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Chapter 23 - Flexible Budgets and Standard Costs
Chapter 23
Flexible Budgets and Standard Costs
QUESTIONS
1. Fixed budget performance reports have limited usefulness because they do not reflect
2. The primary purpose of a flexible budget is to help managers better evaluate past
performance, which can improve their abilities to monitor and control operations.
3. The proper title is:
Spalding Company
4. A flexible budget performance report is useful for an analysis of the difference between
5. A variable cost implies a constant per unit cost for each unit produced or sold within
the relevant range.
6. The human resource department is usually responsible for a labor rate variance. The
production department is usually responsible for a labor efficiency variance. However,
7. A price variance is that portion of a cost variance caused by a difference between the
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Chapter 23 - Flexible Budgets and Standard Costs
8. Standard costs are used to establish a basis to assess the reasonableness of actual
9. An overhead volume variance is the difference between (a) the amount of (fixed)
overhead that would have been budgeted at the actual operating level achieved during
10. A predetermined standard overhead rate is a measure computed and used in a standard
cost system to assign overhead costs to products. Before the period begins, budgeted
11. In general, variance analysis is said to provide information about price and quantity
variances.
12. A controllable variance is the difference between (a) the total overhead cost actually
incurred in the period and (b) the total overhead cost that would have been budgeted at
13. Standard costs provide a basis for evaluating actual performance. Summary
information comparing actual costs to budgeted costs is captured and reported in a
14. Before a period starts, the manager can prepare flexible budgets for the various types of
advertising. Then, she could estimate both the best and worst case scenarios for the
15. Apple schedules appointments with customers to service Apple computers, iPhones,
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16. The controllable variance should not be affected by achieving an actual operating level
different from the budgeted level. If the company operated at 75% of capacity, a
controllable variance will arise only if the actual overhead cost is different from the
amount shown on a flexible budget for overhead computed at the 75% level.
QUICK STUDIES
Quick Study 23-1 (15 minutes)
BEECH COMPANY
Flexible Budget Performance Report
For Month Ended May 31
Flexible Actual
Budget Results Variances
Sales.................................................. $1,300,000 $1,275,000 $25,000 U
Quick Study 23-2 (5 minutes)
Fixed costs (unchanged).............................................................................$300,000
Quick Study 23-3 (10 minutes)
From the flexible budget at 20,000 units, compute the sales price and variable
costs per unit:
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Chapter 23 - Flexible Budgets and Standard Costs
At a production level of 26,000 units:
Sales (26,000 x $20.00).................................................................................$520,000
Variable costs (26,000 x $4.00).................................................................... 104,000
Quick Study 23-4 (10 minutes)
BRODRICK COMPANY
Flexible Budget Performance Report
For Year Ended December 31
Flexible Actual
Budget Results Variances
Sales (26,000 units).......................... $520,000 $480,000 $40,000 U
Quick Study 23-5 (5 minutes)
A standard cost card for one bat would include:
Direct materials (1 kg @$18 per kg)................................................. $18
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Chapter 23 - Flexible Budgets and Standard Costs
Quick Study 23-7 (10 minutes)
1. Management by exception involves managers focusing on the most
significant variances for analysis and action strategies. It also results in
2. Management often uses standard costs to compute these variances. Since
Quick Study 23-8 (10 minutes)
Direct materials price variance:
Actual cost of direct materials used (given)..............................................$535,000
Direct materials quantity variance:
Actual quantity used x Standard price (300,000 x $2)..............................$600,000
Quick Study 23-9 (15 minutes)
Following information is given
Actual price per pound................................................................................$ 78.00
It is also known that:
Material price variance = Price variance per pound x Actual pounds used
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Chapter 23 - Flexible Budgets and Standard Costs
Actual pounds used = Material price variance / Price variance per pound
Therefore, substituting with the information given above:
Quick Study 23-10 (10 minutes)
Standard direct materials cost.......................................................... $150,000
Chapter 23 - Flexible Budgets and Standard Costs
Quick Study 23-12 (10 minutes)
Standard direct labor cost................................................................. $400,000
Labor rate variance (unfavorable).................................................... 20,000
Labor efficiency variance (unfavorable).......................................... 10,000
Actual total direct labor cost............................................................. $430,000
Quick Study 23-13 (10 minutes)
Quick Study 23-14 (10 minutes)
Actual overhead incurred............................................................................$ 28,175
Less: Applied overhead (based on flexible budget)
Controllable overhead variance (favorable)..............................................
$(14,205)
Quick Study 23-15 (5 minutes)
Budgeted fixed overhead (at 12,000 units)................................................$12,000
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Chapter 23 - Flexible Budgets and Standard Costs
Quick Study 23-16 (10 minutes)
Standard overhead cost..............................................................................$225,000
Quick Study 23-17A (10 minutes)
Work in Process Inventory...................................................... 225,000
Quick Study 23-18 (10 minutes)
Actual variable overhead (4,700 x $4.15)*..................................................$19,505
Total variable overhead cost variance.......................................................$ 495 F
*Actual machine hours x Actual variable overhead rate
**Standard machine hours x Standard variable overhead rate
Quick Study 23-19A (15 minutes)
Variable overhead spending and efficiency variances
Actual Overhead
AH x AVR AH x SVR
Applied Overhead
SH x SVR
$705 U
(Spending variance)
$1,200 F
(Efficiency variance)
$495 F
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Education.
Chapter 23 - Flexible Budgets and Standard Costs
(Total variable overhead variance)
Quick Study 23-20 (15 minutes)
Sales Actual Flexible Budget Fixed Budget
Units 50 50 45
Price per
$9,000 $9,500 $9,500
$25,000 U $47,500 F
(Sales price variance) (Sales volume variance)
Quick Study 23-21 (15 minutes)
Sales Actual Flexible Budget Fixed Budget
Units 216,944 216,944 225,944
(Sales price variance) (Sales volume variance)
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