Deck 23: Flexible Budgets and Standard Cost Systems

Question 1

Allen Company manufactures staplers.The budgeted sales price is $12.00 per stapler,the variable costs are $2.00 per stapler,and budgeted fixed costs are $12,000.What is the budgeted operating income for 5,000 staplers?

A) $50,000
B) $38,000
C) $60,000
D) $10,000

Answer 1

$38,000

Question 2

Speedy Bikes Couriers Company prepared the following static budget for the year: $$\begin{array} { | l | c | r | } \hline \text { Static Budget } & & \\\hline \text { Units/Volume } & &6,000 \\\hline & \text { Per Unit } & \\\hline\text { Sales Revenue } & \$ 7.00 & \$ 42,000 \\\hline \text { Variable Costs } & 1.50 & \underline {9,000 } \\\hline \text { Contribution Margin } & &33,000 \\\hline \text { Fixed Costs } & & \underline { 3,000 } \\\hline\text { Operating Income/(Loss) } & & \$ 30, 000 \\\hline \end{array}$$ If a flexible budget is prepared at a volume of 8,700,calculate the amount of operating income.The production level is within the relevant range.

A) $30,000
B) $13,050
C) $44,850
D) $3,000

Answer 2

$44,850

Question 3

The flexible budget variance is the difference between the ________.

A) actual results and the expected results in the flexible budget for the actual units sold
B) expected results in the flexible budget for the units expected to be sold and the static budget
C) flexible budget and actual amounts due to differences in volumes
D) flexible budget and static budget due to differences in fixed costs

Answer 3

A

Question 4

The sales volume variance is the difference between the expected results in the flexible budget for the actual units sold and the static budget.

Question 5

Kevin Couriers Company prepared the following static budget for the year: $$\begin{array} { | l | c | r | } \hline \text { Static Budget } & & \\\hline \text { Units/Volume } & & 5,000 \\\hline & \text { Per Unit } & \\\hline\text { Sales Revenue } & \$ 7.00 & \$ 35,000 \\\hline \text { Variable Costs } & 1.50 & \underline { 7,500 } \\\hline \text { Contribution Margin } & & 27,500 \\\hline \text { Fixed Costs } & & \underline { 4,000 } \\\hline\text { Operating Income/(Loss) } & & \$ 23, 500 \\\hline \end{array}$$ If a flexible budget is prepared at a volume of 7,500,calculate the amount of operating income.The production level is within the relevant range.

A) $37,250
B) $23,500
C) $11,250
D) $4,000

Question 6

A flexible budget summarizes revenues and costs for various levels of sales volume within a relevant range.

Question 7

A favorable variance reflects a decrease in operating income.

Question 8

Define variance.What is the difference between a favorable and an unfavorable variance?

Question 9

The flexible budget variance is the difference between expected results in the flexible budget for the actual units sold and the static budget.

Question 10

The static budget,at the beginning of the month,for Onyx Décor Company,follows: Static budget:
Sales volume: 1,100 units; Sales price: $70.00 per unit
Variable costs: $32.00 per unit; Fixed costs: $38,000 per month
Operating income: $3,800
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 980 units; Sales price: $75.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $34,200 per month
Operating income: $5,000
Calculate the flexible budget variance for sales revenue.

A) $5,760 U
B) $5,760 F
C) $4,900 U
D) $4,900 F

Question 11

The sales volume variance is the difference between the ________.

A) actual results and the expected results in the flexible budget for the actual units sold
B) expected results in the flexible budget for the actual units sold and the static budget
C) static budget and actual amounts due to differences in sales price
D) flexible budget and static budget due to differences in fixed costs

Question 12

A static budget presents financial data at multiple levels of sales volume.

Question 13

Which of the following amounts of a flexible budget changes,within the specified relevant range,with changes in sales volume?

A) sales price per unit
B) total fixed costs
C) variable cost per unit
D) total contribution margin

Question 14

The flexible budget variance is the difference between the actual results and the expected results in the flexible budget for the actual units sold.

Question 15

The static budget,at the beginning of the month,for Redwyne Company follows: Static budget:
Sales volume: 2,000 units; Sales price: $50.00 per unit
Variable costs: $13.00 per unit; Fixed costs: $25,200 per month
Operating income: $48,800
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 1,800 units; Sales price: $58.00 per unit
Variable costs: $16.00 per unit; Fixed costs: $33,600 per month
Operating income: $42,000
Calculate the flexible budget variance for variable costs.

