 d P(900) RPCPA 1097 43 The following materials standards have been established for a particular product: **Standard** quantity per unit of output 8.3 grams **Standard** price $19.15 per gram The following data pertain to operations concerning the product for the last month: Actual materials purchased 7,500 grams Actual cost of materials purchased $141,375 Actual materials used in production 7,100 grams Actual output 700 units What is the materials price **variance** for the month? (E) a $2,250 F c $24,317 U b $7,540 U d $7,660 U G & N 9e **STANDARD** **COSTS** **AND** **VARIANCE** **ANALYSIS** 38 Perkins Company, which has a **standard** cost system, had 500 pounds of raw material X in its inventory at June 1, purchased in May for $1.20 per pound **and** carried at a **standard** cost of $1.00 per pound The following information pertains to raw material X for the month of June: Actual pounds purchased 1,400 Actual pounds used 1,500 **Standard** pounds allowed for actual production 1,300 **Standard** cost per pound $1.00 Actual cost per pound $1.10 The unfavorable materials purchase price **variance** for raw material X for June was: A $ C $140 B $130 D $150 G & N 10e 40 The following materials standards have been established for a particular product: **Standard** quantity per unit of output 5.3 meters **Standard** price $17.20 per meter The following data pertain to operations concerning the product for the last month: Actual materials purchased 8,100 meters Actual cost of materials purchased $141,345 Actual materials used in production 7,600 meters Actual output 1,400 units What is the materials price **variance** for the month? A $3,141 U C $8,600 U B $2,025 U D $8,725 U G & N 10e Questions & are based on the following information H&M The Max Company has developed the following standards for one of its products: Direct materials: 15 pounds x $16 per pound Direct labor: hours x $24 per hour Variable manufacturing overhead: hours x $14 per hour The following activity occurred during the month of October: Materials purchased: 10,000 pounds costing $170,000 Materials used: 7,200 pounds Units produced: 500 units Direct labor: 2,300 hours at $23.60/hour Actual variable manufacturing overhead: $30,000 The company records materials price variances at the time of purchase 28 The variable **standard** cost per unit is (E) CMA EXAMINATION QUESTIONS Page 10 of 168 138 Answer (C) is correct Three-way **analysis** of **variance** combines the fixed overhead budget (spending) **and** variable overhead spending variances of four-way **analysis** of **variance** It includes spending, efficiency, **and** volume variances The spending **variance** is the difference between the actual overhead incurred **and** the budgeted overhead for the actual input Budgeted overhead [$10,500 + (5,250 x $3.80)] $30,450Actual overhead (22,500) $7,950 FAnswer (A) is incorrect because $9,660 is based on standard, not actual, hours Answer (B) is incorrect because $8,250 results from using actual fixed overhead to calculate budgeted overhead Answer (D) is incorrect because the spending **variance** is favorable 139 Answer (B) is correct The solutions approach to compute the variable overhead efficiency **variance** is to set up a diagram as follows: AH x SR (10,500 x $3)$31,500SH x SR [(2 x 5,000) x $]$30,000Variable overhead efficiency **variance** (unfavorable)$ 1,500 Answer (B) is correct The variable overhead efficiency **variance** equals the **standard** variable overhead rate times the difference between the actual input **and** the **standard** input allowed for the actual output The **standard** rate for variable overhead is $2 per direct labor hour Actual direct labor hours are 24,500 **Standard** labor hours are 24,000 (8,000 units x hours per unit) Thus, the variable overhead efficiency **variance** is $1,000 [2 x (24,500 24,000)] The **variance** is unfavorable because actual hours exceeded **standard** hours Answer (A) is incorrect because an unfavorable variable overhead efficiency **variance** exists Answer (C) is incorrect because $2,000 is the total variable overhead **variance** (actual overhead minus the overhead rate applied to the **standard** hours) Answer (D) is incorrect because $3,000 is the difference between actual variable overhead **and** the product of the **standard** rate **and** the actual input (the variable overhead spending variance) This **variance** is favorable 140 141 Actual factory overhead$178,500Budget allowance:Variable for actual hours(121,000 x $.50)$ 60,500Fixed 110,000170,500Spending variance$ 8,000unfavorable 142 Budget allowance for actual hours [(121,000 x $.50) + $110,000] $170,500Budget allowance for **standard** hours:Variable (130,000 x $.50)$ 65,000Fixed 110,000 175,000 Variable efficiency variance$(4,500)favorable 143 Answer (B) is correct The cost of indirect materials for 144,000 units was expected to be $180,000 Consequently, the unit cost of indirect materials is $1.25 ($180,000 ÷ 144,000) Multiplying the $1.25 unit cost times the 10,800 units produced results in an expected total indirect materials cost of $13,500 Answer (A) is incorrect because the flexible budget amount for indirect materials is $13,500 Answer (C) is incorrect because the flexible budget amount for indirect materials is $13,500 Answer (D) is incorrect because the flexible budget amount for indirect materials is $13,500 144 Variable budget allowance for actual hours (2,100 x $3)$6,300Variable budget allowance for **standard** hours ($3 x 1,000 x 2) 6,000$300unfavorable 145 Answer (D) is correct The variable delivery expense should total $166,400 given sales of 52,000 units ($160,000 ÷ 50,000 units = $3.20 per unit) Thus, the **variance** is $3,400 ($166,400 - $163,000) It is favorable since the actual cost is less than that budgeted Answer (A) is incorrect because the total variable delivery expense will increase as production increases Answer (B) is incorrect because the **variance** is favorable Answer (C) is incorrect because the total variable delivery expense will increase as production increases 146 Answer (B) is correct The $144,000 annual amount equals $12,000 per month Since volume is expected to be 5,000 units per month, **and** the $12,000 is considered a variable cost, budgeted cost per unit is $2.40 ($12,000 ÷ 5,000 units) If 4,500 units are produced, the total variable **costs** should be $10,800 (4,500 units x $2.40) Subtracting the $10,100 of actual **costs** from the budgeted figure results in a favorable **variance** of $700 Answer (A) is incorrect because $1,900 is calculated using 5,000 units produced instead of the actual 4,500 Answer (C) is incorrect because $1,900 is calculated using 5,000 units produced instead of the actual 4,500 Answer (D) is incorrect because the $700 **variance** is favorable 147 $16,800 - $18,000 = $1,200 (F) 148 $1200 (F) - $360 (U) = $1,560 (F) 149 $37,000 - (5,800 x $3 x 2) = $2,200 (U) 150 [12,000 – (5,800 x 2)] x $3 = $1,200 (U) 151 $8,400 - $9,000 = $600 (F) 152 $600 (F) - 180 (U) = $780 (F) 153 Answer (D) is correct Since depreciation is a fixed cost, that cost will be the same each month regardless of production Therefore, the budget for September would show depreciation of $21,500 ($258,000 annual depreciation x 1/12) Answer (A) is incorrect because depreciation is a fixed cost that will be the same each month regardless of production The budget for September would show depreciation of $21,500 ($258,000 x 1/12) Answer (B) is incorrect because $20,425 is based on the units-of-production method Answer (C) is incorrect because $20,500 is the amount shown in the accounts 154 Answer (D) is correct The budgeted depreciation expense should be $100,000 at all levels of production Thus, the **variance** will be $3,000 unfavorable ($100,000 budgeted - $103,000 actual) Answer (A) is incorrect because the **variance** is unfavorable Answer (B) is incorrect because the **variance** is unfavorable Answer (C) is incorrect because a flexible budget fixed cost should not increase when production increases 155 Answer (C) is correct The $324,000 for supervisory salaries is a fixed cost, at a rate of $27,000 per month Since these **costs** are fixed, volume is irrelevant Thus, the **variance** is the difference between actual **costs** of $28,000 **and** the budgeted **costs** of $27,000, which equals $1,000 unfavorable Answer (A) is incorrect because $350 results from calculating supervisory salaries on the basis of volume rather than as fixed **costs** {[($324,000 ÷ 180,000 units) x 15,750 units] - $28,000} Answer (B) is incorrect because $350 results from calculating supervisory salaries on the basis of volume rather than as fixed **costs** {[($324,000 ÷ 180,000 units) x 15,750 units] - $28,000} Answer (D) is incorrect because the **variance** is $1,000 unfavorable Actual **costs** are greater than budgeted **costs** 156 $315,000 –$300,000 = $15,000 (U) 157 $300,000/$3 = 100,000 DLH 158 $300,000 – (55,000 x x $3) = $30,000 (F) 159 $108,000 – $2,600 = $105,400 160 $400,000 + $16,000 = $416,000 161 $210,000 - $8,000 = $202,000 162 9,800 mh x $5.25 = $51,450 163 10,000 mh x $5.00 = $50,000 164 ($5.25-$5.00) x 9,800 mh = $2,450 unfavorable 165 [9,800 – 10,000] x $5.00 = $1,000 favorable 166 15,000 mh x $11.00 = $165,000 167 [30,000 x (10,800/24,000)] x $11.25 = $151,875 168 ($11.00-$11.25) x 15,000 mh = $3,750 favorable 169 [15,000 - (30,000 x 45) mh] x $11.25 = $16,875 unfavorable 170 $161,250/15,000 = $10.75 171 22,000 x ($161,250/15,000)] = $236,500 172 $242,000 – [22,000 x ($161,250/15,000)] = $5,500 unfavorable 173 $360,000/20,000 = $18.00 174 18,000 x ($360,000/20,000)] = $324,000 175 $342,000 – [18,000 x ($360,000/20,000)] = $18,000 unfavorable 176 $120,000, the same lump sum as the static budget 177 [25,000 x (6,000/24,000)] x $20.00 = $125,000 178 $123,000 actual **costs** - $120,000 budgeted cost = $3,000 unfavorable 179 $120,000 - [25,000 x (6,000/24,000) x $20.00] = $5,000 favorable 180 $120,000, the same lump sum as the static budget 181 [10,000 x (6,000/12,000)] x $20.00 = $100,000 182 $120,000 - [10,000 x (6,000/12,000) x $20.00] = $20,000 unfavorable 183 $122,000 - [10,000 x (6,000/12,000) x $20.00] = $22,000 underallocated 184 (12,000 – 10,000) x ($24,000/12,000) = $4,000 (U) 185 $13,000 - $12,000 = $1,000 (U) 186 $35,000 – (10,000 x $3) = $5,000 (U) 187 ($3 x 10,000) – ($3 x 9,000) = $3,000 (U) 188 $78,000 - $35,000 – ($5 x 9,000) = $2,000 (F) 189 Answer (D) is correct The predetermined overhead application rate is $15 [($1,200,000 FOH + $2,400,000 VOH) ÷ 240,000 machine hours] Answer (A) is incorrect because $5 is the fixed overhead application rate Answer (B) is incorrect because $25 is the fixed overhead per labor hour Answer (C) is incorrect because $10 is the variable portion of the overhead application rate 190 Answer (B) is correct Overhead is applied on the basis of planned machine hours The predetermined overhead application rate is $15 [($1,200,000 FOH + $2,400,000 VOH) ÷ 240,000 machine hours] Thus, total overhead applied was $315,000 ($15 x 21,000 planned machine hours based on output) Answer (A) is incorrect because the total overhead applied was $315,000 based on 21,000 hours at $15 per hour Answer (C) is incorrect because the total overhead applied was $315,000 based on 21,000 hours at $15 per hour Answer (D) is incorrect because $300,000 is based on planned direct labor hours at $75 per hour 191 Answer (B) is correct Variable overhead applied in November was $210,000 [21,000 planned machine hours based on output x ($2,400,000 planned annual VOH ÷ 240,000 planned machine hours)] Because the applied overhead was less than actual ($214,000), underapplied variable overhead equaled $4,000 Answer (A) is incorrect because the overhead was underapplied Answer (C) is incorrect because the overhead was underapplied Answer (D) is incorrect because $6,000 is based on the 22,000 machine hours planned for November rather than the planned hours for actual output 192 Answer (A) is correct The variable overhead spending **variance** equals the difference between actual variable overhead **and** the product of the actual input **and** the budgeted application rate At a variable overhead application rate (standard cost) of $10 per machine hour ($2,400,000 ÷ 240,000 hours), the total **standard** cost for the 21,600 actual hours was $216,000 Given actual **costs** of $214,000, the favorable **variance** is $2,000 Answer (B) is incorrect because $6,000 is based on planned machine hours of 22,000 Answer (C) is incorrect because the **variance** is favorable Answer (D) is incorrect because the **variance** is favorable 193 Answer (D) is correct The fixed overhead volume (idle capacity) **variance** is the difference between budgeted fixed **costs** **and** the product of the **standard** fixed overhead cost per unit of input **and** the **standard** units of input allowed for the actual output Budgeted fixed **costs** for the month were $100,000 The **standard** cost of actual output was $105,000 [21,000 machine hours planned for actual output x ($1,200,000 planned annual FOH ÷ 240,000 planned annual machine hours) FOH application rate] Hence, the fixed overhead volume **variance** was $5,000 favorable It was favorable because the budget for fixed overhead was less than the amount applied to jobs An overapplication of fixed overhead suggests that output exceeded expectations Answer (A) is incorrect because the **variance** was favorable Answer (B) is incorrect because the **variance** was favorable Answer (C) is incorrect because $10,000 is based on 22,000 planned machine hours 194 Answer (B) is correct Two **standard** hours are allowed for each unit of production Given actual production of 198,000 units, total **standard** hours allowed equal 396,000 (2 x 198,000) Answer (A) is incorrect because total **standard** hours allowed equal 396,000 Answer (C) is incorrect because total **standard** hours allowed equal 396,000 Answer (D) is inc orrect because total **standard** hours allowed equal 396,000 195 Answer (A) is