Question 1

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?
A) The cost of workers' medical insurance plans jumped up dramatically during the quarter.
B) The factory lost two experienced workers at the beginning of the quarter, and their replacements wasted a large amount of direct materials during their training period.
C) The purchasing manager was able to secure a volume discount on dried fruit, purchasing the sugar for less than the amount set by standard.
D) The production staff changed the work flow process so that production required fewer direct labor hours than the standards allowed.

Accepted Answer

A favorable direct labor efficiency variance means that less time was used to produce the same amount of goods than what was expected by the standard. This could have happened if the production staff changed the work flow process so that production required fewer direct labor hours than the standards allowed. None of the other options are related to direct labor efficiency.

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)________.
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

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

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 4

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)________.
A) favorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) favorable direct materials efficiency variance

Accepted Answer

The negotiated labor contract resulted in lower direct labor costs for the company, which could have resulted in a favorable direct labor cost variance. However, the loss of experienced and skilled workers and the slower work of the new employees led to lower production efficiency, resulting in an unfavorable direct labor efficiency variance. It is important to note that the options A and D are related to direct materials cost and efficiency variances, which are not relevant to this scenario.

Question 5

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: 2 pounds per unit; $3 per pound
Direct labor: 4 hours per unit; $14 per hour
Home Decor 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 $375,000.What is the direct labor cost variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)
A) $45,000 Favorable
B) $280,000 Favorable
C) $280,000 Unfavorable
D) $45,000 Unfavorable

Accepted Answer

Direct labor cost variance = (Actual cost - Standard cost) × Actual quantity
Actual direct labor cost per hour = $375,000 / 30,000 per hours = $12.50 per hour
Direct labor cost variance = ($12.50 - $14) × 30,000 hours = $45,000 Favorable

Question 6

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 7

List the direct labor variances and briefly describe each.

Accepted Answer

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

Question 8

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?
A) The cost of workers' medical insurance plans jumped up dramatically during the quarter.
B) The factory lost two experienced workers at the beginning of the quarter, and their replacements wasted a large amount of direct materials during their training period.
C) The purchasing manager was able to secure a volume discount on flour, purchasing the flour for less than the amount set by standard.
D) The production staff changed the work flow process so that production required fewer direct labor hours.

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 9

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: 4 pounds per unit; $4 per pound
Direct labor: 4 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 $6000 F.Which of the following is a logical explanation for this variance?
A) The company used fewer labor hours than allowed by the standards.
B) The company paid a lower cost per hour for labor than allowed by the standards.
C) The company used a lower quantity of direct materials than allowed by the standards.
D) The company paid a lower cost for the direct materials than allowed by the standards.

Accepted Answer

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

Question 10

Accurate Tax Returns budgets two direct labor hours for every tax return that it prepares,at a standard cost of $34 an hour.During the most recent year,520 returns were completed with the labor cost totaling $18,000.The actual labor cost was $34.62 per hour during that period.The actual number of labor hours was 1200.What is the direct labor cost variance?
A) $320 F
B) $40,800 U
C) $744 U
D) $40,800 F

Accepted Answer

Direct labor cost variance = (Actual cost - Standard cost) × Actual quantity 11ea8873_d539_9adb_bb89_27359f59f6d1_TB5026_00

Question 11

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)________.
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 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 12

Stafford Company uses standard costs for its manufacturing division.Standards specify 0.1 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: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 5000 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 13,500 \
\hline \text { Budgeted direct labor hours } & 610 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4100 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,200 \
\hline \text { Actual direct labor hours } & 505 \text { hours } \
\hline
\end{array}$$ How much is the standard cost per direct labor hour for variable overhead? (Round your answer to the nearest cent.)
A) $22.13 per direct labor hour
B) $32.93 per direct labor hour
C) $26.73 per direct labor hour
D) $24.92 per direct labor hour

Accepted Answer

The standard cost per direct labor hour for variable overhead is $22.13. This is calculated by dividing the budgeted variable overhead costs by the budgeted direct labor hours: $13,500 / 610 hours = $22.13 per direct labor hour.

Question 13

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)________.
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

Recruiting highly skilled workers would likely improve efficiency on the assembly line, leading to a favorable direct labor efficiency variance. It does not directly address the issue of direct materials and would not necessarily lead to a variance in direct materials cost or efficiency.

Question 14

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; $3 per pound
Direct labor: 5 hours per unit; $16 per hour
Benson 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 $250,000.What is the direct labor efficiency variance?
A) $80,000 U
B) $80,000 F
C) $70,000 F
D) $70,000 U

Accepted Answer

Direct labor efficiency variance = (Actual quantity - Standard quantity) × Standard cost
Standard quantity = 5 direct labor hours × 4000 units = 20,000 direct labor hours
Direct labor efficiency variance = (25,000 direct labor hours - 20,000 direct labor hours) × $16 per direct labor hour
Direct labor efficiency variance = $80,000 Unfavorable

Question 15

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; $4 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 23,000 direct labor hours and actual total direct labor costs were $390,000.The direct labor efficiency variance was $51,000 U.Which of the following is a logical explanation for this variance?
A) The company used more labor hours than allowed by the standards.
B) The company paid a higher cost per hour for labor than allowed by the standards.
C) The company used a higher quantity of direct materials than allowed by the standards.
D) The company paid a higher cost for the direct materials than allowed by the standards.

Accepted Answer

The direct labor efficiency variance is calculated as the difference between the actual labor hours used and the standard labor hours allowed, multiplied by the standard labor rate. In this case, the variance is unfavorable (U), meaning that more labor hours were used than allowed by the standards. Therefore, choice A is the logical explanation for this variance.

Question 16

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

This statement is true. When investigating variable overhead variances, management needs to analyze the causes of cost increases to determine whether they were controllable or uncontrollable. If an increase in cost was controllable, management may need to take corrective action to prevent future cost increases. If the cost increase was uncontrollable, such as due to an unexpected increase in the price of raw materials, management may need to update the cost standard to reflect the new reality.

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 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 increase in production output and the cash bonuses given to the workers indicate that the direct labor costs would have increased. Therefore, charging the bonuses to the direct labor budget could produce an unfavorable direct labor cost variance. The other choices are not relevant to the situation described.

Question 18

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)________.
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

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 19

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

Quiz 23: Flexible Budgets and Standard Cost Systems

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 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.