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Exam 7: Performance Evaluation Using Variances From Standard Costs

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Question 1

Multiple Choice

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Calculate the Direct Labor Time Variance using the above information

A) $2,362.50 Favorable
B) $2,362,50 Unfavorable
C) $6,540.00 Favorable
D) $6,540.00 Unfavorable

E) B) and D)
F) B) and C)

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Question 2

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The standard factory overhead rate is $7.50 per machine hour ($6.20 for variable factory overhead and $1.30 for fixed factory overhead) based on 100% capacity of 80,000 machine hours. The standard cost and the actual cost of factory overhead for the production of 15,000 units during August were as follows: What is the amount of the factory overhead volume variance?

A) $12,000 unfavorable
B) $12,000 favorable
C) $14,000 unfavorable
D) $26,000 unfavorable

E) B) and C)
F) A) and B)

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Question 3

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The direct labor time variance measures the efficiency of the direct labor force.

Using the following information, prepare a factory overhead flexible budget for Andover Company where the total factory overhead cost is $75,500 at normal capacity (100%). Include capacity at 75%, 90%, 100%, and 110%. Total variable cost is $6.25 per unit and total fixed costs are $38,000. The information is for month ended August 31, 2012. (Hint: Determine units produced at normal capacity.)

The Finishing Department of Pinnacle Manufacturing Co. prepared the following factory overhead cost budget for October of the current year, during which it expected to operate at a 100% capacity of 10,000 machine hours:

One reason not to depend solely on historical records to set standards is that there may be inefficiencies contained in past costs.

The standard cost is how much a product should cost to manufacture.

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.

Standards are set for only direct labor and direct materials.

If a company records inventory purchases at standard cost and also records purchase price variances, prepare the journal entry for a purchase of 6,000 widgets that were bought at $8.00 and have a standard cost of $8.15.

Hsu Company produces a part with a standard of 5 yds. of material per unit. The standard price of one yard of material is $8.50. During the month, 8,800 parts were manufactured, using 45,700 yards of material at a cost of $8.30. Required: Determine the (a) price variance, (b) quantity variance, and (c) cost variance.

Currently attainable standards do not allow for reasonable production difficulties.

Standards are performance goals used to evaluate and control operations.

The following data relate to direct labor costs for the current period: What is the direct labor time variance?

Standard costs should always be revised when they differ from actual costs.

Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or they can be incorporated in the accounts.

Define nonfinancial performance measures. What are they used for and what are some common examples?

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable.

The Flapjack Corporation had 8,200 actual direct labor hours at an actual rate of $12.40 per hour. Original production had been budgeted for 1,100 units, but only 1,000 units were actually produced. Labor standards were 7.6 hours per completed unit at a standard rate of $13.00 per hour. Compute the labor rate variance.

Compute the standard cost for one hat, based on the following standards for each hat: