If the controllable variance is $500 unfavorable and the volume variance is $100 favorable, the journal entry will include a:

 Learning Objective 08-P6: Appendix 8A—Prepare journal entries for standard costs and account for price and quantity variances.

When a company records standard costs in its accounts, the standard costs of direct materials, direct labor, and overhead are debited to the Work in Process Inventory account. Based on an analysis of the material, labor, and overhead costs, each quantity variance, price variance, volume variance, and controllable variance is recorded in a separate account. At period-end, if the variances are not material, they are debited (if unfavorable) or credited (if favorable) to the Cost of Goods Sold account.

 If the controllable variance is $500 unfavorable and the volume variance is $100 favorable, the journal entry will include a: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
 

Explanation
Knowledge Check 01
 
A favorable variance is credited and an unfavorable variance is debited. If the controllable variance is $500 unfavorable and the volume variance is $100 favorable, the journal entry will include a debit to Work in Process Inventory, a debit to the Controllable Variance, a credit to Factory Overhead and a credit to the Volume  Variance.

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How should factory overhead variances be treated in a journal entry to apply factory overhead?

 How should factory overhead variances be treated in a journal entry to apply factory overhead?
 
multiple choice
Factory overhead variances should be totaled together. If the resulting variance is unfavorable, the journal entry should receive a credit for the variance.
Factory overhead variances should be totaled together. If the resulting variance is favorable, the journal entry should receive a credit for the variance.
Factory overhead variances should be broken out into their individual components and reported separately as either debits or credits to their individual variance accounts. Correct
Factory overhead variances should be totaled together. If the resulting variance is favorable, the journal entry should receive a debit for the variance.

Explanation
Knowledge Check 01
 
Factory overhead variances should be broken out into their individual components and reported separately as either debits or credits to their individual variance accounts.

If the direct labor rate variance is $500 favorable, and the direct labor efficiency variance is $250 unfavorable, the journal entry will include a

 Learning Objective 08-P6: Appendix 8A—Prepare journal entries for standard costs and account for price and quantity variances.

When a company records standard costs in its accounts, the standard costs of direct materials, direct labor, and overhead are debited to the Work in Process Inventory account. Based on an analysis of the material, labor, and overhead costs, each quantity variance, price variance, volume variance, and controllable variance is recorded in a separate account. At period-end, if the variances are not material, they are debited (if unfavorable) or credited (if favorable) to the Cost of Goods Sold account.

 If the direct labor rate variance is $500 favorable, and the direct labor efficiency variance is $250 unfavorable, the journal entry will include a: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
 

Explanation
Knowledge Check 01
 
A favorable variance is credited and an unfavorable variance is debited. If the direct labor rate variance is $500 favorable, and the direct labor efficiency variance is $250 unfavorable, the journal entry will include a debit to work in process inventory (standard cost), debit to direct labor efficiency variance, credit to factory wages payable (actual cost), and a credit to direct labor rate variance.

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Favorable labor variances will receive which of the following treatments in preparing a direct labor journal entry?

 Favorable labor variances will receive which of the following treatments in preparing a direct labor journal entry?
 
multiple choice
Debit
Credit Correct

Explanation
Knowledge Check 01
 
Favorable labor variances will receive a credit.

 

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If the direct materials price variance is $500 favorable, and the direct materials quantity variance is $250 unfavorable, the journal entry will include a

 Learning Objective 08-P6: Appendix 8A—Prepare journal entries for standard costs and account for price and quantity variances.

When a company records standard costs in its accounts, the standard costs of direct materials, direct labor, and overhead are debited to the Work in Process Inventory account. Based on an analysis of the material, labor, and overhead costs, each quantity variance, price variance, volume variance, and controllable variance is recorded in a separate account. At period-end, if the variances are not material, they are debited (if unfavorable) or credited (if favorable) to the Cost of Goods Sold account.

 Knowledge Check 01
 
If the direct materials price variance is $500 favorable, and the direct materials quantity variance is $250 unfavorable, the journal entry will include a: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

 


Explanation
Knowledge Check 01
 
A favorable variance is credited and an unfavorable variance is debited. If the direct materials price variance is $500 favorable, and the direct materials quantity variance is $250 unfavorable, the journal entry will include a debit to work in process inventory (standard cost), debit to direct materials quantity variance, credit to direct materials price variance and a credit to raw materials inventory (actual cost).