A) $28,800 U
B) $600 U
C) $5,400 U
D) $23,400 F

Question 16

The sales volume variance is a result of the difference between the actual sales price and the budgeted sales price.

Question 17

Which of the following amounts of a flexible budget remains constant,within the specified relevant range,when the sales volume changes?

A) total contribution margin
B) total fixed costs
C) total variable costs
D) total sales revenue

Question 18

Ibis Paper Company prepared the following static budget for November: $$\begin{array} { | l | c | r | } \hline \text { Static Budget } & & \\\hline \text { Units/Volume } & & 12,000 \\\hline& \text { Per Unit }\\\hline \text { Sales Revenue } & \$ 20.00 & \$ 240,000 \\\hline \text { Variable Costs } & 8.00 & \underline { 96,000 }\\\hline \text { Contribution Margin } &&144,000 \\\hline \text { Fixed Costs } & & 13,500 \\\hline \text { Operating Income/(Loss) } & & \underline { \$130,500 } \\\hline\end{array}$$ If a flexible budget is prepared at a volume of 13,500 units,calculate the operating income at 13,500 units of production.The production level is within the relevant range.

A) $162,000
B) $144,000
C) $130,500
D) $148,500

Question 19

A static budget is prepared for only one level of sales volume.

Question 20

A variance is the difference between an actual amount and the budgeted amount.

Question 21

The static budget,at the beginning of the month,for Singleton Company follows: Static budget:
Sales volume: 1,000 units; Sales price: $70.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $36,500 per month
Operating income: $500
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 980 units; Sales price: $74.00 per unit
Variable costs: $35.50 per unit; Fixed costs: $34,100 per month
Operating income: $3,630
Calculate the flexible budget variance for fixed costs.

A) $2,400 U
B) $2,400 F
C) $0
D) $3,870 F

Question 22

The California Fitness Company completed the flexible budget analysis for the second quarter,which is given below. Which of the following statements would be a correct analysis of the flexible budget variance for variable costs?

A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs

Question 23

A favorable sales volume variance in sales revenue suggests a(n)________.

A) increase in actual sales price per unit as compared to budgeted sales price
B) increase in number of actual units sold when compared to the expected number of units sold
C) increase in actual variable cost per unit as compared to expected variable cost per unit
D) decrease in actual fixed costs

Question 24

The Washington Fish Company completed the flexible budget analysis for the second quarter,which is given below. Which of the following statements would be a correct analysis of the sales volume variance for operating income?

A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs

Question 25

The Kentucky Foam Products Company completed the flexible budget analysis for the second quarter,which is given below. Which of the following would be a correct analysis of the sales volume variance for variable costs?

A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs

Question 26

A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual fixed costs were lower than the expected fixed costs as per the static budget.This difference results in a(n)________.

A) unfavorable flexible budget variance for fixed costs
B) favorable sales volume variance for fixed costs
C) favorable flexible budget variance for fixed costs
D) unfavorable sales volume variance for fixed costs

Question 27

An unfavorable flexible budget variance in operating income might be due to a(n)________.

A) increase in sales price per unit
B) decrease in sales volume
C) increase in variable cost per unit
D) decrease in fixed costs

Question 28

The Maine Oyster Company completed the flexible budget analysis for the second quarter,which is given below. Which of the following statements would be a correct analysis of the flexible budget variance for sales revenue?

A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs

Question 29

The static budget,at the beginning of the month,for Keats Company follows: Static budget:
Sales volume: 2,000 units; Sales price: $51.00 per unit
Variable costs: $12.50 per unit; Fixed costs: $26,500 per month
Operating income: $50,500
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 1,950 units; Sales price: $60.00 per unit
Variable costs: $16.00 per unit; Fixed cost: $38,000 per month
Operating income: $47,800
Calculate the sales volume variance for operating income.

A) $775 U
B) $50 F
C) $1,925 U
D) $1,925 F

Question 30

The static budget,at the beginning of the month,for Assembly Furniture Company follows: Static budget:
Sales volume: 1,000 units; Sales price: $70.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $36,100 per month
Operating income: $900
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 990 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $34,000 per month
Operating income: $4,610
Calculate the sales volume variance for fixed costs.

A) $1,980 U
B) $2,100 F
C) $370 U
D) $0

Question 31

The Carolina Rubber Products Company completed the flexible budget analysis for the second quarter,which is given below. Which of the following would be a correct analysis of the sales volume variance for sales revenue?

