Exam: 061572RR – Budgeting; Standard Cost Accounting

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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. RHO Company began its operations on January 1 and produces a single product that sells for $10.25 per unit. The standard capacity is 80,000 units per year. During the year, 80,000 units were produced and 70,000 units were sold. Manufacturing costs and selling and administrative expenses follow:

What is the standard cost of manufacturing a unit of product?

Fixed Costs Variable Costs Raw materials — $2.50 per unit produced

Direct labor — 1.50 per unit produced

Factory overhead $120,000 1.00 per unit produced

Selling and administrative 80,000 .50 per unit sold

A. $5.00

B. $6.00

C. $6.50

D. $5.50

2. Donellan Company has a standard and flexible budgeting system and uses a two-variance analysis of factory overhead. Selected data for the February production activity follows:

What is the flexible-budget variance for February?

Budgeted fixed factory overhead costs $70,000

Actual factory overhead incurred $250,000

Variable factory overhead rate per direct labor hour $7

Standard direct labor hours 25,000

Actual direct labor hours 26,000

A. $5,000 favorable

B. $5,000 unfavorable

C. $2,000 unfavorable

D. $2,000 favorable

3. Kale Corporation’s budgeted fixed factory overhead costs are $25,000 per month plus a variable factory overhead rate of $8.00 per direct labor hour. The standard direct labor hours allowed for November production were 10,000. An analysis of the factory overhead indicates that in November, Kale had a favorable flexible-budget variance of $1,500 and an unfavorable production-volume variance of $500. Kale

uses a two-variance analysis of overhead variances. What is the actual factory overhead incurred in October? A. $106,500

B. $104,500

C. $105,500

D. $103,500

4. Which of the following is not a requirement of budgeting? A. There must be accountability for actual results.

B. The budget must not be changed under any circumstances.

C. Management must clearly define its objectives.

D. Goals must be realistic and possible to attain.

5. The purpose of a flexible budget is to A. eliminate cyclical fluctuations in production reports by ignoring variable costs.

B. reduce the total time in preparing the annual budget.

C. compare actual and budgeted results at virtually any level of production.

D. allow management some latitude in meeting goals.

6. In a three-variance method of factory overhead analysis, _______ variance measures the difference between the factory overhead applied and the actual hours worked multiplied by the standard rate. A. quantity

B. production-volume

C. efficiency

D. spending

7. The purpose of standard cost accounting is to A. determine the optimal production level for a given period.

B. allocate cost with more accuracy.

C. control costs and promote efficiency.

D. eliminate the need for subjective decisions by management.

8. In a standard cost system, the materials quantity variance is the difference between the A. actual quantity used and the actual quantity purchased multiplied by the standard unit price.

B. actual and standard quantities multiplied by the actual unit price.

C. actual and standard quantities.

D. actual and standard quantities multiplied by the standard unit price.

9. When computing variances from standard costs, the difference between actual and standard price multiplied by actual quantity yields A. mix variance.

B. price variance.

C. combined price-quantity variance.

D. volume variance.

10. What type of direct material variances for price and quantity will arise if the actual number of pounds of materials used exceeds standard pounds allowed (actual cost was less than standard cost)? A. Quantity favorable; price favorable

B. Quantity unfavorable; price unfavorable

C. Quantity favorable; price unfavorable

D. Quantity unfavorable; price favorable

11. PHI Company began its operations on January 1 and produces a single product that sells for $35.00 per unit. During the year, 5,000 units were produced and 4,000 units were sold. Standard costs per unit follow:

What is the entry to record the finished goods?

Standard Cost Raw materials $12.50

Direct labor 6.50

Factory overhead 4.00


Finished goods 115,000

Work in process 115,000


Work in process 115,000

Finished goods 115,000


Cost of goods sold 92,000

Finished goods 92,000


Finished goods 92,000

Work in process 92,000

12. In a three-variance method of factory overhead analysis, _______ variance indicates that the volume of production was more or less than budgeted. A. efficiency

B. spending

C. production-volume

D. quantity

13. Julia Industries produces cookware. The master budget called for production of 75,000 units this year. The budget at that level of production follows:

Due to the popularity of cooking shows on television, Julia Industries now estimates sales will be 80,000 units. What is budgeted operating income at this level?

Sales $1,200,000

Direct materials 300,000

Direct labor 150,000

Variable factory overhead 225,000

Fixed factory overhead 262,500

Fixed selling and administrative expense 112,500

Operating income $150,000

A. $230,000

B. $167,500

C. $160,000

D. $185,000

14. Consider the following budgets: (1) Direct materials (2) Income statement (3) Production (4) Cost of goods sold In what order should these budgets be prepared? A. 1, 3, 4, 2

B. 3, 4, 1, 2

C. 2, 3, 1, 4

D. 3, 1, 4, 2

15. Which of the following is not a feature of a standard cost system? A. Standards aren’t adjusted.

B. A standard cost system focuses management’s attention on materials prices and usages.

C. Comparisons between actual and standard costs are more effective than comparisons between actual costs of the current period and those of the prior period.

D. Standards provide incentives for workers to keep costs in line.

16. In the three-variance method of factory overhead analysis, _______ variance represents the difference between actual factory overhead incurred and budgeted factory overhead based on actual hours worked. A. spending

B. production-volume

C. efficiency

D. quantity

17. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per Style-R table is $7.20 based on 8 square feet of vinyl at a cost of $.90 per square foot. A production

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run of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of $.85 per square foot, a total cost of $7,055. If the materials price variance was recorded when the material was issued to production, what is the variance? A. $415 unfavorable

B. $415 favorable

C. $145 unfavorable

D. $145 favorable

18. If a company follows a practice of isolating variances at the earliest point in time, what is the appropriate time to isolate and recognize a direct material price variance? A. When material is used in production

B. When material is issued

C. When a purchase order is originated

D. When material is purchased

19. In a four-variance method analyzing factory overhead, the fixed factory overhead spending variance measures the difference between the A. budgeted fixed factory overhead and the amount of fixed factory overhead applied to production.

B. actual hours and standard hours allowed multiplied by the standard fixed factory overhead rate.

C. actual fixed factory overhead and the amount of fixed factory overhead applied to production.

D. actual fixed factory overhead and budgeted fixed factory overhead.

20. Taking appropriate action on variances includes all of the following except A. revising the standard because it was set incorrectly.

B. looking for new suppliers.

C. improving the manufacturing process.

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