Chapter 12

Management Accounting, Cdn.
6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 12 Flexible Budgets and Variance Analysis
1) Flexible budgets are designed to show different possible costs for one anticipated level of output.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 491
Objective: 1
2) All master budgets are prepared for only one level of activity.
Answer: TRUE
Objective: 1
3) In a flexible budget, the fixed costs will remain constant regardless of different levels of activity shown
in the budget.
Answer: TRUE
Objective: 1
4) A performance report should include variances that indicate the difference between expected future
results and desired results.
Answer: FALSE
Objective: 3
5) If actual revenues and expenses exceed expected revenues and expenses, all variances in the
performance report will be favourable.
Answer: FALSE
Objective: 3
6) One cause of a flexible-budget variance might be a difference between expected and actual hourly
wages for factory workers.
Answer: TRUE
Objective: 3
7) As the terms are used in the budgeting process, it is possible for a company to be effective at the same
time it is inefficient.
Answer: TRUE
Objective: 3
8) Flexible budgets evaluate whether operations are effective or not.

Answer: FALSE
Objective: 1
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9) Favourable flexible-budget variances are always viewed as positive.
Answer: FALSE
Objective: 3
10) It is universally believed that the standards used in flexible budgets should be "perfection standards"
so that individuals will constantly be challenged to perform better.
Answer: FALSE
Objective: 3
11) In most companies, variances are investigated only if they exceed a minimum dollar or percentage
deviation from budgeted amounts.
Answer: TRUE
Objective: 3
12) The total flexible-budget variance can be broken down into a price variance and a usage variance.
Answer: FALSE
Objective: 2
13) A usage variance measures actual deviations from the quantity of inputs that should have been used
to achieve the actual output quantity.
Answer: TRUE
Objective: 2
14) The difference between applied and budgeted fixed overhead is the production-volume variance.
Answer: TRUE
Objective: 2
15) When actual volume is less than expected volume, fixed overhead is overapplied.
Answer: FALSE
Objective: 2
16) A cost system that applies actual direct materials and actual direct-labour costs to products or services
but uses standards for applying overhead is known as a standard costing system.
Answer: FALSE
Objective: 3
17) The only way to account for standard cost variances is to adjust income in the current period.
Answer: FALSE
Objective: 2
2
18) Underapplied overhead is always the difference between the budgeted overhead and the overhead
applied.
Answer: FALSE
Objective: 1
Use the following information to answer the next question(s):

The standard cost sheet for one of the Vitton Company's products is presented below.
Direct materials (4 feet @ $6.00) $24.00

Direct labour (1 hour @ $12.00) 12.00
Variable overhead (1 hour @ $5.00) 5.00
Fixed overhead (1 hour @ $3.00*) 3.00
Standard unit cost $44.00
*Rate based on expected activity of 12,000 hours
The following results for last year were recorded.
Production (in units) 10,000

Direct materials (39,000 feet purchased
and used) $241,800
Direct labour (10,500 hours) $131,250
Variable overhead $ 48,000
Fixed overhead $ 40,000
19) The materials price variance is

A) $7,800 unfavourable.
B) $7,800 favourable.
C) $8,400 unfavourable.
D) $8,400 favourable.
Answer: A
Diff: 2 Type: MC Page Ref: 501
20) The materials usage variance is

A) $4,000 favourable.
B) $4,000 unfavourable.
C) $6,000 favourable.
D) $6,000 unfavourable.
Answer: C
3
21) The labour rate variance is
Answer: B
22) The labour efficiency variance is

Answer: D
23) The variable overhead spending variance is

Answer: A
24) The variable overhead efficiency variance is

Answer: A
25) The fixed overhead volume variance is

Answer: A
4
Harrison Company had the following information:
Selling price per unit $30

Variable costs per unit: Manufacturing $15
Variable costs per unit: Selling and
administrative $3
Fixed costs per month: Manufacturing $20,000
Fixed costs per month: Selling and
administrative $10,000
26) What are the total manufacturing costs for 10,000 units?
A) $150,000
B) $20,000
C) $170,000
D) $180,000
Answer: C
A) $30,000
B) $245,000
C) $225,000
D) $270,000
Answer: B
28) What are the total selling and administrative expenses for 10,000 units?
A) $30,000
B) $40,000
C) $180,000
D) $210,000
Answer: B
A) $300,000
B) $ 45,000
C) $ 55,000
D) $270,000
Answer: C
5
30) What is the net income for 10,000 units?
A) $90,000
B) $120,000
C) $300,000
D) $270,000
Answer: A

