12) The Carolina Products Company has just completed a flexible budget analysis of 2nd quarter operating income,
as shown here:
Actual Flexible Budget Flexible Sales Volume
Static
Results Variance Budget Variance Budget
Units/volume 12,800 0 12,800 800 F 12,000
Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000
Variable expenses 27,520 640 U 26,880 1,680 U 25,200
Contribution margin 35,200 1,920 U 37,120 2,320 F 34,800
Fixed expenses 34,100 100 U 34,000 0 34,000
Operating income/(loss) $1,100 $2,020 U $3,120 $2,320 F
$800
Based on the above data, which of the following statements would be a correct interpretation of the sales volume
variance for sales revenues?
A) Increase in price per unit
B) Increase in sales volume
C) Increase in variable expense per unit
D) Increase in fixed costs
13) The Carolina Products Company has just completed a flexible budget analysis of 2nd quarter operating income,
as shown here:
Actual Flexible Budget Flexible Sales Volume
Static
Results Variance Budget Variance Budget
Units/volume 12,800 0 12,800 800 F 12,000
Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000
Variable expenses 27,520 640 U 26,880 1,680 U 25,200
Contribution margin 35,200 1,920 U 37,120 2,320 F 34,800
Fixed expenses 34,100 100 U 34,000 0 34,000
Operating income/(loss) $1,100 $2,020 U $3,120 $2,320 F
$800
Based on the above data, which of the following statements would be a correct interpretation of the sales volume
variance for variable expenses?
A) Decrease in price per unit
B) Increase in variable cost per unit
C) Increase in sales volume
D) Increase in fixed costs
14) The Carolina Products Company has just completed a flexible budget analysis of 2nd quarter operating income,
as shown here:
Actual Flexible Budget Flexible Sales Volume
Static
Results Variance Budget Variance Budget
Units/volume 12,800 0 12,800 800 F 12,000
Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000
Variable expenses 27,520 640 U 26,880 1,680 U 25,200
Contribution margin 35,200 1,920 U 37,120 2,320 F 34,800
Fixed expenses 34,100 100 U 34,000 0 34,000
Operating income/(loss) $1,100 $2,020 U $3,120 $2,320 F
$800
Based on the above data, which of the following statements would be a correct interpretation of the sales volume
variance for operating income?
A) Decrease in price per unit
B) Increase in variable cost per unit
C) Increase in sales volume
D) Increase in fixed costs
15) The Carolina Products Company has just completed a flexible budget analysis of 2nd quarter operating income,
as shown here:
Actual Flexible Budget Flexible Sales Volume
Static
Results Variance Budget Variance Budget
Units/volume 12,800 0 12,800 800 F 12,000
Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000
Variable expenses 27,520 640 U 26,880 1,680 U 25,200
Contribution margin 35,200 1,920 U 37,120 2,320 F 34,800
Fixed expenses 34,100 100 U 34,000 0 34,000
Operating income/(loss) $1,100 $2,020 U $3,120 $2,320 F
$800
Based on the above data, which of the following statements would be a correct interpretation of the flexible budget
variance for sales revenue?
A) Decrease in price per unit
B) Increase in variable cost per unit
C) Increase in sales volume
D) Increase in fixed costs
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16) The Carolina Products Company has just completed a flexible budget analysis of 2nd quarter operating income,
as shown here:
Actual Flexible Budget Flexible Sales Volume
Static
Results Variance Budget Variance Budget
Units/volume 12,800 0 12,800 800 F 12,000
Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000
Variable expenses 27,520 640 U 26,880 1,680 U 25,200
Contribution margin 35,200 1,920 U 37,120 2,320 F 34,800
Fixed expenses 34,100 100 U 34,000 0 34,000
Operating income/(loss) $1,100 $2,020 U $3,120 $2,320 F
$800
Based on the above data, which of the following statements would be a correct interpretation of the flexible budget
variance for variable expenses?
