ADDITIONAL PRACTICE QUESTIONS WITH SOLUTIONS

Direct and Indirect Cost Variances

Question 1.
The flexible-budget variance for direct cost inputs can be further subdivided into a ________.
A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance

Solution to Question 1.
Answer: C

Question 2.
Standard cost per output unit for each variable direct cost input is calculated by multiplying
________.
A) standard input allowed for one output unit by standard price per input unit
B) standard input allowed for one output unit by actual price per input unit
C) actual input allowed for one output unit by standard price per input unit
D) actual input allowed for one output unit by actual price per input unit

Solution to Question 2.
Answer: A

Question 3.
Standard material cost per kg of raw material is $6.50. Standard material allowed per unit is 5
Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is $6.00. What is the standard
cost per output unit?
A) $30.00
B) $36.00
C) $32.50
D) $39.00

Solution to Question 3.
Answer: C
Explanation: Standard cost per output unit = Standard material cost per kg × standard material
allowed per unit = $6.50 × 5 kg = $32.50

Question 4.
Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In
2017, GII estimated the following standard costs for one of their major products, the 30-gallon
heavy-duty plastic container.

Budgeted quantity Budgeted price

Direct materials 0.30 pounds $50 per pound
Direct labor 0.60 hours $12 per hour

During July, GII produced and sold 4,000 containers using 1,350 pounds of direct materials at an
average cost per pound of $48 and 2,450 direct manufacturing labor hours at an average wage of
$12.25 per hour.
July's direct material flexible-budget variance is ________.
A) $4,800 unfavorable
B) $7,500 favorable
C) $9,900 unfavorable
D) $0

Solution to Question 4.
Answer: A
Explanation: Direct material flexible-budget variance = (1,350 × $48) − (4,000 × 0.30 × $50) =
$4,800 U

Question 5.
Mid City Products Inc. (MCP), developed standard costs for direct material and direct labor. In
2017, MCP estimated the following standard costs for one of their most popular products.

Budgeted quantity Budgeted price

Direct materials 2 pounds $2.30 per pound
Direct labor 0.40 hours $15.00 per hour

During September, MCP produced and sold 1,000 units using 2,200 pounds of direct materials at
an average cost per pound of $2.00 and 360 direct labor hours at an average wage of $15.15 per
hour.

The direct material efficiency variance during September is ________.

A) $660 favorable
B) $660 unfavorable
C) $460 favorable
D) $460 unfavorable

Solution to Question 5.
Answer: D
Explanation: Direct material efficiency variance = $2.30 × [2,200 − (1,000 × 2)] = $460 U

Question 6.
Handley Manufacturing Company has prepared the following flexible budget for August and is
in the process of interpreting the variances. F denotes a favorable variance and U denotes an
unfavorable variance.

Flexible Variances
Budget Price Efficiency
Material A $45,000 $1,100F $3,200U
Material B 61,000 800U 2,000F
Direct manufacturing labor 83,000 600U 2,500F

The actual amount spent for Material B was ________.

A) $58,200
B) $59,800
C) $61,000
D) $62,200
Solution to Question 6.
Answer: B
Explanation: $61,000 + $800 U - $2,000 F = $59,800

Question 7:
Midend's Camera Shop has prepared the following flexible budget for September and is in the
process of interpreting the variances. F denotes a favorable variance and U denotes an
unfavorable variance.

Flexible Variances
Budget Price Efficiency
Material A $26,000 $1,200U $1,600F
Material B 39,000 400F 800U
Material C 46,000 1,400U 2,400F

The actual amount spent for Material B was ________.

A) $38,600
B) $37,800
C) $40,200
D) $39,400

Solution to Question 7.
Answer: D
Explanation: Actual amount spent for Material B = $39,000 − $400 F + $800 U = $39,400

Question 8.
Nancy's Draperies manufactures curtains. A certain window curtain requires the following:

Direct materials standard 10 square yards at $5 per yard

Direct manufacturing labor standard 5 hours at $10 per hour

During the second quarter, the company made 1,500 curtains and used 14,000 square yards of
fabric costing $72,000. Direct labor totaled 7,600 hours for $83,600.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.

Solution to Question 8.
a. Direct materials variances:

Actual unit cost = $72,000/14,000 square yards

= $5.14 per square yard

Price variance = 14,000 × ($5.00 - $5.14)

= $1,960 unfavorable

Efficiency variance = $5.00 × [14,000 - (1,500 × 10)]

= $5,000 favorable

b. Direct manufacturing labor variances:

 Actual labor rate = $83,600/7,600
= $11.00 per hour

Price variance = 7,600 × ($11.00 - $10.00)

= $7,600 unfavorable

Efficiency variance = $10.00 × (7,600 - 7,500)

= $1,000 unfavorable

Question 9.
The following data for the Prender Company pertain to the production of 800 urns during
August.