A) $450,000
B) $180,000
C) $405,000
D) $150,000
Answer: D
Woodlund Company had the following information:
Selling price per unit $120

Variable costs per unit: Manufacturing $60
Variable costs per unit: Selling and
administrative $12
Fixed costs per month: Manufacturing $80,000
Fixed costs per month: Selling and
administrative $40,000
A) $600,000
B) $80,000
C) $680,000
D) $720,000
Answer: C
A) $120,000
B) $980,000
C) $900,000
D) $1,080,000
Answer: B
6
A) $120,000
B) $160,000
C) $720,000
D) $840,000
Answer: B
A) $1,200,000
B) $180,000
C) $220,000
D) $1,080,000
Answer: C

A) $360,000
B) $480,000
C) $1,200,000
D) $1,080,000
Answer: A

A) $1,800,000
B) $720,000
C) $1,620,000
D) $600,000
Answer: D
The total traceable costs of the account billing activity centre is $245,000. Cost behaviour analysis
indicates that fixed costs are $75,000. Activity analysis indicates that the cost driver for account billing
activity is the number of lines printed, and the total lines printed is 2,500,000.
38) What is the variable cost per line?

A) $0.068
B) $0.098
C) $0.030
D) Cannot be determined
Answer: A
7
39) What is the cost function?
A) Costs = $ 75,000 + $0.098(Lines)
B) Costs = $ 75,000 + $0.068(Lines)
C) Costs = $245,000 + $0.068(Lines)
Answer: B
40) What would be the total flexible budget if the number of lines increased to 2,600,000?
A) $176,800
B) $245,000
C) $251,800
Answer: C
Objective: 4
41) Identify which of the statements below is NOT a reason why actual results would differ from those
projected in the master budget.
A) Current period projected sales volume differed from the prior period projection.
B) Actual sales volume differed from projected sales volume.
C) Variable costs per unit differed from expected amounts.
D) Actual fixed costs were different than expected.
Answer: A
Objective: 1
42) Which statement would NOT be a possible reason for a variance between a flexible budget and actual
results?
A) Material prices were different than expected.
B) Labour prices were different than expected.
C) The actual volume of activity was different than expected.
D) The amount of labour used per unit of output was different than expected.
Answer: C
Objective: 1
43) If the total sales activity variance was $15,000 favourable, and the total master-budget variance was
$17,500 favourable, then the total flexible-budget variance must have been
B) $ 2,500 favourable.
C) $ 2,500 unfavourable.
D) undeterminable.
Answer: B
Objective: 4
8
44) Which of the following is NOT an example of "efficient" performance?
A) More goods were produced and sold than anticipated.
B) Direct labour hours per unit were less than expected.
C) Direct material used per unit was less than expected.
D) More outputs were achieved with less inputs than predicted.
Answer: A
Objective: 1
45) With regard to flexible-budget variances, Caulkins Corporation showed a $2,000 unfavourable
variable cost variance and a $450 favourable fixed cost variance. The variance for operating income was
D) undeterminable.
Answer: A
Objective: 4
46) Flexible-budget variances are designed to measure

A) effectiveness of operations at projected level of activity.
B) effectiveness of operations at actual level of activity.
C) efficiency of operations at projected level of activity.
D) efficiency of operations at actual level of activity.
Answer: D
Objective: 1
47) Flexible budgets help to measure

A) differences between projected and actual activity levels.
B) the efficiency of operations at the actual activity level.
C) the amount by which standard and expected prices differ.
D) the reasons why projected activity levels were not attained.
Answer: B
Objective: 1
48) Who is best able to explain the reasons for flexible-budget variances?
A) The company president
B) A salesperson
C) A manufacturing department foreperson
D) A machine operator
Answer: C
Objective: 1
9
49) A favourable sales-activity variance means that
A) managers have been efficient in the implementation of a sales budget.
B) managers have been effective in accomplishing a planned sales level.
C) demand for the company product is strong.
D) the sales force has done an excellent job.
Answer: B
Objective: 4
The following data are for Parker Corporation for 20X4.
Flexible Budget for

