Question 1

JAX Inc. In early 2012, JAX Inc. had budgeted for the production and sales of 5,000 units at a sales price of $15 per unit. The following information is available regarding the standard cost for each unit:
 Actual results for 2012 were determined to be as follows:
 Refer to the JAX Inc. information above. What was JAX Inc.'s sales price variance for 2012?
A) $15,000 F
B) $15,000 U
C) $16,800 F
D) $16,800 U

Accepted Answer

The formula for sales price variance is (actual selling price - budgeted selling price) x actual units sold.

In this case, the actual selling price was $13 per unit ($65,000 ÷ 5,000 units) and the budgeted selling price was $15 per unit.

Therefore, the sales price variance is (13-15) x 5,000 = $16,800 F.

Question 2

Moreland Manufacturing Inc. Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand, 7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050 ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per minute).
Refer to the Moreland Manufacturing Inc. information above. Moreland's direct materials usage variance is:
A) $ 420 U.
B) $ 420 F.
C) $6,420 U.
D) $6,420 F.

Accepted Answer

Direct materials usage variance = (Actual quantity used - Standard quantity allowed) * Standard price= (106,050 - 105,000) * $.40= $420 U

Question 3

Meow Products Ltd. Meow Products Ltd. produces and sells scratching posts for cats. In the current year, the company had expected to sell 12,000 posts but actually produced and sold 10,000 posts. The following information is available regarding the standard cost to produce a single post:
 In the current year, 38,000 feet of material were purchased out of which 35,000 feet were used at a cost of $1.55 per foot, and 160,000 direct labor minutes were incurred at a cost of $.32 per minute.
Refer to the Meow Products Ltd. information above. The company's direct materials price variance for the current year is:
A) $2,350 F.
B) $7,600 F.
C) $7,000 U.
D) $4,100 U.

Accepted Answer

The answer of Meow Products Ltd. Meow Products Ltd. produces...

Question 4

JAX Inc. In early 2012, JAX Inc. had budgeted for the production and sales of 5,000 units at a sales price of $15 per unit. The following information is available regarding the standard cost for each unit:
 Actual results for 2012 were determined to be as follows:
 Refer to the JAX Inc. information above. What was JAX Inc.'s direct materials usage variance for 2012?
A) $2,800 F
B) $2,800 U
C) $2,688 F
D) $2,688 U

Accepted Answer

The answer of JAX Inc. In early 2012, JAX Inc....

Question 5

Paw-Paw Products Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is available regarding the standard cost to produce a single dogbed:
 In the current year, 44,000 yards of material were purchased and used at a cost of $1.60 per yard and 365,500 direct labor minutes were incurred at a cost of $.23 per minute.
Refer to the Paw-Paw Products information above. The company's direct labor rate variance for the current year is:
A) $ 2,550 F.
B) $10,200 F.
C) $10,965 U.
D) $16,065 U.

Accepted Answer

The direct labor rate variance can be calculated as follows:

Actual labor cost - (Actual labor hours x Standard labor rate)

Actual labor cost = Actual labor minutes x Actual labor rate per minute
= 365,500 x $.23 = $84,065

Actual labor hours = Actual labor minutes / 60 = 365,500 / 60 = 6,092 hours

Standard labor rate = $12.00 per hour

Therefore,
Direct labor rate variance = $84,065 - (6,092 x $12.00) = $10,965 U (unfavorable)

Hence, the correct answer is C.

Question 6

Moreland Manufacturing Inc. Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand, 7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050 ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per minute).
Refer to the Moreland Manufacturing Inc. information above. Moreland's direct labor rate variance is:
A) $2,100 F.
B) $1,800 F.
C) $1,960 U.
D) $ 560 U.

Accepted Answer

Direct labor rate variance = (Actual labor rate - Standard labor rate) x Actual hours worked
Standard labor rate = $0.20 per minute
Actual labor rate = $21,560 ÷ 98,000 minutes = $0.22 per minute
Actual hours worked = 7,000 faucets x 15 minutes per faucet = 105,000 minutes
Direct labor rate variance = ($0.22 - $0.20) x 105,000 minutes = $1,960 unfavorable (U)

Question 7

Mary's Fine Fashions Mary's Fine Fashions manufactures and sells various types of women's clothing. At the end of 2011, Mary had estimated for the production and sale of 25,000 short-sleeve shirts. Each shirt has a standard calling for 2.5 yards of direct material at a standard rate of $1.25 per yard and 12 minutes of direct labor time at a standard rate of $.20 per minute. During 2012, the company actually produced and sold 23,000 shirts. These 23,000 shirts had an actual direct materials cost of $77,142 (59,340 yards at $1.30 per yard) and an actual direct labor cost of $63,250 (253,000 minutes at $.25 per minute). Each shirt sells for $20.
Refer to the Mary's Fine Fashions information above. What is Mary's flexible budget variance?
A) $14,475 F
B) $28,950 U
C) $42,267 F
D) $13,317 U

Accepted Answer

The flexible budget variance is calculated by comparing the actual results to what the budget would have been if it had been adjusted (flexed) for the actual level of activity. The flexible budget for 23,000 shirts would include direct materials (23,000 shirts * 2.5 yards/shirt * $1.25/yd = $71,875) and direct labor (23,000 shirts * 12 minutes/shirt * $0.20/minute = $55,200). The total flexible budget cost for direct materials and labor is $71,875 + $55,200 = $127,075. The actual cost was $77,142 (materials) + $63,250 (labor) = $140,392. The flexible budget variance is $140,392 (actual) - $127,075 (flexible budget) = $13,317 unfavorable (U), because the actual costs were higher than the flexed budget.

Question 8

Which of the following statements is true regarding "management by exception"?
A) It is rarely used in variance analysis.
B) It forces managers to investigate all variances, regardless of size.
C) It requires managers to investigate variances that are material in amount.
D) It requires managers to calculate standard costs but not actual costs.

Accepted Answer

Management by exception only requires managers to investigate variances that are material in amount, saving time and resources. It is commonly used in variance analysis to focus on significant variances and ignore small and insignificant ones. The other options are incorrect as they do not accurately describe management by exception.

Question 9

Which of the following statements is true regarding variance analysis in the modern manufacturing environment?
A) It requires all variances, regardless of size, to be investigated by managers.
B) The use of ideal standards over practical standards will always be the best motivator to employees.
C) An "unfavorable" variance should always be interpreted as "bad".
D) It is often not available in a timely enough manner to be useful to employees.

Accepted Answer

Variance analysis requires timely information to be useful to employees in the modern manufacturing environment. If the analysis is not available in a timely manner, it cannot be used to identify and correct issues. A is incorrect because not all variances may require investigation. B is incorrect because ideal standards may not be achievable or may not motivate employees, and practical standards may be a better benchmark. C is incorrect because an unfavorable variance may be caused by factors outside the control of the manager, and may not necessarily be "bad".

Question 10

JAX Inc. In early 2012, JAX Inc. had budgeted for the production and sales of 5,000 units at a sales price of $15 per unit. The following information is available regarding the standard cost for each unit:
 Actual results for 2012 were determined to be as follows:
 Refer to the JAX Inc. information above. What was JAX Inc.'s direct labor efficiency variance for 2012?
A) $1,120 F
B) $1,120 U
C) $1,232 F
D) $1,232 U

Accepted Answer

The answer of JAX Inc. In early 2012, JAX Inc....

Question 11

Paw-Paw Products Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is available regarding the standard cost to produce a single dogbed:
 In the current year, 44,000 yards of material were purchased and used at a cost of $1.60 per yard and 365,500 direct labor minutes were incurred at a cost of $.23 per minute.
Refer to the Paw-Paw Products information above. The company's direct material price variance for the current year is:
A) $4,250 F.
B) $6,650 U.
C) $4,400 U.
D) $3,750 F.

Accepted Answer

The formula for direct material price variance is (actual price - standard price) x actual quantity purchased.

The actual price is $1.60 per yard, which is the same as the standard price.

The actual quantity purchased is 44,000 yards.

Therefore, the direct material price variance is ($1.60 - $1.55) x 44,000 = $4,400 U.

Question 12

Supreme Catering At the end of January, Supreme Catering prepared the following budget for the upcoming month of February estimating that they would serve 5,000 people:
 During February, there were 4,800 guests actually served. Actual costs incurred were $67,200 for variable costs and $8,000 for fixed costs. Each guest was charged $25.
Refer to the Supreme Catering information above. Supreme Catering's flexible budget variance for February would show a variance of:
A) $15,400 U.
B) $15,400 F.
C) $18,200 U.
D) $18,200 F.

Accepted Answer

The answer of Supreme Catering At the end of January,...

Question 13

Moreland Manufacturing Inc. Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand, 7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050 ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per minute).
Refer to the Moreland Manufacturing Inc. information above. Moreland's direct labor efficiency variance is:
A) $1,600 U.
B) $1,400 F.
C) $2,100 U.
D) $2,100 F.

Accepted Answer

The answer of Moreland Manufacturing Inc. Moreland Manufacturing Inc. produces...

Question 14

JAX Inc. In early 2012, JAX Inc. had budgeted for the production and sales of 5,000 units at a sales price of $15 per unit. The following information is available regarding the standard cost for each unit:
 Actual results for 2012 were determined to be as follows:
 Refer to the JAX Inc. information above. What was JAX Inc.'s direct materials price variance for 2012?
A) $952 F
B) $952 U
C) $1,120 F
D) $1,120 U

Accepted Answer

The answer of JAX Inc. In early 2012, JAX Inc....