Direct Materials (all materials purchased were used):

Standard cost: $4.80 per pound of urn.

Total actual cost: $4,480.
Standard cost allowed for units produced was $4,800.
Materials efficiency variance was $96 unfavorable.

Direct Manufacturing Labor:

Standard cost is 2 urns per hour at $19.20 per hour.

Actual cost per hour was $19.60.
Labor efficiency variance was $288 favorable.

Required:
a. What is standard direct material amount per urn?
b. What is the direct material price variance?
c. What is the total actual cost of direct manufacturing labor?
d. What is the labor price variance for direct manufacturing labor?

Solution to Question 9.
Answer:
a. Standard cost per urn = $4,800 / 800
= $6.00 per urn

Standard number of pounds per urn = $6.00 / $4.80

= 1.25 pound per urn

b. Materials price variance = Total variance - efficiency variance

= ($4,480 − $4,800) − $96 unfavorable
= $416 favorable

c. Total standard labor cost of actual hours = ((800/2) × $19.2) − $288 favorable
= $7,392
Actual hours = $7,392/19.2 = 385 hours
Total actual costs = 385 × $19.60 = $7,546

d. Labor price variance = $7,546 − $7,392

= $154 unfavorable
Question 10.
Littrell Company produces chairs and has determined the following direct cost categories and
budgeted amounts:

Standard Inputs Standard Cost

Category for 1 output per input
Direct Materials 1.00 $7.50
Direct Labor 0.30 9.00
Direct Marketing 0.50 3.00

Actual performance for the company is shown below:

Actual output: (in units) 4,000

Direct Materials:
Materials costs $30,225
Input purchased and used 3,900
Actual price per input $7.75
Direct Manufacturing Labor:
Labor costs $11,470
Labor-hours of input 1,240
Actual price per hour $9.25
Direct Marketing Labor:
Labor costs $5,880
Labor-hours of input 2,100
Actual price per hour $2.80

Required:
a. What is the combined total of the flexible-budget variances?
b. What is the price variance of the direct materials?
c. What is the rate variance of the direct manufacturing labor and the direct marketing labor,
respectively?
d. What is the efficiency variance for direct materials?
e. What are the efficiency variances for direct manufacturing labor and direct marketing
labor, respectively?

Solution for Question 10.

a. Actual Results Flexible Budget Variances
Direct materials $30,225 $30,000 $225 U
Direct manufacturing labor 11,470 10,800 670 U
Direct marketing labor 5,880 6,000 120 F
$47,575 $46,800 $775 U

b. ($7.75 - $7.50) × (3,900) = $975 unfavorable

c. Manufacturing Labor ($9.25 - $9.00) × 1,240 = $310 unfavorable

Marketing Labor ($2.80 - $3.00) × 2,100 = $420 favorable

d. [3,900 - (4,000 units × 1.00)] × $7.50 = $750 favorable

e. Manufacturing Labor = [1,240 hours - (4,000 × 0.30 hours)] × $9.00 = $360 unfavorable
Marketing Labor = [2,100 hours - (4,000 × 0.50 hours)] × $3.00 = $300.00 unfavorable
Question 11.
Coffey Company maintains a very large direct materials inventory because of critical demands
placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y.
Currently, the standard cost of material Y is $4.25 per gram. During February, 22,000 grams
were purchased for $4.40 per gram, while only 20,000 grams were used in production. There was
no beginning inventory of material Y.

Required:
a. Determine the direct materials price variance, assuming that all materials costs are the
responsibility of the materials purchasing manager.
b. Determine the direct materials price variance, assuming that all materials costs are the
responsibility of the production manager.
c. Discuss the issues involved in determining the price variance at the point of purchase
versus the point of consumption.

Solution for Question 11.

a. Material price variance = 22,000 × ($4.40 - $4.25)
= $3,300 unfavorable

b. Material price variance = 20,000 × ($4.40 - $4.25)

= $3,000 unfavorable

c. Measuring the price variance at the time of materials purchased is desirable in situations
where the amount of materials purchased varies substantially from the amount used during the
period. Failure to measure the price variance based on materials purchased could result in a
substantial delay in determining that a price change occurred.

Also, if the purchasing manager is to be held accountable for his/her purchasing activities, it is
appropriate to have the materials price variances computed at the time of purchase so the
manager can include the variances on his/her monthly report. This encourages the purchasing
manager to be more responsible for the activities under his/her control. It provides a closer
relationship between responsibility and authority and becomes a relevant performance measure.