Master Actual Sales
Actual Budget Activity
Units 18,000 16,000 18,000
Sales $180,000 $160,000 $180,000
Variable costs 117,000 96,000 108,000
Contribution margin $ 63,000 $ 64,000 $ 72,000
Fixed costs 38,000 40,000 40,000
Operating income $ 25,000 $ 24,000 $ 32,000
50) The total of the flexible-budget variances is

Answer: B
Objective: 4
51) The total of the sales-activity variances is

Answer: A
Objective: 4
52) The total of the master-budget variances is

Answer: D
Objective: 4
10
The following information is for Doran Corporation:
Direct Material
Standard price per unit of input* $10
Actual price per unit of input $9
Standard inputs allowed per unit of output 2 pounds
Actual units of input 31,000 pounds
Actual units of output 15,000 units
*Direct material is measured in pounds
53) The price variance for direct material is

Answer: D
54) The usage variance for direct material is

Answer: A
55) The total flexible-budget variance for direct material is

Answer: B
11
The following information pertains to Finger Company:
Direct Labour
Standard price per unit of input* $20
Actual price per unit of input $22
Standard inputs allowed per unit of output 2 hours
Actual units of input 9,500 hours
Actual units of output 5,000 units
*Direct labour is measured in hours
56) The price variance for direct labour is

Answer: D
57) The direct-labour usage variance is

Answer: C
58) The total flexible-budget variance for direct labour is

A) $ 9,000 unfavourable.
B) $ 9,000 favourable.
Answer: A
Objective: 4
12
The Clamen Company makes table lamps, for which the following standards have been developed:
Standard Inputs Standard Price Expected

Expected for Each per
Unit of Output Unit of Output
Direct materials 20 pounds $2 per pound
Direct labour 6 hours $8 per hour
During October, production of 100 lamps was expected, but 110 lamps were actually completed.
Direct materials purchased and used were 2,100 pounds at an actual price of $2.20 per pound.
Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00.
59) The standard cost of direct material for each lamps produced is
A) $48.00.
B) $40.00.
C) $44.00.
D) $21.00.
Answer: B
60) The direct-material price variance for October is

A) $420 unfavourable.
B) $420 favourable.
C) $400 favourable.
D) $400 unfavourable.
Answer: A
61) The direct-material usage variance for October is

B) $220 favourable.
C) $200 unfavourable.
D) $200 favourable.
Answer: D
62) The direct-labour price variance for the month of October is

B) $600 favourable.
C) $590 unfavourable.
D) $590 favourable.
Answer: C
13
63) The direct-labour usage variance for the month of October is
A) $560 favourable.
B) $560 unfavourable.
C) $630 favourable.
D) $630 unfavourable.
Answer: A
The following data apply to Walker Corporation for the year 20X4.
Direct Material Direct Material

Product X Product Y
Standard quantity per unit 3 pounds 4 pounds
Standard price per unit $4.00 per pound ?
Actual quantity used per unit ? 3 pounds
Actual price paid for material $5.00 per pound $10.00 per pound
Price variance $400 U $900 F
Usage variance $800 F ?
Flexible-budget variance ? $4,200 F
Actual quantity of production 200 units 300 units
64) For product X, the actual quantity used per unit was
A) 1.0 pound.
B) 2.0 pounds.
C) 3.0 pounds.
D) 3.5 pounds.
Answer: B
65) For Product X, the flexible-budget variance was

B) $800 favourable.
D) $400 favourable.
Answer: D
Objective: 4
66) For Product X, the total actual quantity used was

A) 600 pounds.
B) 500 pounds.
C) 400 pounds.
D) 300 pounds.
Answer: C
14
67) For Product Y, the standard price per unit was
A) $11.00 per pound.
B) $5.33 per pound.
C) $10.75 per pound.
D) $10.00 per pound.
Answer: A
68) For Product Y, the usage variance was

Answer: B
69) For Product Y, the total standard material cost for producing the 300 units was
A) $9,000.
B) $9,900.
C) $13,200.
D) $12,000.
Answer: C
70) For Product Y, the total actual cost for producing the 300 units was
A) $9,000.
B) $9,900.
C) $12,000.
D) $13,200.
Answer: A
71) When actual volume is less than expected volume, the fixed overhead volume variance is
A) favourable.
B) overapplied.
C) unfavourable.
D) indeterminable.
Answer: C
Objective: 1
15
72) When actual volume is less than expected volume, fixed overhead is
A) favourable.
B) underapplied.
C) overapplied.
D) indeterminable.
Answer: B
Objective: 1
73) The costing system that uses actual direct labour and materials cost but uses standards for applying
overhead is called
A) actual costing.
B) standard costing.
C) variance costing.
D) normal costing.
Answer: D
Objective: 8
74) Which costing methods generate fixed overhead volume variances?