A) Decrease in price per unit
B) Increase in variable cost per unit
C) Increase in sales volume
D) Increase in fixed costs
17) The Carolina Products Company has just completed a flexible budget analysis of 2nd quarter operating income,
as shown here:
Actual Flexible Budget Flexible Sales Volume
Static
Results Variance Budget Variance Budget
Units/volume 12,800 0 12,800 800 F 12,000
Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000
Variable expenses 27,520 640 U 26,880 1,680 U 25,200
Contribution margin 35,200 1,920 U 37,120 2,320 F 34,800
Fixed expenses 34,100 100 U 34,000 0 34,000
Operating income/(loss) $1,100 $2,020 U $3,120 $2,320 F
$800
Based on the above data, which of the following statements would be a correct interpretation of the flexible budget
variance for fixed expenses?
A) Decrease in price per unit
B) Increase in variable cost per unit
C) Increase in sales volume
D) Increase in fixed costs
18) A company is analyzing month-end results compared to both static and flexible budgets. This month the actual
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selling price was higher than projected in the static budget. What kind of variance would that produce?
A) Favorable flexible budget variance for sales revenues
B) Favorable sales volume variance for sales revenues
C) Unfavorable flexible budget variance for sales revenues
D) Unfavorable sales volume variance for sales revenues
19) A company is analyzing month-end results compared to both static and flexible budgets. This month the actual
variable expenses per unit were lower than projected in the static budget. What kind of variance would that produce?
A) Favorable flexible budget variance for variable expenses
B) Favorable sales volume variance for variable expenses
C) Unfavorable flexible budget variance for variable expenses
D) Unfavorable sales volume variance for variable expenses
20) A company is analyzing month-end results compared to both static and flexible budgets. This month the actual
fixed expenses were lower than projected in the static budget. What kind of variance would that produce?
A) Favorable flexible budget variance for fixed expenses
B) Favorable sales volume variance for fixed expenses
C) Unfavorable flexible budget variance for fixed expenses
D) Unfavorable sales volume variance for fixed expenses
21) A company is analyzing month-end results compared to both static and flexible budgets. This month the actual
sales volume was lower than projected in the static budget. What kind of variance would that produce?
A) Unfavorable flexible budget variance for variable expenses
B) Unfavorable sales volume variance for variable expenses
C) Unfavorable flexible budget variance for sales revenues
D) Unfavorable sales volume variance for sales revenues
22) A favorable flexible budget variance in sales revenues suggests a(n):
A) increase in selling price.
B) increase in volume.
C) decrease in variable expenses per unit.
D) decrease in fixed costs.
23) An unfavorable flexible budget variance in variable expenses suggests a(n):
A) increase in price.
B) decrease in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
24) An unfavorable flexible budget variance in operating income might be due to a(n):
A) increase in price.
B) decrease in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
25) A favorable sales volume variance in sales revenue suggests a(n):
A) increase in price.
B) increase in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
26) A favorable sales volume variance in variable expenses suggests a(n):
A) increase in volume.
B) decrease in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
27) An unfavorable sales volume variance in operating income suggests a(n):
A) increase in volume.
B) decrease in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
28) Global Engineering’s actual operating income for the current year is $50,000. The flexible budget operating
income for actual volume achieved is $40,000, while the static budget operating income is $53,000. What is the
sales volume variance for operating income?
A) $13,000 favorable
B) $10,000 unfavorable
C) $13,000 unfavorable
D) $10,000 favorable
29) Tiger’s Golf Center reported actual operating income for the current year of $60,000. The flexible budget
operating income for actual volume achieved is $55,000, while the static budget operating income is $58,000. What
is the flexible budget variance for operating income?
A) $5,000 favorable
B) $3,000 unfavorable
C) $5,000 unfavorable
D) $2,000 favorable
30) Western Outfitters Mountain Sports projected 2011 sales of 75,000 units at a unit sale price of $12.00. Actual
2011 sales were 72,000 units at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual amount was
$4.75 per unit. Budgeted fixed costs totaled $375,000, while actual fixed costs amounted to $400,000. What is the
sales volume variance for total revenue?
A) $144,000 favorable
B) $42,000 unfavorable
C) $108,000 favorable
D) $36,000 unfavorable
31) Western Outfitters Mountain Sports projected 2011 sales of 75,000 units at a unit sale price of $12.00. Actual
2011 sales were 72,000 units at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual amount was
$4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the
flexible budget variance for variable expenses?
