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Exam 8: Standard Costing and Variance Analysis

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Question 21

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One drawback of using standard costing is that it is

A) expensive to use.
B) difficult to implement.
C) often inaccurate.
D) not applicable to most manufacturing systems.

E) None of the above
F) A) and C)

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Question 22

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Using the standard costs of $5 per pound for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct materials variance. $\begin{array}{lr}\text { Direct materials purchased and used}&\text {99,000 pounds }\\\text {Price paid for direct materials }&\text { \$ 4.00 per pound}\\\text {Number of good units prochuced }&\text {9,000 units }\\\end{array}$

A) $45,000 (F)
B) $45,000 (U)
C) $54,000 (F)
D) $99,000 (F)

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

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Question 23

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Variable overhead variances: a. Variable overhead spending variance: $\begin{array}{|l|l|}\hline \text { Budgeted variable overhead for actual hours } & \\\hline \text { (\$5.00/hr' } 10,900 \mathrm{hr}) & \$ 54,500 \\\hline \text { Less actual variable overhead costs } & 55.100 \\\hline \text { Variable overhead spending variance } & \$ 600(\mathrm{U}) \\\hline\end{array}$

The direct labor rate variance is the difference between actual hours worked and standard hours allowed for good units produced, multiplied by the standard labor rate.

In a standard costing system, standard costs eventually flow into the

Prepare a flexible budget for 8,000, 9,000, and 10,000 units of output, given the following data: $\begin{array}{ll}\text { Variable costs }&\text { Budgeted fixed overhead }&\$90,000\\\text { Direct materials } \quad \$ 5 \\\text { Direct labor } \quad \quad \quad 4 \\\text { Onrethear } \quad\quad \quad\quad 8\end{array}$

The fixed overhead volume variance measures the use of existing facilities and capacity.

Point Company uses the standard costing method. The company's main product is a fine-quality audio speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours, and budgeted fixed overhead costs for the year were $6,750. During the year, the company produced and sold 8,000 units. Actual fixed overhead costs were $4,800. - Compute the fixed overhead variance.

Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct labor variance. $\begin{array}{lr}\text {Direct labor hours used }&\text {4,950 hours }\\\text { Total cost of direct labor}&\text {\$ 53,460 }\\\text {Number of good units prochuced }&\text { 9,000 units}\\\end{array}$

If the actual amount of direct materials used equals the standard amount of direct materials that should have been used, the difference between the standard cost and actual cost of direct materials is called the

Which of the following provides an explanation of why the variable overhead rate is separated from the fixed overhead rate in standard costing?

The total fixed overhead variance is comprised of the

A favorable fixed overhead volume variance for a manufacturing company could indicate

The flexible budget formula is an equation that determines unexpected costs at any level of output.

Keerin, Inc., produces a complete line of women's athletic apparel. Sweatsuits are very popular in the northern states. During August, the company's records revealed the following information about the production of sweatsuits: $\begin{array}{lll} \text { Standerds: } & \text { Direct materials } & \text { 5 yards@ \$ 2.50 per yard} \\& \text { Direct labor} & \text { 1 hour@\$9.50 per hour } &\\& \text { Overhead:} & \text { } &\\& \text { Variable } & \text { \( \$ 5.50 \) per direct labor hour } &\\& \text {Fixed. } & \text { \( \$ 7 \) per direct labor hour} &\\\end{array}$ Compute the standard unit cost for a sweatsuit.

Fantastic Lips, Inc., specializes in manufacturing lipstick. Racy Red, one of more than 75 shades produced by the company, is made from castor oil, beeswax, aloe vera, and a base compound. For the next 12 months, the company's purchasing agent believes that the cost of ingredients will be as follows: $\begin{array}{|l|l|l|}\hline \text { Ingredient } & \text { Standard Cost } & \\\hline \text { Castor oil } & \$ 6.95 & \text { per gallon } \\\hline \text { Beeswax } & \$ 5.40 & \text { per pound } \\\hline \text { Aloe vera } & \$ 19.60 & \text { per gallon } \\\hline \text { Basse compound } & \$ 25.00 & \text { per gallon } \\\hline\end{array}$ The direct labor time standard is 4 hours per case at a standard direct labor rate of $11.00 per hour. The standard overhead rates are $15.00 per direct labor hour for the standard variable overhead rate and $13.00 per direct labor hour for the standard fixed overhead rate. a. Using these production standards, compute the standard unit cost of direct materials per case of Racy Red if it takes 0.2 gallon of castor oil, 0.5 pound of beeswax, 0.3 gallon of aloe vera, and 1 gallon of base compound to produce one case. b. Using the standard unit cost of direct materials per case determined in (a) and the production standards given for direct labor and overhead, compute the standard unit cost of one case of Racy Red lipstick.

Service organizations do not develop standards for

Comparing "what did happen" with "what should have happened" aids in the performance evaluation of a company.

The total overhead variance is the difference between standard variable overhead costs and standard fixed overhead costs.

Discuss standard costing. As part of your discussion, define a standard cost. In addition, compare and contrast standard costs and predetermined overhead costs. Include in your discussion at least three reasons why standard costs are introduced into a standard cost accounting system. How is a standard cost accounting system useful to management?