A) Normal and standard.
B) Standard and actual.
C) Actual and normal.
D) Actual, normal, and standard.
Answer: A
Objective: 8
A company had the following information pertaining to two different cases:
Case X Case Y
Budgeted fixed overhead $130,000 $230,000
Variable factory overhead per
direct-labour hour $ 24 $ 14
Standard direct-labour hours 11,000 6,000
Flexible-budget variance $ 10,000 F $ 20,000 U
Production-volume variance $ 6,000 U $ 8,000 F
75) Actual factory overhead cost in Case X was

A) $264,000.
B) $384,000.
C) $120,000.
D) $130,000.
Answer: A
16
76) The applied factory overhead cost in Case X was
A) $400,000.
B) $136,000.
C) $124,000.
D) $388,000.
Answer: D
77) The applied factory overhead cost in Case Y was

A) $322,000.
B) $238,000.
C) $346,000.
D) $222,000.
Answer: A
78) Prorating the variances refers to assigning the variances to

A) cost of goods sold only.
B) inventories and cost of goods sold.
C) inventories only.
D) inventories, cost of goods sold, and sales.
Answer: B
Objective: 9
79) The fixed overhead volume variance arises because fixed-overhead accounting must serve two
masters: the control-budget purpose and the
A) product-costing purpose.
B) period-costing purpose.
C) stockholders.
D) creditors.
Answer: A
Objective: 7
17
A company had the following information pertaining to two different cases:
Case X Case Y
Budgeted fixed overhead $130,000 $230,000
Variable factory overhead per
direct-labour hour $ 24 $ 14
Standard direct-labour hours 11,000 6,000
Flexible-budget variance $ 10,000 F $ 20,000 U
Production-volume variance $ 6,000 U $ 8,000 F
80) The total overhead variance in Case X was

Answer: C
81) The total overhead variance in Case Y was

Answer: B
82) The variance of actual results from the master budget.

Answer: Master-budget variance
Diff: 1 Type: SA Page Ref: 491
Objective: 1
83) A variance that occurs when actual expenses are more than budgeted expenses.
Answer: Unfavourable expense variance
Objective: 1
84) A budget that adjusts for changes in sales volume and other cost driver activities.
Answer: Flexible budget
Objective: 1
85) The variances between the flexible budget and the actual results.
Answer: Flexible-budget variances
Objective: 1
18
86) The differences between the master budget amounts and the amounts in the flexible budget.
Answer: Activity-level variances
Objective: 1
87) The degree to which a goal, objective, or target is met.

Answer: Effectiveness
Objective: 1
88) The degree to which inputs are used in relation to a given level of outputs.
Answer: Efficiency
Objective: 1
89) The cost most likely to be attained.

Answer: Standard cost
Objective: 1
90) A carefully determined cost per unit that should be attained.

Answer: Standard cost
Objective: 1
91) Levels of performance that can be achieved by realistic levels of effort.

Answer: Currently attainable standards
Objective: 1
92) The difference between the actual overhead incurred and the overhead applied.
Answer: Under/overapplied overhead
Objective: 1
93) The amount of fixed manufacturing overhead applied to each unit of production.
Answer: Fixed-overhead rate
94) A variance that appears whenever actual production deviates from the expected volume of
production used in computing the fixed-overhead rate.
Answer: fixed overhead volume variance
Objective: 7
19
95) A cost system that applies actual direct materials and actual direct-labour costs to products or services
but uses standards for applying overhead.
Answer: Normal costing
Objective: 8
96) Assigning the variances to the inventories and cost of goods sold related to the production during the
period the variances arose.
Answer: Prorating the variance
Objective: 9
97) Given the following data:
Direct Direct
Material Labour
Standard price per unit of input $15 per foot $15 per hour
Actual price per unit of input $17 per foot $14 per hour
Standard inputs allowed per unit
of output 4 feet 2 hours
Actual units of input 1,750 feet 850 hours
Actual units produced 400 units
Required: Compute the price, usage and flexible-budget variances for direct material and labour. Indicate
whether each variance is favourable or unfavourable.
Answer:
Direct material:
Price variance = ($17 - $15) × 1,750 = $3,500 unfavourable
Usage variance = [1,750 - (400 × 4)] × $15 = $2,250 unfavourable
Flexible-budget variance = $3,500 U + $2,250 U = $5,750 unfavourable
Direct labour:
Price variance = ($14 - $15) × 850 = $850 favourable
Usage variance = [850 - (400 × 2)] × $15 = $750 unfavourable
Flexible-budget variance = $850 F - $750 U = $100 favourable
Diff: 3 Type: ES Page Ref: 501
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98) The following data are for the month of August for Murdock Corporation, a company that makes
saucers.
Standard Inputs Standard

Expected for Each Price per
Unit of Output Unit of Input
Direct material 10 pounds $ 6 per pound
During the month of August, the company actually produced 1,000 saucers, which is 50 units less than
expected. Direct material purchased and used amounted to 10,500 pounds at a cost of $6.25 per pound.
Actual direct labour was 2,900 hours at an actual cost of $10.50 per hour.
Required:
a. What is the standard cost per saucer for direct material and direct labour?
b. Compute the price and usage variances for direct material and direct labour.
Answer:
a. Direct material standard cost:
10 × $6 = $60 per unit
Direct labour standard cost:

3 × $10 = $30 per unit
b. Direct material:
Price variance = ($6.25 - $6.00) × 10,500 = $2,625 unfavourable
Usage variance = (10,500 - 10,000) × $6 = $3,000 unfavourable
Direct labour:
Price variance = ($10.50 - $10.00) × 2,900 = $1,450 unfavourable
Usage variance = (2,900 - 3,000) × $10.00 = $1,000 favourable
21
99) The following data pertain to June operations for the Harley Company:
Actual Inputs Actual Price

for Each Unit per Unit
of Output of Input
Direct material 10 yards $ 8 per yard
Actual output was 750 units. The Company's per unit standards call for 9 yards of direct material at $9.00
per yard and 3 hours of direct labour at $10.50 per hour.
Required: Compute the price and usage variances for direct material and direct labour.
Answer:
Direct material:
Price variance = ($8 - $9) × (10 × 750) = $7,500 favourable
Usage variance = [7,500 - (750 × 9)] × $9 = $6,750 unfavourable
Direct labour:
Price variance = ($10.00 - $10.50) × (750 × 2) = $750 favourable
Usage variance = [1,500 - (750 × 3)] × $10.50 = $7,875 favourable
100) Fill in the missing information in the following table:
Direct Direct
Material Labour
Actual quantity used per unit 3.5 pounds (c)
Actual price paid $6 per pound $17 per hour
Standard quantity per unit 3 pounds 4 hours
Standard price per unit (a) $16 per hour
Price variance $1,400 F $1,500 U
Usage variance (b) $600 F
Flexible-budget variance $400 U (d)
Actual quantity produced 400 units

Answer:
a. [($6.00 - (a)) × (400 × 3.5)] = $1,400 unfavourable
(a) = Standard price per unit of direct material = $5 per pound
b. $1,400 Favourable + (b) = $400 unfavourable
(b) = Usage variance = $1,800 unfavourable
c. ($17 - $16) × A = $1,500 unfavourable
A = Actual hours used = 1,500 hours
(c) = 1,500 hours/400 units = 3.75 hours per unit
d. $1,500 U - $600 F = $900 unfavourable flexible-budget variance
22
101) Washington, Inc. has budgeted fixed factory overhead costs at $150,000 per month and variable
factory overhead at a rate of $6 per direct-labour hour. The standard direct-labour hours allowed for
January production were 18,000. An analysis of the factory overhead indicates that during January there
was an unfavourable flexible budget variance of $5,000 and a favourable production volume variance of
$3,000.
Required:
a. Compute the actual factory overhead cost for January.
b. Calculate the applied overhead cost for January.
Answer:
a. $5,000 + $150,000 + (18,000 × $6) = $263,000
b. (18,000 × $6) + $150,000 + $3,000 = $261,000
102) Warren Company's overhead cost information is given below:
Standard applied overhead $152,000

