Question 1

A favorable price variance for direct manufacturing labor might indicate that ________.

Accepted Answer

A favorable price variance for direct manufacturing labor indicates that the actual cost of labor is less than what was planned or budgeted. This could happen if underskilled (and therefore less expensive) employees are being hired, as they would likely be paid less than more skilled (and therefore more expensive) employees.

Question 2

A standard price is the minimum price a company will have to pay for a unit of input.

Accepted Answer

A standard price is a carefully determined price a company expects to pay for a unit of input.

Question 3

A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production.

Accepted Answer

A standard is a set level of performance or quality that is achievable through efficient operations, but it also accounts for normal disruptions such as machine breakdowns or defective production. This means that the standard takes into consideration the challenges or obstacles that may arise during production and still allows for the performance or quality level to be attainable.

Question 4

Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

During June, Heavy Products produced and sold 19,000 containers using 1,200 pounds of direct materials at an average cost per pound of $63 and 17,100 direct manufacturing labor-hours at an average wage of $31.25 per hour.
The direct manufacturing labor price variance during June is ________.

Accepted Answer

Direct manufacturing labor price variance = 17,100 dlh × ($30 - $31.25) = $21,375 U

Question 5

Standard labor rate is $7.50 per hour. Standard labor allowed per unit is 0.7 hours. Actual cost per labor hour is $7.00 and actual labour hour per unit is 1 hours. What is the standard labor cost per output unit?

Accepted Answer

Standard cost per output unit = Standard labor allowed per unit × Standard labor rate = $7.50 × 0.7 hours = $5.25 per unit

Question 6

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

Accepted Answer

A favorable efficiency variance for direct materials means that the amount of materials used is less than what was expected for the level of output achieved. This could be because work is scheduled efficiently, allowing workers to produce more output with fewer materials. The other answer choices (A, C, and D) would not lead to a favorable efficiency variance for direct materials.

Question 7

Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

During June, Heavy Products produced and sold 25,000 containers using 23,000 pounds of direct materials at an average cost per pound of $75 and 17,500 direct manufacturing labor-hours at an average wage of $35.75 per hour.
The direct material price variance during June is ________.

Accepted Answer

Direct material price variance = 23,000 × ($75 - $70) = $115,000 U

Question 8

An unfavorable efficiency variance for direct manufacturing labor might indicate that ________.

Accepted Answer

An unfavorable efficiency variance for direct manufacturing labor means that actual labor hours incurred were higher than the standard hours that should have been used for the production. This could be due to inefficient scheduling or poor utilization of labor hours. The other choices are not directly related to the efficiency variance for direct manufacturing labor.

Question 9

Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

During July, GII produced and sold 4,000 containers using 1,700 pounds of direct materials at an average cost per pound of $15 and 3,225 direct manufacturing labor hours at an average wage of $15.25 per hour.
The direct material price variance during July is ________.

Accepted Answer

Direct material price variance = 1,700 × ($20 - $15) = $8,500 F

Question 10

To prepare budgets based on actual data from past periods is preferred since past inefficiencies are EXCLUDED.

Accepted Answer

A deficiency of using budgeted input quantity information based on actual quantity data from past periods is that past inefficiencies are included.

Question 11

The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.

Accepted Answer

The answer of The textbook discusses three levels of variances,...

Question 12

Which of the following can be a reason for a favorable price variance for direct materials?

Accepted Answer

A favorable price variance for direct materials occurs when the actual cost of materials is less than what was expected or budgeted. This can happen due to a decrease in the price of materials, such as from an oversupply, which makes materials cheaper to purchase.

Question 13

Standard material cost per kg of raw material is $6.50. Standard material allowed per unit is 5 Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is $6.00. What is the standard cost per output unit?

Accepted Answer

Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $6.50 × 5 kg = $32.50

Question 14

Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

During June, Heavy Products produced and sold 15,000 containers using 25,000 pounds of direct materials at an average cost per pound of $64 and 12,000 direct manufacturing labor-hours at an average wage of $21.56 per hour.
June's direct material flexible-budget variance is ________.

Accepted Answer

Flexible-budget variance = (25,000 × $64) - (15,000 × 0.80 × $60) = $880,000 U

Question 15

One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do not require expected future changes to be taken into account.

Accepted Answer

An advantage of using standard times is they aim to take into account changes expected to occur in the budget period.

Question 16

Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

During June, Heavy Products produced and sold 15,000 containers using 2,400 pounds of direct materials at an average cost per pound of $92 and 3,750 direct manufacturing labor-hours at an average wage of $91.25 per hour.
The direct manufacturing labor efficiency variance during June is ________.

Accepted Answer

Direct manufacturing labor efficiency variance = [3,750 dlh - (15,000 × 0.25)] × $30 = $0

Question 17

Which of the following is the correct formula for the materials price variance?

Accepted Answer

The formula for materials price variance is (Actual price of input - Budgeted price of input) x Actual quantity of input. This formula calculates the difference between the actual price paid for the materials and the budgeted price for the same amount, multiplied by the actual quantity of materials used.

Question 18

Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

During July, GII produced and sold 4,000 containers using 1,350 pounds of direct materials at an average cost per pound of $48 and 2,450 direct manufacturing labor hours at an average wage of $12.25 per hour.
July's direct material flexible-budget variance is ________.

Accepted Answer

Direct material flexible-budget variance = (1,350 × $48) - (4,000 × 0.30 × $50) = $4,800 U

Question 19

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.

Accepted Answer

A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence the data does not represent the ideal performance of a firm.

Question 20

A favorable efficiency variance for direct manufacturing labor indicates that ________.

Accepted Answer

A favorable efficiency variance for direct manufacturing labor means that less direct manufacturing labor-hours were used during production than planned for actual output. This could be due to various reasons such as improved production processes, better worker skills, or more efficient use of equipment.

Quiz 7: Flexible Budgets, Direct-Cost Variances, and Management Control

A favorable price variance for direct manufacturing labor might indicate that ________.

A standard price is the minimum price a company will have to pay for a unit of input.

A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production.

Standard labor rate is $7.50 per hour. Standard labor allowed per unit is 0.7 hours. Actual cost per labor hour is $7.00 and actual labour hour per unit is 1 hours. What is the standard labor cost per output unit?

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

An unfavorable efficiency variance for direct manufacturing labor might indicate that ________.

To prepare budgets based on actual data from past periods is preferred since past inefficiencies are EXCLUDED.

The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.

Which of the following can be a reason for a favorable price variance for direct materials?

Standard material cost per kg of raw material is $6.50. Standard material allowed per unit is 5 Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is $6.00. What is the standard cost per output unit?

One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do not require expected future changes to be taken into account.

Which of the following is the correct formula for the materials price variance?

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.

A favorable efficiency variance for direct manufacturing labor indicates that ________.