Question 1

Poseidon Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Poseidon uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $3 per pound
Direct labor: 5 hours per unit; $15 per hour
Poseidon produced 5000 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 $8000 F. Which of the following is a logical explanation for this variance?

Accepted Answer

The answer of Poseidon Marine Stores Company manufactures special metallic...

Question 2

The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with the factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This would produce a(n) ________.

Accepted Answer

The negotiations for the new labor contract resulted in a change in the labor cost structure. However, the loss of experienced workers and the slow pace of the new employees during training impacted the direct labor efficiency, causing a decrease in productivity and an unfavorable variance. The information provided does not suggest any significant impact on direct materials cost or efficiency, therefore options A and D can be eliminated.

Question 3

Benson Company manufactures special metallic materials for luxury homes that require highly skilled labor. Benson uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 2 pounds per unit; $4 per pound
Direct labor: 5 hours per unit; $14 per hour
Benson produced 5000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 30,000 direct labor hours and actual total direct labor costs were $225,000. What is the direct labor efficiency variance?

Accepted Answer

The answer of Benson Company manufactures special metallic materials for...

Question 4

A company's production department was experiencing a high defect rate on the assembly line, which was slowing down production and causing a higher waste of valuable direct materials. The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate. This would produce a(n) ________.

Accepted Answer

Recruiting highly skilled production workers can lead to a favorable direct labor efficiency variance by reducing the number of defects on the assembly line, which will result in less wasted direct materials and fewer hours required to produce each unit. However, it is unlikely to have a direct impact on direct materials cost, so choices A and D can be eliminated. While the cost of hiring higher skilled workers may be higher, it is not directly related to the labor cost variance, so choice B is also eliminated.

Question 5

A new factory manager was hired for a company that was experiencing slow production rates and lower production volumes than demanded by management. Upon investigation, the manager found that the workers were poorly motivated and not closely supervised. Midway through the quarter, an incentive program was initiated, and cash bonuses were given when workers hit their production targets. Within a short time, production output increased, but the bonuses had to be charged to the direct labor budget. This could produce a(n) ________.

Accepted Answer

The incentive program led to increased production output by motivating workers to hit their production targets, which directly relates to labor efficiency. A favorable direct labor efficiency variance occurs when the actual labor hours used are less than the standard (expected) hours for the actual production level, or when more output is produced with the same or fewer hours, indicating more efficient labor use.

Question 6

A company's production department was experiencing a high defect rate on the assembly line, which was slowing down production and causing a higher waste of valuable direct materials. The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate. This would produce a(n) ________.

Accepted Answer

Hiring highly skilled production workers from another company is likely to increase the wages paid, leading to an unfavorable direct labor cost variance because the actual labor costs would be higher than the standard or expected labor costs.

Question 7

Stafford Company uses standard costs for its manufacturing division. Standards specify 0.2 direct labor hours per unit of product. The allocation base for variable overhead costs is direct labor hours. At the beginning of the year, the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 5000 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 13,500 \
\hline \text { Budgeted direct labor hours } & 620 \text { hours } \
\hline
\end{array}$$ At the end of the year, actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4100 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,100 \
\hline \text { Actual direct labor hours } & 505 \text { hours } \
\hline
\end{array}$$ How much is the standard cost per direct labor hour for variable overhead? (Round your answer to the nearest cent.)

Accepted Answer

The standard cost per direct labor hour for variable overhead is $21.77. This is calculated by dividing the budgeted variable overhead costs by the budgeted direct labor hours.Budgeted variable overhead costs = $13,500Budgeted direct labor hours = 620 hoursStandard cost per direct labor hour for variable overhead = $13,500 / 620 hours = $21.77

Question 8

List the direct labor variances and briefly describe each.

Accepted Answer

The answer of List the direct labor variances and briefly...

Question 9

Home Decor Company manufactures special metallic materials for luxury homes that require highly skilled labor. Home Decor uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $3 per pound
Direct labor: 4 hours per unit; $16 per hour
Home Decor produced 4000 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 $372,000. What is the direct labor cost variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

Accepted Answer

The answer of Home Decor Company manufactures special metallic materials...

Question 10

When investigating variable overhead variances, management needs to determine whether cost increases were controllable or if the cost standard needs to be updated.

Accepted Answer

Management must determine the cause of the variance (such as changes in the price or quantity of the variable overhead) to determine if it was controllable or if the cost standard needs to be updated.

Question 11

Cake Lady Bakery is famous for its pound cakes. The main ingredient of the cakes is flour, which Cake Lady purchases by the pound. In addition, the production requires a certain amount of direct labor. Cake Lady uses a standard cost system, and at the end of the first quarter, there was an unfavorable direct labor cost variance. Which of the following is a logical explanation for that variance?

Accepted Answer

The unfavorable direct labor cost variance indicates that the actual labor costs were higher than the standard or expected costs. A significant increase in the cost of workers' medical insurance plans would directly contribute to higher actual labor costs, explaining the variance.

Question 12

To compute the variable overhead cost variance, first compute the difference between actual cost and standard cost. Then, multiply this difference by standard quantity.

