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Chapter 7

Terms in this set (66)

A master budget is ________.
A) a budget which starts from a zero base
B) based on the level of expected output at the start of the budget period
C) developed at the end of a period
D) a type of flexible budget once actual results are known
B) based on the level of expected output at the start of the budget period
Management by exception is a practice whereby managers focus more closely on ________.
A) variances in the larger departments
B) areas not operating as anticipated and less closely on areas that are operating as anticipated
C) activity-based budgeting
D) unfavorable variances
B) areas not operating as anticipated and less closely on areas that are operating as anticipated
A variance is ________.
A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit
C) the difference between an actual result and a budgeted performance
An unfavorable variance indicates that ________.
A) the actual costs are less than the budgeted costs
B) the actual revenues exceed the budgeted revenues
C) the actual units sold are less than the budgeted units
D) the budgeted contribution margin is more than the actual amount
C) the actual units sold are less than the budgeted units
A favorable variance indicates that ________.
A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount
B) actual revenues exceed budgeted revenues
Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and used a budgeted selling price of $19 per unit.

Actual Budgeted
Units sold 48,000 units 39,000 units
Variable costs $167,000 $152,000
Fixed costs $41,000 $50,000

What is the static-budget variance of revenues?
A) $171,000 favorable
B) $171,000 unfavorable
C) $6,000 favorable
D) $9,000 unfavorable
A) $171,000 favorable

Explanation: Static-budget variance of revenues = (48,000 units × $19) - (39,000 units × $19) = $171,000 F
Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 45,000 units 31,000 units
Variable costs $161,000 $150,000
Fixed costs $44,000 $50,000

What is the static-budget variance of variable costs?
A) $6,000 favorable
B) $11,000 unfavorable
C) $14,000 favorable
D) $5,000 unfavorable
B) $11,000 unfavorable
Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 43,000 units 33,000 units
Variable costs $166,000 $150,000
Fixed costs $41,000 $58,000

What is the static-budget variance of operating income?
A) $164,000 favorable
B) $164,000 unfavorable
C) $181,000 favorable
D) $181,000 unfavorable
C) $181,000 favorable

Explanation: Actual Static Static-budget
Results Budget Variance
Units sold 43,000 33,000

Revenues $774,000 $594,000 $180,000 F
Variable costs 166,000 150,000 16,000 U
Contribution margin $608,000 $444,000 164,000 F
Fixed costs 41,000 58,000 $17,000 F
Operating income $567,000 $386,000 $181,000 F

Explanation: Static-budget variance of revenues = (171,000 units × $23) − (187,000 units × $23) = $368,000 U
Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $25 each and used a budgeted selling price of $25 per unit.

Actual Budgeted
Units sold 173,000 units 181,000 units
Variable costs $1,081,000 $1,285,000
Fixed costs $806,000 $770,000

What is the static-budget variance of variable costs?
A) $36,000 favorable
B) $36,000 unfavorable
C) $204,000 favorable
D) $204,000 unfavorable
C) $204,000 favorable
Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $24 each and used a budgeted selling price of $24 per unit.

Actual Budgeted
Units sold 177,000 units 184,000 units
Variable costs $1,090,000 $1,290,000
Fixed costs $804,000 $780,000

What is the static-budget variance of operating income?
A) $8,000 favorable
B) $176,000 unfavorable
C) $32,000 favorable
D) $7,000 unfavorable
A) $8,000 favorable

Explanation: Actual Static Static-budget
Results Budget Variance
Units sold 177,000 184,000

Revenues $4,248,000 $4,416,000 $(168,000) U
Variable costs 1,090,000 1,290,000 (200,000) F
Contribution margin $3,158,000 $3,126,000 32,000 F
Fixed costs 804,000 780,000 24,000 U
Operating income $2,354,000 $2,346,000 $8,000 F
Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit.

Actual Budgeted
Units sold 280,000 units 279,000 units
Variable costs $980,000 $881,000
Fixed costs $58,000 $45,000

What is the static-budget variance of revenues?
A) $299,000 favorable
B) $260,000 favorable
C) $260,000 unfavorable
D) $299,000 unfavorable
C) $260,000 unfavorable

Explanation: Static-budget variance of revenues = (280,000 units × $19) − (279,000 units × $20) = $260,000
Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit.

