Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
Use the information below to answer the following question(s).
Robb Industries Inc. (RII), developed standard costs for direct material and direct labour. In 2013, RII
estimated the following standard costs for one of their major products, the 10–litre plastic container.
Budgeted quantity
Budgeted price
Direct materials
0.10 kilograms
$30 per kilogram
Direct labour
0.05 hours
$15 per hour
During June, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average
actual cost per kilogram of $32 and 250 direct manufacturing labour–hours at an average actual wage of
$15.25 per hour.
40) June’s direct material flexible-budget variance is
A) $980 unfavourable.
B) $300 favourable.
C) $680 favourable.
D) $980 favourable.
E) $680 unfavourable.
41) June’s direct material price variance is
A) $980 unfavourable.
B) $1,000 favourable.
C) $680 favourable.
D) $980 favourable.
E) $1,000 unfavourable.
42) June’s direct material efficiency variance is
A) $320 unfavourable.
B) $300 favourable.
C) $680 favourable.
D) $300 unfavourable.
E) $320 favourable.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
43) June’s direct manufacturing labour price variance is
A) neither favourable or unfavourable.
B) $62.50 favourable.
C) $128.00 unfavourable.
D) $62.50 unfavourable.
E) $128.00 favourable.
44) June’s direct manufacturing labour efficiency variance is
A) $62.50 unfavourable.
B) $62.50 favourable.
C) $128.00 unfavourable.
D) $128.00 favourable.
E) neither favourable nor unfavourable.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
Use the information below to answer the following question(s).
Sawyer Industries Inc. (SII), developed standard costs for direct material and direct labour. In 2013, SII
estimated the following standard costs for one of their major products, the 30–litre heavy-duty plastic
container.
Budgeted quantity
Budgeted price
Direct materials
0.20 kilograms
$25 per kilogram
Direct labour
0.10 hours
$15 per hour
During July, SII produced and sold 10,000 containers using 2,200 kilograms of direct materials at an
average actual cost per kilogram of $24 and 1,050 direct manufacturing labour hours at an average actual
wage of $14.75 per hour.
45) July’s direct material flexible-budget variance is
A) $2,800 unfavourable.
B) $2,200 favourable.
C) $5,000 unfavourable.
D) $2,200 unfavourable.
E) $2,800 favourable.
46) July’s direct material price variance is
A) $2,800 favourable.
B) $2,200 favourable.
C) $5,000 unfavourable.
D) $2,200 unfavourable.
E) $2,000 favourable.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
47) July’s direct material efficiency variance is
A) $4,800 favourable.
B) $2,200 favourable.
C) $5,000 unfavourable.
D) $5,000 favourable.
E) $4,800 unfavourable.
48) July’s direct manufacturing labour flexible-budget variance is
A) $750.00 unfavourable.
B) $262.50 favourable.
C) $262.50 unfavourable.
D) $487.50 favourable.
E) $487.50 unfavourable.
49) July’s direct manufacturing labour price variance is
A) $250.00 favourable.
B) $262.50 favourable.
C) $487.50 favourable.
D) $262.50 unfavourable.
E) $250.00 unfavourable.
50) July’s direct manufacturing labour efficiency variance is
A) $750.00 unfavourable.
B) $262.50 favourable.
C) $487.50 favourable.
D) $750.00 favourable.
E) neither favourable or unfavourable.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
51) Use the following data to prepare a flexible budget for possible sales/ production levels of 10,000;
11,000; and, 12,000 units. Show the contribution margin at each activity level.
Sales price $24.00 per unit
Variable costs:
Manufacturing $12.00 per unit
Administrative $3.00 per unit
Selling $1.00 per unit
Fixed costs:
Manufacturing $60,000
Administrative $20,000
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
52) Littrell Company produces chairs and has determined the following direct cost categories and
budgeted amounts:
Standard Inputs Standard Cost
Category for 1 output per input
Direct Materials 1.00 $7.50
Direct Labour 0.30 9.00
Direct Marketing 0.50 3.00
Actual performance for the company is shown below:
Actual output: (in units) 4,000
Direct Materials:
Materials costs 30,225
Input purchased and used 3,900
Actual price per input $7.75
Direct Manufacturing Labour:
Labour costs $11,470
Labour-hours of input 1,240
Actual price per hour $9.25
Direct Marketing Labour:
Labour costs $5,880
Labour-hours of input 2,100
Actual price per hour $2.80
Required:
a. What is the combined total of the flexible-budget variances?
b. What is the price variance of the direct materials?
c. What is the price variance of the direct manufacturing labour and the direct marketing labour,
respectively?
d. What is the efficiency variance for direct materials?
e. What are the efficiency variances for direct manufacturing labour and direct marketing labour,
respectively?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
53) Nicholas Company manufacturers TVs. Some of the company’s data was misplaced. Use the
following information to replace the lost data:
Analysis
Actual
Results
Flexible
Variances
Flexible
Budget
Sales-
Volume
Variances
Static
Budget
Units Sold
112,500
112,500
103,125
Revenues
$42,080
$1,000 F
(A)
$1,400 U
(B)
Variable Costs
(C)
$200 U
$15,860
$2,340 F
$18,200
Fixed Costs
$8,280
$860 F
$9,140
$9,140
Operating
Income
$17,740
(D)
$16,080
(E)
$15,140
Required:
a. What are the respective flexible-budget revenues (A)?
b. What are the static-budget revenues (B)?
c. What are the actual variable costs (C)?
d. What is the total flexible-budget variance (D)?
e. What is the total sales-volume variance (E)?
f. What is the total static-budget variance?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
54) Whistler Table Company manufactures tables for schools. The current year operating budget is based
on sales of 20,000 units at $100 per table. Operating income is anticipated to be $120,000. Budgeted
variable costs are $64 per unit while fixed costs total $600,000.
Actual income for the year was $354,000 on actual sales of 21,000 units. Actual variable costs were $60 per
unit and fixed costs totaled $570,000.
Required:
Prepare a variance analysis report with both flexible–budget and sales-volume variances.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
55) Wilson’s Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka
requires the following:
Direct materials standard 2 square metres at $13.50 per metre
Direct manufacturing labour standard 1.5 hours at $20.00 per hour
During the third quarter, the company made 1,500 parkas and used 3,150 square metres of fabric costing
$39,375. Direct labour totaled 2,100 hours for $45,150.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labour price and efficiency variances for the quarter.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
56) Al’s Boxes manufactures corrugated boxes. The standard materials allowed for each box is 0.5
kilograms of paper, which has a standard cost of $5 per kilogram. During April 10,000 kilograms were
used to manufacture 19,500 boxes. The actual materials cost was $5.25 per kilogram.
Required:
a. Determine the materials price variance.
b. Determine the materials efficiency variance.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
57) Glenn’s Draperies manufactures curtains. A certain window requires the following:
Direct materials standard is 10 square metres at $5 per metre
Direct manufacturing labour standard is 5 hours at $10
During the second quarter the company made 1,500 curtains and used 14,000 square metres of fabric
costing $68,600. Direct labour totaled 7,600 hours for $79,800.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labour rate and efficiency variances for the quarter.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
58) Video Producers manufactures two types of videos: regular and CD. The regular tapes require 5 units
of direct material X at a standard price of $2 per unit. The CDs require 2 units of direct material Y at a
standard price of $3.
During January the company purchased 9,000 units of X for $2.10 each and 3,600 units of Y at $3.20 each.
January production used 8,800 units of X and 3,400 units of Y. Outputs of finished tapes was 1,750 of each
type.
Required:
Compute the price and efficiency variances for each material.
For the price variances use two different responsibility assumptions. First assume that price variances are
isolated at the time of purchase; second assume that the price variances are isolated as materials are
placed into production.