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In an expanded overhead variance, the variable overhead variance is composed of the:

 In an expanded overhead variance, the variable overhead variance is composed of the:
 
multiple choice
spending and volume variances
efficiency and volume variances
spending and efficiency variances Correct

Explanation
Knowledge Check 01
 
In the expanded overhead variance model, the variable overhead variance is composed of the variable spending and efficiency variances.

 The variable overhead efficiency variance is calculated as:
 
multiple choice
(AH × AVR) − (AH × SVR)
(AH × SVR) − (SH × SVR) Correct
(AH × AVR) − (SH × SVR)

Explanation
Knowledge Check 01
 
Variable overhead efficiency variance = (AH × SVR) − (SH × SVR).

 

The fixed overhead spending variance is calculated as:
 
multiple choice
Actual fixed overhead − Applied Fixed Overhead
Actual fixed overhead − Budgeted fixed overhead (from flexible budget) Correct
Budgeted fixed overhead (from flexible budget) − Applied fixed overhead

Explanation
Knowledge Check 01
 
Fixed overhead spending variance = Actual fixed overhead − Budgeted fixed overhead (from flexible budget). 

Unfavorable materials variances will receive which of the following treatments in preparing a direct materials journal entry?
 
multiple choice
Debit Correct
Credit

Explanation
Knowledge Check 01
 
Unfavorable variances are debited.

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Learning Objective 08-P4: Compute overhead controllable and volume variances. Overhead variances are due to differences between the actual overhead costs incurred and the overhead applied to production. The overhead controllable variance equals the actual overhead minus the budgeted overhead. The volume variance equals the budgeted fixed overhead minus the applied fixed overhead.

 Learning Objective 08-P4: Compute overhead controllable and volume variances.

Overhead variances are due to differences between the actual overhead costs incurred and the overhead applied to production. The overhead controllable variance equals the actual overhead minus the budgeted overhead. The volume variance equals the budgeted fixed overhead minus the applied fixed overhead.

 

Knowledge Check 01
 
An overhead variance report includes: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

 


Explanation
Knowledge Check 01
 
An overhead variance report includes columns for the flexible budget including variable and fixed costs; actual results for variable and fixed costs; and variances for variable and fixed costs. It is prepared so that management can view and isolate reasons for the variances.

A Min Company operates at 80% capacity. At this level, they produce 1,000 units, total overhead costs are $15,000, and they predict they will use 10,000 direct labor hours.

 A Min Company operates at 80% capacity. At this level, they produce 1,000 units, total overhead costs are $15,000, and they predict they will use 10,000 direct labor hours.
 


Explanation
Knowledge Check 01
 
To determine the standard overhead rate per direct labor hour, divide the total overhead costs of $15,000 by the standard direct labor hours of 10,000 which equals $1.5.

 

Baylor Company has actual total overhead of $1,900. The standard overhead applied is $2,000. What is the overhead variance?
 
multiple choice
$100 Favorable Correct
$100 Unfavorable
$300 Favorable
$300 Unfavorable

Explanation
Knowledge Check 01
 
The overhead variance = Actual total overhead of $1,900 − Standard overhead applied of $2,000 = $100 Favorable. The variance is favorable because the actual amount was less than the amount applied. 

Kramer Company budgeted that it would operate at 80% capacity for the month producing 800 units of its product, AA. Each unit requires 2 direct labor hours. At the end of the month it realized that they produced 700 units and operated at 70% capacity. If the budgeted fixed overhead was $3,000, the standard fixed overhead was $2.00 per direct labor hour, what is the volume variance?
 
multiple choice
$100 Favorable
$100 Unfavorable
$200 Favorable
$200 Unfavorable Correct

Explanation
Knowledge Check 01
 
The volume variance equals budgeted fixed overhead of $3,000 − standard fixed overhead applied of (700 units × 2 direct labor hours × $2.00 per direct labor hour) $2,800 = $200 unfavorable. The variance is unfavorable because they operated at less than the predicted level.

In producing jelly beans, 1,000 hours of direct labor were used at a rate of $12 per hour. The standard was 1,100 at $12.25 per hour. What is the direct labor rate variance?

