1.  A materials quantity variance is calculated as the difference between the standard direct

     materials price and the actual direct materials price multiplied by the actual quantity of

     direct materials used. ________

2.  Standard cost + price variance + quantity variance = Budgeted cost. ________

 3.  The overhead controllable variance relates primarily to fixed overhead costs. ________

 4.  The flexible budget report evaluates a manager's performance in two areas:  (1)

     production and (2) costs. ________

 5.  The manager of an investment center can improve ROI by reducing average operating

     assets. ________

 Multiple Choice

 

6.  The comparison of differences between actual and planned results

a. is done by the external auditors.

b. appears on the company's external financial statements.

c. is usually done orally in departmental meetings.

d. appears on periodic budget reports.

 

7. A static budget report

a. shows costs at only 2 or 3 different levels of activity.

b. is appropriate in evaluating a manager's effectiveness in controlling variable costs.

c. should be used when the actual level of activity is materially different from the master

    budget activity level.

d. may be appropriate in evaluating a manager's effectiveness in controlling costs when the

    behavior of the costs in response to changes in activity is fixed.

 

8. Top management's reaction to a difference between budgeted and actual sales often

    depends on

a. whether the difference is favorable or unfavorable.

b. whether management anticipated the difference.

c. the materiality of the difference.

d. the personality of the top managers.

 

9. A standard which represents an efficient level of performance that is attainable under

    expected operating conditions is called

a. ideal standard.

b. loose standard.

c. tight standard.

d. normal standard.

 

10. A manufacturing company would include setup and downtime in their direct

a. materials price standard.

b. materials quantity standard.

c. labor price standard.

d. labor quantity standard.

 

Problems (80 Points)

 

11.  Lloyd Inc. manufactures and sells a nutrition drink for children. It wants to develop a

       standard cost per gallon. The following are required for production of a 100 gallon batch:

 

                  1,960 ounces of lime Kool-Drink at $.10 per ounce

                  40 pounds of granulated sugar at $.60 per pound

                  63 kiwi fruit at $.50 each

                  100 protein tablets at $.90 each

                  4,000 ounces of water at $.002 per ounce

 

Lloyd estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the kiwis cannot be used.

 

Compute the standard cost of the ingredients for one gallon of the nutrition drink.

 

12. Kwik Repair Service, Inc. is trying to establish the standard labor cost of a typical engine tune-up. The following data have been collected from time and motion studies conducted over the past month.

 

         Actual time spent on the tune-up         1.0 hour

         Hourly wage rate                                    $12

         Payroll taxes                                    10% of wage rate

         Setup and downtime                           10% of actual labor time

         Cleanup and rest periods                           20% of actual labor time

         Fringe benefits                                    25% of wage rate

 

(a) Determine the standard direct labor hours per tune-up

(b) Determine the standard direct labor hourly rate.

(c) Determine the standard direct labor cost per tune-up.

(d) If a tune-up took 1.5 hours at the standard hourly rate, what was the direct labor?

      quantity variance?

 

13. Data concerning manufacturing overhead for Barkley Company are presented below. The Mixing Department is a cost center.

 

An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the Mixing Department and that 50% of supervisory costs are controllable at the department level.

 

The flexible budget formula and the cost and activity for the months of July and August

      are as follows:

                                             Flexible Budget Per

                                             Direct Labor Hour                      Actual Costs and Activity        

                                                                                                    July               August        

Direct labor hours                                                                               6,000                   7,000

Overhead costs

         Variable

                  Indirect materials                  $3.50                           $  20,500               $  25,100

                  Indirect labor                  6.00                               39,500                   40,700

                  Factory supplies                     1.00                                 7,600                    8,200

         Fixed

                  Depreciation               $20,000                                      15,000                   15,000

                  Supervision                          25,000                                      23,000                  26,000

                  Property taxes                 10,000                                       12,000                   12,000

Total costs                                                                           $117,600               $127,000

 

(a)  Prepare the responsibility reports for the Mixing Department for each month.

(b)  Comment on the manager's performance in controlling costs during the two month

      period.

 

 

14. The East Division, a profit center of Baden Engineering Company, reported the following

      data for the first quarter of 2011:

 

         Sales                                                      $6,000,000

         Variable costs                                      4,200,000

         Controllable direct fixed costs                       800,000

         Noncontrollable direct fixed costs              530,000

         Indirect fixed costs                                         200,000

 

Instructions

(a)         Prepare a performance report for the manager of the East Division.

(b)         What is the best measure of the manager's performance?  Why?

(c)         How would the responsibility report differ if the division was an investment center?

 

 

15.  Ramirez Manufacturing Inc. has three divisions which are operated as profit centers.

      Actual operating data for the divisions listed alphabetically are as follows.

 

      Operating Data                        Women's Shoes         Men's Shoes                  Children's Shoes

Contribution margin                       $210,000                          (3)                       $200,000

Controllable fixed costs                           100,000                          (4)                                    (5)

Controllable margin                                  (1)                  $  90,000                               96,000

Sales                                                      600,000                      480,000                                   (6)

Variable costs                                         (2)                      330,000                           250,000

Instructions

(a)  Compute the missing amounts. Show computations.

(b)  Prepare a responsibility report for the Women's Shoe Division assuming (1) the data are

      for the month ended June 30, 2011, and (2) all data equal budget except variable costs

      which are $15,000 over budget.