Question 1

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 requires employees to bear a greater percentage of benefit costs resulted in a decrease in the cost of direct labor. However, the subsequent resignation of experienced and highly skilled workers and their replacement with new employees who were slow during their training period resulted in a decrease in labor efficiency, which caused profits to fall. This would produce an unfavorable direct labor efficiency variance.

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 negotiation of a new labor contract that required employees to bear a greater percentage of benefit costs would directly lead to a reduction in the cost of direct labor to the company, resulting in a favorable direct labor cost variance. This is because the company is spending less on direct labor than before, which is considered favorable from a cost perspective.

Question 3

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 cost and standard cost.Then,multiply this difference by actual quantity.

Question 4

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 5

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 needs to investigate whether variable overhead variances were controllable or uncontrollable, and whether the cost standard needs to be updated based on the findings of the investigation.

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

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

A)Direct labor cost variance = (Actual cost - Standard cost)× Actual quantity
Actual direct labor cost per hour = $372,000 / 25,000 per hours = $14.88 per hour
Direct labor cost variance = ($14.88 - $16)× 25,000 hours = $28,000 Favorable

Question 8

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 statement is true. In a standard cost system, the standard overhead allocation rate is used instead of the predetermined overhead allocation rate, but the concept of allocating overhead costs to products or services remains the same.

Question 9

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

A)Direct labor efficiency variance = (Actual quantity - Standard quantity)× Standard cost
Standard quantity = 5 direct labor hours × 5000 units = 25,000 direct labor hours
Direct labor efficiency variance = (30,000 direct labor hours - 25,000 direct labor hours)× $14 per direct labor hour
Direct labor efficiency variance = $70,000 Unfavorable

Question 10

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 direct labor hours used and the standard direct labor hours allowed for the production of a given number of units. In this case, the variance is unfavorable (U) which means that more labor hours were used than allowed by the standard. Therefore, choice A is the best explanation for this variance.

Question 11

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:

At the end of the year,actual data were as follows:

How much is the standard cost per direct labor hour for variable overhead? (Round your answer to the nearest cent. )

Accepted Answer

A)Standard direct labor cost per hour = $13,500 / 620 hours = $21.77 per direct labor hour

Question 12

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

C)Direct labor cost variance = (Actual cost - Standard cost)× Actual quantity
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Question 13

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. Thus, the situation described would likely result in a favorable direct labor efficiency variance, as workers are producing more within the same or less time.

Question 14

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 15

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 direct...

Question 16

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 17

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 incentives program resulted in an increase in production output, but the cost of the bonuses was charged to the direct labor budget. This will result in an unfavorable direct labor cost variance since the actual cost of labor exceeded the budgeted cost.

Question 18

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 favorable direct labor efficiency variance suggests that the actual direct labor hours used during production were less than the standard allowed. This could be due to a change in the work flow process, as stated in option D. The other options do not relate to direct labor efficiency.

Question 19

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

The recruitment of highly skilled production workers from another company is likely to result in a favorable direct labor efficiency variance, as they are expected to produce higher quality products within a shorter time, reducing the number of defects and waste. It does not directly affect the direct materials efficiency or cost variances.

Question 20

List the direct labor variances and briefly describe each.

Accepted Answer

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

Quiz 23: Flexible Budgets and Standard Cost Systems

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

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

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

List the direct labor variances and briefly describe each.