 In producing jelly beans, 4,700 pounds of direct materials were used at a cost of $2.50 per pound. The standard was 4,000 pounds at $2.75 per pound. What is the direct materials quantity variance?
 
multiple choice
$1,925 Favorable
$1,750 Favorable
$1,925 Unfavorable Correct
$1,750 Unfavorable

Explanation
Knowledge Check 01
 
Direct materials quantity variance = (Actual quantity of 4,700 pounds − Standard quantity of 4,000 pounds) × Standard price of $2.75 per pound = $1,925 U. The variance is unfavorable because more materials were used than standard allowed.

Who has the main responsibility for a materials price variance?
 
multiple choice
production manager
purchasing manager Correct

Explanation
Knowledge Check 01
 
A materials price variance, whether favorable or unfavorable, is the responsibility of the purchasing manager.

In producing jelly beans, 1,000 hours of direct labor were used at a rate of $12 per hour. The standard was 1,100 at $12.25 per hour. What is the direct labor rate variance?
 
multiple choice
$250 Unfavorable
$275 Favorable
$250 Favorable Correct
$275 Unfavorable
Explanation
Knowledge Check 01
 
Direct labor cost variance = (Actual rate of $12.00 per hour − Standard rate of $12.25 per hour) × Actual hours of 1,000 = $250 F. The variance is favorable since the actual price was lower than the standard price. 

 
Who has the main responsibility for a labor rate variance?
 
multiple choice
production manager Correct
purchasing manager

Explanation
Knowledge Check 01
 
A labor rate variance, whether favorable or unfavorable, is the responsibility of the production manager.

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Actual quantity is the actual direct material or direct labor used to manufacture the

 Actual quantity is the actual direct material or direct labor used to manufacture the
 
multiple choice
actual quantity of output Correct
actual quantity of input
standard quantity of output
Explanation
Knowledge Check 01
 
Actual quantity is the actual direct material or direct labor used to manufacture the actual quantity of output for the period. Standard quantity is the standard input expected for the actual quantity of output.

 Identify the type of variance defined by the following formula: (Actual Price − Standard Price) × Actual Quantity.
 
multiple choice
Quantity variance
Price variance Correct
Cost variance

Explanation
Knowledge Check 01
 
This is the price variance. Note that the price information is within the parentheses!

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Analyzing the difference between a flexible budget and the actual results directs management’s attention to:

 Analyzing the difference between a flexible budget and the actual results directs management’s attention to:
 
multiple choice
actual amounts that differ greatly from budgeted amounts. Correct
actual amounts that do not differ greatly from budgeted amounts.
areas where only unfavorable variances exist.

Explanation
Knowledge Check 01
 
Analyzing the difference between a flexible budget and the actual results directs management’s attention to actual amount s that differ greatly from budgeted amounts. Both favorable and unfavorable variances should be investigated.

 If the actual cost is greater than the standard cost, what is the resulting variance.
 
multiple choice
Favorable
Unfavorable Correct

Explanation
Knowledge Check 01
 
The variance is unfavorable if the actual cost is greater than the standard cost.

 

After preparing a standard cost performance report, the next step is to:
 
multiple choice
Take corrective and strategic actions.
Identify questions and their answers.
Compute and analyze variances. Correct

Explanation
Knowledge Check 01
 
After preparing a standard cost performance report, the next step is to compute and analyze variances. After computing and analyzing variances, companies will identify questions and their answers and then they will take corrective and strategic actions.

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Learning Objective 08-P1: Prepare a flexible budget and interpret a flexible budget performance report. A flexible budget expresses variable costs in per unit terms so that it can be used to develop budgeted amounts for any volume level within the relevant range. Thus, managers compute budgeted amounts for evaluation after a period for the volume that actually occurred. To prepare a flexible budget, we express each variable cost as a constant amount per unit of sales (or as a percent of sales dollars). In contrast, the budgeted amount of each fixed cost is expressed as a total amount expected to occur at any sales volume within the relevant range. The flexible budget is then determined using these computations and amounts for fixed and variable costs at the expected sales volume.

 Learning Objective 08-P1: Prepare a flexible budget and interpret a flexible budget performance report.

A flexible budget expresses variable costs in per unit terms so that it can be used to develop budgeted amounts for any volume level within the relevant range. Thus, managers compute budgeted amounts for evaluation after a period for the volume that actually occurred. To prepare a flexible budget, we express each variable cost as a constant amount per unit of sales (or as a percent of sales dollars). In contrast, the budgeted amount of each fixed cost is expressed as a total amount expected to occur at any sales volume within the relevant range. The flexible budget is then determined using these computations and amounts for fixed and variable costs at the expected sales volume.