Actual Budgeted
Units sold 280,000 units 270,000 units
Variable costs $990,000 $887,000
Fixed costs $60,000 $47,000

What is the static-budget variance of variable costs?
A) $116,000 favorable
B) $116,000 unfavorable
C) $103,000 favorable
D) $103,000 unfavorable
D) $103,000 unfavorable

Explanation: Static-budget variance of variable costs = $990,000 − $887,000 = $103,000 U
Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and had used a budgeted selling price of $19 per unit.

Actual Budgeted
Units sold 280,000 units 278,000 units
Variable costs $960,000 $886,000
Fixed costs $60,000 $51,000

What is the static-budget variance of operating income?
A) $325,000 favorable
B) $325,000 unfavorable
C) $316,000 favorable
D) $316,000 unfavorable
B) $325,000 unfavorable

Explanation: Actual Static Static-budget
Results Budget Variance
Units sold 280,000 278,000

Revenues $5,040,000 $5,282,000 $(242,000) U
Variable costs 960,000 886,000 (74,000) U
Contribution margin $4,080,000 $4,396,000 316,000 U
Fixed costs 60,000 51,000 9,000 U
Operating income $4,020,000 $4,345,000 $325,000 U
The flexible budget contains ________.
A) budgeted amounts for actual output
B) static budget amounts for planned output
C) actual costs for actual output
D) actual costs for planned output
A) budgeted amounts for actual output
Which of the following items will be same for a flexible budget and a master budget?
A) total variable cost
B) total expected fixed costs
C) total contribution margin
D) total expected revenues
B) total expected fixed costs
A flexible budget ________.
A) is another name for management by exception
B) is developed at the end of the period
C) is based on the budgeted level of output
D) provides favorable operating results
B) is developed at the end of the period
A company budgets 10,000 units of sales based on a projected selling price of $13.00. The actual units sold were 15,000 at a price of $10. What is the flexible budget for sales?
A) $195,000
B) $150,000
C) $130,000
D) $100,000
A) $195,000

Explanation: 15,000 x $13
An unfavorable flexible-budget variance for variable costs may be the result of ________.
A) using more input quantities than were budgeted
B) paying lower prices for inputs than were budgeted
C) selling output at a higher selling price than budgeted
D) selling less quantity compared to the budgeted
A) using more input quantities than were budgeted
In a flexible budget ________.
A) variable costs are calculated proportionately for the budgeted level of sales
B) fixed costs are calculated proportionately for the actual level of sales
C) fixed costs are kept at the same level of static budget
D) variable costs are kept at the same level of static budget
C) fixed costs are kept at the same level of static budget
Which of the following information is needed to prepare a flexible budget?
A) actual units sold
B) actual variable cost
C) actual selling price per unit
D) actual fixed cost
A) actual units sold
Which of the following is true of flexible budget?
A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.
A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
Goodard Inc. planned to use $156 of material per unit but actually used $141 of material per unit, and planned to make 1,150 units but actually made 920 units.

The flexible-budget variance for materials is ________.
A) $13,800 favorable
B) $13,800 unfavorable
C) $17,250 unfavorable
D) $17,250 favorable
A) $13,800 favorable

Explanation: ($141 − $156) × 920 = $13,800 F
Goodard Inc. planned to use $155 of material per unit but actually used $147 of material per unit, and planned to make 1,110 units but actually made 1,000 units.

The sales-volume variance for materials is ________.
A) $8,000 favorable
B) $16,170 unfavorable
C) $17,050 unfavorable
D) $8,000 unfavorable
C) $17,050 unfavorable

Explanation: (1,000 − 1,110) × $155 = $17,050 U
) Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $15 per unit, and planned to make 1,560 units but actually made 1,730 units.

The flexible-budget amount for materials is ________.
A) $17,160
B) $23,400
C) $19,030
D) $25,950
C) $19,030

Explanation: 1,730 units × $11 = $19,030
Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $13 per unit, and planned to make 1,590 units but actually made 1,780 units.

The flexible-budget variance for materials is ________.
A) $3,180 favorable
B) $3,560 unfavorable
C) $3,180 unfavorable
D) $3,560 favorable
B) $3,560 unfavorable

Explanation: ($13 − $11) × 1,780 = $3,560 U
) Jalbert Incorporated planned to use materials of $9 per unit but actually used materials of $14 per unit, and planned to make 1,640 units but actually made 1,770 units.

