Question 1

Cavalaris Products uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cavalaris had an unfavorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.

Accepted Answer

If the actual variable overhead costs were higher than the budgeted costs, this would result in an unfavorable cost variance. A higher actual variable overhead cost means that the company spent more on overhead expenses than it had budgeted for, which would lead to a higher total cost than expected. The other choices would result in a favorable cost variance.

Question 2

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,and the manager was worried about the impact of these costs on operating income.This could produce a(n)________.
A) unfavorable direct materials cost variance
B) unfavorable direct materials efficiency variance
C) favorable direct labor efficiency variance
D) favorable direct labor cost variance

Accepted Answer

The incentive program led to increased production output by motivating workers to hit their production targets, which directly relates to a favorable direct labor efficiency variance, indicating that labor was used more efficiently than planned.

Question 3

Akao Products uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Akao had an unfavorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.

Accepted Answer

If Akao had an unfavorable efficiency variance for variable overhead costs, it means that the actual overhead costs incurred were higher than the budgeted costs for the actual number of direct labor hours worked. This could happen if the actual number of direct labor hours was higher than the budgeted hours. Therefore, option D is the best explanation.

Question 4

Cheapo Sales Company uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cheapo Sales had a favorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.

Accepted Answer

The favorable efficiency variance for variable overhead costs could be explained by the actual number of direct labor hours being lower than the budgeted hours. This means that the production process was completed in less time than expected, resulting in lower variable overhead costs than budgeted.

Question 5

A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate but was worried that the higher wages of these workers might negatively affect operating income.This would produce a(n)________.
A) unfavorable direct materials cost variance
B) favorable direct labor cost variance
C) favorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance

Accepted Answer

Hiring highly skilled workers would likely increase the efficiency of labor, leading to a favorable direct labor efficiency variance, as these workers could reduce the defect rate and improve the production process.

Question 6

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 7

The following information relates to Regency Manufacturing's overhead costs for the month:
 $$\begin{array} { | l | l | } 
\hline \text { Static budget variable overhead } & \$ 14,200 \
\hline \text { Static budget fixed overhead } & \$ 5,600 \
\hline \text { Static budget direct labor hours } & 1,000 \text { hours } \
\hline \text { Static budget number of units } & 5,000 \text { units } \
\hline
\end{array}$$ Regency allocates manufacturing overhead to production based on standard direct labor hours.
Regency reported the following actual results for last month: actual variable overhead,$14,500; actual fixed overhead,$5,400; actual production of 4,700 units at 0.22 direct labor hours per unit.The standard direct labor time is 0.20 direct labor hours per unit.
Compute the variable overhead cost variance.(Round the answer to the nearest dollar.)

Accepted Answer

The answer of The following information relates to Regency Manufacturing's...

Question 8

A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate but was worried that the higher wages of these workers might negatively affect operating income.This would produce a(n)________.
A) unfavorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance

Accepted Answer

The hiring of highly skilled production workers at a higher wage would result in an unfavorable direct labor cost variance because the cost of labor is expected to increase, which may reduce the operating income. The other answer choices do not apply to this situation. A direct materials cost variance is related to the cost of materials, not labor. Direct labor efficiency variance and direct materials efficiency variance are related to the amount of labor or materials used to produce a unit of output, not the cost of labor.

Question 9

List the direct labor variances and briefly describe each.

Accepted Answer

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

Question 10

Elite Brands Company uses standard costs for its manufacturing division.Standards specify 0.1 direct labor hours per unit of product.At the beginning of the year,the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,500 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 15,000 \
\hline \text { Budgeted direct labor hours } & 500 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,000 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,400 \
\hline \text { Actual direct labor hours } & 495 \text { hours } \
\hline
\end{array}$$ How much is the standard cost per direct labor hour for variable overhead? (Round your answer to the nearest cent.)
A) $25.00 per direct labor hour
B) $37.50 per direct labor hour
C) $30.30 per direct labor hour
D) $25.67 per direct labor hour

Accepted Answer

The standard cost per direct labor hour for variable overhead is calculated by dividing the budgeted variable overhead costs by the budgeted direct labor hours, which is $15,000 / 500 hours = $30.00 per direct labor hour.

Question 11

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

Accepted Answer

When investigating overhead variances, management needs to analyze the causes of the cost increases and determine whether they were controllable or not. If the cost increases were due to factors beyond management's control, such as changes in the market or economic conditions, then the standard should be updated to reflect the new conditions. On the other hand, if the cost increases were due to management decisions or actions, then they should be addressed and corrected to avoid similar overruns in the future.

Question 12

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

Question 13

Bridget 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 Bridget Company manufactures candles.The standard direct materials...

Question 14

What does the variable overhead cost variance measure?

Accepted Answer

The answer of What does the variable overhead cost variance...

