1.

The purpose of a flexible budget is to

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

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

= (8,300 × $0.90) – (8,000 × $0.9)

= $270 U

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

Raw materials $2.00

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

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

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

Not 100% sure about 4

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

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

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

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

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

Annual fixed costs of $9,600 / 12 = monthly fixed cost $ 800

30,000 machine hours × $.75 per machine hour 22,500
Indirect labor cost budgeted for the month $23,300

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

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

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

unfavorable.

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

Budgeted fixed overhead $ 70,000

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

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