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8) The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy
Department of Paralith Incorporated had developed the following static budget for the third quarter.
Duck Decoy is in the process of preparing the flexible budget and understanding the results.
Actual Flexible Static
Results Budget Budget
Sales volume (in units) 11,000 10,000
Sales revenues $238,000 $ $230,000
Variable costs 150,000 $ ________ 180,000
Contribution margin 88,000 $ 50,000
Fixed costs 36,000 $ ________ 35,000
Operating profit $ 52,000 $ $ 15,000
The primary reason for high actual operating profits was ________.
A) the variable-cost variance
B) increased fixed costs
C) flexible budget variance for revenues
D) lower sales volume than planned
Answer the following questions using the information below:
Genent Company manufactures tires. Some of the company's data was misplaced. Use the following
information to replace the lost data:
Actual
Results
Flexible Budget
Variances
Flexible
Budget
Sales-Volume
Variances
Static
Budget
Units sold
495,000
495,000
453,750
Revenues
$185,150
$4,400 F
(A)
$6,160 U
(B)
Variable
costs
(C)
$880 U
$69,780
$10,300 F
$88,080
Fixed costs
$36,430
$3,770 F
$40,200
0
$40,200
Operating
income
$78,060
(D)
$70,770
(E)
$66,630
9) What amounts are reported for revenues in the flexible-budget (A) and the static-budget (B),
respectively?
A) $164,320; $178,990
B) $180,750; $186,910
C) $185,150; $177,920
D) $178,990; $186,910
10) What are the actual variable costs (C)?
A) $72,800
B) $70,660
C) $62,640
D) $54,080
11) What is the total flexible-budget variance (D)?
A) $240 unfavorable
B) $0
C) $1,360 favorable
D) $7,290 favorable
12) What is the total sales-volume variance (E)?
A) $14,960 unfavorable
B) $7,290 unfavorable
C) $4,140 favorable
D) $14,960 favorable
13) What is the total static-budget variance?
A) $11,430 favorable
B) $7,290 favorable
C) $4,140 unfavorable
D) $4,140 favorable
14) A flexible-budget variance pertaining to revenues is often called a sales-volume variance.
15) A difference between the static-budget and the flexible-budget amounts is called the sales-volume
variance.
16) Quindo Table Company manufactures tables for schools. The 2015 operating budget is based on sales
of 44,000 units at $55 per table. Operating income is anticipated to be $132,000. Budgeted variable costs
are $35 per unit, while fixed costs total $660,000.
Actual income for 2015 was a surprising $477,000 on actual sales of 46,000 units at $57 each. Actual
variable costs were $33 per unit and fixed costs totaled $627,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.
Objective 7.4
1) 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
2) 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 competitor's
D) a standard input quantity in a company and its main competitor's
3) Which of the following is an advantage of using actual input data from past periods to develop a
budget?
A) Past inefficiencies are excluded in the preparation of new budget.
B) Expected future changes are incorporated in the preparation of new budget.
C) Information is available at a low cost.
D) Data represents the ideal performance.
4) 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.
C) The expected future changes are not included in the standards.
D) The flexible-budget amounts are difficult to determine.
5) A price variance reflects the difference between ________.
A) a standard input price in a company and its competitor
B) an actual input price used last period and current period
C) an actual input price used in a company and its competitor
D) an actual input price and a budgeted input price
6) 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
7) Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual
material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit?
A) $9
B) $11.25
C) $10
D) $12.5
8) Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor
hour is $7.5 and actual labour hour per unit is 0.7 hours. What is the standard labor cost per output unit?
A) $4.5
B) $4.8
C) $5.6
D) $5.25
9) A standard price is the minimum price a company will have to pay for a unit of input.
10) To prepare budgets based on actual data from past periods is preferred since past inefficiencies are
EXCLUDED.
11) A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence
the data represents the ideal performance of a firm.
12) A standard is attainable through efficient operations but allows for normal disruptions such as
machine breakdowns and defective production.
13) One advantage of using standard times to develop a budget is they are simple to compile, are based
solely on the past actual history, and do not require expected future changes to be taken into account.
14) The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain
the meaning of each of those levels and provide an example of a variance at each of those levels.
Objective 7.5
1) 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
2) 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
3) An unfavorable price variance for direct materials might indicate ________.
A) that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory
methods
B) congestion due to scheduling problems
C) that the purchasing manager skillfully negotiated a better purchase price
D) that the market had an unexpected oversupply of those materials
4) 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
5) 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
6) 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
Answer the following questions using the information below:
Animent Industries, Inc. (AII), developed standard costs for direct material and direct labor. In 2015, AII
estimated the following standard costs for one of their major products, the 10-gallon plastic container.
Budgeted quantity Budgeted price
Direct materials 0.10 pounds $60 per pound
Direct labor 0.05 hours $30 per hour
During June, AII produced and sold 20,000 containers using 1,900 pounds of direct materials at an
average cost per pound of $64 and 1,000 direct manufacturing labor-hours at an average wage of $30.50
per hour.
7) June's direct material flexible-budget variance is ________.
A) $7,200 unfavorable
B) $600 favorable
C) $1,600 unfavorable
D) $500 favorable
8) The direct material price variance during June is ________.
A) $7,600 unfavorable
B) $1,600 favorable
C) $1,600 unfavorable
D) $500 favorable
9) The direct manufacturing labor price variance during June is ________.
A) $500 unfavorable
B) $500 favorable
C) $7,600 unfavorable
D) 1,600 unfavorable
10) The direct manufacturing labor efficiency variance during June is ________.