Budgeted overhead based on
standard machine hours allowed 162,000
Budgeted overhead based on
actual machine hours used 170,000
Actual overhead 166,000
Required:
a. Compute the total overhead variance.
b. Calculate the flexible-budget variance.
c. Determine the fixed overhead volume variance.
Answer:
a. $166,000 - $152,000 = $14,000 unfavourable
b. $166,000 - $162,000 = $4,000 unfavourable
c. $162,000 - $152,000 = $10,000 unfavourable
23
103) The following information was compiled by Bovinnette Company:
Expected volume of production 100,000 units

Actual level of production 95,000 units
Budgeted fixed overhead $200,000
Actual fixed overhead $207,500
Variable overhead rate per direct-labour hour $9
Actual variable overhead $395,000
Standard direct-labour hours allowed per unit produced .50 hour
Standard direct-labour rate per hour $8.00
Actual direct-labour hours of input 46,500 hours
Actual direct-labour rate per hour $8.25
Required:
Compute the following variances:

a. Direct-labour flexible-budget variance
b. Variable factory overhead flexible-budget variance
c. Fixed factory overhead flexible-budget variance
d. Fixed factory overhead production-volume variance
Answer:
a. (46,500 × $8.25) - (95,000 × .5 × $8.00) = $3,625 unfavourable
b. $395,000 - (95,000 × .5 × $9) = $32,500 favourable
c. $207,500 - $200,000 = $7,500 unfavourable
d. $200,000 - (95,000 × $2*) = $10,000 unfavourable
*$200,000/100,000 units = $2 per unit
24
104) The Walton Manufacturing Company has developed the following standards for one of their
products, a walnut fern stand.
_______________________________________________________
STANDARD VARIABLE COST CARD

One Walnut Fern Stand
Materials: 5 square feet x $8 per square foot $40.00

Direct labour: 2 hours x $10/DLH 20.00
Variable manufacturing overhead: 2 hours x $5/DLH 10.00
Total standard variable cost per unit $70.00
_______________________________________________________
The company records materials price variances at the time of purchase. The following activity occurred
during the month of April:
Materials purchased: 5,000 square feet costing $46,000

Materials used: 4,250 square feet
Units produced: 900 units
Direct labour: 2,200 hours costing $19,800
Actual variable
manufacturing overhead: $10,500
a. Calculate the direct materials price and usage variances.
b. Calculate the direct labour rate variance, the direct labour efficiency variance, and the total direct
labour variance.
c. Compute the variable manufacturing overhead spending and efficiency variances.

Answer:
a.
Direct materials price variance:
(Actual Price - Standard Price) x Actual Quantity Purchased

(AP - SP) x AQ = ($9.20 - $8.00) 5,000 = $6,000 Unfavourable
Direct materials usage variance:
(Actual Quantity Used - Standard Quantity Allowed) x Standard Price

(AQ - SQ) SP = (4,250 - 4,500) x $8/sq.ft.) = $2,000 Favourable
25
b.
Direct labour rate variance:
(Actual Rate - Standard Rate) x actual labour hours

($9 - $10) x 2,200 = $2,200 Favourable
Direct labour efficiency variance:
(Actual Labour Hours - Standard Labour Hours Allowed) x Standard Rate

(AH - SH) x SR = (2,200 hours - 1,800) x $10 = $4,000 Unfavourable
c.
Variable manufacturing overhead spending variance:
[Actual Variable Overhead - (Actual Hours x Standard Variable Overhead Rate)]

= ($10,500 - (2,200 x $5 per hour) = $500 Favourable
Variable manufacturing overhead efficiency variance:
= (AQ - SQ) x SVOR

= (2,200 - 1,800) x $5 per hour = $2,000 Unfavourable
26
105) The Garson Company manufactures roofing shingles. The production process involves heating and
compressing asphalt into sheets and then rolling coarse sand into the hot asphalt. The sheets are then
cooled, cut into shingles, and packaged.
The following standard costs were developed:
STANDARD COST CARD