A) increase in sales price per unit
B) increase in sales volume
C) increase in variable cost per unit
D) increase in fixed costs

Question 32

A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual variable costs per unit were lower than the expected variable costs per unit as per the static budget.This difference results in a(n)________.

A) favorable flexible budget variance for variable costs
B) favorable sales volume variance for variable costs
C) unfavorable flexible budget variance for variable costs
D) unfavorable sales volume variance for variable costs

Question 33

The Maryland Cheese Company completed the flexible budget analysis for the second quarter,which is given below. Which of the following statements would be a correct analysis of the flexible budget variance for fixed expenses?

A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs

Question 34

An unfavorable flexible budget variance in variable costs suggests a(n)________.

A) increase in sales price per unit
B) decrease in sales volume
C) increase in variable cost per unit
D) decrease in fixed costs

Question 35

The static budget,at the beginning of the month,for Steak Frites Company follows: Static budget:
Sales volume: 1,100 units; Sales price: $70.00 per unit
Variable costs: $32.00 per unit; Fixed costs: $38,500 per month
Operating income: $3,300
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 995 units; Sales price: $74.00 per unit
Variable costs: $36.00 per unit; Fixed costs: $35,000 per month
Operating income: $2,810
Calculate the sales volume variance for revenue.

A) $3,500 U
B) $7,350 U
C) $3,990 U
D) $3,980 F

Question 36

The static budget,at the beginning of the month,for Bob's Deep Sea Fishing Company follows: Static budget:
Sales volume: 2,000 units; Sales price: $50.00 per unit
Variable costs: $13.00 per unit; Fixed costs: $25,200 per month
Operating income: $48,800
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 1,900 units; Sales price: $58.50 per unit
Variable costs: $16.5 per unit; Fixed costs: $33,400 per month
Operating income: $46,400
Calculate the flexible budget variance for operating income.

A) $3,700 U
B) $3,700 F
C) $1,300 F
D) $16,150 F

Question 37

A favorable flexible budget variance in sales revenue suggests a(n)________.

A) increase in sales price
B) increase in volume
C) decrease in variable cost per unit
D) decrease in fixed costs

Question 38

The static budget,at the beginning of the month,for Helloise Décor Company follows: Static budget:
Sales volume: 2,100 units: Sales price: $58.00 per unit
Variable cost: $14.00 per unit: Fixed costs: $27,000 per month
Operating income: $65,400
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 1,850 units: Sales price: $59.00 per unit
Variable cost: $18.00 per unit: Fixed costs $35,000 per month
Operating income: $40,850
Calculate the sales volume variance for variable costs.

A) $11,000 U
B) $3,500 F
C) $250 U
D) $11,000 F

Question 39

A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual sales price was higher than the expected sales price as per the static budget.This difference results in a(n)________.

A) favorable flexible budget variance for sales revenues
B) favorable sales volume variance for sales revenues
C) unfavorable flexible budget variance for sales revenues
D) unfavorable sales volume variance for sales revenues

Question 40

A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual sales volume was lower than the expected sales volume as per the static budget.This difference results in an unfavorable ________.

A) flexible budget variance for variable costs
B) sales volume variance for variable costs
C) flexible budget variance for sales revenue
D) sales volume variance for sales revenue

Question 41

Global Engineering's actual operating income for the current year is $57,000.The flexible budget operating income for actual sales volume is $32,000,while the static budget operating income is $56,000.What is the sales volume variance for operating income?

A) $24,000 favorable
B) $1,000 unfavorable
C) $24,000 unfavorable
D) $1,000 favorable

Question 42

Which of the following best describes a standard?

A) a sales price, cost, or quantity that is expected under normal conditions
B) costs incurred to produce a product
C) budgeted amount for total product cost
D) actual sales price, cost, or quantity

Question 43

Western Outfitters projected sales of 79,000 units for the year at a unit sales price of $12.00.Actual sales for the year were 71,000 units at $18.00 per unit.Variable costs were budgeted at $4.25 per unit,and the actual variable cost was $4.80 per unit.Budgeted fixed costs totaled $378,000 while actual fixed costs amounted to $410,000.What is the flexible budget variance for operating income?

A) $172,250 unfavorable
B) $354,950 favorable
C) $354,950 unfavorable
D) $386,950 favorable

Question 44

A favorable sales volume variance in variable costs suggests a(n)________.

A) increase in number of actual units sold when compared to the expected number of units sold
B) decrease in number of actual units sold when compared to the expected number of units sold
C) increase in variable cost per unit
D) decrease in fixed costs

Question 45

Developing efficiency standards based on best practices is called benchmarking.