A) $125 unfavorable
B) $500 favorable
C) $1,600 unfavorable
D) $0
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2015, 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 $20 per pound
Direct labor 0.20 hours $12 per hour
During July, GII produced and sold 3,000 containers using 1,000 pounds of direct materials at an average
cost per pound of $19 and 625 direct manufacturing labor hours at an average wage of $11.75 per hour.
11) July's direct material flexible-budget variance is ________.
A) $1,000 unfavorable
B) $2,000 favorable
C) $2,500 unfavorable
D) $0
12) The direct material price variance during July is ________.
A) $1,100 unfavorable
B) $1,100 favorable
C) $1,000 unfavorable
D) $2,000 unfavorable
13) The direct material efficiency variance during July is ________.
A) $1,000 unfavorable
B) $1,100 favorable
C) $2,000 unfavorable
D) $1,000 favorable
14) The direct manufacturing labor flexible-budget variance during July is ________.
A) $375.00 unfavorable
B) $131.25 favorable
C) $143.75 unfavorable
D) $1,000 favorable
15) The direct manufacturing labor price variance during July is ________.
A) $375.00 unfavorable
B) $156.25 favorable
C) $243.75 favorable
D) $1,000 unfavorable
16) The direct manufacturing labor efficiency variance during July is ________.
A) $300.00 unfavorable
B) $156.25 favorable
C) $143.75 favorable
D) $131.75 unfavorable
Demizio Valley Orchards, Inc. (DVO), developed standard costs for direct material and direct labor. In
2015, DVO estimated the following standard costs for one of their most well loved products, the DVO
classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as
including cranberry and mince ingredients in addition to the apples.
Budgeted quantity Budgeted price
Direct materials 2.0 pounds $6.25 per pound
Direct labor 0.20 hours $13.00 per hour
During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct materials at an
average cost per pound of $6.00 and 200 direct labor hours at an average wage of $13.25 per hour.
17) September's direct material flexible-budget variance is ________.
A) $100.00 unfavorable
B) $150.00 favorable
C) $50.00 unfavorable
D) $575 favorable
18) The direct material price variance during September is ________.
A) $575 favorable
B) $575 unfavorable
C) $50.00 unfavorable
D) $50.00 favorable
19) The direct material efficiency variance during September is ________.
A) $575 favorable
B) $575 unfavorable
C) $625 favorable
D) $625 unfavorable
20) The direct labor flexible-budget variance during September is ________.
A) $210.00 favorable
B) $210.00 unfavorable
C) $250.00 favorable
D) $250.00 unfavorable
21) The direct labor price variance during September is ________.
A) $260.00 unfavorable
B) $280.00 favorable
C) $50.00 unfavorable
D) $50.00 favorable
22) The direct labor efficiency variance during September is ________.
A) $260.00 favorable
B) $250.00 unfavorable
C) $280.00 favorable
D) $210.00 unfavorable
23) The best label for the formula (AQ - BQ) BP is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) spending variance
24) The best label for the formula (AP - BP) AQ is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) spending variance
25) The flexible-budget variance for materials is $5,000 (U). The sales-volume variance is $13,000 (U). The
price variance for material is $31000 (F). The efficiency variance for direct manufacturing labor is $7,000
(F). Calculate the efficiency variance for materials.
A) $36,000 favorable
B) $13,000 unfavorable
C) $6,000 favorable
D) $36,000 unfavorable
26) Unfavorable direct material price variances are ________.
A) always credits
B) always debits
C) credited to the Materials Control account
D) credited to the Accounts Payable Control account
27) Favorable direct manufacturing labor efficiency variances are ________.
A) always credits
B) always debits
C) debited to the Work-in-Process Control account
D) debited to the Wages Payable Control account
28) 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
Answer the following questions using the information below:
Berman's Camera Shop has prepared the following flexible budget for September 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 $1,000F $3,000U
Material B 60,000 500U 1,500F
Direct manufacturing labor 80,000 500U 2,500F
29) The most likely explanation of the above variances for Material A is that ________.
A) a lower price than expected was paid for Material A
B) higher-quality raw materials were used than were planned
C) the company used a higher-priced supplier
D) Material A used during September was $2,000 less than expected
30) The actual amount spent for Material B was ________.
A) $58,000
B) $59,000
C) $60,000
D) $61,000
31) The actual amount spent for direct manufacturing labor was ________.
A) $80,000
B) $83,000
C) $82,000
D) $78,000
32) 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
Answer the following questions using the information below:
Midend's Camera Shop has prepared the following flexible budget for September 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 $25,000 $1,500U $1,800F
Material B 32,000 600F 900U
Material C 42,000 1,300U 900F
33) The actual amount spent for Material A was ________.
A) $28,300
B) $25,300
C) $24,700
D) $21,700
34) The actual amount spent for Material B was ________.
A) $31,700
B) $30,500
C) $33,500
D) $32,300
35) The explanation that lower-quality materials were purchased is most likely for ________.
A) Material A
B) Material B
C) Material C
D) both Material A and C
36) The flexible-budget variance is the total of price variance and efficiency variance.
37) The price variance is the difference between the actual price and the budgeted price of the input,
multiplied by the actual quantity of input.
38) For any actual level of output, the efficiency variance is the difference between actual quantity of
input used and the budgeted quantity of input allowed to produce actual output, multiplied by the
budgeted price.
39) From the perspective of control, the direct materials price variance should be isolated at the time of
sales.
40) Employees logging in to production floor terminals and other modern technologies greatly facilitate
the use of a standard costing system.
41) The use of high-quality raw materials is likely to result in a favorable efficiency variance and an
unfavorable price variance.
42) Direct material price variance is likely to be unfavorable if the purchasing manager switched to a
lower-price supplier.
43) Direct manufacturing labor efficiency variance is likely to be unfavorable if underskilled workers are
put on a job.