The sales-volume variance for materials is ________.
A) $1,170 unfavorable
B) $1,820 unfavorable
C) $1,170 favorable
D) $1,820 favorable
C) $1,170 favorable

Explanation: (1,770 − 1,640) × $9 = $1,170 F
) Better Products Inc. planned to use $43 of material per unit but actually used $32 of material per unit, and planned to make 1,510 units but actually made 1,340 units.

The flexible-budget amount for materials is ________.
A) $57,620
B) $64,930
C) $48,320
D) $42,880
A) $57,620

Explanation: 1,340 units × $43 = $57,620
The flexible-budget variance for direct cost inputs can be further subdivided into a ________.
A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance
C) price variance and an efficiency variance
An efficiency variance reflects the difference between ________.
A) actual input quantities used last period and current period
B) an actual input quantity and a budgeted input quantity
C) an actual input quantity used in a company and its main competitors
D) a standard input quantity in a company and its main competitors
B) an actual input quantity and a budgeted input quantity
Which of the following is the correct formula for the materials price variance?
A) (Actual price of input - Budgeted price of input) x Budgeted quantity of input
B) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
D) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?
A) A firm's inefficiencies will be part of the data.
B) They are not based on realized benchmarks and can be unrealistic
C) The expected future changes are not included in the standards.
D) The flexible-budget amounts are difficult to determine.
B) They are not based on realized benchmarks and can be unrealistic
) J.C Coats Inc. carefully develops standards for its coat making operation. Its specifications call for 2 square yards of wool per coat. The budgeted price of wool is $44 per square yard. The actual price for the wool was $36 and the usage was only 1.70 yards of wool per coat. What would be the standard cost per output for the wool?
A) $61.20 per coat
B) $72.00 per coat
C) $88.00 per coat
D) $74.80 per coat
D) $74.80 per coat

Explanation: 44 × $1.70 = $74.80
Standard cost per output unit for each variable direct cost input is calculated by multiplying ________.
A) standard input allowed for one output unit by standard price per input unit
B) standard input allowed for one output unit by actual price per input unit
C) actual input allowed for one output unit by standard price per input unit
D) actual input allowed for one output unit by actual price per input unit
A) standard input allowed for one output unit by standard price per input unit
Standard material cost per kg of raw material is $6.50. Standard material allowed per unit is 5 Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is $6.00. What is the standard cost per output unit?
A) $30.00
B) $36.00
C) $32.50
D) $39.00
C) $32.50

Explanation: Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $6.50 × 5 kg = $32.50
Standard labor rate is $7.50 per hour. Standard labor allowed per unit is 0.7 hours. Actual cost per labor hour is $7.00 and actual labour hour per unit is 1 hours. What is the standard labor cost per output unit?
A) $4.90
B) $5.25
C) $7.50
D) $7.00
B) $5.25

Explanation: Standard cost per output unit = Standard labor allowed per unit × Standard labor rate = $7.50 × 0.7 hours = $5.25 per unit
Which of the following can be a reason for a favorable price variance for direct materials?
A) a decrease in the price of materials due to an oversupply of materials
B) an unexpected increase in the price of materials
C) less amount of material used during production than planned for actual output
D) workers taking less time to produce the products
A) a decrease in the price of materials due to an oversupply of materials
A favorable efficiency variance for direct manufacturing labor indicates that ________.
A) a lower wage rate than planned was paid for direct labor
B) a higher wage rate than planned was paid for direct labor
C) less direct manufacturing labor-hours were used during production than planned for actual output
D) more direct manufacturing labor-hours were used during production than planned for actual output
C) less direct manufacturing labor-hours were used during production than planned for actual output
Which of the following is the correct formula for the materials price variance?
A) (Actual price of input - Budgeted price of input) x Budgeted quantity of input
B) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
D) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
A favorable efficiency variance for direct materials might indicate that ________.
A) lower-quality materials were purchased
B) work is scheduled efficiently
C) there is an unexpected increase in direct labor rates
D) management hired underskilled workers
B) work is scheduled efficiently
A favorable price variance for direct manufacturing labor might indicate that ________.
A) employees were paid more than planned
B) unexpected increase in direct labor rates
C) underskilled employees are being hired
D) congestion due to scheduling problems
C) underskilled employees are being hired
An unfavorable efficiency variance for direct manufacturing labor might indicate that ________.
A) there is unexpected increase in direct labor rates
B) work is scheduled inefficiently
C) lower-quality materials were purchased
D) more higher-skilled workers were scheduled than planned
B) work is scheduled inefficiently
Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

Budgeted quantity Budgeted price
Direct materials 0.80 pounds $60 per pound
Direct labor 0.10 hours $20 per hour

During June, Heavy Products produced and sold 15,000 containers using 25,000 pounds of direct materials at an average cost per pound of $64 and 12,000 direct manufacturing labor-hours at an average wage of $21.56 per hour.

June's direct material flexible-budget variance is ________.
A) $60,000 unfavorable
B) $100,000 favorable
C) $880,000 unfavorable
D) $18,720 favorable
C) $880,000 unfavorable

Explanation: Flexible-budget variance = (25,000 × $64) − (15,000 × 0.80 × $60) = $880,000 U
Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

Budgeted quantity Budgeted price
Direct materials 0.70 pounds $70 per pound
Direct labor 0.10 hours $35 per hour

During June, Heavy Products produced and sold 25,000 containers using 23,000 pounds of direct materials at an average cost per pound of $75 and 17,500 direct manufacturing labor-hours at an average wage of $35.75 per hour.

The direct material price variance during June is ________.
A) $115,000 unfavorable
B) $500,000 favorable
C) $500,000 unfavorable
D) $13,125 favorable
A) $115,000 unfavorable

Explanation: Direct material price variance = 23,000 × ($75 − $70) = $115,000 U
Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

Budgeted quantity Budgeted price
Direct materials 0.90 pounds $60 per pound
Direct labor 0.10 hours $30 per hour

During June, Heavy Products produced and sold 19,000 containers using 1,200 pounds of direct materials at an average cost per pound of $63 and 17,100 direct manufacturing labor-hours at an average wage of $31.25 per hour.

The direct manufacturing labor price variance during June is ________.
A) $21,375 unfavorable
B) $21,375 favorable
C) $3,600 unfavorable
D) $950,400 unfavorable
A) $21,375 unfavorable

Explanation: Direct manufacturing labor price variance = 17,100 dlh × ($30 − $31.25) = $21,375 U
Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

Budgeted quantity Budgeted price
Direct materials 0.30 pounds $90 per pound
Direct labor 0.25 hours $30 per hour

During June, Heavy Products produced and sold 15,000 containers using 2,400 pounds of direct materials at an average cost per pound of $92 and 3,750 direct manufacturing labor-hours at an average wage of $91.25 per hour.

The direct manufacturing labor efficiency variance during June is ________.
A) $85,547 unfavorable
B) $229,687.5 favorable
C) $918,750 unfavorable
D) $0
D) $0

Explanation: Direct manufacturing labor efficiency variance = [3,750 dlh − (15,000 × 0.25)] × $30 = $0
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.30 pounds $50 per pound
Direct labor 0.60 hours $12 per hour

During July, GII produced and sold 4,000 containers using 1,350 pounds of direct materials at an average cost per pound of $48 and 2,450 direct manufacturing labor hours at an average wage of $12.25 per hour.

July's direct material flexible-budget variance is ________.
A) $4,800 unfavorable
B) $7,500 favorable
C) $9,900 unfavorable
D) $0
A) $4,800 unfavorable

Explanation: Direct material flexible-budget variance = (1,350 × $48) − (4,000 × 0.30 × $50) = $4,800 U
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.40 pounds $20 per pound
Direct labor 0.80 hours $15 per hour

During July, GII produced and sold 4,000 containers using 1,700 pounds of direct materials at an average cost per pound of $15 and 3,225 direct manufacturing labor hours at an average wage of $15.25 per hour.

The direct material price variance during July is ________.
A) $20,000 unfavorable
B) $8,500 favorable
C) $8,500 unfavorable
D) $2,000 unfavorable
B) $8,500 favorable

Explanation: Direct material price variance = 1,700 × ($20 − $15) = $8,500 F
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.20 pounds $40 per pound
Direct labor 0.10 hours $18 per hour

During July, GII produced and sold 4,000 containers using 1,000 pounds of direct materials at an average cost per pound of $37 and 475 direct manufacturing labor hours at an average wage of $18.75 per hour.

