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Exam 7: Flexible Budgets, direct-Cost Variances, and Management Control

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Question 71

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The actual information pertains to the month of September.As part of the budgeting process,Kriger Fencing Company developed the following static budget for September.Kriger is in the process of preparing the flexible budget and understanding the results. $\begin{array}{lccc} & \text { Actual } & \text { Flexible } & \text { Static } \\& \text { Results } & \text { Budget } & \text { Budget } \\\text { Sales volume (in units) } & 10,000 & & 12,500\\\text { Sales revenues } & \$ 500,000 & \$ & \$ 625,000 \\\text { Variable costs } & 256,000 & \$ & 300,000\\\text { Contribution margin }& 244,000& \$ &325,000\\\text { Fixed costs } & 229,000 & \$ & 225,000\\\text { Operating profit } & \$ 15,000& \$& \$ 100,000\end{array}$ The primary reason for low operating profits was ________.

A) the variable-cost variance
B) increased fixed costs
C) a poor management accounting system
D) lower sales volume than planned

E) A) and B)
F) A) and C)

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Question 72

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A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume variance.

A) True
B) False

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Question 73

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Demizio Valley Orchards, Inc. (DVO) , developed standard costs for direct material and direct labor. In 2015, DVO estimated the following standard costs for one of their most well loved products, the DVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples. $\begin{array}{lll}&\text { Budgeted quantity } &\text {Budgeted price }\\\text { Direct materials } & 2.0 \text { pounds } & \$ 6.25 \text { per pound } \\\text { Direct labor } & 0.20 \text { hours } & \$ 13.00 \text { per hour }\end{array}$ During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct materials at an average cost per pound of $6.00 and 200 direct labor hours at an average wage of $13.25 per hour. -The direct labor price variance during September is ________.

Unfavorable direct material price variances are ________.

A company has a policy "investigate all variances exceeding $3,000 or 15% of the budgeted cost,whichever is lower." There is a variance of $2,000 in repair and maintenance costs of $12,000.What does the company do in the given situation?

The process by which a company's products or services are measured relative to the best possible levels of performance is known as ________.

Standard cost per output unit for each variable direct cost input is calculated by multiplying ________.

A sales-volume variance may be the result of quality problems leading to customer dissatisfaction.

Answer the following questions using the information below: Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit. $\begin{array} { l r r } &\text { Actual } &\text { Budgeted }\\\text { Units sold }& 41,000 \text { units } & 40,000 \text { units } \\\text { Variable costs } & \$ 164,000 & \$ 156,000 \\\text { Fixed costs }&\$ 46,000 & \$ 48,000\end{array}$ -What is the static-budget variance of variable costs?

Answer the following questions using the information below: Contrafic Corporation used the following data to evaluate its current operating system. The company sells items for $21 each and used a budgeted selling price of $21 per unit. $\begin{array} { l r r } & \underline { \text { Actual } } & \text { Budgeted } \\\text { Units sold }& 180,000 \text { units } & 185,000 \text { units } \\\text { Variable costs } & \$ 1,080,000 & \$ 1,295,000 \\\text { Fixed costs }&\$ 800,000 & \$ 775,000\end{array}$ -What is the static-budget variance of revenues?

Demizio Valley Orchards, Inc. (DVO) , developed standard costs for direct material and direct labor. In 2015, DVO estimated the following standard costs for one of their most well loved products, the DVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples. $\begin{array}{lll}&\text { Budgeted quantity } &\text {Budgeted price }\\\text { Direct materials } & 2.0 \text { pounds } & \$ 6.25 \text { per pound } \\\text { Direct labor } & 0.20 \text { hours } & \$ 13.00 \text { per hour }\end{array}$ During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct materials at an average cost per pound of $6.00 and 200 direct labor hours at an average wage of $13.25 per hour. -The direct material price variance during September is ________.

A firm's inefficiencies,such as the wastage of direct materials,are incorporated in past data.Hence the data represents the ideal performance of a firm.

Which of the following is an advantage of using actual input data from past periods to develop a budget?

Which of the following is true of flexible budget?

Answer the following questions using the information below: Animent Industries, Inc. (AII) , developed standard costs for direct material and direct labor. In 2015, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. $\begin{array}{lll}&\text { Budgeted quantity }&\text { Budgeted price }\\\text { Direct materials } & 0.10 \text { pounds } & \$ 60 \text { per pound } \\\text { Direct labor } & 0.05 \text { hours } & \$ 30 \text { per hour }\end{array}$ During June, AII produced and sold 20,000 containers using 1,900 pounds of direct materials at an average cost per pound of $64 and 1,000 direct manufacturing labor-hours at an average wage of $30.50 per hour. -The direct material price variance during June is ________.

An unfavorable price variance for direct materials might indicate ________.

A percentage of products started and completed without requiring any rework is an example of nonfinancial performance measure.

A favorable efficiency variance for direct materials might indicate that ________.

Answer the following questions using the information below: Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per unit, and planned to make 1,500 units but actually made 1,800 units. -The flexible-budget amount for materials is ________.

Answer the following questions using the information below: Contrafic Corporation used the following data to evaluate its current operating system. The company sells items for $21 each and used a budgeted selling price of $21 per unit. $\begin{array} { l r r } & \underline { \text { Actual } } & \text { Budgeted } \\\text { Units sold }& 180,000 \text { units } & 185,000 \text { units } \\\text { Variable costs } & \$ 1,080,000 & \$ 1,295,000 \\\text { Fixed costs }&\$ 800,000 & \$ 775,000\end{array}$ -What is the static-budget variance of operating income?