Chapter 7 The Master Budget and Flexible Budgeting

Each manage, regardless of level –TRUE

Activity-based budgeting provides better decision making information – TRUE

Budgeting helps management anticipate – TRUE

Long run and short-run planning – FALSE

Kaizen budgeting allows for budgeting of small incremental increases – FALSE

After a budgeting is agreed upon and finalized – FALSE

A four quarter rolling budget encourages management to be thinking – TRUE

The master budget reflects the impact of operating decisions – FALSE

Kaizen budgeting does not make sense for profit centers – FALSE

Activity-based budgeting (ABB) focuses on budgeting cost of activities – TRUE

Budgeting includes only the financial aspects – FALSE

Few businesses plan to fail – TRUE

Activity-based costing analysis takes a long-run perspective – TRUE

Budgeted financial statements are also referred – TRUE

Activity-based budgeting and Kaizen budgeting – FALSE

Kaizen budgeting encourages small incremental – TRUE

Even in the face of changing conditions –FALSE

A responsibility center is a part – TRUE

Activity based budgeting would permit the use of – TRUE

Budgets can play both planning and control – TRUE

ST CLAIRE – 17 PER UNIT

SHAMOKIN -11,200 HOURS OF MOLDING, 22,400 HOURS OF POLISHING

SHAMOKIN – 784,000
WILGERS – 2,000

GALLIART – 61,200

DEARMOND – 20,100

SCHULTZ – 180,000

BEAR – 39,068

ACCOUNTS PAYABLE,APRIL – 38,740

ACCOUNTS PAYABLE, MAY – 36,704

Denny Door - 48,000

Cooper - 177,000

Comfy Inc. - 130,000 yards

Darla Draperies – 260,000

Chase Company – 1,440,000

Luncho Inc. – 320,000

MC Answers

C. Obsolescence

B. leasing additional

C. production budget

B. DM,DMI, (Budgeted units)

Chapter 8: Standard Cost Accounting

1. When computing variances from standard costs, the difference between actual and standard
price multiplied by actual quantity yields: 

Answer: Price variance

2.The following information pertains to William Company:

Standard materials allowed     $25,000  
Unfavorable materials price variance         3,000
Favorable materials usage variance         2,000
   
Actual payroll      $30,000
Unfavorable labor rate variance             500
Unfavorable labor efficiency variance.             2,500
   
What is the entry to record the direct labor cost and variances? 
Answer:
Work in process                             27,000
Labor rate variance                            500
Labor efficiency variance               2,500
     Payroll                                                                  30,000

3. If a company follows a practice of isolating variances at the earliest point in time, what would
be the appropriate time to isolate and recognize a direct material price variance? 
Answer: When material is purchased

4. Alyssa Corporation uses a standard cost system.  Direct labor information for Product CER for
the month of October is as follows:
Standard rate   $8.00   per hour
Actual rate paid   $8.30   per hour
Standard hours allowed for actual production      1,400   hours
Labor efficiency variance   $ 800   unfavorable

What are actual hours worked? 

Answer: 1,500

5. In a standard cost system, when the materials price variance is recorded at the time the
material is purchased,  the materials purchase price variance is obtained by multiplying the: 
Answer: Actual quantity purchased by the difference between actual price and standard
price

6. Thomas Company uses a standard cost system and recognizes the materials purchase price
variance at the time materials are purchased.  Information for raw materials for Product RBI for
the month of October follows:
Standard unit price    $1.75 
Actual purchase price per unit    $1.65 
Actual quantity purchased    4,000   units
Actual quantity used    3,900   units
Standard quantity allowed for actual production          3,800   units

What is the materials purchase price variance?

Answer: $400 favorable

7. Factors to be considered in setting labor standards include all of the following except:

Answer: The purchasing manager’s estimate of suppliers’ prices.

8. PHI Company began its operations on January 1 and produces a single product that sells for
$35.00 per unit.  5,000 units were produced and 4,000 units were sold during the year.

Standard costs per unit follow:

         Standard cost
Raw materials              $12.50 
Direct labor                  6.50 
Factory overhead.                                4.00 
    
What is entry to record the finished goods? 
Answer:
Finished goods                 115,000
       Work in process                           115,000

9. Characteristics of ideal standards include all of the following except: 

Answer: They take into account normal waste and spoilage.

10. A manufacturer generally wants to set a standard that: 

Answer: Is high enough to provide motivation and promote efficiency, but is still
attainable.