correct The variable overhead efficiency **variance** equals the difference between actual **and** **standard** direct labor hours times the **standard** cost per hour Fixed overhead was budgeted at $600,000 ($3 x 200,000 expected units) Thus, total variable overhead was estimated to be $300,000 ($900,000 total OH $600,000), **and** the variable overhead application rate was $.75 per hour [$300,000 ÷ (2 hours x 200,000 units)] **Standard** hours for actual production are 396,000 (198,000 units x 2) Actual hours worked were 440,000 Hence, the variable overhead efficiency **variance** is $33,000 [$.75 x (440,000 actual hours - 396,000 **standard** hours for actual output)] The **variance** is unfavorable because actual hours exceeded budgeted hours Answer (B) is incorrect because the variable overhead efficiency **variance** is $33,000U Answer (C) is incorrect because the variable overhead efficiency **variance** is $33,000U Answer (D) is incorrect because the variable overhead efficiency **variance** is $33,000U 196 Answer (C) is correct Based on the 440,000 hours actually worked **and** the $.75 per hour variable overhead rate, the total **standard** cost for variable overhead is $330,000 The actual variable overhead totaled $352,000 The $22,000 variable overhead spending **variance** is unfavorable because the actual cost was higher than the **standard** Answer (A) is incorrect because the variable overhead spending **variance** is $22,000U Answer (B) is incorrect because the variable overhead spending **variance** is $22,000U Answer (D) is incorrect because the variable overhead spending **variance** is $22,000U 197 Answer (B) is correct Actual fixed overhead was $575,000 Budgeted fixed overhead was $3 per unit at an estimated production of 200,000 units; a total of $600,000 The difference of $25,000 is a favorable **variance** because the actual amount was less than that budgeted Answer (A) is incorrect because the fixed overhead spending **variance** is $25,000F Answer (C) is incorrect because the fixed overhead spending **variance** is $25,000F Answer (D) is incorrect because the fixed overhead spending **variance** is $25,000F 198 Answer (C) is correct Fixed overhead is applied at the rate of $3 per unit The amount applied given actual production is $594,000 ($3 x 198,000 units) Answer (A) is incorrect because the fixed overhead applied is $594,000 Answer (B) is incorrect because the fixed overhead applied is $594,000 Answer (D) is incorrect because the fixed overhead applied is $594,000 199 Answer (A) is correct The fixed overhead volume **variance** results when production varies from the denominator amount The denominator amount is the level of production used to determine the **standard** cost per unit Because production was expected to be 200,000 units (the denominator level), but actual production was only 198,000 units, an unfavorable volume **variance** of 2,000 units occurred Thus, 2,000 units were not charged with $3 per unit of overhead, **and** the volume **variance** in dollars was $6,000U (2,000 units x $3) This underapplication of fixed overhead is unfavorable because it indicates an underuse of facilities; that is, activity was less than budgeted Unlike other variances, this **variance** does not measure deviations from expected **costs** but rather the departure from the expected use of productive capacity Answer (B) is incorrect because the fixed overhead volume **variance** is $6,000U Answer (C) is incorrect because the fixed overhead volume **variance** is $6,000U Answer (D) is incorrect because the fixed overhead volume **variance** is $6,000U 200 $150,000/($100,000 + $50,000 + $150,000) x $24,000 = $12,000 201 Adjustment to cost of goods sold = $200,000/($25,000 + $75,000 + $200,000) x $120,000 = $200,000/$300,000 x $120,000 = $80,000 Cost of goods sold$400,000Add: Adjustment for underapplied overhead 80,000Adjusted cost of goods sold$480,000 202 (D) the requirement is to determine the amount of **costs** of goods sold to be reported on the 2002 income statement The balance in the cost of goods sold account is $720,000 This amount must be increased **by** the portion of underapplied overhead allocated to cost of goods sold The underapplied overhead is appropriately allocated to work in process, finished goods, **and** cost of goods sold No overhead is allocated to direct materials inventory, since this account contains only the cost of unused materials The other three accounts contain the cost of materials, labor, **and** overhead The amounts to be allocated to work in process, finished goods,a nd cost of goods sold are determined **by** each account’s relative balance as compared to the total balance in the accounts The total balance of the three accounts is $864,000 ($720,000 + $54,000 + $90,000) Therefore, the amount allocable to cost of goods sold is [($720,000/$864,000) x $45,000) or $37,500 Since overhead is underapplied, not enough **costs** were applied to production during the year Thus, cost of goods sold is increase to $757,500 ($720,000 + $37,500) 203 (5,600 x $40) + (5,600 x $49.20) = $499,520 204 (800 x $40) + (800 x 75 x $49.20) = $61,520 205 100,000 x $.78 = $78,000 206 8,000 x x $3.60 = $115,200 207 26,000 - (8,000 x x $1) = $2,000 208 The **variance** would be allocated only to finished goods **and** cost of goods sold 209 Answer (B) is correct The direct materials efficiency **variance** equals the **standard** unit price times the difference between inputs actually used **and** inputs that should have been used, or $1,680 unfavorable {[10,920 lbs - (2,100 units x lbs.)] x $4} Answer (A) is incorrect because $1,092 unfavorable equals the price **variance** Answer (C) is incorrect because $3,680 unfavorable assumes 10,000 pounds should have been used Answer (D) is incorrect because $3,772 unfavorable assumes 10,000 pounds should have been used **and** that the **standard** price was $4.10 210 Answer (A) is correct The direct labor flexible budget **variance** (the total direct labor variance) equals actual direct labor cost minus **standard** direct labor cost for actual output produced, or $500 favorable [$20,500 - ($10 x 2,100 units)] Answer (B) is incorrect because the **variance** was favorable Answer (C) is incorrect because $1,000 favorable is the labor efficiency **variance** Answer (D) is incorrect because both hours **and** wage rate varied **and** did not offset each other 211 Answer (B) is correct The direct materials price **variance** equals the actual price minus the **standard** price, times the actual quantity used in production The **variance** is $760,000 unfavorable [($28 - $24) x 190,000] The **variance** is unfavorable because the actual price exceeded the **standard** price Answer (A) is incorrect because the **variance** is unfavorable Answer (C) is incorrect because $240,000 is the direct materials efficiency **variance** Answer (D) is incorrect because $156,000 is the direct labor rate **variance** 212 Answer (B) is correct The direct materials efficiency **variance** equals the actual quantity minus the **standard** quantity, times **standard** price The **variance** is $240,000 favorable {[190,000 - (10 x 20,000)] x $24} The **variance** is favorable because the actual quantity was less than the **standard** quantity allowed for the actual output Answer (A) is incorrect because $156,000 favorable is the direct labor rate **variance** Answer (C) is incorrect because the **variance** is favorable Answer (D) is incorrect because $760,000 is the direct materials price **variance** 213 Answer (C) is correct The direct labor rate **variance** equals the actual rate minus the **standard** rate, times the actual amount of labor used The **variance** is $156,000 favorable [($18 - $20) x 78,000] The **variance** is favorable because the actual rate was less than the **standard** rate Answer (A) is incorrect because $240,000 favorable is the direct materials efficiency **variance** Answer (B) is incorrect because the **variance** was favorable Answer (D) is incorrect because $40,000 results from multiplying the actual units of output **by** the difference between the actual rate **and** **standard** rate 214 (110 - 100) x $2 = $20 (U) 215 110 x ($2.00 - $1.90) = $11 (F) 216 (184 - 200) x $10 = $160 (F) 217 Answer (B) is correct The direct materials price **variance** equals the actual quantity purchased times the difference between the actual **and** **standard** unit **costs** The **standard** unit cost for direct materials is $1.80 per pound The actual cost for 160,000 pounds was $304,000, or $1.90 per pound The **variance** is unfavorable because the actual price exceeded the **standard** price Thus, the **variance** is $16,000U ($.10 x 160,000 lbs.) Answer (A) is incorrect because the price **variance** is $16,000U Answer (C) is incorrect because the price **variance** is $16,000U Answer (D) is incorrect because the price **variance** is $16,000U 218 Answer (D) is correct The direct materials quantity **variance** equals the **standard** price ($1.80 per pound) times the difference between the actual **and** **standard** quantities The actual quantity used was 142,500 pounds The **standard** quantity is pounds per unit of product Given that 19,000 units were produced, the **standard** quantity for the actual output was 152,000 pounds (8 lbs x 19,000 units) Hence, the direct materials quantity **variance** is $17,100 [$1.80 x (152,000 - 142,500)] Since the actual quantity used was less than the **standard** quantity, the **variance** is favorable Answer (A) is incorrect because the direct materials quantity **variance** is $17,100F Answer (B) is incorrect because the direct materials quantity **variance** is $17,100F Answer (C) is incorrect because the direct materials quantity **variance** is $17,100F 219 Answer (A) is correct The direct labor rate **variance** equals the actual quantity of labor used times the difference between the actual **and** **standard** prices for labor The actual total price of labor was $42,000, 90% of which was for direct labor Thus, the price of direct labor was $37,800 A total of 5,000 hours of direct labor was worked Thus, the actual hourly rate was $7.56 ($37,800 ÷ 5,000 hrs.), **and** the **variance** is $2,200 [5,000 hrs x ($8.00 - $7.56)] The actual rate was less than standard, so the **variance** is favorable Answer (B) is incorrect because the labor rate **variance** is $2,200F Answer (C) is incorrect because the labor rate **variance** is $2,200F Answer (D) is incorrect because the labor rate **variance** is $2,200F 220 Answer (C) is correct The direct labor efficiency **variance** equals the **standard** labor rate times the difference between actual **and** **standard** hours Because each unit requires 25 hours of labor, the **standard** hours allowed for November would have been 4,750 (.25 x 19,000 units of output) Accordingly, the **variance** is $2,000 [$8.00 **standard** rate x (5,000 actual hrs - 4,750 **standard** hrs.)] This **variance** is unfavorable because the actual hours exceeded the **standard** hours Answer (A) is incorrect because the direct labor efficiency **variance** is $2,000U Answer (B) is incorrect because the direct labor efficiency **variance** is $2,000U Answer (D) is incorrect because the direct labor efficiency **variance** is $2,000U 221 Answer (B) is correct The materials price **variance** equals the actual quantity purchased times the difference between actual **and** **standard** unit prices Actual cost was $475,000, or $3.80 per pound Hence, the **variance** is $25,000 unfavorable [125,000 pounds x ($3.80 - $3.60)] Answer (A) is incorrect because the **variance** is unfavorable The purchase price exceeded **standard** cost Answer (C) is incorrect because the **variance** is unfavorable The purchase price exceeded **standard** cost Answer (D) is incorrect because the price **variance** is computed on the actual quantity purchased, not the quantity used 222 Answer (D) is correct This **variance** equals the **standard** unit cost times the difference between the actual quantity used **and** the **standard** quantity for good production Consequently, the **variance** is $7,200 favorable {$3.60 x [(5 pounds x 22,000 units) - 108,000 pounds used]} Answer (A) is incorrect because the **variance** is favorable Actual usage was less than the **standard** Answer (B) is incorrect because the **variance** is calculated **by** multiplying the quantity difference times the **standard** unit cost of $3.60, not the actual unit cost Answer (C) is incorrect because the **variance** is favorable Actual usage was less than the **standard** 223 Answer (A) is correct The direct labor rate **variance** equals the actual quantity of hours worked times the difference between the **standard** **and** actual labor rates Total direct labor cost was $327,600 (90% x $364,000), **and** the actual unit direct labor cost was $11.70 ($327,600 ÷ 28,000 hours) Thus, the **variance** is $8,400 favorable [28,000 hours x ($12 - $11.70)] Answer (B) is incorrect because the **variance** is favorable The actual labor rate was less than the **standard** rate Answer (C) is incorrect because the **variance** is favorable The actual labor rate was less than the **standard** rate Answer (D) is incorrect because $6,000 is the labor efficiency variance, not the labor rate **variance** 224 Answer (B) is correct The direct labor efficiency **variance** equals the **standard** unit cost times the difference between actual hours **and** **standard** hours Accordingly, the **variance** is $6,000 unfavorable {$12 x [28,000 hours (1.25 hours x 22,000 units)]} Answer (A) is incorrect because the **variance** is unfavorable More hours were worked than allowed **by** the standards Answer (C) is incorrect because the labor efficiency **variance** is $6,000 unfavorable Answer (D) is incorrect because the **variance** is unfavorable More hours were worked than allowed **by** the standards 225 $30,000 + 500 U – 1,500 F = $29,000 226 (490 x $32) – (5,000 x 0.10 x $30) = 680 