Question 46

A standard cost system is an accounting system that uses standards for product costs.

Question 47

Mermaid Outfitters projected sales of 76,000 units for the year at a unit sales price of $15.00.Actual sales for the year were 73,000 units at $15.00 per unit.Variable costs were budgeted at $4.25 per unit,and the actual variable cost was $4.80 per unit.Budgeted fixed costs totaled $377,000,while actual fixed costs amounted to $400,000.What is the sales volume variance for operating income?

A) $30,900 unfavorable
B) $32,250 unfavorable
C) $32,250 favorable
D) $63,150 unfavorable

Question 48

Mountain Sports Equipment Company projected sales of 82,000 units at a unit sales price of $12 for the year.Actual sales for the year were 76,000 units at $14.00 per unit.Variable costs were budgeted at $3 per unit,and the actual amount was $6 per unit.Budgeted fixed costs totaled $376,000,while actual fixed costs amounted to $410,000.What is the sales volume variance for total revenue?

A) $80,000 favorable
B) $80,000 unfavorable
C) $72,000 unfavorable
D) $72,000 favorable

Question 49

A standard is a sales price,cost,or quantity that is expected under normal conditions.

Question 50

Top managers of Marshall Industries predicted annual sales of 23,600 units of its Product at a unit price of $5.00.Actual sales for the year were 22,800 units at $5.50 each.Variable costs were budgeted at $2.45 per unit,and actual variable costs were $2.40 per unit.Actual fixed costs of $45,000 exceeded budgeted fixed costs by $2,000.Prepare Marshall's flexible budget performance report.

Question 51

McGrath's produces and sells two types of t-shirts-Fancy and Plain.The company provides the following data:
$\begin{array}{lll}& \text { Budget } & \text { Actual } \\\text { Unit sales price -Fancy } & \$ 24 & \$ 25 \\\text { Unit sales price - Plain } & \$ 18 & \$ 17 \\\text { Unit sales - Fancy } & 1,300 & 1,250 \\\text { Unit sales - Plain } & 900 & 875\end{array}$ Compute the flexible budget variance for Fancy t-shirts for sales revenue.

Question 52

Complete the following table:
$$\begin{array} { | l | l | l | } \hline \text { Variance } & \text { How is the variance calculated? } & \text { How does the variance arise? } \\\hline \text { Flexible budget } & & \\\hline \text { Sales volume } & & \\\hline\end{array}$$

Question 53

Companies conduct time-and-motion studies and use benchmarks from other companies when developing standards.

Question 54

Setting standard costs is a function of the company's production department and does not require input from other departments.

Question 55

In a standard costing system,each input of direct materials,direct labor,and manufacturing overhead has a cost standard and an efficiency standard.

Question 56

City Golf Center reported actual operating income for the current year as $66,000.The flexible budget operating income for actual volume is $56,000,while the static budget operating income is $59,000.What is the flexible budget variance for operating income?

A) $10,000 favorable
B) $10,000 unfavorable
C) $3,000 unfavorable
D) $3,000 favorable

Question 57

An unfavorable sales volume variance in operating income suggests a(n)________.

A) increase in number of actual units sold when compared to the expected number of units sold
B) decrease in number of actual units sold when compared to the expected number of units sold
C) increase in variable cost per unit
D) decrease in fixed costs

Question 58

A company is setting its direct materials and direct labor standards for its leading product.Direct materials cost from the supplier are $5 per square foot,net of purchase discount.Freight-in amounts to $0.40 per square foot.Basic wages of the assembly line personnel are $17 per hour.Payroll taxes are approximately 22% of wages.Benefits amount to $4 per hour.How much is the direct materials cost standard per square foot?

A) $5.40
B) $5.00
C) $21.00
D) $26.00

Question 59

Standard costs are developed by the cooperative effort of purchasing,production,human resources,and accounting personnel.

Question 60

Underwater Sports Equipment Company projected sales of 78,000 units at a unit sales price of $12 for the year.Actual sales for the year were 76,000 units at $15 per unit.Variable costs were budgeted at $3 per unit,and the actual amount was $6 per unit.Budgeted fixed costs totaled $385,000,while actual fixed costs amounted to $446,000.What is the flexible budget variance for variable costs?

