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Exam 13: Budgeting and Standard Costs

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Question 1

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Ideal standards are developed under conditions that assume no idle time, no machine breakdowns, and no materials spoilage.

A) True
B) False

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Question 2

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If Division Inc.expects to sell 300,000 units in 2016, desires ending inventory of 22,000 units, and has 24,000 units on hand as of the beginning of the year, the budgeted volume of production for 2016 is 298,000 units.

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B) False

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The production budget is the starting point for preparation of the direct labor cost budget.

If the standard to produce a given amount of product is 12,000 hours at a factory overhead rate of $5 ($3 fixed, $2 variable), actual variable factory overhead was $26,400, actual fixed factory overhead was $45,000, and 100% of productive capacity is 15,000 hours, the volume variance was $9,000 favorable.

If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $4,800 favorable.

A budget that provides the starting point for the preparation of a direct labor cost budget is the:

Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.

Favorable volume variances are never harmful since achieving them encourages managers to run the factory above normal capacity.

The difference between the standard cost of a product and its actual cost is called a variance.

The following data is given for the Walker Company: $\begin{array} { l l } \text { Budgeted production } & 1,000 \text { units } \\\text { Actual production } & 980 \text { units } \\\text { Materials: } & \\\text { Standard price per lb } & \$ 2.00 \\\text { Standard pounds per completed unit } & 12 \\\text { Actual pounds purchased and used in production } & 11,800 \\\text { Actual price paid for materials } & \$ 23,000 \\\text { Labor: } & \\\text { Standard hourly labor rate } & \$ 14 \text { per hour } \\\text { Standard hours allowed per completed unit } & 4.5 \\\text { Actual labor hours worked } & 4,560 \\\text { Actual total labor costs } & \$ 62,928 \\\text { Overhead: } & \$ 27,000 \\\text { Actual and budgeted fixed overhead } & \$ 3.50 \text { per standard direct labor hour } \\\text { Standard variable overhead rate } & \$ 15,500\end{array}$ Overhead is applied on standard labor hours. The variable factory overhead controllable variance is:

​Process yield measures the efficiency of a process.

Microgen Company static budget for 12,000 units of production includes $48,000 for direct materials, $36,000 for direct labor, utilities of $6,000, and supervisor salaries of $18,000.A flexible budget for 14,000 units of production would show:

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

Below is budgeted production and sales information for Octofic Cans, Inc.for the month of March: $\begin{array} { l l l } & { \text { Aluminum } } & { \text { Tin } } \\\text { Estimated beginning inventory } & 12,000 \text { units } & 6,000 \text { units } \\\text { Desired ending inventory } & 15,000 \text { units } & 4,000 \text { units } \\\text { Region I, anticipated sales } & 380,000 \text { units } & 85,000 \text { units } \\\text { Region II, anticipated sales } & 125,000 \text { units } & 25,000 \text { units }\end{array}$ ? The unit selling price for aluminum cans is $0.15 and for tin cans is $0.20. Budgeted production for aluminum cans during the month is:

Frogue Corporation uses a standard cost system.The following information was provided for the period that just ended: $\begin{array}{ll}\text { Actual price per kilogram } & \$ 3.00 \\\text { Actual kilograms of material used } & 31,000 \\\text { Actual hourly labor rate } & \$ 18.20 \\\text { Actual hours of production } & 4,900 \text { labor hours } \\\text { Standard price per kilogram } & \$ 2.80 \\\text { Standard kilograms per completed unit } & 6 \text { kilograms } \\\text { Standard hourly labor rate } & \$ 18.00\\\text { Standard time per completed unit } & 1 \mathrm{hr} \\\text { Actual total factory overhead } & \$ 34,900 \\\text { Actual fixed factory overhead } & \$ 18,000 \\\text { Standard fixed factory overhead rate } & \$ 1.20 \text { per labor hour } \\\text { Standard variable factory overhead rate } & \$ 3.80 \text { per labor hour } \\\text { Maximum plant capacity } & 15,000 \text { hours } \\\text { Units completed during the period } & 5,000\end{array}$ ? The direct labor cost variance is:

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the selling and administrative expenses budget.

Kohlman Company began its operations on March 31 of the current year.Projected manufacturing costs for the first three months of business are $156,800, $195,200, and $217,600, respectively, for April, May, and June.Depreciation, insurance, and property taxes represent $28,800 of the estimated monthly manufacturing costs.Insurance was paid on March 31, and property taxes will be paid in November.Three-fourths of the remainder of the manufacturing costs are expected to be paid in the month in which they are incurred with the balance to be paid in the following month. The cash payments for manufacturing in the month of June are:

Which of the following factors results in an unfavorable fixed factory overhead volume variance?

A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

For February, sales revenue is $300,000; sales commissions are 5% of sales; the sales manager's salary is $40,000; advertising expenses are $13,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $1,100 plus 1/2 of 1% of sales.Total selling expenses for the month of February are: