Ch24 Answer Key

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Study4smart Quality review Materials ch24 Key

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109. Volume variance :: The difference between the total budgeted overhead cost cost and the overhead cost that was allocated to products using the predetermined fixed overhead rate. and Fixed budget :: A planning budget based on a single predicted amount of sales or production volume; unsuitable for evaluations if the actual volume differs from the predicted volume. and Standard costs :: Preset costs for delivering a product, component, or service under normal conditions. and Variance analysis :: A process of examining the differences between actual and budgeted sales or costs and describing them in terms of the amounts that resulted from price and quantity differences. and Price variance :: The difference between actual and budgeted sales or cost caused by the difference between the actual price per unit and the budgeted price per unit. and Flexible budget :: A budget prepared based on predicted amounts of revenues and expenses corresponding to the actual level of o f output. and Quantity variance :: The difference between actual and budgeted cost caused by the difference between the actual quantity and the budgeted quantity. and Controllable variance :: The combination of both overhead spending

 

variances (variable and fixed) and the variable overhead efficiency variance. and Management by exception :: A management process to focus on significant variances variances and give less attention to areas where performance performance is close to the standard. and Cost variance :: The difference between actual cost and standard cost, made up of a price variance and a quantity variance. variance. 110.

Unfavorable variance :: Difference Difference in sales or costs, costs, w when hen the actual actual value is compared to the the

budgeted value, that contributes to a lower income. and Fixed budget performance report :: A report that compares results with fixed budgeted amounts and identifies the differences as favorable or unfavorable variances. and Spending variance :: The difference between the actual price of an item and its standard price. and Favorable variance :: Difference in sales or costs, when the actual value is compared to the budgeted value, that contributes to a higher income. and Budgetary Budgetary control :: Use of  budgets by management to monitor and control the operations of a company. and Quantity variance :: Difference between between actual quantity of an input and the standard quantity of the input. and Overhead cost variance :: Difference between the total overhead cost applied to products and the total overhead cost actually incurred. and Flexible budget performance report :: A report that compares actual revenues and costs with their variable budgeted amounts based on actual sales volume (or other level of  activity) and identifies the differences as variances. 111. Standard costs are preset costs for delivering a product or service under normal conditions conditions.. Standard costs are used to assess the reasonableness of actual costs. Managers compute differences between standard costs and actual costs and then follow up on the significant differences. differences. 112. Variance analysis compares actual results with the budgeted, or the standard, results that should have been achieved. Differences between the actual and standard amounts are called variances. The variances provide a direction for further inquiry by managers to help them identify areas of strong or weak performance and formulate strategic action plans. 113.

The four steps are: (1) prepare a standard cost performance report, (2) compute and analyze

variances, (3) identify questions and their explanations, and (4) take corrective and strategic actions. 114. Any significant variance, whether favorable or unfavorable, unfavorable, should be investigated. investigated. A significant significant variance may indicate that the standard is unreasonable and needs to be adjusted. adjusted. An unfavorable variance may indicate a problem requiring corrective action. A favorable variance may indicate better than expected performance. Management should investigate to determine if the methods used to generate the favorable result could be implemented again or duplicated elsewhere. 115.

Management by exception is an analytica analyticall technique used by management to focus on the most

significant variances and give less attention to the areas where performance is reasonably close to the standard. 116. A fixed fixed budget budget is prepared prepared before an operating operating period and presents presents sales and expenses expenses for for a single specified level of operations. A flexible budget is prepared after the operating period to reflect the sales and expenses that would have been budgeted if the actual level of operations had been predicted. The flexible budget is more useful than a fixed budget for evaluating performance because it compares

 

the actual amounts with the amounts that should have been experienced at the actual operating level. A flexible budget reflects fixed and variable costs, but the fixed budget does not. 117.

The four steps are: (1) develop the budget from planned objectives, (2) compare actual results

to budgeted amounts and analyze any differences, (3) take corrective and strategic actions, and (4) establish new planned objectives and prepare a new budget. 118. Flexible budgets are prepared prior to activities to allow management to see possible predicted outcomes. They are prepared after a period to better compare expected results with actual activities and to determine determine relevant and meaningful variances. 119. Sales variances reflect differences in price and volume of sales from expected amounts. They allow management to focus on price and volume changes to assess product or service activities. These variances are especially useful in assessing companies with multi-product sales lines. 120. The company's purchasing manager may have purchased inferior materials that might have caused production to waste more materials than expected. The favorable price variance may not be worth what it cost if wasted materials 121. The use of workers workers with different skill levels levels might might be the main main cause of direct direct labor labor rate and efficiency variances. For instance, using workers with low skill levels might create a favorable rate variance, but an unfavorable efficiency variance. On the other hand, using workers with high skill levels might create an unfavorable rate variance but a favorable efficiency variance. 122. A volume variance occurs when the actual volume of production productio n is different from the standard volume of production. A favorable volume variance would occur if the actual number of units produced exceeds the standard or budgeted number of units produced. 123.

Unfavorable Unfavorabl e variances are recorded with debits. Favorable variances are recorded with credits.

Feedback: 124. Answers will vary Feedback: 125.

Answers will vary

At 70,000 units:

 

Feedback: 126.

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($5.50 x 30,000) + $175,000 = $340,000 At 30,000 units: ($5.50 x 20,000) + $175,000 = $285,000 At 20,000 units:

Feedback: 128.

