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Exam 13: Budgeting and Standard Cost Systems

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Question 61

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Incurring actual indirect factory wages in excess of budgeted amounts for actual production results in a:

A) unfavorable quantity variance.
B) unfavorable controllable variance.
C) favorable volume variance.
D) favorable labor rate variance.

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

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Question 62

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When budget goals are set too tight, the budget becomes less effective for planning and controlling operations.

A) True
B) False

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Question 63

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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.

Frogue Corporation uses a standard cost system. The following information was provided for the period that just ended: $\begin{array}{ll}\$ 2.50 & \text { Actual price per kilogram } \\31,000 & \text { Actual lilograms of material used } \\\$ 18.10 & \text { Actual hourly labor rate } \\4.900 \text { lahor hrs } & \text { Actual hmurs of morhuction }\\\$ 2.80 & \text { Standard price per kilogram } \\6 \text { kilograms } & \text { Standard kilograms per completed urit } \\\$ 18.00 & \text { Standard hourly labor rate } \\1 \text { hr. } & \text { Standard time per completed urit } \\\$ 34,900 & \text { Actual total factory overhead }\\\$ 18,000 & \text { Actual fixed factory overhead } \\\$ 1.20 \text { per labor hour } & \text { Standard fixed factory overhead rate } \\\$ 3.80 \text { per labor hour } & \text { Standard variable factory overhead rat } \\15,000 \text { hours } & \text { Maximum plant capacity } \\5,000 & \text { Units completed churing the period }\end{array}$ Refer to the information provided for Frogue Company. The total factory overhead cost variance is:

Favorable volume variances may be harmful when:

If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 198,000 units.

Estimated cash payments are planned reductions in cash from all of the following except:

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

A disadvantage of static budgets is that they:

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

The following data relate to direct labor costs for the current period of Executive Inc.: $\begin{array}{lrr} \text {6,000 hours at \$12.00 } & \text { Standard costs } \\ \text {7,500 hours at \( \$ 11.60 \) } & \text { Actual costs } \\\end{array}$ Refer to the information provided for Executive Inc. What is the direct labor rate variance?

Trapp Co. was organized on August 1 of the current year. Projected sales for the next three months are as follows: $\begin{array}{ll}\$ 100,000 & \text { August } \\185,000 & \text { September } \\225,000 & \text { October }\end{array}$ The company expects to sell 40% of its merchandise for cash. Of the sales on account, one third are expected to be collected in the month of the sale and the remainder in the following month. Prepare a schedule indicating cash collections of accounts receivable for August, September, and October.

Flexible budgeting builds the effect of changes in level of activity into the budget system.

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as:

The following data relate to direct materials costs of Texas Inc. for November: $\begin{array}{lrr} \text {4,500 pounds at \$ 6.00 } & \text { Actual costs } \\ \text { 4,600 pounds at \( \$ 5.50 \) } & \text { Standard costs} \\\end{array}$ Refer to the information provided for Texas Inc. What is the direct materials quantity variance?

Efficient Corporation uses a standard cost system. The following information was provided for the period that just ended: $\begin{array}{ll}\$ 11.75 & \text { Actual price per gallon } \\5,000 & \text { Actual gallons of material used } \\\$ 17.00 & \text { Actual hourly labor rate } \\24,300 & \text { Actual hours of prochuction } \\\$ 12.00 & \text { Standard price per gallon } \\1 / 2 & \text { Standard gallons per completed urit } \\\$ 12.00 & \text { Standard hourly labor rate } \\3 \mathrm{hrs} . & \text { Standard time per completed urit } \\9,000 & \text { Units completed churingthe period }\end{array}$ Refer to the information provided for Efficient Corporation. The direct labor time variance is:

Answer Corporation uses standard cost system. The standard costs and actual costs for direct materials, direct labor, and factory overhead for the manufacture of 2,500 units of product are as follows: $\begin{array}{ll}\text { StandardCosts } \\ 2,500 \text { kilograms@\$8 }& \text { Direct labor } \\7,500 \text { hours @ } \$ 12 & \text { Direct material } \\\\\text { Actual Costs } & \\2,600 \text { kilograms } @ \$ 8.75 & \text { Direct material } \\7,400 \text { hours } \$ 11.40 & \text { Direct labor } \\\text { Factory overhead(100\% capacity- } 10,000 \text { hrs.) : } &\end{array}$ Variable cost @ $2 per hour Total variable cost, $18,000 Fixed cost @ $0.80 per hour Total fixed cost, $8,000 Refer to the information provided for Answer Corporation. The amount of the direct labor time variance is:

Cape Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of direct materials expected to be used for each unit of finished product are given below. $\begin{array}{lll}\$ 0.60 \text { per pound } & .50 \mathrm{lb} . \text { per unit } & \text { Material A } \\\$ 1.70 \text { per pound } & 1.00 \mathrm{lb} \text {. per unit } & \text { Material } \mathrm{B} \\\$ 1.00 \text { per pound } & 1.20 \mathrm{lb} . \text { per unit } & \text { Material C }\end{array}$ Refer to the information provided for Cape Corporation. The amount of direct material A purchased during the year is:

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

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 favorable.