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Exam 23: Standard Costing and Variance Analysis

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Question 31

True/False

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Another name for a flexible budget is a variable budget.

A) True
B) False

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Question 32

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A summary of expected costs for a range of activity levels that is geared to changes in the level of productive output is the definition of a

A) continuous budget.
B) flexible budget.
C) master budget.
D) period budget.

E) C) and D)
F) None of the above

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Question 33

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Lucas Company has set standards for the manufacturing of clay pots to be 2 pounds of direct materials,per pot,at a cost of $3 per pound.During the current period,600 pounds of direct materials were purchased for $1842.All of the direct materials were used to manufacture 295 pots.Lucas's direct materials price variance was

The standard overhead cost is the sum of the estimates of variable and fixed overhead costs in the next accounting period.

Standard costs for company products are typically used for all except which of the following?

Point Company uses the standard costing method.The company's main product is a fine-quality audio speaker that normally takes 0.25 hour to produce.Normal annual capacity is 3,000 direct labor hours,and budgeted fixed overhead costs for the year were $6,750.During the year,the company produced and sold 8,000 units.Actual fixed overhead costs were $4,800.Compute the fixed overhead volume variance.

The importance of direct labor standards and variances has been reduced.

The direct labor efficiency variance is the difference between the standard hours allowed and the actual hours multiplied by the actual labor rate.

In a standard costing system,standard costs eventually flow into the

Outdoors,Inc.,manufactures steel hitches for camping trailers.The company's direct labor rates have been set by the terms of the current labor contract.Direct labor rate standards have been assigned for each job classification.In May 20xx,a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes.A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in May.Standard time for the same work output is 32 hours.The apprentice earned $6.25 per hour in May.The standard direct labor rate for machine operators working on turret lathes is $10 per hour. a. From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a regular machine operator during the training period.) b. Did the company benefit financially from the situation? Why or why not? (Show calculations.)

Using the standard costs of $5 per pound for a 10 pound bag of chocolate and the following actual cost and usage data,compute the direct materials quantity variance. $\begin{array} { l l } \text { Direct materals purchased and used } & 99,000 \text { pounds } \\\text { Price paid for direct materials } & \$ 4.00 \text { per pound } \\\text { Number of eood urits produced } & 9,000 \text { urits }\end{array}$

A performance report should contain cost or revenue items that the manager receiving the report can control.

A variance is the difference between a standard cost and a budgeted cost.

The direct materials quantity variance is the difference between the actual quantity used and the standard quantity times the standard price.

Love-My-Lips specializes in manufacturing lipstick.Legally Pink,one of more than 75 shades produced by the company,is made from castor oil,beeswax,aloe vera,and a base compound. For the next 12 months,the company's purchasing agent believes that the cost of ingredients will be as follows: $\begin{array}{ll}\hline \text { Ingredient } & \text { Standard Cost } \\\hline \text { Castor oil } & \$ 6.30 \text { per gallon } \\\text { Beeswax } & \$ 3.53 \text { per pound } \\\text { Aloe vera } & \$ 19.90 \text { per gallon } \\\text { Base compound } & \$ 21.00 \text { per gallon } \\\hline\end{array}$ The direct labor time standard is 4 hours per case at a standard direct labor rate of $10.00 per hour.The standard overhead rates are $16.00 per direct labor hour for the standard variable overhead rate and $12.00 per direct labor hour for the standard fixed overhead rate. a. Using these production standards, compute the standard unit cost of direct materials per case of Legally Pink lipstick if it takes 0.4 gallon of castor oil, 1 pound of beeswax, 0.2 gallon of aloe vera, and 1 gallon of base compound to produce one case. b. Using the standard unit cost of direct materials per case determined in (a) and the production standards given for direct labor and overhead, compute the standard unit cost of one case of Legally Pink lipstick.

The direct materials price variance is best measured and reported to appropriate management personnel at the time

Underfoot Products uses standard costing.The following information about overhead was generated during May: $\begin{array} { l l } \text { Standard varable cverhead rate } & \$ 2 \text { per machine hour } \\\text { Standard fixed cverhead rate } & \$ 1 \text { per machine hour } \\\text { Actual variable overhead costs } & \$ 390,000 \\\text { Actual Eixed cverhead costs } & \$ 175,000 \\\text { Budgeted fixed dverhead costs } & \$ 190,000 \\\text { Standard machine hours per urit produced } & 10 \\\text { Good urits produced } & 18,000 \\\text { Actual machine hours } & 195000\end{array}$ Compute the variable overhead efficiency variance.

A(n) ________ cost is synonymous with the product cost calculated in a conventional standard cost accounting system.

Managers are constantly comparing the costs of what was expected to happen with the costs of what did happen.By examining the differences,or variances,managers can learn much valuable information.Identify and discuss the steps involved in variance analysis.

Service organizations use direct materials,direct labor,and overhead standard costs.