PER SHINGLE
Materials:
Asphalt 2 lbs. x $0.08/lb. $0.16
Sand 2 lbs. x $0.02/lb. 0.04
Direct labour .01 hrs. x $7.00/hr. 0.07
Variable overhead .01 hrs. x $3.00/hr. 0.03
Fixed overhead ?
Total standard cost per shingle ?
The following information is available regarding the company's operations for the period.
Shingles produced: 500,000

Materials purchased:
Asphalt: 800,000 pounds @ $0.07 per pound
Sand: 900,000 pounds @ $0.03 per pound
Materials used:
Asphalt: 775,000 pounds
Sand: 850,000 pounds
Direct labour: 5,100 hours costing $36,000
Manufacturing overhead incurred:
Variable: $16,500
Fixed: $48,000
Budgeted fixed manufacturing overhead for the period is $60,000 and the standard fixed overhead rate is
based on expected capacity of 6,000 direct labour hours.
a. Calculate the standard fixed manufacturing overhead rate.
b. Complete the standard cost card for roofing shingles.
c. Calculate the following variances:
Materials price and usage variances

Labour rate and efficiency variances
Variable manufacturing overhead spending and efficiency variances
Fixed manufacturing overhead budget and volume variances
27
Answer:
a.
SFOR = Estimated Fixed Overhead/Estimated Direct Labour Hours

= $60,000/6,000 DLH = $10 per DLH
b.
STANDARD COST CARD
PER SHINGLE
Direct materials:
Asphalt $0.16
Sand 0.04
Direct labour 0.07
Variable manufacturing overhead 0.03
Fixed manufacturing overhead
.01 hr. x $10/hr. 0.10
Total Standard cost per shingle $0.40
c.
Materials price variance asphalt:
(AP - SP) x AQ Purchased

= ($0.07 - $0.08) x 800,000 lbs. = $8,000 Favourable
Materials price variance sand:
(AP - SP) x AQ Purchased

= ($0.03 - $0.02) x 900,000 lbs. = $9,000 Unfavourable
Materials usage variance asphalt:
(AQ - SQ) x SP = (775,000 lbs. - 1,000,000 lbs.) x $0.08

= $18,000 Favourable
Materials usage variance sand:
(AQ - SQ) x SP = (850,000 lbs. - 1,000,000 lbs.) x $0.02

= $3,000 Favourable
Direct labour rate variance:
(AR - SR) x AH
= ($7.06*/hr. - $7.00/hr.) x 5,100 DLH = $300 Unfavourable
*rounded
28
Direct labour efficiency variance:
(AH - SH) x SP
= (5,100 DLH - 5,000 DLH) x $7.00/hr. = $700 Unfavourable
Variable manufacturing overhead spending variance:
[Actual Variable Overhead - (Actual Hours x Standard Variable Overhead Rate)]

= [$16,500 - (5,100 DLH x $3.00/hr.)] = $1,200 Unfavourable
= (AQ - SQ) x SVOR = (5,100 - 5,000) x $3.00/hr. = $300 Unfavourable
Fixed manufacturing overhead budget variance:
(Actual Fixed Overhead - Budgeted Fixed Overhead)

= $48,000 - $60,000 = $12,000 Favourable
Fixed manufacturing overhead volume variance:
(Budgeted Fixed Overhead - Applied Fixed Overhead)

= $60,000 - (5,000 x $10/hr.) = $10,000 Unfavourable
29
106) The Fenmore Company uses standard costing for direct materials and direct labour. Management
would like to use standard costing for variable and fixed overhead also.
The following monthly cost functions were developed for manufacturing overhead items:
OVERHEAD ITEM COST FUNCTION
Indirect materials $0.10 per DLH

Indirect labour $0.40 per DLH
Repairs and maintenance $0.20 per DLH
Utilities $0.25 per DLH
Insurance $ 2,000
Rent $ 4,000
Depreciation $20,000
The cost functions are considered reliable within a relevant range of 30,000 to 55,000 direct labour hours.
Fenmore expects to operate at 40,000 direct labour hours per month.
Information for the month of September is as follows:
Actual Overhead Costs Incurred:

Indirect materials $ 4,500
Indirect labour 17,000
Repairs and maintenance 8,000
Utilities 10,000
Insurance 2,100
Rent 4,000
Depreciation 20,000
Total $65,600
Actual direct labour hours worked 42,000

Standard direct labour hours
allowed for production achieved: 44,000
a. Calculate the standard manufacturing overhead rate based upon expected capacity showing the
breakdown between the fixed overhead rate and the variable overhead rate.
b. Calculate the variable manufacturing overhead spending variance.
c. Calculate the variable manufacturing overhead efficiency variance.
d. Calculate the fixed manufacturing overhead budget variance.
e. Calculate the fixed manufacturing overhead volume variance.
30
Answer:
a. Predetermined manufacturing overhead rate:
Manufacturing overhead items:

Indirect materials $0.10 per DLH
Indirect labour 0.40 per DLH
Repairs and maintenance 0.20 per DLH
Utilities 0.25 per DLH
Insurance $ 2,000
Rent 4,000
Depreciation 20,000 ____________
Variable manufacturing overhead $0.95 per DLH

Fixed manufacturing overhead $26,000
SVOR = $0.95 Per DLH

SFOR = Estimated FMO/Estimated DLH = $26,000/40,000 DLH = $0.65 per DLH
Total Overhead Rate = SFOR + SVOR = $0.65 + $0.95 = $1.60 per DLH
b.
Variable overhead spending variance:
[Actual Variable Overhead - (Standard Variable Overhead Rate x Actual Hours)]

= ($4,500 + $17,000 + $8,000 + $10,000) - (42,000 x $0.95)
= $39,500 - $39,900 = $400 Favourable
c.
(AQ - SQ) x SVOR

= (42,000 DLH - 44,000 DLH) x $0.95/hr. = $1,900 Favourable
d.
Fixed overhead budget variance:
(Actual Fixed Overhead - Budgeted Fixed Overhead)

= $26,100 - $26,000 = $100 Unfavourable
e.
Fixed overhead volume variance:
(Budgeted Fixed Overhead - Applied Fixed Overhead)

= $26,000 - (44,000 DLH x $0.65/hr.)
= $26,000 - $28,600 = $2,600 Favourable
31

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Management Accounting, Cdn.

8) Flexible budgets evaluate whether operations are effective or not.

Use the following information to answer the next question(s):

Direct materials (4 feet @ $6.00) $24.00

*Rate based on expected activity of 12,000 hours

The following results for last year were recorded.

Production (in units) 10,000

19) The materials price variance is

20) The materials usage variance is

22) The labour efficiency variance is

23) The variable overhead spending variance is

24) The variable overhead efficiency variance is

25) The fixed overhead volume variance is

Selling price per unit $30

31) What is the net income for 15,000 units?

Woodlund Company had the following information:

Selling price per unit $120

36) What is the net income for 10,000 units?

37) What is the net income for 15,000 units?

38) What is the variable cost per line?

46) Flexible-budget variances are designed to measure

47) Flexible budgets help to measure

The following data are for Parker Corporation for 20X4.

Flexible Budget for

50) The total of the flexible-budget variances is

51) The total of the sales-activity variances is

52) The total of the master-budget variances is

*Direct material is measured in pounds

53) The price variance for direct material is

54) The usage variance for direct material is

55) The total flexible-budget variance for direct material is

*Direct labour is measured in hours

56) The price variance for direct labour is

57) The direct-labour usage variance is

58) The total flexible-budget variance for direct labour is

Standard Inputs Standard Price Expected

60) The direct-material price variance for October is

61) The direct-material usage variance for October is

62) The direct-labour price variance for the month of October is

Direct Material Direct Material

65) For Product X, the flexible-budget variance was

66) For Product X, the total actual quantity used was

68) For Product Y, the usage variance was

74) Which costing methods generate fixed overhead volume variances?

A company had the following information pertaining to two different cases:

75) Actual factory overhead cost in Case X was

77) The applied factory overhead cost in Case Y was

78) Prorating the variances refers to assigning the variances to

80) The total overhead variance in Case X was

81) The total overhead variance in Case Y was

82) The variance of actual results from the master budget.

87) The degree to which a goal, objective, or target is met.

89) The cost most likely to be attained.

90) A carefully determined cost per unit that should be attained.

91) Levels of performance that can be achieved by realistic levels of effort.

97) Given the following data:

Standard Inputs Standard

Direct labour standard cost:

Actual Inputs Actual Price