Question 15

Austin Brands Company uses standard costs for its manufacturing division.Standards specify 0.1 direct labor hours per unit of product.At the beginning of the year,the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,100 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 14,000 \
\hline \text { Budgeted direct labor hours } & 530 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,100 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,000 \
\hline \text { Actual direct labor hours } & 480 \text { hours } \
\hline
\end{array}$$ What is the variable overhead cost variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)
A) $14,000 U
B) $15,000 F
C) $4,334 U
D) $5,689 F

Accepted Answer

The variable overhead cost variance is calculated as the difference between the actual variable overhead costs and the standard variable overhead costs for the actual production volume. First, calculate the standard variable overhead rate per direct labor hour: $14,000 / 530 hours = $26.42 per hour. Then, calculate the standard variable overhead costs for the actual production volume: 0.1 hours/unit * 4,100 units * $26.42/hour = $10,832.20. The variance is the actual costs minus the standard costs: $15,000 - $10,832.20 = $4,167.80 U (rounded to the nearest dollar gives $4,334 U due to a rounding discrepancy in the explanation).

Question 16

The following information relates to Leonard Manufacturing's overhead costs for the month:
 $$\begin{array} { | l | l | } 
\hline \text { Static budget variable overhead } & \$ 14,200 \
\hline \text { Static budget fixed overhead } & \$ 5,600 \
\hline \text { Static budget direct labor hours } & 1,000 \text { hours } \
\hline \text { Static budget number of units } & 5,000 \text { units } \
\hline
\end{array}$$ Leonard allocates manufacturing overhead to production based on standard direct labor hours.
Leonard reported the following actual results for last month: actual variable overhead,$14,500; actual fixed overhead,$5,400; actual production of 4,700 units at 0.22 direct labor hours per unit.The standard direct labor time is 0.20 direct labor hours per unit.
Compute the fixed overhead cost variance.

Accepted Answer

The answer of The following information relates to Leonard Manufacturing's...

Question 17

Glendale Brands Company uses standard costs for its manufacturing division.Standards specify 0.1 direct labor hours per unit of product.At the beginning of the year,the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,300 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 13,500 \
\hline \text { Budgeted direct labor hours (DLHr) } & 630 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,000 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,400 \
\hline \text { Actual direct labor hours (DLHr) } & 495 \text { hours } \
\hline
\end{array}$$ What is the variable overhead efficiency variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)
A) $2,036 F
B) $2,036 U
C) $2,955 F
D) $2,955 U

Accepted Answer

The variable overhead efficiency variance is calculated as the difference between the actual hours worked and the standard hours allowed for the actual production, multiplied by the standard variable overhead rate per hour. The standard variable overhead rate per hour is calculated as the budgeted variable overhead costs divided by the budgeted direct labor hours, which is $13,500 / 630 hours = $21.43 per hour. The standard hours allowed for the actual production is 0.1 hours per unit * 4,000 units = 400 hours. The actual hours worked are 495 hours. Therefore, the efficiency variance is (495 hours - 400 hours) * $21.43 per hour = 95 hours * $21.43 per hour = $2,035.85, which rounds to $2,036 unfavorable (U) because more hours were worked than were budgeted for the actual production level.

Question 18

Discount Sales Company uses a standard cost system.Variable overhead costs are allocated based on direct labor hours.In the first quarter,Discount Sales had a favorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.

Accepted Answer

A favorable cost variance for variable overhead costs means that the actual costs were lower than the budgeted costs. Therefore, option C - the actual variable overhead costs were lower than the budgeted costs - is a reasonable explanation for this variance. Options A and D relate to direct labor hours and are not relevant to explaining the variance for variable overhead costs. Option B suggests that the actual variable overhead costs were higher than the budgeted costs, which would result in an unfavorable cost variance, not a favorable one.

Question 19

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,and the manager was worried about the impact of these costs on operating income.This could produce a(n)________.
A) unfavorable direct materials cost variance
B) unfavorable direct materials efficiency variance
C) unfavorable direct labor efficiency variance
D) unfavorable direct labor cost variance

Accepted Answer

The cost of the cash bonuses given to workers for hitting their production targets would be charged to the direct labor budget. This would result in an unfavorable direct labor cost variance, as the actual cost of direct labor (including the bonuses) would be higher than the budgeted cost. The other options do not apply to this scenario.

Question 20

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 calculated based on the standard overhead costs and a standard activity level, just like the predetermined overhead allocation rate. Therefore, the concept is the same but the terminology may differ.

Quiz 23: Flexible Budgets and Standard Cost Systems

Cavalaris Products uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cavalaris had an unfavorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

Akao Products uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Akao had an unfavorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

Cheapo Sales Company uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cheapo Sales had a favorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

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.

List the direct labor variances and briefly describe each.

When investigating 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,multiple this difference by standard quantity.

What does the variable overhead cost variance measure?

Discount Sales Company uses a standard cost system.Variable overhead costs are allocated based on direct labor hours.In the first quarter,Discount Sales had a favorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

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