Question 1

If both favorable and unfavorable variances exist, then the variance is determined to be favorable or unfavorable based on which one is the larger amount.

Accepted Answer

The answer of If both favorable and unfavorable variances exist,...

Question 2

Accurate Tax Returns budgets 2 direct labor hours for every tax return that it prepares, at a standard cost of $32 an hour. During the most recent year, 500 returns were completed with the labor cost totaling $18,000. The actual labor cost was $36 per hour during that period. The actual number of labor hours was 1,000. What was the direct labor cost variance?
A) $2,000 F
B) $32,000 U
C) $4,000 U
D) $32,000 F

Accepted Answer

C)
Direct Labor Cost Variance = (Actual Cost - Standard Cost) × Actual Quantity
Standard direct labor cost per return = $32 per hour × 2 hours per return = $64 per return
Direct Labor Cost Variance = ($36 - $32) × 1,000 hours = $4,000 Unfavorable

Question 3

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
During the first quarter, Emerald produced 5,000 units of this product. Actual direct materials and direct labor costs were $65,000 and $325,000, respectively.
-
For the purposes of preparing the flexible budget, calculate the total standard direct materials cost at a production volume of 5,000 units.
A) $60,000
B) $65,000
C) $15,000
D) $30,000

Accepted Answer

A)
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Question 4

Favorable and unfavorable variances are netted together in the same way debits and credits are.

Accepted Answer

The answer of Favorable and unfavorable variances are netted together...

Question 5

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the direct labor cost variance was $75,000 F. Which of the following would be a logical explanation for this variance?
A) The company used fewer labor hours than allowed by the standards.
B) The company paid a lower rate for labor than allowed by the standards.
C) The company used a lower quantity of materials than allowed by the standards.
D) The company paid a lower price for the materials than allowed by the standards.

Accepted Answer

The answer of Emerald Marine Stores Company manufactures decorative fittings...

Question 6

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 1 pound per unit; $12 per pound
Direct labor: 4 hours per unit; $15 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $98,000.
Calculate the direct materials cost variance.
A) $38,000 Unfavorable
B) $38,000 Favorable
C) $14,000 Unfavorable
D) $14,000 Favorable

Accepted Answer

C)
Direct Materials Cost Variance = (Actual Cost - Standard Cost) × Actual Quantity
Actual direct materials cost per unit = $98,000 ÷ 7,000 pounds = $14 per pound
Direct Materials Cost Variance = ($14 - $12) × 7,000 units = $14,000 Unfavorable

Question 7

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
During the first quarter, Emerald produced 5,000 units of this product. Actual direct materials and direct labor costs were $65,000 and $325,000, respectively.
-
For the purposes of preparing the flexible budget, what is the total standard direct labor cost at a production volume of 5,000 units?
A) $75,000
B) $150,000
C) $300,000
D) $325,000

Accepted Answer

C)
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Question 8

A favorable variance of direct materials cost occurs when the actual direct materials cost incurred is more than the standard direct materials cost determined.

Accepted Answer

A favorable variance of direct materials cost occurs when the actual direct materials cost incurred is less than the standard direct materials cost determined.

Question 9

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 25,000 direct labor hours and actual total direct labor costs were $375,000. How much is the direct labor efficiency variance?
A) $75,000 U
B) $75,000 F
C) $300,000 F
D) $300,000 U

Accepted Answer

A)
Direct Labor Efficiency Variance = (Actual Quantity - Standard Quantity) × Standard Cost
Standard quantity = 4 direct labor hours × 5,000 units = 20,000 direct labor hours
Direct Labor Efficiency Variance = (25,000 direct labor hours - 20,000 direct labor hours) × $15 per direct labor hour
Direct Labor Efficiency Variance = $75,000 Unfavorable

Question 10

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $20 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 25,000 direct labor hours and actual total direct labor costs were $375,000. Calculate the direct labor cost variance.
A) $125,000 Favorable
B) $300,000 Favorable
C) $300,000 Unfavorable
D) $125,000 Unfavorable

Accepted Answer

A)
Direct Labor Cost Variance = (Actual Cost - Standard Cost) × Actual Quantity
Actual direct labor cost per unit = $375,000 ÷ 25,000 per hour = $15 per unit
Direct Labor Cost Variance = ($15 - $20) × 25,000 hours = $125,000 Favorable

Question 11

Delicious Food Products is famous for their specialty fruit cake. The main ingredient of the cake is dried fruit, which Delicious purchases by the pound. In addition, the production requires a certain amount of direct labor. Delicious uses a standard cost system, and at the end of the first quarter, there was a favorable materials cost variance. Which of the following would be a logical explanation for that variance?
A) The production manager negotiated a lower wage package for production staff, bringing direct labor costs down.
B) The factory lost two experienced workers at the beginning of the quarter, and their replacements worked at a much slower rate during their training period.
C) The procurement manager was able to secure a volume discount on dried fruit, purchasing the fruit for less than the amount set by standard.
D) The production staff changed the work flow process so that there was less wastage of direct materials during production.