U 227 490 ($32 - $30) = 980 U 228 $30 (490 – 500) = 300 F 229 250 dlh ($15.25 - $15.00) = $62.50 U 230 [250 dlh - (5,000 x 0.05)] x $15 = Zero 231 (2200 x $24) – (10,000 x 0.20 x $25) = 2,800 U 232 2200 ($24 - $25) = 2,200 F 233 $25 [2200 – (10,000 x 0.20)] = 5,000 U 234 (1050 x $14.75) - (10,000 x 0.10 x $15) = $487.50 U 235 1050 dlh ($14.75 - $15.00) = $262.50 F 236 [1050 dlh - (10,000 x 0.10)] x $15 = 750 U 237 Answer (D) is correct The total materials price **variance** is found **by** multiplying the difference between the **standard** price **and** the actual price **by** the actual quantity The actual price is calculated **by** dividing actual cost **by** actual quantity Therefore, the actual price for housing units is $20/unit ($44,000 ÷ 2,200), for printed circuit boards, $16/unit ($75,200 ÷ 4,700), **and** for reading heads, $11/unit ($101,200 ÷ 9,200) Thus, total materials price **variance** is Housing units: 2,200 x ($20 - $20) = $ 0Printed circuit boards: 4,700 x ($15 - $16) =4,700 UReading heads: 9,200 x ($10 - $11) =9,200 U $13,900 UAnswer (A) is incorrect because $346,500 favorable results from using the **standard** cost per unit for each direct material, **and** also **by** reversing the order of subtraction Answer (B) is incorrect because $346,500 unfavorable results from using the **standard** cost per unit for each direct material Answer (C) is incorrect because the price **variance** is unfavorable when the actual price is greater than the **standard** price 238 Answer (A) is correct The total materials quantity **variance** is found **by** multiplying the difference between the **standard** quantity **and** actual quantity **by** the **standard** price **Standard** quantities are calculated **by** multiplying the actual units **by** the **standard** quantity per unit In this example, the **standard** quantity for housing units is 2,200 parts (2,200 x 1); for printed circuit boards, 4,400 parts (2,200 x 2); **and** for reading heads, 8,800 parts (2,200 x 4) Therefore, the total materials quantity **variance** is Housing units: $20 x (2,200 - 2,200) = $ 0Printed circuit boards: $15 x (4,400 - 4,700) = 4,500 UReading heads: $10 x (8,800 - 9,200) = 4,000 U $8,500 UAnswer (B) is incorrect because $8,500 favorable results from reversing the order of subtraction Answer (C) is incorrect because $9,200 unfavorable results from multiplying **by** actual price Answer (D) is incorrect because $9,200 favorable results from multiplying **by** the actual price **and** reversing the order of subtraction 239 Answer (A) is correct The variable overhead efficiency **variance** is found **by** multiplying the difference between **standard** hours **and** actual hours **by** the **standard** rate The number of **standard** hours is calculated **by** multiplying the actual units **by** the **standard** hours per unit Therefore, the number of **standard** hours is 9,900 ($2,200 x 4.5 hours per unit), **and** the variable overhead efficiency is $0 [$2 x (9,900 - 9,900)] Answer (B) is incorrect because $900 unfavorable results from multiplying **by** the budgeted number of units, 2,000, instead of actual, 2,200 Answer (C) is incorrect because $9,900 unfavorable results from using a **standard** hours per unit rate of hours **and** reversing the order of subtraction Answer (D) is incorrect because $9,900 favorable results from using a **standard** hours per unit rate of hours 240 Answer (B) is correct The variable overhead spending **variance** is found **by** subtracting actual variable overhead from the product of actual hours **and** the **standard** rate Therefore, the variable overhead spending **variance** is $1,000 favorable [(9,900 x $2) - $18,800] Answer (A) is incorrect because $1,000 unfavorable results from reversing the order of subtraction Answer (C) is incorrect because $1,800 unfavorable results from using the budgeted variable overhead **and** **by** reversing the order of subtraction Answer (D) is incorrect because $1,800 favorable results from using the budgeted variable overhead 241 Answer (C) is correct The contribution margin volume **variance** is found **by** multiplying budgeted unit contribution **by** the difference between actual units **and** budgeted units The budgeted unit contribution in this example is $61 ($122,000 ÷ 2,000 units) Therefore, the **variance** is $12,200 favorable [$61 per unit x (2,200 actual units - 2,000 budgeted units) Answer (A) is incorrect because $9,800 unfavorable results from multiplying **by** the actual unit contribution **and** reversing the order of subtraction Answer (B) is incorrect because $9,800 favorable results from multiplying **by** the actual unit contribution Answer (D) is incorrect because $14,660 unfavorable is the **variance** between budgeted **and** actual contribution margins 242 Answer (C) is correct The flexible budget provides for a cost of $1,000 per article ($10,000,000 ÷ 10,000 articles) Each article should require 20 hours of labor (200 hours ÷ 10 articles) Thus, the **standard** labor rate is $50 per hour ($1,000 ÷ 20 hours), **and** total **standard** variable labor cost is $9,500,000 (9,500 articles x 20 hours x $50 per hour) Accordingly, total expected **costs** are $10,100,000 ($9,500,000 + $600,000 FC) Answer (A) is incorrect because $9,500,000 equals variable labor **costs** only Answer (B) is incorrect because adding the $600,000 of fixed **costs** to the $9,500,000 of variable labor **costs** produces a total cost of $10,100,000 Answer (D) is incorrect because labor **costs** will decline as production declines, but fixed **costs** will not 243 Answer (A) is correct Budgeted fixed **costs** are $600,000 The actual fixed **costs** were $618,000 ($9,738,000 total **costs** - $9,120,000 flexible costs) Because actual **costs** were $18,000 higher than the budget, the **variance** is unfavorable Answer (B) is incorrect because the **variance** was unfavorable Answer (C) is incorrect because $48,000 is based on a false presumption that fixed **costs** will be less at a 9,500 production level than a 10,000 level Answer (D) is incorrect because the **variance** was unfavorable 244 Answer (A) is correct The labor efficiency **variance** is the difference between **standard** **and** actual hours, multiplied **by** the **standard** cost per hour The **standard** labor rate is $50 per hour, **and** the **standard** time allowed for 9,500 articles is 190,000 hours (9,500 x 20) Actual hours worked totaled 192,000 Thus, an unfavorable **variance** of 2,000 hours occurred The unfavorable labor efficiency **variance** was therefore $100,000 ($50 x 2,000 hours) Answer (B) is incorrect because $238,000 is the difference between total (fixed + variable) **standard** labor cost ($9,500,000) **and** total actual cost ($9,738,000) Answer (C) is incorrect because the **variance** is unfavorable Answer (D) is incorrect because the efficiency **variance** is based on **standard** hours for actual production levels in this case 190,000 hours 245 Answer (D) is correct