The efficiency variances for each material are determined during production.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
59) Vienna Chocolate Company produces fudge in large batches. One batch of fudge has the following
standard costs and amounts:
Standard quantity of sugar (kilograms)
100
Standard cost per kilogram of sugar
$1.90
Standard direct labour hours per batch of fudge
2.0
Standard direct labour cost per hour
$18.00
Switzer Chocolate Company produced 400 batches of fudge in the most recent month. Actual costs and
usage levels were as follows:
Actual kilograms of sugar used per batch of fudge
102
Actual cost per kilogram of sugar
$2.10
Actual direct labour hours per batch of fudge
1.8
Actual direct labour cost per hour
$17.50
Required:
a. Calculate the total material input price variance.
b. Calculate the total material efficiency variance.
c. Calculate the total labour rate variance.
d. Calculate the total labour efficiency variance.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
60) Cayman Designs makes chair cushions. The standard direct materials quantity is 1 kilogram per
cushion at a cost of $2.50 per kilogram. The actual results for the production of 20,000 cushions was 1.25
kilograms per cushion, at a cost of $2.40 per kilogram. Calculate the direct materials input price variance
and the direct materials efficiency variance.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
61) The following data for the Alma Company pertain to the production of 1,000 urns during August.
Direct Materials (all materials purchased were used):
Standard cost: $6.00 per kilogram.
Total actual cost: $5,600.
Standard cost allowed for units produced was $6,000.
Materials efficiency variance was $120 unfavourable.
Direct Manufacturing Labour:
Standard cost is 2 urns per hour at $24.00 per hour.
Actual cost per hour was $24.50.
Labour efficiency variance was $336 favourable.
Required:
a. What is standard direct material cost and quantity per urn?
b. What is the direct material price variance?
c. What is the total actual cost of direct manufacturing labour?
d. What is the labour price variance for direct manufacturing labour?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
62) The following data for the Lewgrow Garden Supplies Company pertains to the production of 2,500
garden spades during March. The spade consists of a wooden handle and a metal forged tool that comes
in contact with the ground.
Direct Materials (all materials purchased were used):
Standard cost: $1.00 per handle and $3.50 per metal tool.
Total actual cost: $11,350.
Materials flexible-budget efficiency variance was $650 unfavourable.
Direct Manufacturing Labour:
Standard cost is 5 garden spades per hour at $20.00 per hour.
Actual cost per hour was $21.00.
Labour efficiency variance was $400 favourable.
Required:
a. What is the standard direct material amount per garden spade?
b. What is the standard cost allowed for all units produced?
c. What is the total direct materials flexible-budget variance?
d. What is the direct material flexible-budget price variance?
e. What is the total actual cost of direct manufacturing labour?
f. What is the labour price variance for direct manufacturing labour?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
63) The following data for the telephone company pertain to the production of 450 rolls of telephone wire
during June. Selected items are omitted because the costing records were lost in a windstorm.
Direct Materials (all materials purchased were used.)
Standard cost per roll: a kilograms at $4.00 per kilogram.
Total actual cost: b kilograms costing $9,600.
Standard cost allowed for units produced was $9,000.
Materials price variance: c .
Materials efficiency variance was $80 unfavourable.
Direct Manufacturing Labour
Standard cost is 3 hours per roll at $8.00 per hour.
Actual cost per hour was $8.25.
Total actual cost: d .
Labour price variance: e .
Labour efficiency variance was $400 unfavourable.
Required:
Compute the missing elements in the report represented by the lettered items.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
64) Coffey Company maintains a very large direct materials inventory because of critical demands placed
upon it for rush orders from large hospitals. Item A contains hard–to-get material Y. Currently, the
standard cost of material Y is $2.00 per gram. During February, 22,000 grams were purchased for $2.10
per gram, while only 20,000 grams were used in production. There was no beginning inventory of
material Y.
Required:
a. Determine the direct materials price variance, assuming that all materials costs are the responsibility
of the materials purchasing manager so price variances are based on purchase quantities.
b. Determine the direct materials price variance, assuming that all materials costs are the responsibility
of the production manager so price variances are determined as quantities are placed into production.
c. Discuss the issues involved in determining the price variance at the point of purchase versus the
point of consumption.
65) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static
budget variance and a flexible budget variance.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
66) Give at least three good reasons why a favourable price variance for direct materials might be
reported.
67) Give at least three good reasons why an unfavourable efficiency variance for direct manufacturing
labour might be reported.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 7 – Flexible Budgets, Variances, and Management Control: I
68) The textbook discusses five levels of variances: Level 0, Level 1, Level 2, Level 3, and Level 4. Briefly
explain the meaning of each of those levels and provide an example of a variance at each of those levels.
69) Describe the purpose of variance analysis.