11. The following information pertains to Genie Company:

Standard materials allowed     $12,000  
Unfavorable materials price variance 2,000
Favorable materials usage variance    1,000
   
Actual payroll    $20,000
Unfavorable labor rate variance    1,500
Unfavorable labor efficiency variance.       500
   
What is the entry to record the direct materials cost and variances, assuming that the price
variance is recorded when the materials are put into production? 
Answer:
Work in process                         12,000
Materials price variance             2,000
     Materials quantity variance                    1,000
     Materials                                                13,000

12. Woodside Company manufactures tables with vinyl tops.  The standard material cost for the
vinyl used per Style-R table is $7.20 based on 8 square feet of vinyl at a cost of $.90 per square
foot.  A production run of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl
at a cost of $.85 per square foot, a total cost of $7,055.  If the materials price variance was
recorded when the material was issued to production, that variance was: 
Answer: $415 favorable.
13. Earl Company's direct labor costs for the month of January follow:
Actual direct labor hours    18,000
Standard direct labor hours    19,000
Direct labor rate variance--unfavorable              $  1,800
Total payroll    $117,000

What was Earl's direct labor efficiency variance?

Answer: $6,400 favorable

14. Which of the following terms best identifies the function of standard costs where any
deviation from standards can be quickly detected and responsibility pinpointed so appropriate
action may be taken? 
Answer: Management by exception

15. The materials quantity variance, in a standard cost system, is the: 

Answer: Difference between the actual and standard quantities multiplied by the standard
unit price.

16. The direct labor costs for Boundary Company follow:

Standard direct labor hours     34,000
Actual direct labor hours     33,000
Direct labor efficiency variance--favorable      $ 12,000
Direct labor rate variance--favorable     $  1,650
Total payroll     $394,350

What was Boundary's standard direct labor rate? 

Answer: $ 12.00

17. Information relating to direct labor for the McGill Company follow:
 
Actual direct labor hours             5,600
Standard direct labor hours             5,400
Total direct labor per payroll                   $53,200
Standard labor rate per hour        $9.00

The entry to record the direct labor cost is: 

Answer:
Work in process                         48,600
Labor rate variance                      2,800
Labor efficiency variance             1,800
         Payroll                                                              53,200
18. RHO Company began its operations on January 1 and produces a single product that sells
for $10.25 per unit.  Standard capacity is 80,000 units per year.  The 80,000 units were produced
and 70,000 units were sold during the year.

Manufacturing costs and selling and administrative expenses follow:

  Fixed Costs       Variable Costs
Raw materials   --        $2.50 per unit produced
Direct labor   --        1.50 per unit produced
Factory overhead  $120,000        1.00 per unit produced
Selling and      80,000 .      50 per unit sold      
administrative

What is the standard cost of manufacturing a unit of product? 

Answer: $6.50

19. The purpose of standard costing is to: 

Answer: Control costs and promote efficiency.

20. Factors to be considered in setting materials standards include all of the following except: 
Answer: Time necessary to perform tasks.

______________________________________________________________________________________________________________________________________________

 Isolating variances – when material is purchased

 Deviation from standards – management by exception
 In a standard cost system - Actual quantity purchased by the difference between actual price
and standard price
 A manufacturer generally wants to set a standard that - Is high enough to provide motivation
and promote efficiency, but is still attainable.
 When computing variances from standard costs - Price variance
 Factors to be considered in setting labor standards - The purchasing manager’s estimate of
suppliers’ prices.
 Characteristics of ideal standards – They take into account normal waste and spoilage.
 The materials quantity variance - Difference between the actual and standard quantities
multiplied by the standard unit price.
 The purpose of standard costing is to - Control costs and promote efficiency.
 Factors to be considered in setting materials standards, except - Time necessary to perform
tasks.
 Input-output – actual output @ standard hours
 The actual hourly rate – Labor Rate Variance
 An unfavourable labor efficiency – number of actual hours worked in excess of the standard
hours allowed multiplied by the standard labor rate
 What type of direct material – UNFAVORABLE, FAVORABLE

 Woodside – 415 favorable

 Woodside – 270 unfavorable
 Thomas - 400 favorable
 Thomas – 175 unfavorable
 Newstead – 2800 unfavorable
 Brussels – 1,200 unfavorable
 RHO Company – 6.50
 Earl – 6,400
 Alyssa – 1,500
 Boundary – 12.00
 Ben – 22,000
 Lee – 9.25


 William Company -
Work in process 27,000
Labor rate variance 500
Labor efficiency variance 2,500
Payroll 30,000

 PHI Company - Finished goods 115,000

Work in process 115,000

 McGill –
Work in process 48,600
 Labor rate variance 2,800
Labor efficiency variance 1,800
Payroll 53,200

 Genie Company -
Work in process 12,000
Materials price variance 2,000
Materials quantity variance 1,000
Materials 13,000