Accepted Answer

To compute the variable overhead cost variance, first compute the difference between actual quantity and standard quantity. Then, multiply this difference by standard overhead cost per unit.

Question 13

Sugar and Spice Foods is famous for its cupcakes. One of the main ingredients of the cupcakes is sugar, which Sugar and Spice purchases by the pound. In addition, the production requires a certain amount of direct labor. Sugar and Spice uses a standard cost system, and at the end of the first quarter, there was a favorable direct labor efficiency variance. Which of the following is a logical explanation for that variance?

Accepted Answer

The reduction in direct labor hours could have contributed to a favorable direct labor efficiency variance.

Question 14

In a standard cost system, the standard overhead allocation rate replaces the predetermined
overhead allocation rate but the concept is the same.

Accepted Answer

The standard overhead allocation rate is a type of predetermined overhead allocation rate that is based on expected costs and activity levels. Both methods involve allocating overhead costs to products or services based on estimated usage of overhead resources.

Question 15

A new factory manager was hired for a company that was experiencing slow production rates and lower production volumes than demanded by management. Upon investigation, the manager found that the workers were poorly motivated and not closely supervised. Midway through the quarter, an incentive program was initiated, and cash bonuses were given when workers hit their production targets. Within a short time, production output increased, but the bonuses had to be charged to the direct labor budget. This could produce an ________.

Accepted Answer

The bonuses for hitting production targets would be charged to the direct labor budget, which could result in an unfavorable direct labor cost variance.

Question 16

The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with the factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This would produce a(n) ________.

Accepted Answer

The negotiation of a new labor contract that reduced the company's direct labor costs, despite leading to other negative outcomes, directly results in a favorable direct labor cost variance because it decreased the cost associated with direct labor.

Question 17

Argosy Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Argosy uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 4 pounds per unit; $3 per pound
Direct labor: 4 hours per unit; $17 per hour
Argosy produced 5000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 21,000 direct labor hours and actual total direct labor costs were $380,000. The direct labor efficiency variance was $17,000 U. Which of the following is a logical explanation for this variance?

Accepted Answer

The direct labor efficiency variance measures the difference between the actual number of hours worked and the standard number of hours allowed for the production of the units. As the variance is unfavorable (U), it means that the actual number of hours worked was greater than the standard number of hours allowed. This could be due to reasons such as inefficiencies, lack of training, or machine breakdowns that led to longer production times.

Question 18

In a standard cost system, the manufacturing overhead allocated to production equals the standard overhead allocation rate multiplied by the standard quantity of the allocation base allowed for expected output.

Accepted Answer

In a standard cost system, the manufacturing overhead allocated to production equals standard overhead allocation rate × standard quantity of the allocation base allowed for actual output.

Question 19

Accurate Tax Returns budgets two direct labor hours for every tax return that it prepares, at a standard cost of $32 an hour. During the most recent year, 540 returns were completed with the labor cost totaling $24,000. The actual labor cost was $44.44 per hour during that period. The actual number of labor hours was 1000. What is the direct labor cost variance?

Accepted Answer

First, we need to calculate the standard direct labor cost:

Standard direct labor cost = Budgeted direct labor hours x Standard rate per hour
Standard direct labor cost = 540 tax returns x 2 hours per return x $32 per hour
Standard direct labor cost = $34,560

Next, we need to calculate the actual direct labor cost:

Actual direct labor cost = Actual direct labor hours x Actual rate per hour
Actual direct labor cost = 1000 hours x $44.44 per hour
Actual direct labor cost = $44,440

Now, we can calculate the direct labor cost variance:

Direct labor cost variance = Actual direct labor cost - Standard direct labor cost
Direct labor cost variance = $44,440 - $34,560
Direct labor cost variance = $9,880

Since the actual direct labor cost is higher than the standard direct labor cost, the variance is unfavorable, which means it's a cost increase. Therefore, the correct answer is C) $12,440 U (unfavorable).

Question 20

Golden Glow Company manufactures candles. The standard direct materials quantity required to produce one large candle is 1 pound at a cost of $5 per pound. Every candle requires 2 direct labor hours at a standard cost of $3 per direct labor hour. During November, 7,200 large candles were produced using 7,500 pounds costing $45,000. At the end of November, an examination of the labor cost records showed that the company used 15,000 direct labor hours (DLHr) at a cost of $4 per hour.
Using the format below, prepare an analysis of the direct labor cost variances.

Accepted Answer

The answer of Golden Glow Company manufactures candles. The standard...

Quiz 23: Flexible Budgets and Standard Cost Systems

List the direct labor variances and briefly describe each.

When investigating variable overhead variances, management needs to determine whether cost increases were controllable or if the cost standard needs to be updated.

To compute the variable overhead cost variance, first compute the difference between actual cost and standard cost. Then, multiply this difference by standard quantity.

In a standard cost system, the standard overhead allocation rate replaces the predetermined overhead allocation rate but the concept is the same.

In a standard cost system, the manufacturing overhead allocated to production equals the standard overhead allocation rate multiplied by the standard quantity of the allocation base allowed for expected output.