 Knowledge Check 01
 
Select the correct answer from the drop-down menu.
 


Explanation
Knowledge Check 01
 
Item #1:
A fixed budget based on one predicted amount of sales.
 
Item #2:
A flexible budget based on more than one amount of sales.

 

Mead Corporation has prepared a fixed budget based on 6,000 units. Their budgeted per unit selling price is $100, variable costs are $75 per unit, and fixed costs are $20,000. If actual sales activity was 5,000 units with revenue of $550,000, what is the sales variance shown on a fixed budget performance report?
 
multiple choice
$50,000 Unfavorable Correct
$50,000
$50,000 Favorable

Explanation
Knowledge Check 01
 
Sales variance = Actual sales revenue of $550,000 − Budgeted sales of $600,000 (or 6,000 units × $100 per unit) = $50,000 U. The unfavorable variance (indicated with an F or U) results because the fixed budget was based on revenue at 6,000 units, but actual sales were only 5,000 units. 

Acme Manufacturing Company prepared a fixed budget based on the expected sales of 160,000 units. That fixed budget included variable costs totaling $800,000 and fixed costs totaling $240,000. If the company instead uses flexible budgeting and actually sells 200,000 units during the year, what are the amounts that will be included in its flexible budget performance report for total variable costs and total fixed costs?
 
multiple choice
$800,000 and $300,000
$800,000 and $240,000
$1,000,000 and $300,000
$1,000,000 and $240,000 Correct

Explanation
Knowledge Check 01
 
Budgeted variable cost per unit = Total budgeted variable costs of $800,000 ÷ Total budgeted sales of 160,000 units = $5 per unit
Total variable costs budgeted at an activity level of 200,000 units = Budgeted variable cost per unit of $5 × Total budgeted sales of 200,000 units = $1,000,000
The budget for fixed costs will remain unchanged at $240,000.

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The Beanny Company had budgeted sales of 1,000 units with a per unit selling price of $5 per unit. Actual sales were 1,100 units at a selling price of $4.75. What is its sales volume variance?

 Standard costs are preset costs for a product under _____ conditions.
 
multiple choice
normal Correct
perfect
abnormal
ideal

Explanation
Knowledge Check 01
 
Standard costs are preset costs for a product under normal conditions. These costs are established with the help of personnel, engineering, and accounting studies using past experiences.

 To make a cake, one pound of dry cake mix is needed. However, when pouring cake mix into the mixing bowl, 10% spills onto the floor and is unusable. What is the standard amount of cake mix necessary to make a cake?
 
multiple choice
1.11 pounds
1.20 pounds
0.10 pounds
1.10 pounds Correct
Explanation
Knowledge Check 01
 
Allowance for loss = 1.0 pound × 10% = 0.1 pound. Standard quantity (practical standard) = Ideal quantity of 1 pound + Allowance for loss of 0.1 pound = 1.1 pounds.

 

The Beanny Company had budgeted sales of 1,000 units with a per unit selling price of $5 per unit. Actual sales were 1,100 units at a selling price of $4.75. What is its sales volume variance?
 
multiple choice
$475 Favorable
$500 Unfavorable
$500 Favorable Correct
$475 Unfavorable

Explanation
Knowledge Check 01
 
Sales volume variance = (Actual units sold of 1,100 − Budgeted units sold of 1,000) × Selling price of $5 per unit = $500 favorable. The variance is favorable because the actual units sold exceeded budgeted units sold.

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Tyler Guitars makes acoustic and electric guitars. It is struggling to determine the profitability of each guitar and deciding on which guitar to focus its sales efforts. Tyler currently has a capacity of 352 machine hours per month. The Tableau Dashboard shows data from the recent month.

 Tableau DA 10-3: Mini-Case, Analyzing sales mix strategies LO P3
Tyler Guitars makes acoustic and electric guitars. It is struggling to determine the profitability of each guitar and deciding on which guitar to focus its sales efforts. Tyler currently has a capacity of 352 machine hours per month. The Tableau Dashboard shows data from the recent month.

 

click here to see full question Data.

1. Compute contribution margin per machine hour for (a) acoustic guitars and (b) electric guitars.

2. Assume the maximum demand for acoustic guitars is 131 units (not 200 units). How many units of each type of guitar should the company produce?

3. Determine the month’s total contribution margin from the sales mix in part 2.

 

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