A) $12,000 favorable
B) $54,000 unfavorable
C) $54,000 favorable
D) $25,000 favorable
32) Western Outfitters Mountain Sports projected 2011 sales of 75,000 units at a unit sale price of $12.00. Actual
2011 sales were 72,000 units at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual amount was
$4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the
flexible budget variance for operating income?
A) $48,000 unfavorable
B) $65,000 favorable
C) $65,000 unfavorable
D) $41,000 favorable
33) Western Outfitters Mountain Sports projected 2011 sales of 75,000 units at a unit sale price of $12.00. Actual
2011 sales were 72,000 units at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual amount was
$4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the
sales volume variance for operating income?
A) $41,000 unfavorable
B) $24,000 unfavorable
C) $24,000 favorable
D) $65,000 unfavorable
34) Shirt Fantasy produces and sells two types of tee shirts Fancy and Plain. Shirt Fantasy provides the following
data:
Budget Actual
Unit sales price- Fancy $24 $25
Unit sales price-Plain $18 $17
Unit sales-Fancy 1,300 1,250
Unit sales-Plain 900 875
Using the format below, compute the flexible budget variance for Fancy tee shirts for sales revenue only.
Actual Flexible Budget Flexible Sales Volume Static
Results Variance F/U Budget Variance F/U Budget
Units/volume 1,250 1,300
Sales revenue
35) Shirt Fantasy produces and sells two types of tee shirts Fancy and Plain. Shirt Fantasy provides the following
data:
Budget Actual
Unit sales price- Fancy $24 $25
Unit sales price-Plain $18 $17
Unit sales-Fancy 1,300 1,250
Unit sales-Plain 900 875
Using the format below, compute the flexible budget variance for Plain tee shirts for sales revenue only.
Actual Flexible Budget Flexible Sales Volume Static
Results Variance Budget Variance Budget
Units/volume 875 900
Sales revenue
36) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Using the format below, please prepare an income statement performance report:
Actual Flexible Budget Flexible Sales Volume Static
Results Variance Budget Variance Budget
Units/volume
Sales revenue
Variable expenses
Contribution margin
Fixed expenses
Operating income/(loss)
Learning Objective 23-3
1) Standard cost is a budget for a single unit of materials, labor or overhead.
2) A standard cost is a carefully predetermined cost that usually is expressed on a per-unit basis.
3) Standard costs help motivate employees by serving as benchmarks against which their performance is measured.
4) A standard cost system helps management set performance standards.
5) A quantity variance measures how well a company keeps unit prices of material and labor inputs within
standards.
6) Price variances show how changes in usage of raw materials and labor affect a company’s profits.
7) In a standard costing system, each item has a price standard and a quantity standard.
8) Setting standard costs is a function done within a company’s production department and does NOT require any
input from other departments.
9) Standard costs are developed by the cooperative effort of procurement, production, human resources, and
accounting personnel.
10) Companies use techniques like time-and-motion studies, and consult industry “best practices” when developing
standards. This is referred to as benchmarking.
11) Manufacturing companies that use standard costs do NOT need to compute inventory cost based on LIFO, FIFO,
or weighted average.
12) Price Variance = (Actual Price x Actual Quantity) – (Standard Price x Standard Quantity).
13) Efficiency Variance = (Standard Price x Actual Quantity) – (Standard Price x Standard Quantity).
14) The static budget is NEVER used to compute flexible budget variance or price and efficiency variances.
15) Which of the following is NOT a reason that companies use standard costs?
A) To establish performance standards
B) To prepare the budget
C) To achieve higher levels of sales
D) To set the sales prices of their products and services
16) Which of the following will result in an unfavorable direct labor price variance?
A) When actual direct labor hours exceed standard direct labor hours
B) When actual direct labor hours are less than standard direct labor hours
C) When the actual direct labor rate exceeds the standard direct labor rate
D) When the actual direct labor rate is less than the standard direct labor rate
17) Which of the following will result in an unfavorable direct materials efficiency variance?
A) The actual cost per unit of direct materials exceeded the standard cost of direct materials.
B) The actual cost per unit of direct materials was less than the standard cost of direct materials.
C) The actual quantity of direct materials used per unit exceeded the standard quantity of direct materials allowed
per unit.
D) The actual quantity of direct materials used per unit was less than the standard quantity of direct materials
allowed per unit.