Question 15

Supreme Catering At the end of January, Supreme Catering prepared the following budget for the upcoming month of February estimating that they would serve 5,000 people:
 During February, there were 4,800 guests actually served. Actual costs incurred were $67,200 for variable costs and $8,000 for fixed costs. Each guest was charged $25.
Refer to the Supreme Catering information above. Supreme Catering's flexible budget for February would show net operating income of:
A) $63,000.
B) $60,200.
C) $59,200.
D) $45,800.

Accepted Answer

To calculate the flexible budget, we need to use the actual number of guests served (4,800) and the budgeted cost per guest ($20 variable and $4 fixed).

Variable Costs: 
4,800 guests x $20 per guest= $96,000

Fixed Costs: 
$8,000

Total Costs:
$96,000 + $8,000 = $104,000

Total Revenue: 
4,800 guests x $25 per guest = $120,000

Net Operating Income: 
$120,000 - $104,000 = $16,000

Therefore, the flexible budget would show a net operating income of $16,000 or $60,200 more than the actual net operating income of $63,000 given in the original budget.

Question 16

Paw-Paw Products Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is available regarding the standard cost to produce a single dogbed:
 In the current year, 44,000 yards of material were purchased and used at a cost of $1.60 per yard and 365,500 direct labor minutes were incurred at a cost of $.23 per minute.
Refer to the Paw-Paw Products information above. The company's direct labor efficiency variance for the current year is:
A) $ 5,100 U.
B) $ 9,100 U.
C) $ 5,865 F.
D) $20,065 F.

Accepted Answer

The answer of Paw-Paw Products Paw-Paw Products produces and sells...

Question 17

JAX Inc. In early 2012, JAX Inc. had budgeted for the production and sales of 5,000 units at a sales price of $15 per unit. The following information is available regarding the standard cost for each unit:
 Actual results for 2012 were determined to be as follows:
 Refer to the JAX Inc. information above. What was JAX Inc.'s direct labor rate variance for 2012?
A) $3,360 F
B) $3,360 U
C) $3,472 F
D) $3,472 U

Accepted Answer

The answer of JAX Inc. In early 2012, JAX Inc....

Question 18

Mary's Fine Fashions Mary's Fine Fashions manufactures and sells various types of women's clothing. At the end of 2011, Mary had estimated for the production and sale of 25,000 short-sleeve shirts. Each shirt has a standard calling for 2.5 yards of direct material at a standard rate of $1.25 per yard and 12 minutes of direct labor time at a standard rate of $.20 per minute. During 2012, the company actually produced and sold 23,000 shirts. These 23,000 shirts had an actual direct materials cost of $77,142 (59,340 yards at $1.30 per yard) and an actual direct labor cost of $63,250 (253,000 minutes at $.25 per minute). Each shirt sells for $20.
Refer to the Mary's Fine Fashions information above. What is Mary's net operating income based on a flexible budget?
A) $332,925
B) $361,875
C) $347,400
D) $307,400

Accepted Answer

The correct answer is A.The flexible budget is based on the actual production of 23,000 shirts. The standard cost of the shirts is $10.25 per shirt (2.5 yards x $1.25 per yard + 12 minutes x $.20 per minute). The actual cost of the shirts is $11.25 per shirt (59,340 yards x $1.30 per yard + 253,000 minutes x $.25 per minute). The difference between the standard cost and the actual cost is $1.00 per shirt. The total variance is $23,000 (23,000 shirts x $1.00 per shirt). The net operating income is $332,925 ($460,000 sales - $127,075 cost of goods sold).

Question 19

Paw-Paw Products Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is available regarding the standard cost to produce a single dogbed:
 In the current year, 44,000 yards of material were purchased and used at a cost of $1.60 per yard and 365,500 direct labor minutes were incurred at a cost of $.23 per minute.
Refer to the Paw-Paw Products information above. The company's direct material usage variance for the current year is:
A) $3,750 U.
B) $2,250 U.
C) $6,000 U.
D) $6,650 U.

Accepted Answer

The answer of Paw-Paw Products Paw-Paw Products produces and sells...

Question 20

Moreland Manufacturing Inc. Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand, 7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050 ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per minute).
Refer to the Moreland Manufacturing Inc. information above. Moreland's direct materials price variance is:
A) $1,050.00 F.
B) $1,050.00 U.
C) $1,060.50 F.
D) $1,060.50 U.

Accepted Answer

The direct materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity. The standard price is $.40 per ounce, and the actual price is $.39 per ounce. The actual quantity is 106,050 ounces. Thus, the variance is ($.39 - $.40) x 106,050 = -$1,060.50, which is favorable (F) because the actual price is less than the standard price.

Quiz 10: Variance Analysis A Tool for Cost Control and Performance Evaluation

Which of the following statements is true regarding "management by exception"?

Which of the following statements is true regarding variance analysis in the modern manufacturing environment?