The direct material efficiency variance during July is ________.
A) $5,000 unfavorable
B) $7,400 favorable
C) $8,000 unfavorable
D) $5,000 favorable
C) $8,000 unfavorable

Explanation: Direct material efficiency variance = $40 × [1,000 − (4,000 × 0.20)] = $8,000 U
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.60 pounds $20 per pound
Direct labor 0.30 hours $14 per hour

During July, GII produced and sold 4,000 containers using 2,700 pounds of direct materials at an average cost per pound of $19 and 1,290 direct manufacturing labor hours at an average wage of $14.30 per hour.

The direct manufacturing labor flexible-budget variance during July is ________.
A) $1,260.00 unfavorable
B) $900.00 favorable
C) $1,647.00 unfavorable
D) $3,300.00 favorable
C) $1,647.00 unfavorable

Explanation: Direct manufacturing labor flexible-budget variance = (1,290 × $14.30) − (4,000 × 0.30 × $14) = $1,647.00 U
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.10 pounds $30 per pound
Direct labor 0.30 hours $18 per hour

During July, GII produced and sold 4,000 containers using 600 pounds of direct materials at an average cost per pound of $26 and 1,290 direct manufacturing labor hours at an average wage of $18.40 per hour.

The direct manufacturing labor price variance during July is ________.
A) $1,620.00 unfavorable
B) $516.00 favorable
C) $480.00 favorable
D) $3,600.00 unfavorable
B) $516.00 favorable

Explanation: Direct manufacturing labor price variance = 1,290 dlh × ($18.40 − $18) = $516.00 F
) Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.40 pounds $50 per pound
Direct labor 0.50 hours $11 per hour

During July, GII produced and sold 4,000 containers using 1,750 pounds of direct materials at an average cost per pound of $48 and 2,090 direct manufacturing labor hours at an average wage of $11.30 per hour.

The direct manufacturing labor efficiency variance during July is ________.
A) $990.00 unfavorable
B) $627.00 favorable
C) $1,617.00 favorable
D) $1,017.00 unfavorable
A) $990.00 unfavorable

Explanation: Direct manufacturing labor efficiency variance = [2,090 dlh − (4,000 × 0.50)] × $11 = $990.00 U
Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In 2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price
Direct materials 1 pounds $5.40 per pound
Direct labor 0.50 hours $13.00 per hour

During September, MCP produced and sold 1,000 units using 1,300 pounds of direct materials at an average cost per pound of $5.00 and 480 direct labor hours at an average wage of $13.15 per hour.

September's direct material flexible-budget variance is ________.
A) $400 unfavorable
B) $120 favorable
C) $1,100 unfavorable
D) $520 favorable
C) $1,100 unfavorable

Explanation: Direct material flexible-budget variance = (1,300 × $5.00) − (1,000 × 1 × $5.40) = $1,100 U
Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In 2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price
Direct materials 1 pounds $8.60 per pound
Direct labor 0.20 hours $13.00 per hour

During September, MCP produced and sold 1,000 units using 1,400 pounds of direct materials at an average cost per pound of $8.00 and 160 direct labor hours at an average wage of $13.50 per hour.

The direct material price variance during September is ________.
A) $840 favorable
B) $840 unfavorable
C) $2,600 unfavorable
D) $2,600 favorable
A) $840 favorable

Explanation: Direct material price variance = 1,400 × ($8.00 − $8.60) = $840 F
) Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In 2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price
Direct materials 2 pounds $2.30 per pound
Direct labor 0.40 hours $15.00 per hour

During September, MCP produced and sold 1,000 units using 2,200 pounds of direct materials at an average cost per pound of $2.00 and 360 direct labor hours at an average wage of $15.15 per hour.

The direct material efficiency variance during September is ________.
A) $660 favorable
B) $660 unfavorable
C) $460 favorable
D) $460 unfavorable
D) $460 unfavorable

Explanation: Direct material efficiency variance = $2.30 × [2,200 − (1,000 × 2)] = $460 U
) Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In 2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price
Direct materials 7 pounds $7.30 per pound
Direct labor 0.50 hours $10.00 per hour

During September, MCP produced and sold 2,000 units using 14,400 pounds of direct materials at an average cost per pound of $7.00 and 950 direct labor hours at an average wage of $10.40 per hour.