18) Which of the following BEST describes standard costs?
A) Costs used as a budget for a single unit of product
B) Costs incurred to produce the standard model of a product
C) Costs based on the average of current market values
D) Costs used to compare with competitors’ prices
19) Artscapes Company is setting its direct materials and direct labor standards for its leading product. Materials
cost from the supplier are $4.50 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square
foot. Basic wages of the assembly line personnel are $12.00 per hour. Payroll taxes are approximately 20% of
wages. Benefits amount to $3.00 per hour. How much is the direct material price standard (per square foot)?
A) $4.60 per square foot
B) $4.00 per square foot
C) $3.90 per square foot
D) $16.50 per square foot
20) Artscapes Company is setting its direct materials and direct labor standards for its leading product. Materials
cost from the supplier are $4.50 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square
foot. Basic wages of the assembly line personnel are $12.00 per hour. Payroll taxes are approximately 20% of
wages. Benefits amount to $3.00 per hour. How much is the direct labor price standard (per hour)?
A) $17.40 per hour
B) $15.00 per hour
C) $14.40 per hour
D) $16.50 per hour
21) Georgia Custom Cabinet Company is setting standard costs for one of its products. The main material is cedar
wood, sold by the board foot. The current cost of cedar wood is $2.00 per board foot from the supplier. Delivery
costs are $0.25 per board foot. Carpenters’ wages are $22.00 per hour. Payroll costs are $3.60 per hour and benefits
are $3.00 per hour. How much is the direct materials price standard (per -board foot)?
A) $2.25 per board foot
B) $2.00 per board foot
C) $1.75 per board foot
D) $22.00 per board foot
22) Georgia Custom Cabinet Company is setting standard costs for one of its products. The main material is cedar
wood, sold by the board foot. The current cost of cedar wood is $2.00 per board foot from the supplier. Delivery
costs are $0.25 per board foot. Carpenters’ wages are $22.00 per hour. Payroll costs are $3.60 per hour and benefits
are $3.00 per hour. How much is the direct labor price standard (per hour)?
A) $6.60 per hour
B) $25.60 per hour
C) $22.00 per hour
D) $28.60 per hour
23) Which of the following is one of the reasons why companies use standard costs?
A) To increase sales
B) To set performance targets
C) To bolster good internal controls and prevent shrinkage
D) To insure the accuracy of the financial records
24) Which of the following is one of the reasons why companies use standard costs?
A) To increase sales
B) To insure the accuracy of the financial records
C) To bolster good internal controls and prevent shrinkage
D) To make budgeting easier and more efficient
25) Which one of the following is NOT a reason for using standard costs?
A) To set performance targets
B) To decrease accounting costs
C) To increase sales volumes
D) To make budgeting easier
26) Which one of the following is NOT a reason for using standard costs?
A) To set performance targets
B) To strengthen internal controls over inventory
C) To decrease accounting costs
D) To make budgeting easier
27) Which of the following is an example of a materials price standard?
A) $40 per direct labor hour
B) 4.5 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
28) Which of the following is an example of a materials efficiency standard?
A) $40 per direct labor hour
B) 4.5 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
29) Which of the following is an example of a labor price standard?
A) $40 per direct labor hour
B) 4.5 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
30) Which of the following is an example of a labor efficiency standard?
A) $40 per direct labor hour
B) 4.5 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
31) Which of the following statements is TRUE about price variances and quantity (or efficiency) variances?
A) They pertain to the difference between the static budget and actual results.
B) They pertain to the difference between the flexible budget and actual results.
C) They pertain to the difference between the flexible budget and the static budget.
D) They pertain to the difference between the static budget and the previous year’s actuals.
32) What do price variances measure?
A) The difference between the price the company pays and the price its competitors pay
B) The change in prices over time
C) The difference between actual and standard price
D) The volume discounts companies receive when ordering materials in large quantities
33) What do quantity (or efficiency) variances measure?
A) The difference between the quantity the company uses and the quantity its competitors use
B) The change in quantities used over time
C) The difference between actual and standard quantity used
D) How quickly materials are processed intro finished goods
1) For standard costing methodology, good business practices would emphasize using unfavorable variances as a
way of assigning blame to the responsible managers, and favorable variances as a way of rewarding managers.