The variable overhead spending **and** efficiency variances are the components of the total variable overhead **variance** Given that actual variable overhead was $80,000 **and** the flexible budget amount was $90,000, the total **variance** is $10,000 favorable If the overhead spending **variance** is $2,000 favorable the efficiency **variance** must be $8,000 favorable ($10,000 total - $2,000 spending) At a rate of $20 per hour, this **variance** is equivalent to 400 direct labor hours ($8,000 ÷ $20) Answer (A) is incorrect because the variances are favorable Answer (B) is incorrect because 100 direct labor hours are equivalent to the spending **variance** ($20 x 100 hours = $2,000) Answer (C) is incorrect because the variances are favorable 246 Answer (D) is correct Variable overhead variances can be subdivided into spending **and** efficiency components However, fixed overhead variances not have an efficiency component because fixed costs, **by** definition, are not related to changing levels of output Consequently, there is no concept of efficiency with respect to the incurrence of fixed **costs** Fixed overhead variances are typically subdivided into a budget (or fixed overhead spending) **variance** **and** a volume **variance** Answer (A) is incorrect because efficiency variances are applicable to variable **costs** Answer (B) is incorrect because efficiency variances are applicable to variable **costs** Answer (C) is incorrect because efficiency variances are applicable to variable **costs** 247 Answer (A) is correct The fixed overhead spending (budget) **variance** is the difference between actual **and** budgeted fixed factory overhead Actual fixed overhead was $540,000 Budgeted fixed overhead was $5 per hour based on a capacity of 100,000 direct labor hours per month, or $500,000 Because these **costs** are fixed, the budgeted fixed overhead is the same at any level of production Hence, the **variance** is $40,000 unfavorable ($540,000 - $500,000) Answer (B) is incorrect because $70,000 unfavorable is the difference between actual fixed overhead **and** the product of the **standard** rate **and** the actual direct labor hours Answer (C) is incorrect because $460,000 unfavorable is the volume **variance** Answer (D) is incorrect because $240,000 unfavorable is the difference between actual variable overhead **and** budgeted fixed overhead 248 Answer (B) is correct The variable overhead spending **variance** is the difference between actual variable overhead **and** the variable overhead based on the **standard** rate **and** the actual activity level Thus, the variable overhead spending **variance** was $12,000 favorable [$740,000 actual cost - ($8 **standard** rate x 94,000 actual hours)] Because actual is less than standard, the **variance** was favorable Answer (A) is incorrect because $60,000 favorable is based on 100,000 hours, not the actual hours of 94,000 Answer (C) is incorrect because $48,000 unfavorable is the variable overhead efficiency **variance** Answer (D) is incorrect because $40,000 unfavorable is the fixed overhead spending **variance** 249 Answer (A) is correct The variable overhead efficiency **variance** equals the **standard** price ($8 an hour) times the difference between the actual hours **and** the **standard** hours allowed for the actual output Thus, the **variance** is $48,000 {$8 x [94,000 actual hours - (4 **standard** hours per unit x 22,000 units produced)]} The **variance** is unfavorable because actual hours exceeded **standard** hours Answer (B) is incorrect because $60,000 favorable is the variable overhead spending **variance** calculated based on capacity, not actual hours Answer (C) is incorrect because $96,000 unfavorable is based on the difference between **standard** hours allowed for the actual output **and** capacity hours Answer (D) is incorrect because $200,000 unfavorable is the excess of actual direct labor **costs** over actual variable overhead **costs** 250 Answer (B) is correct The direct labor price **variance** equals actual labor hours times the difference between **standard** **and** actual labor rates The actual labor cost was $940,000 for 94,000 hours, or $10 per hour The **standard** rate was $9 per hour Thus, the **variance** is $94,000 [94,000 hours x ($10 - $9)] The **variance** is unfavorable because the actual rate paid was higher than the **standard** rate Answer (A) is incorrect because $54,000 unfavorable is the direct labor efficiency **variance** Answer (C) is incorrect because $60,000 favorable equals the actual rate times the difference between capacity **and** actual hours Answer (D) is incorrect because $148,000 unfavorable is the total direct labor **variance** 251 Answer (D) is correct The direct labor efficiency **variance** equals the **standard** rate times the difference between actual **and** **standard** hours Hence, the **variance** is $54,000 {$9 x [94,000 hours - (4 **standard** hours per unit x 22,000 units)]} The **variance** is unfavorable because the actual hours exceeded the **standard** hours Answer (A) is incorrect because $108,000 favorable is based on the difference between **standard** **and** capacity hours Answer (B) is incorrect because $120,000 favorable is based on the actual rate **and** the difference between **standard** hours **and** capacity Answer (C) is incorrect because $60,000 favorable is based on the actual rate **and** the difference between actual hours **and** capacity 252 Answer (C) is correct The materials quantity **variance** equals the **standard** price times the difference between the actual **and** **standard** quantities Hence, the favorable materials quantity **variance** is $4,950 [$1.50 **standard** x 1,650 units x (60 **standard** pounds - 58 actual pounds)] Answer (A) is incorrect because $14,355 is the amount of the materials price **variance** Answer (B) is incorrect because $14,355 is the amount of the materials price **variance** Answer (D) is incorrect because a favorable **variance** exists The **standard** amount for the actual output exceeded the actual amount 253 Answer (A) is correct The materials price **variance** equals the actual quantity used times the difference between the actual **and** **standard** price per unit Thus, the unfavorable materials price **variance** is $14,355 [58 actual pounds x 1,650 units x ($1.65 actual price - $1.50 **standard** price)] Answer (B) is incorrect because $14,850 is based on the **standard** unit quantity, not the actual quantity Answer (C) is incorrect because the price **variance** is unfavorable The actual price is greater than the **standard** price Answer (D) is incorrect because $14,850 is based on the **standard** unit quantity, not the actual quantity 254 Answer (B) is correct The labor rate **variance** equals the actual hours used times the difference between the actual **and** **standard** rates Consequently, the labor rate **variance** is zero [3.1 actual hours x 1,650 units x ($12 per hour **standard** rate - $12 per hour