The direct labor flexible-budget variance during September is ________.
A) $120.00 favorable
B) $120.00 unfavorable
C) $520.00 favorable
D) $520.00 unfavorable
A) $120.00 favorable

Explanation: Direct labor flexible-budget variance = (950 × $10.40) − (2,000 × 0.50 × $10.00) = $120.00 F
Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In 2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price
Direct materials 6 pounds $4.25 per pound
Direct labor 0.50 hours $15.00 per hour

During September, MCP produced and sold 2,000 units using 12,400 pounds of direct materials at an average cost per pound of $4.00 and 950 direct labor hours at an average wage of $15.15 per hour.

The direct labor price variance during September is ________.
A) $750.00 unfavorable
B) $150.00 favorable
C) $142.50 unfavorable
D) $142.50 favorable
C) $142.50 unfavorable

Explanation: Direct labor price variance = 950 dlh × ($15.15 − $15.00) = $142.50 U
Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In 2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price
Direct materials 4 pounds $7.25 per pound
Direct labor 0.60 hours $17.00 per hour

During September, MCP produced and sold 2,000 units using 8,200 pounds of direct materials at an average cost per pound of $7.00 and 1,160 direct labor hours at an average wage of $17.50 per hour.

The direct labor efficiency variance during September is ________.
A) $680 favorable
B) $700 unfavorable
C) $600 favorable
D) $100 unfavorable
A) $680 favorable

Explanation: Direct labor efficiency variance = [1,160 dlh − (2,000 × 0.60)] × $17.00 = $680 F
Which variance is calculated using the formula (AQ - BQ) BP is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) spending variance
A) efficiency variance
Which variance is calculated by using the formula: (AP - BP) AQ is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) material spending variance
B) price variance
) The flexible-budget variance for materials is $2,000 (U). The sales-volume variance is $18,000 (U). The price variance for material is $38,000 (F). The efficiency variance for direct manufacturing labor is $12,000 (F). Calculate the efficiency variance for materials.
A) $40,000 favorable
B) $18,000 unfavorable
C) $6,000 favorable
D) $40,000 unfavorable
D) $40,000 unfavorable

Explanation: $2,000(U) = $38,000(F) + Price variance
Price variance = $2,000 + $38,000 = $40,000 (U)
) Which of the following is the correct formula for the materials price variance?
A) (Actual price of input - Budgeted price of input) x Budgeted quantity of input
B) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
D) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
) These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. The best label for the formula [(AP)(AQ) - (BP)(BQ)] is the ________.
A) efficiency variance.
B) price variance
C) total flexible-budget variance
D) spending variance
C) total flexible-budget variance
Handley Manufacturing Company has prepared the following flexible budget for August and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance.

Flexible Variances
Budget Price Efficiency
Material A $40,000 $1,600F $3,200U
Material B 68,000 500U 1,900F
Direct manufacturing labor 85,000 200U 2,700F

The most likely explanation of the above direct manufacturing labor variances is that ________.
A) the average wage rate paid to employees was less than expected
B) employees did not work as efficiently as expected to accomplish the job
C) the company may have assigned more experienced employees this month than originally planned
D) management may have a problem with budget slack and might be using lax standards for both labor-wage rates and expected efficiency
C) the company may have assigned more experienced employees this month than originally planned
) Efficiency is ________.
A) the degree to which a predetermined objective or target is met
B) the difference between an actual input quantity and a budgeted input quantity
C) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies
D) the relative amount of inputs used to achieve a given output level
D) the relative amount of inputs used to achieve a given output level
) If management experiences an unfavorable direct materials efficiency variance, which of the following would not be the possible corrective action?
A) Improve the design of the product
B) Provide additional training for the direct laborers
C) Purchase higher quality materials
D) Negotiate lower prices for material acquisition
D) Negotiate lower prices for material acquisition
Variance analysis should be used ________.
A) to understand why variances arise and to improve future performance
B) as the sole source of information for performance evaluation
C) to punish employees that do not meet standards
D) to set the standards which are very easy to achieve to encourage employees to focus on meeting standards
A) to understand why variances arise and to improve future performance
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