Question 12.
Healthy Earth Products Inc. produces fertilizer and distributes the product by using company
trucks. The controller of the company uses budgeted fleet hours to allocate variable manufacturing
overhead. The following information relates to the company's manufacturing overhead data:

Budgeted output units 800 truckloads

Budgeted fleet hours 520 hours
Budgeted pounds of fertilizer 28,000,000 pounds
Budgeted variable manufacturing overhead costs for 800 loads $93,600.00

Actual output units produced and delivered 760 truckloads

Actual fleet hours 460 hours
Actual pounds of fertilizer produced and delivered 29,400,000 pounds
Actual variable manufacturing overhead costs $91,200.00
What is the budgeted variable overhead cost rate per output unit?
A) $114.00
B) $117.00
C) $123.16
D) $120.00

Solution to Question 12.

Answer: B
Explanation: Budgeted fleet hours per unit = 520 ÷ 800= 0.65
Budgeted cost per fleet hour = $93,600.00 ÷ 520 = $180
Budgeted cost per unit = $180 × 0.65 = $117.00

Question 13.
Majestic Corporation manufactures wheel barrows and uses budgeted machine hours to allocate
variable manufacturing overhead. The following information relates to the company's
manufacturing overhead data:

Budgeted output units 28,475 units

Budgeted machine-hours 17,085 hours
Budgeted variable manufacturing overhead costs for 28,475 units $358,785

Actual output units produced 32,475 units

Actual machine-hours used 15,000 hours
Actual variable manufacturing overhead costs $384,060

What is the flexible-budget amount for variable manufacturing overhead?

A) $358,785
B) $409,185
C) $384,060
D) $336,755

Solution to Question 13.

Answer: B
Explanation: Budgeted machine hours per unit = 17,085 ÷ 28,475 = 0.6
Budgeted machine hours allowed for 32,475 units = 32,475 × 0.6= 19,485
Budgeted variable overhead rate per machine hour = $358,785 ÷ 17,085 = $21.00
Flexible-budget amount = 19,485 × $21.00 = $409,185

Question 14.
Lancelot Corporation manufactures tennis gear and uses budgeted machine-hours to allocate
variable manufacturing overhead. The following information relates to the company's
manufacturing overhead data:

Budgeted output units 3,000 units

Budgeted machine-hours 15,000 hours
Budgeted variable manufacturing overhead costs for 3,000 units $180,000

Actual output units produced 3,350 units

Actual machine-hours used 14,700 hours
Actual variable manufacturing overhead costs $250,000

What is the flexible-budget variance for variable manufacturing overhead?

A) $49,000 unfavorable
B) $49,000 favorable
C) $70,000 unfavorable
D) $70,000 favorable

Solution to Question 14.

Answer: A
Explanation: Budgeted machine hours per unit = 15,000 ÷ 3,000 = 5
Budgeted machine hours allowed for 3,350 units = 3,350 × 5 = 16,750
Budgeted variable overhead rate per machine hour = $180,000 ÷ 15,000 = $12.00
Flexible-budget amount = 16,750 × $12.00 = $201,000
Flexible-budget variance = $250,000 − $201,000 = $49,000 U

Question 15.
Comfort Company manufactures pillows. The 2015 operating budget is based on production of
25,000 pillows with 0.75 machine-hour allowed per pillow. Budgeted variable overhead per hour
was $25.

Actual production for 2015 was 27,000 pillows using 19,050 machine-hours. Actual variable costs
were $23 per machine-hour.

Required:
Calculate the variable overhead spending and efficiency variances.

Solution to Question 15.

Answer: Budgeted variable overhead = $25 × (25,000 × 0.75) machine-hours = $468,750

Spending variance = ($25 − $23) × 19,050 = $38,100 favorable

Efficiency variance = [19,050 − (27,000 × 0.75)] × $25 = $30,000 favorable

Question 16.
Davidson Corporation manufactured 58,500 units during September. The following fixed
overhead data relates to September:
Actual Static Budget
Production 58,500 units 58,000 units
Machine-hours 3,320 hours 3,480 hours
Fixed overhead costs for September $170,220 $170,520

What is the amount of fixed overhead allocated to production?

A) $171,990
B) $170,220
C) $170,520
D) $58,500

Solution to Question 16.

Answer: A
Explanation: Fixed overhead cost per machine hour = $170,520 ÷ 3,480 = $49
Machine hours per unit = 3,480 ÷ 58,000 = 0.06
Fixed overhead cost per unit = $49 × 0.06 = $2.94
Fixed overhead allocated = 58,500 × $2.94 = $171,990