actual rate)] Answer (A) is incorrect because $1,920 is the amount of the flexible budget overhead **variance** Answer (C) is incorrect because $4,950 is the amount of the quantity **variance** Answer (D) is incorrect because $4,950 is the amount of the quantity **variance** 255 Answer (D) is correct The flexible budget overhead **variance** is the difference between actual overhead **costs** **and** the flexible budget amount for the actual output **Standard** total fixed **costs** at any level of production are $27,000 **Standard** variable overhead is $9 per unit ($3 x labor hours) Thus, total **standard** variable overhead is $14,850 for the actual output ($9 x 1,650 units), **and** the total flexible budget amount is $41,850 ($27,000 FOH + $14,850 VOH) Accordingly, the favorable flexible budget **variance** is $1,920 ($41,850 flexible budget amount $39,930 actual amount) Answer (A) is incorrect because $3,270 is the flexible budget amount for an output of 1,800 units Answer (B) is incorrect because $3,270 is the flexible budget amount for an output of 1,800 units Answer (C) is incorrect because a favorable **variance** exists Actual overhead is less than the **standard** overhead at the actual production level 256 Answer (A) is correct The materials quantity **variance** equals the **standard** price times the difference between the actual **and** **standard** quantities This **variance** is therefore equal to $9,900 favorable [$1.50 **standard** unit cost x (116 lbs used per unit - 120 lbs **standard** per unit) x 1,650 units produced] Answer (B) is incorrect because the quantity **variance** is favorable Answer (C) is incorrect because $28,710 is the magnitude of the price **variance** Answer (D) is incorrect because $28,710 is the magnitude of the price **variance** 257 Answer (A) is correct The materials price **variance** equals the actual quantity used times the difference between the actual **and** **standard** prices per unit This **variance** therefore equals $28,710 Unfavorable [(116 lbs x 1,650 units) x ($1.65 - $1.50)] Answer (B) is incorrect because $29,700 is the magnitude of the **variance** if the **standard** quantity is used Answer (C) is incorrect because the price **variance** is unfavorable Answer (D) is incorrect because $29,700 is the magnitude of the **variance** if the **standard** quantity is used 258 Answer (D) is correct The labor rate **variance** equals actual hours used times the difference between actual **and** **standard** rates It is calculated in the same way as the materials price **variance** Because the **standard** rate **and** actual rate were both $12 per hour, the labor rate **variance** is $0 Answer (A) is incorrect because $2,700 is the magnitude of the labor efficiency **variance** if 1,800 units are produced Answer (B) is incorrect because $2,700 is the magnitude of the labor efficiency **variance** if 1,800 units are produced Answer (C) is incorrect because $2,475 Unfavorable is the labor efficiency **variance** 259 Answer (D) is correct The flexible budget overhead **variance** is the difference between total actual overhead **costs** **and** the amount shown on a flexible budget **Standard** fixed **costs** within the relevant range of production are $54,000 **Standard** variable overhead is $6 per labor hour, or $18 per unit (3 x $6) Accordingly, budgeted total overhead at the actual output level is $83,700 [($18 VOH x 1,650 units) + $54,000 FOH], **and** the flexible budget overhead **variance** is $3,840 Favorable ($79,860 actual - $83,700 budgeted) Answer (A) is incorrect because a favorable **variance** exists Answer (B) is incorrect because $6,540 Favorable assumes 1,800 units were produced Answer (C) is incorrect because a favorable **variance** exists 260 ($48,000 x $15) – (48,000 x $16) = $48,000 favorable 261 (48,000 x $16) – (10,000 x x $16) = $32,000 favorable 262 $204,000 –(48,000 x $4) = $12,000 unfavorable 263 (48,000 x $4) – (10,000 x x $4) = $8,000 favorable 264 $175,500 - (22,000 x $8) = $500 (F) 265 (22,500 – 22,000) x ($30,000/20,000) = $750 (U) 266 $18,000 - (22,000 x (18,000/20,000)) = $1,800 (F) 267 $4,500 F + $10,000 U = $ 5,500 U 268 $4,500 F + $10,000 U + $15,000 U = $20,500 U; $40,000 U 269 $4,500 F + $10,000 U + $15,000 U + $40,000 U = $60,500 U 270 Answer (C) is correct The total employee benefits include 20% of supervision **and** direct **and** indirect labor **costs** To find the amount associated with direct labor, 20% of supervision **and** indirect labor **costs** are subtracted from total employee benefits [$575,000 - 20% x ($250,000 + $375,000)], or $450,000 Answer (A) is incorrect because 20% of supervision **and** indirect labor **costs** need to be subtracted from total employee benefits to determine the employee benefits associated with direct labor **costs** Answer (B) is incorrect because $75,000 is the result of deducting 80% of supervision **and** indirect labor **costs** from total employee benefits Answer (D) is incorrect because 20% of supervision also needs to be deducted 271 Answer (D) is correct To determine the variable manufacturing O/H rate, all variable amounts must be totaled ($1,500,000) **and** divided **by** the capacity in DLH (300,000) Total Per DLHSupplies $ 420,000 $1.40Indirect labor 375,000 1.25Power 180,000.60Employee benefits: 20% direct labor450,000 1.50 20% indirect labor 75,000.25 Total $1,500,000 $5.00Answer (A) is incorrect because $7.80/hr is the fixed manufacturing O/H rate per direct labor hour Answer (B) is incorrect because the variable manufacturing overhead rate is determined **by** dividing variable expenses (supplies, indirect labor, power, **and** direct **and** indirect labor benefits) **by** direct labor hours Answer (C) is incorrect because $5.17/hr incorrectly includes supervision benefits of $50,000 272 Answer (A) is correct The variable manufacturing cost to produce a 100-unit lot is 100 times the sum of direct materials, direct labor, **and** variable O/H per seat Cushion materials Padding $2.40 Vinyl 4.00Total cushion materials $6.40 Cost increase 10% (given) x1.10Cost of cushioned seat $ 7.04Cushion fabrication labor ($7.50/DLH x DLH) 3.75Variable overhead ($5.00/DLH x DLH) 2.50Total variable cost per cushioned seat $13.29Total variable cost per 100-unit lot $1,329Answer (B) is incorrect because $1,869 is the transfer price plus the opportunity cost of $540 of the Office Division Answer (C) is incorrect because $789 is the transfer price minus the opportunity cost of $540 of the Office Division Answer (D) is incorrect because the transfer price based on the variable manufacturing **costs** is $1,329 273 Answer (A) is correct Total fixed O/H is $2,340,000 (see below) It is divided **by** the 300,000-hour level of activity to determine the $7.80 hourly rate Supervision $ 250,000Heat **and** light 140,000Property taxes **and** insurance 200,000Depreciation 1,700,000Benefits (20% of supervision) 50,000$2,340,000Answer (B) is incorrect because the fixed manufacturing overhead rate is determined **by** dividing fixed expenses (supervision, heat **and** light, property taxes **and** insurance, depreciation, **and** supervision benefits) **by** direct labor hours Answer (C) is incorrect because $5.17/hr incorrectly includes supervision benefits of $50,000 Answer (D) is incorrect because $5.00/hr is the variable manufacturing O/H rate per hour 274 Answer (B) is correct The labor hours used in cushion fabrication will be used to make the modified cushioned seat Thus, the labor time freed **by** not making deluxe stools equals the frame fabrication **and** assembly time only The number of economy office stools that can be produced is 125 Labor hours to make 100 deluxe stools (1.5 x 100) 150 hr.Minus: Labor hours to make 100 cushioned seats (cushion fabrication x 100) (50)hr.Labor hours available for economy stool 100 hr.Labor hours to make one economy stool÷.8 hr.Stools produced **by** extra labor in economy stool production (100 ÷ hr.) 125 stoolsAnswer (A) is incorrect because the total hours available for economy stools needs to be divided **by** the hr required to make an economy stool Answer (C) is incorrect because the total hours available for economy stools needs to be divided **by** the hr required to make an economy stool Answer (D) is incorrect because 150 is the number of hours required to make 100 deluxe stools before considering the hours required to make 100 cushioned seats 275 Answer (A) is correct The contribution margin per unit is equal to the selling price minus the variable **costs** Variable **costs** per unit for the deluxe office stool equal $33.30 **and** the selling price is $58.50 Thus, the contribution margin is $25.20 per unit ($58.50 - $33.30) The total **standard** cost is $45.00, which includes $11.70 of fixed O/H (1.5 hr x $7.80), **and** the variable **costs** are $33.30 ($45.00 - $11.70) Answer (B) is incorrect because $15.84 is the contribution margin of the economy office stool Answer (C) is incorrect because variable **costs** of $33.30 need to be deducted from the sales price of $58.50 Answer (D) is incorrect because $33.30 is the variable cost which must be deducted from the sales price to yield the contribution margin 276 Answer (D) is correct Opportunity cost is the benefit of the next best opportunity forgone The opportunity cost here is the contribution margin forgone **by** shifting production to the economy office stool ($2,520 - $1,980 = $540) DeluxeEconomySelling price$58.50$41.60Costs Materials $14.55$15.76 Labor ($7.50 x 1.5)11.25 ($7.50 x 8) 6.00 Variable O/H ($5 x 1.5)7.50 ($5 x 8) 4.00 Fixed O/H Total **costs** $33.30$25.76Unit CM$25.20$15.84Units produced x 100x 125Total CM $2,520$1,980Answer (A) is incorrect because $789 is the transfer price of $1,329 minus the opportunity cost of $540 of the Office Division Answer (B) is incorrect because $1,869 is the transfer price of $1,329 plus the opportunity cost of $540 of the Office Division Answer (C) is incorrect because $1,329 is the transfer price, not the opportunity cost of the Office Division 277 b c d e a 14,220 SH 15,616 AH 21,330 lbs 21,210 lbs 7,110 units ($72,310 + 5,770 - 6,980) / (2 x $5) $71,100 / $5 $78,080 / $5 ($130,760 - 3,500 + 720) / $6 $127,260 / $6 b c d e a 17,468 SH 18,200 AH $4,392 U $96,880 8,734 units ($105,560 - 14,560 - 3,660) / (2 x $5) 8,734 x ($105,560 - 14,560) / $5 (18,200 - 17,468) x (18,200 x $6) - $12,320 b c d e a $4 ($600,000/300,000 + $2 variable) $1,280,000 ($4 x 320,000) $31,000 overapplied ($1,280,000 - $1,249,000) $9,000 unfavorable {$1,249,000 - [($2 x 320,000) + $600,000]} $40,000 favorable ($1,240,000 budgeted - $1,280,000 applied) b c d e a $5 ($200,000/100,000 + $3 variable) $450,000 ($5 x 90,000) $7,000 underapplied ($450,000 - $457,000) $13,000 favorable {$457,000 - [($3 x 90,000) + $200,000]} $20,000 unfavorable ($470,000 budgeted - $450,000 applied) a 278 279 280 281 Actual Fixed Overhead Cost $325,880 Flexible Budget Fixed Overhead Cost $324,000Fixed Overhead Cost Applied to Work in Process 302,100 MH x $1.08 $326,268Budget Variance, $1,880 UVolume **Variance** $2,268 FTotal variance, $388 F Computations in this order: (Note: When used in the below algebraic formulas, favorable variances are negative **and** favorable variances are positive.) Volume **variance** = Total **variance** - Budget **variance** = $388 F - $1,880 U = -$388 - $1,880 = -$2,268 = $2,268 F Fixed overhead applied = 302,100 MH X $1.08 = $326,268 Flexible budget fixed overhead = Fixed overhead applied - Volume **variance** = $326,268 - $2,268 F = $326,268 + $2,268 = $324,000 Actual fixed overhead = Fixed overhead applied + Total **variance** = $326,268 + $388 F = $326,268 - $388 = $325,880 b **Standard** MH allowed for production, **Standard** hours allowed per unit Units produced 302,100 ÷ 0.1 3,021,000 c Fixed overhead in flexible budget, (a) above $ 324,000 **Standard** cost per machine hour ÷ $1.08 MH assumed in flexible budget 300,000 **Standard** hours allowed per unit ÷ 0.1 Units assumed in flexible budget 3,000,000 282 Budgeted fixed overhead rate = Fixed overhead/Denominator quantity = $84,800/53,000 direct labor-hours = $1.60/direct labor-hour Actual fixed overhead = Budgeted fixed overhead + Budget **variance** = $84,800 + $7,200 = $92,000 Actual variable overhead = Total actual overhead – Actual fixed overhead = $262,500 - $92,000 = $170,500 Actual variable overhead rate = Actual variable overhead/Actual hours = $170,500/55,000 = $3.10 Spending **variance** = AH (AR - SR) = 55,000 ($3.10 - $3.00) = $5,500 U SH X SR = AH X SR - overhead efficiency **variance** = 55,000 X $3.00 - $15,000 = $15,000 **Standard** hours allowed = (SH X SR)/SR = $150,000/$3.00 = 50,000 hours Actual units produced = **Standard** hours allowed/hours per unit = 50,000 hours/2 hours per unit = 25,000 units Volume **variance** = Budgeted fixed - (SH X SR) = $84,800 - (50,000 X $1.60) = $84,800 - $80,000 = $4,800 U 283 284 Summary:Actual hours5,000 hoursStandard hours allowed50,000 hoursDenominator hours53,000 hoursSpending variance$ 5,500 UEfficiency variance$15,000 UBudget variance$ 7,200 UVolume variance$ 4,800 U a Flexible budget allowance, $845,000 [$200,000 + (30,000 x x $4) + (30,000 x 2.5 x 7)] b Budget variance: $45,000 unfavorable ($845,000 - $890,000) a Flexible budget allowance, $438,000 [$300,000 + (23,000 x x $2)] b Budget variance: $18,000 favorable ($438,000 - $420,000) ... EXAMINATION QUESTIONS Page 29 of 168 MANAGEMENT ADVISORY SERVICES STANDARD COSTS AND VARIANCE ANALYSIS Standard Hours Allowed 48 The Fischer Company uses a standard costing system For the month... without knowing the variances for the period Page of 168 MANAGEMENT ADVISORY SERVICES d None of the above STANDARD COSTS AND VARIANCE ANALYSIS D, L & H 9E MATERIALS VARIANCE Standard DM Cost per... month of June is (E) Page 21 of 168 MANAGEMENT ADVISORY SERVICES a $26,100 b $27,000 STANDARD COSTS AND VARIANCE ANALYSIS c $29,000 d $36,000 LABOR VARIANCES Standard DL Time per Unit 84 Hansen

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