A) $234,000 unfavorable
B) $228,000 unfavorable
C) $228,000 favorable
D) $234,000 favorable

Question 61

For each of the following efficiency standards,indicate which parties are responsible for the standard and list one factor that should be used in setting the standard.
$$\begin{array} { | l | l | l | } \hline \text { Efficiency standard } & \text { Responsible party } & \text { Factor used in setting the standard } \\\hline \text { Direct materials } & & \\\hline \text { Direct labor } & & \\& & \\\hline\end{array}$$

Question 62

Which of the following is the correct formula for measuring the efficiency variance?

A) Efficiency Variance = (Actual Quantity + Standard Quantity) - Standard Cost
B) Efficiency Variance = (Actual Quantity × Standard Quantity) / Standard Cost
C) Efficiency Variance = (Actual Quantity / Standard Quantity) × Standard Cost
D) Efficiency Variance = (Actual Quantity - Standard Quantity) × Standard Cost

Question 63

List three ways in which using a standard cost system helps managers.

Question 64

A standard cost system helps management set performance standards.

Question 65

Which of the following is a reason companies use standard costs?

A) to enhance customer loyalty
B) to ensure the accuracy of the financial records
C) to share best practices with other companies
D) to identify performance standards

Question 66

An efficiency variance measures how well the business uses its materials or human resources.

Question 67

What do cost variances measure?

A) the difference between the cost the company pays and the cost its competitors pay
B) the change in costs over time
C) how well the business keeps unit costs of material and labor inputs within standards
D) the volume discounts companies receive when ordering direct materials in large quantities

Question 68

The static budget is used to compute flexible budget variances as well as cost and efficiency variances for direct materials and direct labor.

Question 69

A company is setting its direct materials and direct labor standards for its leading product.Direct material costs from the supplier are $7 per square foot,net of purchase discount.Freight-in amounts to $0.10 per square foot.Basic wages of the assembly line personnel are $19 per hour.Payroll taxes are approximately 25% of wages.How much is the direct labor cost standard per hour? (Round your answer to the nearest cent.)

A) $4.75
B) $19.00
C) $23.75
D) $30.75

Question 70

Which of the following is the correct formula for measuring a cost variance?

A) Cost Variance = (Actual Cost + Standard Cost) / Actual Quantity
B) Cost Variance = (Actual Cost - Standard Cost) × Actual Quantity
C) Cost Variance = (Actual Cost + Standard Cost) + Actual Quantity
D) Cost Variance = (Actual Cost - Standard Cost) - Actual Quantity

Question 71

Which of the following is an example of a direct materials cost standard?

A) $40 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 6 direct labor hours per unit

Question 72

Which of the following is an example of a direct materials efficiency standard?

A) $40 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 6 direct labor hours per unit

Question 73

Cedar Designs Company,a custom cabinet manufacturing company,is setting standard costs for one of its products.The main material is cedar wood,sold by the square foot.The current cost of cedar wood is $8.00 per square foot from the supplier.Delivery costs are $0.20 per square foot.Carpenters' wages are $20.00 per hour.Payroll costs are $3.00 per hour,and benefits are $6.00 per hour.How much is the direct labor standard cost per hour?

A) $20.00
B) $9.00
C) $23.00
D) $29.00

Question 74

Which of the following is a reason companies use standard costs?

A) to enhance customer loyalty
B) to set sales prices of products and services
C) to share best practices with other companies
D) to ensure the accuracy of the financial records

Question 75

Which of the following is an example of a direct labor efficiency standard?

A) $20 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 6 direct labor hours per unit

Question 76

A cost variance measures the difference in quantities of actual inputs used and the standard quantity of inputs allowed for the actual number of units produced.

Question 77

Wood Designs Company,a custom cabinet manufacturing company,is setting standard costs for one of its products.The main material is cedar wood,sold by the square foot.The current cost of cedar wood is $6.00 per square foot from the supplier.Delivery costs are $0.30 per square foot.Carpenters' wages are $20.00 per hour.Payroll costs are $3.00 per hour,and benefits are $6.00 per hour.How much is the direct materials standard cost per square foot?

A) $12.30
B) $9.30
C) $6.30
D) $6.00

Question 78

An efficiency variance measures how well a company keeps unit costs of material and labor inputs within standards.

Question 79

For each of the following cost standards,indicate which manager is responsible for the standard,and list one factor that should be used in setting the standard.
$$\begin{array} { | l | l | l | } \hline \text { Cost standard } & \text { Responsible manager } & \text { Factor used in setting the standard } \\\hline \text { Direct materials } & & \\\hline \text { Direct labor } & & \\& & \\\hline\end{array}$$

Question 80

Which of the following is an example of a direct labor cost standard?

A) $40 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit