Connect Managerial Accounting Chapter 8

Connect Managerial Accounting Chapter 8

Q1. Tempo Company’s fixed budget (based on sales of 14,000 units) for the first quarter of calendar year 2017 reveals the following.

Fixed Budget
Sales (14,000 units) $3,024,000
Cost of goods sold
Direct materials $336,000
Direct labor 602,000
Production supplies 378,000
Plant manager salary 136,000 1,452,000
Gross profit 1,572,000
Selling expenses
Sales commissions 112,000
Packaging 196,000
Advertising 100,000 408,000
Administrative expenses
Administrative salaries 186,000
Depreciation—office equip. 156,000
Insurance 126,000
Office rent 136,000 604,000
Income from operations $560,000

Complete the following flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)

Connect Managerial Accounting Chapter 8

Q2. Solitaire Company’s fixed budget performance report for June follows. The $333,750 budgeted expenses include $284,800 variable expenses and $48,950 fixed expenses. Actual expenses include $54,950 fixed expenses.

Fixed Budget Actual Results Variances
Sales (in units) 8,900 11,300
Sales (in dollars) $ 445,000 $ 565,000 $ 120,000 F
Total expenses 333,750 395,500 61,750 U
Income from operations $ 111,250 $ 169,500 $ 58,250 F

Prepare a flexible budget performance report showing any variances between budgeted and actual results. List fixed and variable expenses separately.

Connect Managerial Accounting Chapter 8

Hart Company made 3,600 bookshelves using 32,000 board feet of wood costing $332,800. The company’s direct materials standards for one bookshelf are 10 board feet of wood at $10.30 per board foot.

(1) Compute the direct materials price and quantity variances incurred in manufacturing these bookshelves.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

Connect Managerial Accounting Chapter 8

The following information describes production activities of Mercer Manufacturing for the year.

Actual direct materials used 36,000 lbs. at $6.05 per lb.
Actual direct labor used 11,100 hours for a total of $233,100
Actual units produced 66,030

Budgeted standards for each unit produced are 0.50 pounds of direct material at $6.00 per pound and 10 minutes of direct labor at $22.00 per hour.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

(1) Compute the direct materials price and quantity variances.

Connect Managerial Accounting Chapter 8

(2) Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Connect Managerial Accounting Chapter 8

Connect Managerial Accounting Chapter 8 Quiz

Q1. Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units. What is the direct materials quantity variance?

  • $400 unfavorable
  • $450 unfavorable
  • $2,500 unfavorable
  • $2,550 unfavorable
  • $2,950 unfavorable

Q2. Use the following data to find the total direct labor cost variance if the company produced 3,500 units during the period.

Direct labor standard (4 hrs. @ $7/hr.) $28 per unit
Actual hours worked 12,250
Actual rate per hour $7.50
  • $6,125 unfavorable
  • $7,000 unfavorable
  • $7,000 favorable
  • $12,250 favorable
  • $6,125 favorable

Q3. The following information relating to a company’s overhead costs is available.

Actual total variable overhead $73,000
Actual total fixed overhead $17,000
Budgeted variable overhead rate per machine hour $2.50
Budgeted total fixed overhead $15,000
Budgeted machine hours allowed for actual output 30,000

Based on this information, the total variable overhead variance is:

  • $2,000 favorable
  • $6,000 favorable
  • $2,000 unfavorable
  • $6,000 unfavorable
  • $1,000 favorable

Q4. Overhead cost variance is:

  • The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level.
  • The difference between the actual overhead incurred during a period and the standard overhead applied.
  • The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit.
  • The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service.
  • The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate.

Q5. A flexible budget performance report compares the differences between:

  • Actual performance and budgeted performance based on actual sales volume.
  • Actual performance over several periods.
  • Budgeted performance over several periods.
  • Actual performance and budgeted performance based on budgeted sales volume.
  • Actual performance and standard costs at the budgeted sales volume.

Q6. Fletcher Company collected the following data regarding production of one of its products. Compute the standard quantity allowed for the actual output.

Direct materials standard (6 lbs. @ $2/lb.) $12 per finished unit
Actual direct materials used 243,000 lbs.
Actual finished units produced 40,000 units
Actual cost of direct materials used $483,570
  • 243,000 pounds.
  • 240,000 pounds.
  • 40,000 pounds
  • 480,000 pounds.
  • 80,000 pounds.

Q7. Claremont Company specializes in selling refurbished copiers. During the month, the company sold 180 copiers for total sales of $540,000. The budget for the month was to sell 175 copiers at an average price of $3,200. The sales price variance for the month was:

  • $20,000 unfavorable
  • $20,000 favorable
  • $36,000 unfavorable
  • $32,000 unfavorable
  • $36,000 favorable

Q8. A company provided the following direct materials cost information. Compute the total direct materials cost variance.

Standard costs assigned:
Direct materials standard cost (405,000 units @ $2.00/unit) $810,000
Actual costs:
Direct Materials costs incurred (403,750 units @ $2.20/unit) $888,250
  • $2,500 Favorable
  • $78,250 Favorable
  • $78,250 Unfavorable
  • $80,750 Favorable
  • $80,750 Unfavorable

Q9. Claremont Company specializes in selling refurbished copiers. During the month, the company sold 180 copiers at an average price of $3,000 each. The budget for the month was to sell 175 copiers at an average price of $3,200. The expected total sales for 180 copiers were:

  • $540,000
  • $576,000
  • $525,000
  • $560,000
  • $550,000

Q10. When recording the journal entry for labor, the Work in Process Inventory account is

  • Debited for standard labor cost.
  • Debited for actual labor cost.
  • Credited for standard labor cost.
  • Credited for actual labor cost.
  • Not used.

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