Accepted Answer

The favorable materials cost variance could be attributed to the procurement manager securing a volume discount on dried fruit, purchasing the fruit for less than the amount set by the standard.

Question 12

Faas Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows: Materials: 1.5 pounds per unit; $4.00 per pound
Labor: 2.0 hours per unit; $18.00 per hour
During the first quarter, Faas produced 5,000 units of this product. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and the direct materials cost variance was $1,750 U. Which of the following would be a logical explanation for this variance?
A) The company used more labor hours than allowed by the standards.
B) The company paid a higher rate for labor than allowed by the standards.
C) The company used greater quantity of materials than allowed by the standards.
D) The company paid a higher price for the materials than allowed by the standards.

Accepted Answer

The direct materials cost variance is unfavorable, indicating that the company paid a higher price for the materials than allowed by the standard cost. The variance formula is (actual quantity x actual price) - (standard quantity x standard price), and since the actual quantity used was higher than the standard quantity, the variance is unfavorable. Therefore, the reason for the variance is that the company paid a higher price for the materials.

Question 13

Favorable variances are added to unfavorable variances to create a total favorable variance.

Accepted Answer

Favorable variances are subtracted from unfavorable variances to calculate the total unfavorable variance. Adding them together would result in a misleading total.

Question 14

Unfavorable variances are subtracted from each other to arrive at a favorable variance.

Accepted Answer

Unfavorable variances are already negative values, so subtracting them from each other would only result in a more negative value, not a favorable variance.

Question 15

Favorable and unfavorable variances are subtracted from each other to arrive at a net favorable or unfavorable variance.

Accepted Answer

This is correct. To arrive at a net variance, the favorable and unfavorable variances are subtracted from each other.

Question 16

What does a favorable direct materials cost variance indicate?
A) The actual quantity of materials used was less than the standard quantity.
B) The actual cost of materials purchased was less than the standard cost of materials purchased.
C) The actual cost of materials purchased was greater than the standard cost of materials purchased.
D) The actual quantity of materials used was greater than the standard quantity.

Accepted Answer

A favorable direct materials cost variance indicates that the actual cost of materials purchased was less than the standard cost of materials purchased, which means the company paid less for the materials than expected.

Question 17

If both favorable and unfavorable variances exist, then the variance obtained by netting them is always a favorable variance.

Accepted Answer

Netting the favorable and unfavorable variances may result in a favorable, unfavorable, or zero variance, depending on the magnitude and direction of the variances.

Question 18

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 1 pound per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $98,000.
Calculate the direct materials efficiency variance.
A) $2,000 U
B) $8,000 U
C) $2,000 F
D) $8,000 F

Accepted Answer

B)
Direct Materials Efficiency Variance = (Actual Quantity - Standard Quantity) × Standard Cost
Direct Materials Efficiency Variance = (7,000 pounds - 5,000 pounds) × $4 per pound = $8,000 Unfavorable

Question 19

Melissa Company has collected the following data for one of its products: $\begin{array}{|l|r|}
\hline\text { Direct materials standard (5 pounds @ } \$ 1 / \mathrm{lb} \text {.) } & \$ 5 \text { per finished good } \
\hline \text { Direct materials flexible budget variance-unfavorable } & \$ 14,000 \
\hline \text { Actual direct materials used } & 100,000 \text { pounds } \
\hline \text { Actual finished goods produced } & 18,000 \text { units }\\hline
\end{array}$ How much is the direct materials efficiency variance?
A) $18,000 U
B) $10,000 F
C) $10,000 U
D) $18,000 F

Accepted Answer

The direct materials efficiency variance is calculated as (Actual Quantity - Standard Quantity) x Standard Price. The standard quantity for 18,000 units is 90,000 pounds (18,000 units x 5 pounds/unit). The variance is (100,000 - 90,000) x $1 = $10,000 U.

Question 20

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 25,000 direct labor hours and actual total direct labor costs were $375,000. The direct labor efficiency variance was $75,000 U. Which of the following would be a logical explanation for this variance?
A) The company used more labor hours than allowed by the standards.
B) The company paid a higher rate for labor than allowed by the standards.
C) The company used a higher quantity of materials than allowed by the standards.
D) The company paid a higher price for the materials than allowed by the standards.

Accepted Answer

The direct labor efficiency variance measures the difference between the actual labor hours used and the standard labor hours allowed. A favorable variance occurs when fewer hours are used than allowed, while an unfavorable variance occurs when more hours are used than allowed. In this case, the variance is unfavorable and indicates that Emerald used more labor hours than allowed by the standards.

Quiz 6: Flexible Budgets and Standard Cost Systems