Answers will vary

Contribution margin = $20 per unit - $12 per unit = $8 per unit Feedback: Fixed costs = $6 x 15,000 units = $90,000 129.

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Feedback: 130.

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Feedback: 131. Answers will vary

Total variable costs = 28,125 x $32 = $900,000 Sales = 28,125 x $50 = $1,406,250 Operations at 75% of capacity, or 28,125 units Total variable costs = 22,500 x $32 = $720,000 Sales = 22,500 x $50 = $1,125,000 Operations at 60% of capacity, or 22,500 units:

 

Capacity = 30,000 units/80% = 37,500 units per year Feedback: 132. Answers will vary

Feedback: 133. Answers will vary

138.

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** 45,000 units x 0.5 hour per unit = 22,500 hours * $360,000/20,000 hours = $18.00/hour Feedback: 139.

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* 196 units x 4 liters/unit = 784 liters * $798.72/832 liters = $0.96/liter Feedback: 141. Answers will vary

 

* 50,000 units x 2 lb./unit = 100,000 lb.

Feedback: 144.

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Feedback: 146.

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b.

Feedback: 148. Answers will vary

* $54,000 variable overhead cost/36,000 units = $1.50/unit

Feedback: 150. Answers will vary

 

  Fixed overhead:

*$86,400/9,600 hours = $9/hour

Feedback: 152.

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(3,600 DLH/6,000 units) x 5,500 units = 3,300 direct labor hours

Feedback: 153.

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* 128,000 units x 0.5 hrs/unit = 64,000 hr.

Feedback: 155. Answers will vary

Direct materials quantity variance = $3,000 favorable SQ X SP = 30,000 x 6 x $3.00 = $540,000 AQ x SP = 179,000 x $3.00 = $537,000 Direct materials quantity variance Direct materials price variance = $17,900 unfavorable AQ x SP = 179,000 x $3.00 = $537,000 AQ x AP = 179,000 x $3.10 = $554,900 Direct materials price variance

 

Direct materials cost variance = $14,900 unfavorable Standard units at standard cost = 30,000 x 6 lbs. x $3 = $540,000 Actual units at actual cost = $554,900 Direct materials cost variance

Direct labor efficiency variance = $12,000 unfavorable SH x SR = (30,000 x 2 x $15.00) = $900,000 AH x SR = (60,800 x $15.00) = $912,000 Direct labor efficiency variance Direct labor rate variance = $6,710 favorable AH x SR = (60,800 x $15.00) = $912,000 Actual cost = $905,290 Direct labor rate variance Labor cost variance = $5,290 unfavorable Standard units at standard cost = 30,000 x 2 x $15.00 = $900,000 Actual units at actual cost = $905,290 Feedback: Direct labor cost variance 158. Answers will vary

Volume variance = $10,000 unfavorable Applied overhead = 30,000 x $10.00 = $300,000 Budgeted overhead = $310,000 Fixed overhead spending variance = $2,000 unfavorable Budgeted overhead = $310,000 Actual fixed overhead = $312,000 Fixed overhead cost variance = $12,000 unfavorable Applied = 30,000 x $10.00 = $300,000 Actual fixed overhead costs = $312,000 Fixed overhead cost variance Variable overhead efficiency variance = $11,2 $11,200 00 unfavorable Applied = SH x SVR = (60,000 x $14.00) = $840,000 AH x SVR = (60,800 x $14.00) = $851,200 Variable overhead spending variance = $6,400 unfavorable AH x SVR = (60,800 x $14.00) = $851,200 Actual variable overhead costs = $857,600 Variable overhead cost variance = $17,600 unfavorable

 

Applied = 30,000 x $28.00 = $840,000 Actual variable overhead costs = $857,600 Feedback: Variable overhead cost variance 159. Answers will vary 160.

Standard costs

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Ideal

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Practical

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Cost Variances;(or just Variance) Price Variances and Quantity Variances

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Rate; Efficiency

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Direct Materials; Direct Labor; Variable Overhead; Fixed Overhead

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Management by exception

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Static

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Lower

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Variable

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Budget report

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Sales price variance

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Sales volume variance

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Fixed; variable

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Unfavorable

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Overhead cost variance

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Controllable variance

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Spending; volume

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Cost of goods sold

ch24 Summary Category

# of Questions

AACSB: Analytic Ana lytic 140

 

AACSB: Communications Communication s

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AICPA BB: Resource Management AICPA FN: Measurement

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AICPA FN: Measurement, Risk Analysis 1 AICPA FN: Reporting

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AICPA FN: Risk Analysis 3 Blooms: Apply 84 Blooms: Remember

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Blooms: Understand

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Difficulty: Easy 46 Difficulty: Hard 84 Difficulty: Medium

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Fundamentall - Chapter 24 Fundamenta

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Learning Objective: A1 Analyze changes in sales from expected amounts.

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Learning Objective: C1 Define standard costs and explain how standard cost information is useful for management by exception

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. Learning Objective: C2 Describe variances and what they reveal about performance.

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Learning Objective: P1 Prepare a flexible budget and interpret a flexible budget performance report. 42 Learning Objective: P2 Compute materials and labor variance variances. s. 56 Learning Objective: P3 Compute overhead variances.

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Learning Objective: P4 Appendix 24A—Prepare journal entries for standard costs and account for price and quantity variances. variances. 12

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