Horngren Ima16 Tif 08 GE

Introduction to Management Accounting, 16e, Global Edition (Horngren)
Chapter 8 Flexible Budgets and Variance Analysis
8.1 Questions
1) An example of a favorable variance is ________.

A) actual revenues are less than expected revenues
B) actual expenses are less than expected expenses
C) actual material prices are greater than expected material prices
D) expected labor costs are less than actual labor costs
Answer: B
Diff: 2
LO: 8-1
AACSB: Analytic skills
Learning Outcome: Discuss standard costing and variance analysis
2) Spending less than budgeted for maintenance costs will result in a(n) ________ variance. When actual
revenues exceed budgeted revenues, this results in a(n) ________ variance.
A) unfavorable; unfavorable
B) unfavorable; favorable
C) favorable; unfavorable
D) favorable; favorable
Answer: D
Diff: 2
LO: 8-1
AACSB: Reflective thinking skills
3) Unfavorable variances ________ represent bad decisions made by managers.

A) always
B) sometimes
C) never
D) none of the above
Answer: B
Diff: 1
LO: 8-1
4) If actual expenses are less than expected expenses, the expense variance will be unfavorable.
Answer: FALSE
Diff: 2
LO: 8-1
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5) A favorable expense variance is when budgeted expenses are less than actual expenses.
Answer: FALSE
Diff: 2
LO: 8-1
8.2 Questions
1) A budget prepared for one expected level of activity is called a ________.

A) flexible budget
B) static budget
C) variable budget
D) rolling budget
Answer: B
Diff: 1
LO: 8-2
Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets
2) A budget prepared for different levels of activity is called a ________.

A) rolling budget
B) operating budget
C) flexible budget
D) static budget
Answer: C
Diff: 1
LO: 8-2
3) The static budget is based on the ________ level of output and the flexible budget is based on the
________ level of output.
A) actual; expected
B) expected; actual
C) expected; planned
D) actual; projected
Answer: B
Diff: 2
LO: 8-2
2
4) A static budget is prepared for one expected level of activity.
Answer: TRUE
Diff: 1
LO: 8-2
5) A static budget has multiple levels of activity.

Answer: FALSE
Diff: 1
LO: 8-2
6) A flexible budget is different from a variable budget.

Answer: FALSE
Diff: 1
LO: 8-2
7) A flexible budget adjusts for changes in sales volume and other cost-drivers.
Answer: TRUE
Diff: 1
LO: 8-2
8.3 Questions
1) To calculate the numbers in a flexible budget, managers use ________.

A) cost functions developed from regression analysis
B) flexible budget formulas
C) cost functions obtained from the high-low method
D) all of the above
Answer: D
Diff: 2
LO: 8-3
3
2) When preparing a flexible budget income statement, ________ costs are constant at different levels of
activity.
A) variable
B) step
C) contributed
D) fixed
Answer: D
Diff: 2
LO: 8-3
3) Which of the following statements is FALSE?

A) Flexible budgets are prepared for a range of activity.
B) Flexible budgets are matched to actual levels of activity.
C) A flexible budget is also called a variable budget.
D) Flexible budgets are based on different assumptions about cost behavior than those used for static
budgets.
Answer: D
Diff: 2
LO: 8-3
4) Oroz Company had the following information available:
Expected Costs and Selling Price Based on 5,000 units:

Variable manufacturing costs per unit $32
Fixed manufacturing costs per unit $20
Selling price per unit $70
Expected production level 5,000 units
In the flexible budget at 10,000 units, what is the total manufacturing cost?
A) $250,000
B) $420,000
C) $520,000
D) $700,000
Answer: B
Diff: 2
LO: 8-3
4
5) Perez Company had the following information available:
Expected Costs and Selling Price Based on 5,000 Units:

Variable manufacturing costs per unit $32
Fixed manufacturing costs per unit $20
Selling price per unit $70
Expected production level 5,000 units
In the flexible budget at 15,000 units, what is the total manufacturing cost?
A) $480,000
B) $580,000
C) $680,000
D) $780,000
Answer: B
Diff: 2
LO: 8-3
6) Huntsman Company's variable selling and administrative expenses are $48,000 at a production level of
6,000 units. If the production level is 8,000 units, what are the variable selling administrative expenses?
A) $48,000
B) $56,000
C) $64,000
D) $80,000
Answer: C
Diff: 1
LO: 8-3
7) Which of the following is used to develop flexible budgets?

A) fixed overhead variances
B) static budget variances
C) flexible budget variances
D) cost functions
Answer: D
Diff: 1
LO: 8-3
5
8) A company that has an activity-based costing system with multiple cost drivers will prepare a(n)
________ budget.
A) financial planning
B) short-range planning
C) activity-based flexible
D) strategic
Answer: C
Diff: 2
LO: 8-3
9) When should a company use an activity-based flexible budget with multiple cost drivers instead of a
simple flexible budget with one cost driver?
A) when a significant portion of costs vary with only one cost driver
B) when a significant portion of costs vary with the number of units of output
C) when a significant portion of costs vary with the number of units of sales
D) when a significant portion of costs vary with cost drivers other than units of output
Answer: D
Diff: 2
LO: 8-3
10) Perez Company uses activity-based costing. The company is trying to estimate the costs of the
processing activity in the factory. The company has developed the following flexible budget formula:
Y = $10.50X + $13,000
Where: Y = Total processing cost per quarter and X = Number of machine hours
If 10,000 machine hours are used next quarter, total variable costs are ________ and total fixed costs are
________.
A) $105,000; $13,000
B) $105,000; $130,000,000
C) $113,000; $130,000,000
D) $10.50; $13,000
Answer: A
Diff: 2
LO: 8-3
6
11) Garcia Company planned to produce 12,000 units. This level of activity required 40 setups at a cost of
$18,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup cost
was $26,000. What is the static budget amount for total setup costs?
A) $21,000
B) $25,500
C) $26,000
D) $38,000
Answer: D
Diff: 2
LO: 8-3
12) Sanchez Company planned to produce 12,000 units. This level of activity required 20 setups at a cost
of $22,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup cost
was $26,000. At 10,000 units, what is the flexible budget amount for total setup costs?
A) $7,500
B) $22,000
C) $26,000
D) $29,500
Answer: D
Diff: 2
LO: 8-3
7
13) Fill in the blanks to complete the flexible budget for Mammoth Company. Assume the different levels
of output are in the relevant range.
____________________________________________________________
Budget Various Levels of Output
Formula
Per Unit
Units 3,000 4,000 5,000
Sales $25 _____ _____ _____
Variable costs:
Manufacturing _____ _____ $32,000 _____
Administrative $2.625 _____ _____ _____
Fixed costs:
Manufacturing _____ _____ $25,000
Administrative $12,500 _____ _____
Operating income _____ _____ _____

Answer: 3,000 4,000 5,000
Sales $75,000 $100,000 $125,000
Variable costs:
Manufacturing 24,000 32,000 40,000
Administrative 7,875 10,500 13,125
Fixed costs:
Manufacturing 25,000 25,000 25,000
Operating income $5,625 $20,000 $34,375
Diff: 2
LO: 8-3
8
14) Use the following data to prepare a flexible budget for possible production levels of 5,000, 5,500 and
6,000 units. Assume all levels of production are in the same relevant range.
Sales price $12.00 per unit

Variable costs:
Manufacturing $6.00 per unit
Administrative $1.50 per unit
Selling $0.50 per unit
Fixed costs(at 5,000 units):

Manufacturing $15,000
Administrative $5,000
Answer: Units 5,000 5,500 6,000
Sales $60,000 $66,000 $72,000
Variable costs:
Manufacturing 30,000 33,000 36,000
Selling 2,500 2,750 3,000
Contribution margin 20,000 22,000 24,000
Fixed costs:
Manufacturing 15,000 15,000 15,000
Operating income $0 $2,000 $4,000
Diff: 2
LO: 8-3
8.4 Questions
1) The activity-level variance for fixed costs equals zero when ________.
A) the actual level of output equals the static budget level of output
B) the actual level of output is greater than the static budget level of output
C) the actual level of output is less than the static budget level of output
D) all of the above
Answer: D
Diff: 3
LO: 8-4
9
2) In the relevant range, the sales-activity variance for fixed costs is always ________.
A) greater than the flexible budget variance
B) less than the flexible budget variance
C) greater than the static budget variance
D) zero
Answer: D
Diff: 3
LO: 8-4
3) The static budget variance is the difference between the ________ and the ________.
A) amounts for the flexible budget; amounts for the static budget
B) flexible budget variance; activity level variance
C) actual results; amounts for the static budget
D) actual results; amounts for the flexible budget
Answer: C
Diff: 2
LO: 8-4
4) The static budget variance is equal to the sum of ________ and ________.
A) direct materials variance; direct labor variance
B) fixed overhead variance; variable overhead variance
C) flexible budget variance; activity-level variance
D) direct materials price variance; direct materials quantity variance
Answer: C
Diff: 2
LO: 8-4
10
5) Kilsdonk Company has the following information available:
Budgeted cost of direct materials at 900,000 units $900,000

Actual cost of direct materials at 820,000 units $840,000
Actual level of output(units) 820,000
Planned level of output(units) 900,000
The cost driver of product costs is units of output. What is the static budget variance for direct material
costs?
A) $20,000 Unfavorable
B) $20,000 Favorable
C) $60,000 Favorable
D) $60,000 Unfavorable
Answer: C
Diff: 2
LO: 8-4
6) Margaret Duffy Company has the following information available:

Actual cost of direct materials at 820,000 units $840,000
Actual level of output(units) 820,000
Planned level of output(units) 900,000
The cost driver of product costs is units of output. What is the flexible budget variance for direct material
costs?
Answer: A
Diff: 2
LO: 8-4
11
7) Corrao Company had a static budgeted operating income of $8.6 million. Actual operating income was
$6.4 million. The flexible budget operating income at the actual level of output is $7,000,000. What is the
static-budget variance of operating income?
A) $1.6 million Favorable
B) $1.6 million Unfavorable
C) $2.2 million Favorable
D) $2.2 million Unfavorable
Answer: D
Diff: 2
LO: 8-4
8) For the current year, LeBombard Company's static budget sales were $225,000. Actual sales for the
current year were $220,000. Actual sales last year were $219,000. Expected sales last year were $225,000.
What is the static budget variance for sales in the current year?
A) $5,000 Favorable
B) $5,000 Unfavorable
C) $6,000 Favorable
Answer: B
Diff: 2
LO: 8-4
9) Differences between the actual results and the flexible budget at the actual level of output achieved are
________ variances.
A) static budget
B) activity budget
C) flexible budget
D) operating budget
Answer: C
Diff: 2
LO: 8-4
12
10) Conner Company has the following information:
Actual operating loss at 5,000 units $(11,000)

Budgeted operating income at 5,000 units $5,000
Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume units of output are the cost driver for product costs. What is the static budget variance for
operating income?
C) $23,000 Unfavorable
D) $23,000 Favorable
Answer: C
Diff: 2
LO: 8-4
11) Potter Company has the following information:
Actual operating loss at 5,000 units $(11,000)

Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume the cost driver of product costs is units of production. What is the flexible budget variance for
operating income?
Answer: C
Diff: 2
LO: 8-4
13
12) Assume sales are the cost driver for product costs. The difference between the static budget amount
for sales and the flexible budget amount for sales at the actual level of sales is called the ________. The
difference between the flexible budget amount for sales at the actual level of sales and the actual amount
for sales is called the ________.
A) static variance; flexible budget variance
B) master variance; flexible budget variance
C) quantity variance; static budget variance
D) sales activity variance; flexible budget variance
Answer: D
Diff: 2
LO: 8-4
13) Differences between actual results and the static budget at the original planned level of output are
________ variances.
A) flexible budget
B) financial budget
C) operating budget
D) static budget
Answer: D
Diff: 2
LO: 8-4
14) Flexible budget variances are the deviations of actual results from the ________.
A) flexible budget amounts for the achieved level of activity
B) flexible budget amounts for the static level of activity
C) static budget amounts for the expected level of activity
D) static budget amounts for last year's level of activity
Answer: A
Diff: 2
LO: 8-4
15) The amount of actual operating income may differ from the static budget amount for operating
income because ________.
A) actual output levels were not the same as in the static budget
B) actual variable costs were higher than expected variable costs
C) actual fixed costs were higher than expected fixed costs
D) all of the above
Answer: D
Diff: 2
LO: 8-4
14
16) Which is NOT a reason for a static budget variance?
A) Actual sales volume was higher than projected sales volume.
B) Actual variable costs were higher than static budget variable costs.
C) Actual fixed costs were higher than static budget fixed costs.
D) Actual sales volume in current period was higher than projected sales volume in last period.
Answer: D
Diff: 2
LO: 8-4
17) If sales are the cost driver, unfavorable flexible budget variances result from ________.
A) actual costs exceeding planned costs
B) planned costs exceeding actual costs
C) actual sales exceeding planned sales
D) planned sales exceeding actual sales
Answer: A
Diff: 2
LO: 8-4
18) Flexible budget variances are the difference between the actual results and ________.
A) the static budget for the planned level of output
B) the flexible budget for the planned level of output
C) the flexible budget for the actual level of output
D) the master budget for the planned level of output
Answer: C
Diff: 2
LO: 8-4
15
19) The following data are for Pablo Corporation:
Flexible Budget for

Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
The flexible budget variance for operating income is ________.

A) $2,000 Favorable
Answer: D
Diff: 2
LO: 8-4
20) The following data are for California Closets:
Flexible Budget for

Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Fixed costs 76,000 80,000 80,000
The sales activity variance for operating income is ________.

A) $14,000 Favorable
Answer: C
Diff: 2
LO: 8-4
16
21) The following data are for Sandy Corporation:
Flexible Budget for

Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Fixed costs 76,000 80,000 80,000
The static budget variance for operating income is ________.

A) $2,000 Favorable
Answer: A
Diff: 2
LO: 8-4
22) If the flexible budget variance was $6,000 Favorable and the sales activity variance was $3,000
Favorable, then the static budget variance was ________.
A) $3,000 Favorable
C) $9,000 Favorable
Answer: C
Diff: 2
LO: 8-4
23) Who is usually responsible for sales activity variances for income?
A) operating managers in factory
B) marketing managers
C) research and development function
D) product design function
Answer: B
Diff: 2
LO: 8-4
17
24) If the sales activity variance was $8,000 Favorable and the static budget variance was $10,000
Favorable, then the flexible budget variance was ________.
A) $2,000 Favorable
Answer: A
Diff: 2
LO: 8-4
25) The sales activity variance for ________ will always be zero.
A) sales
B) contribution margin
C) variable costs
D) fixed costs
Answer: D
Diff: 2
LO: 8-4
26) Brad Company planned to produce 12,000 units. This level of production required 20 setups at a cost
of $18,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup cost
was $26,000. What is the static budget variance for setup costs?
A) $2,000 Favorable
C) $2,500 Favorable
Answer: A
Diff: 2
LO: 8-4
27) Leshan Company planned to produce 12,000 units. This level of production required 20 setups at a
cost of $18,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup
cost was $26,000. What is the flexible budget variance for setup costs?
A) $500 Favorable
B) $500 Unfavorable
C) $2,000 Favorable
Answer: B
Diff: 3
LO: 8-4
18
28) Which statement would NOT be a reason for a flexible budget variance?
A) Material prices were different than expected.
B) Labor prices were different than expected.
C) Actual volume of activity was different than expected.
D) Amount of labor used per unit of output was different than expected.
Answer: C
Diff: 3
LO: 8-4
29) Total static budget variances are equal to the sum of activity-level variances and flexible budget
variances.
Answer: TRUE
Diff: 3
LO: 8-4
30) The static budget variance is the difference between actual results and the static budget for the
original planned level of output.
Answer: TRUE
Diff: 2
LO: 8-4
31) If the total sales-activity variance and the static-budget variance are equal, there is no flexible budget
variance.
Answer: TRUE
Diff: 2
LO: 8-4
19
32) The following data are for the month of January for the Soloway Company. Assume the cost driver is
the number of units sold.
Static budget data:

Sales of 9,000 pairs at $90 per pair
Variable costs of $69 per pair
Total fixed costs $108,000
Actual results:
Sales of 9,600 pairs at $87 per pair
Variable costs of $72 per pair
Total fixed costs $109,200
Required:
A) What is the static budget operating income?
B) What is the sales activity variance for operating income?
C) What is the flexible budget variance for operating income?
Answer:
Actual Flexible Budget Static Budget
Sales $835,200 $864,000 $810,000
Variable costs 691,200 662,400 621,000
Fixed costs 109,200 108,000 108,000
A) $81,000
Diff: 2
LO: 8-4
20
33) Sunday Corporation prepared the following performance report for variable overhead costs for the
last quarter of the year. Machine hours are the cost driver for all overhead costs.
Static
Cost Driver(Machine Hours) Actual Budget
Variable Overhead Costs: 38,000 35,000 Variances
Utilities $15,700 $14,000 $1,700 U
Indirect Labor 86,500 80,500 6,000 U
Supplies 26,000 21,000 5,000 U
Maintenance 44,900 42,000 2,900 U
Total Variable Overhead Costs $173,100 $157,500 $15,600 U
The cost formulas used for the variable overhead costs are:
Variable Overhead Costs Cost Formula

Utilities $0.40 per machine hour
Indirect Labor $2.30 per machine hour
Supplies $0.60 per machine hour
Maintenance $1.20 per machine hour
Your boss called you into the office and reprimanded you for the unfavorable variances. The boss says
you are fired unless you can explain why the variances are all unfavorable.
Required:
Calculate the flexible budget variances and the activity-level variances for each cost.
Answer:
Flexible Activity
Budget Flexible Level Static
Actual Variances Budget Variances Budget
Utilities $15,700 $500 U $15,200 $1,200 U $14,000
Indirect Labor 86,500 900 F 87,400 6,900 U 80,500
Supplies 26,000 3,200 U 22,800 1,800 U 21,000
Maintenance 44,900 700 F 45,600 3,600 U 42,000
Total $173,100 $2,100 U $171,000 $13,500 U $157,500
Diff: 3
LO: 8-4
21
34) Differentiate between a static budget variance and a flexible budget variance.
Answer: A static budget variance is the difference between the originally planned (static) amount and the
actual amount. In the case of sales, the static budget variance for sales is the difference between sales at
the planned level of operations and sales at the actual level of operations.
A flexible budget variance is the difference between the actual amount and the amount that is expected
for the actual level of output achieved. In the case of sales, the flexible budget variance is the difference
between sales at the actual level of operations and expected sales at the actual level of operations.
Diff: 3
LO: 8-4
8.5 Questions
1) One variance often influences another variance. If the direct materials price variance is favorable, then
it is possible that this variance will cause ________.
A) the direct materials quantity variance to be unfavorable
B) the direct labor price variance to be unfavorable
C) the direct labor price variance to be favorable
D) the direct materials quantity variance to be favorable
Answer: A
Diff: 2
LO: 8-5
2) Which of the following is NOT an example of efficient performance?

A) Direct labor hours used per unit were less than expected.
B) Direct material used per unit was less than expected.
C) More outputs were achieved with less inputs than predicted.
D) More outputs were produced than expected.
Answer: D
Diff: 2
LO: 8-5
3) Purple Rain Company planned to sell 35,000 units. Actual sales were 30,000 units. Based on this
information, Blue Company was ________.
A) efficient
B) inefficient
C) effective
D) ineffective
Answer: D
Diff: 1
LO: 8-5
22
4) Yellow Cake Company planned to produce and sell 900 units at a total cost of $180,000. Actual
production and sales were 900 units at a cost of $170,000. The company was ________.
A) efficient and ineffective
B) inefficient and ineffective
C) inefficient and effective
D) efficient and effective
Answer: D
Diff: 1
LO: 8-5
5) ________ is the degree to which an organization minimizes the ________ used to achieve an objective.
A) Efficiency; costs
B) Efficiency; resources
C) Effectiveness; resources
D) Effectiveness; costs
Answer: B
Diff: 2
LO: 8-5
6) When a firm meets a sales goal, it is said to be ________. When a firm incurs more direct material costs
to manufacture products than expected, the firm is said to be ________.
A) effective; ineffective
B) efficient; inefficient
C) effective; inefficient
D) efficient; ineffective
Answer: C
Diff: 2
LO: 8-5
7) A favorable materials price variance can affect all of the following variances except ________.
A) labor rate variance
B) labor efficiency variance
C) materials quantity variance
D) flexible budget variance for direct materials
Answer: A
Diff: 2
LO: 8-5
23
8) Which of the following statements about perfection standards is TRUE?
A) It is generally believed that they have a negative influence on employee morale.
B) They are expressions of the most efficient performance possible.
C) They usually result in unfavorable variances.
D) All of the above
Answer: D
Diff: 2
LO: 8-5
9) Variances should be investigated if they ________.

A) are favorable
B) are unfavorable
C) are smaller than the variances in the prior period
D) exceed certain dollar amounts or percentage deviations from the budget
Answer: D
Diff: 2
LO: 8-5
10) Favorable variances do not require investigation.

Answer: FALSE
Diff: 2
LO: 8-5
11) Favorable flexible budget variances are always good news.

Answer: FALSE
Diff: 2
LO: 8-5
12) Sales-activity variances measure how efficient managers have been in meeting the planned sales goal.
Answer: FALSE
Diff: 2
LO: 8-5
24
13) Perfection standards and ideal standards are different.
Answer: FALSE
Diff: 2
LO: 8-5
14) Ideal standards make no provision for waste, spoilage and machine breakdowns.
Answer: TRUE
Diff: 2
LO: 8-5
15) Ideal standards have an adverse effect on employee motivation.

Answer: TRUE
Diff: 2
LO: 8-5
16) As the terms are used in the budgeting process, it is possible for a company to be efficient at the same
time it is ineffective.
Answer: TRUE
Diff: 2
LO: 8-5
17) Efficiency is the degree to which a goal or objective is met.

Answer: FALSE
Diff: 1
LO: 8-5
18) Currently attainable standards do not make allowances for spoilage and waste.
Answer: FALSE
Diff: 2
LO: 8-5
25
19) Currently attainable standards are levels of performance that can be achieved by realistic levels of
effort.
Answer: TRUE
Diff: 2
LO: 8-5
20) The unfavorable variances resulting from ideal standards are intended to constantly remind
personnel of the continuous need for improvement.
Answer: TRUE
Diff: 2
LO: 8-5
21) One of the first questions a manager should consider when explaining a large variance is whether
expectations are valid.
Answer: TRUE
Diff: 2
LO: 8-5
22) In most companies, variances are investigated only if they exceed a minimum dollar amount or
percentage deviation from budgeted amounts.
Answer: TRUE
Diff: 2
LO: 8-5
26
8.6 Questions
1) The following information is available for Munter Manufacturing Company.

-- Direct materials price standard is $3.25 per pound.
-- Direct materials quantity standard is six pounds per finished unit.
-- Budgeted production is 25,000 finished units.
-- 175,000 pounds of direct materials were purchased for $525,000.
-- 175,000 pounds of direct materials were used in production.
-- 25,600 finished units of product were produced.
What is the direct materials price variance?

Answer: B
Diff: 2
LO: 8-6
Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances
2) The following information is available for Maher Manufacturing Company.

-- Direct materials price standard is $3.25 per pound.
-- Direct materials quantity standard is six pounds per finished unit.
-- Budgeted production is 25,000 finished units.
-- 175,000 pounds of direct materials were purchased for $525,000.
-- 175,000 pounds of direct materials were used in production.
-- 25,600 finished units of product were produced.
What is the direct materials quantity variance?

Answer: C
Diff: 2
LO: 8-6
27
3) The following information is presented for the Marathon Manufacturing Company.
— Direct labor rate standard is $11.55.
— Direct labor efficiency standard is 2.5 hours per unit.
— Budgeted production is 1,200 units.
— Production required 2,910 direct labor hours at a cost of $33,174.
— Actual production is 1,150 units.
What is the direct labor price variance?
A) $172.50 Favorable
B) $180.00 Unfavorable
C) $436.50 Favorable
D) $435.50 Unfavorable
Answer: C
Diff: 2
LO: 8-6
4) The direct materials price variance reflects the effects of ________.

A) changing input prices, holding the quality of outputs constant
B) changing input quantities, holding the input price constant
C) changing input prices, holding the quantity of inputs constant
D) changing input quantities, while changing the input price
Answer: C
Diff: 2
LO: 8-6
5) The following information is presented for the Maybeel Manufacturing Company.

— Direct labor rate standard is $11.55.
— Direct labor efficiency standard is 2.5 hours per unit.
— Budgeted production is 1,200 units.
— Production required 2,910 direct labor hours at a cost of $33,174.
— Actual production is 1,150 units.
What is the direct labor efficiency variance?
A) $404.25 Favorable
B) $404.25 Unfavorable
C) $1,039.50 Favorable
D) $1,039.50 Unfavorable
Answer: B
Diff: 2
LO: 8-6
28
6) Johnsen Company reported a flexible budget variance for direct labor of $8,000 Favorable for the
current year. If the direct labor price variance was $2,000 Unfavorable, what was the direct labor
efficiency variance?
B) $6,000 Favorable
Answer: C
Diff: 2
LO: 8-6
7) Christian Company reported a flexible budget variance for direct materials costs of $10,000 Favorable
for the current year. If the direct materials price variance was $2,000 Favorable, what was the direct
materials quantity variance?
B) $8,000 Favorable
Answer: B
Diff: 2
LO: 8-6
8) A company has the following information available about one of its products:
Standard price per pound of input $25

Actual price per pound of input $24
Standard inputs per unit of output 3 pounds
Actual units of output 2,770
Direct Materials Quantity Variance $250 F
How many pounds of material were used?

A) $8,300
B) $8,310
C) $8,320
D) $8,330
Answer: A
Diff: 3
LO: 8-6
29
9) A company has the following information available about one of its products:
Standard price per pound of input ?

Actual price per pound of input $27
Actual units of output 3,000
Direct Materials Price Variance $18,000 F
Actual pounds of input used 9,000
What is the standard price per pound of input?

A) $25
B) $27
C) $29
D) $33
Answer: C
Diff: 3
LO: 8-6
10) Beckowski Company had the following information available for its specialty product:
Standards for one unit of product:

Direct Materials: 5 pounds at $2 per pound
Direct Labor: 0.50 hour at $16 per hour
Materials and Labor Used to produce 8,500 units:

Direct Materials: 46,000 pounds at ? per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Price Variance is $4,600 Unfavorable, what is the actual cost per pound of direct
materials used?
A) $1.80
B) $1.90
C) $2.00
D) $2.10
Answer: D
Diff: 3
LO: 8-6
30
11) Parrish Company had the following information available for its specialty product:


Direct Materials: ? pounds at $2.10 per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Quantity Variance is $7,000 Unfavorable, what is the actual quantity of direct
materials used?
A) 7,000
B) 42,500
C) 46,000
D) 47,000
Answer: C
Diff: 3
LO: 8-6
12) Cornell Company had the following information available for its specialty product:


Direct Materials: 46,000 pounds at $3 per pound
Direct Labor: 4,000 hours at ? per hour
If the Direct Labor Price Variance is $4,600 Unfavorable, what is the actual labor rate per hour?
A) $16.00
B) $16.50
C) $17.10
D) $17.15
Answer: D
Diff: 3
LO: 8-6
31
13) Gollerowski Company had the following information available for its specialty product:


Direct Materials: 46,000 pounds at 4 per pound
Direct Labor: ? hours at $17 per hour
If the Direct Labor Efficiency Variance is $4,000 Unfavorable, what are the actual number of hours
worked?
A) $4,000
B) $4,250
C) $4,400
D) $4,500
Answer: D
Diff: 3
LO: 8-6
14) The quantity variance for direct materials can be computed by multiplying the standard price by the
difference between the ________.
A) standard inputs allowed and expected inputs allowed at actual output
B) quantity of inputs actually used and the quantity of inputs that should have been used for the expected
output
C) standard inputs allowed and expected inputs allowed for expected output
D) quantity of inputs actually used and the quantity of inputs that should have been used for actual
output
Answer: D
Diff: 2
LO: 8-6
15) Rate variances are the same as ________ variances. Efficiency variances are the same as ________
variances.
A) spending; effective
B) activity; static
C) usage; quantity
D) price; quantity
Answer: D
Diff: 1
LO: 8-6
32
16) A ________ is most likely to be held accountable for price variances for direct materials.
A) machine operator
B) production supervisor
C) purchasing manager
D) marketing director
Answer: C
Diff: 1
LO: 8-6
17) In which of the following scenarios can Eastman Company NOT have favorable flexible budget
variance for direct materials?: When direct material price variance is ________, and when direct material
quantity variance is ________,
A) favorable; unfavorable
B) unfavorable; favorable
C) unfavorable; unfavorable
D) favorable; favorable
Answer: C
Diff: 2
LO: 8-6
18) If the direct labor price variance is $800 Favorable and the direct labor usage variance is $700
Unfavorable, then ________.
A) the flexible budget variance for direct labor is $100 Favorable
B) actual total wages paid were $800 more than expected
C) actual labor hours were less than expected
D) actual material prices were less than expected
Answer: A
Diff: 2
LO: 8-6
33
19) The following information is for Brankov Corporation:
Direct Materials (measured in pounds)

Standard price per unit of input $20
Actual price per unit of input $18
Actual units of input 8,300 pounds
Actual units of output 2,770 units
What is the flexible budget variance for direct materials?

A) $16,400 Favorable
Answer: C
Diff: 2
LO: 8-6
20) Barber Company produces 2,500 units. Each unit was expected to require 2 labor hours at a cost of $10
per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is measured in labor hours.
What is the direct labor price variance?
A) $2,500 Favorable
C) $4,750 Favorable
Answer: D
Diff: 2
LO: 8-6
21) Butters Company produces 2,500 units. Each unit was expected to require 2 labor hours at a cost of
$10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is measured in labor
hours. What is the direct labor quantity variance?
A) $2,500 Favorable
C) $2,750 Favorable
Answer: A
Diff: 2
LO: 8-6
34
22) Ivanovich Company produces 2,500 units. Each unit was expected to require 2 labor hours at a cost of
$10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is measured in labor
hours. What is the flexible budget variance for direct labor?
A) $2,250 Favorable
C) $7,500 Favorable
Answer: B
Diff: 2
LO: 8-6
23) The Cheeseman Company makes tables and the following standards have been developed:
Standard Inputs Expected Standard Price Expected

For Each Unit of Output Per Unit of Input
Direct Materials 10 pounds $4 per pound
Direct Labor 3 hours $16 per hour
Production of 230 tables was expected in July, but 250 tables were actually completed. Direct materials
purchased and used were 2,200 pounds at an actual price of $4.50 per pound. Direct labor cost for the
month was $10,620, and the actual pay per hour was $18.00. What is the direct material price variance for
July?
A) $800 Favorable
B) $800 Unfavorable
C) $1,100 Favorable
Answer: D
Diff: 2
LO: 8-6
35
24) The Cornell Company makes tables for which the following standards have been developed:

Production of 200 tables was expected in July, but 220 tables were actually completed. Direct materials
month was $10,620, and the actual pay per hour was $18.00. What is the direct material quantity variance
for July?
A) $800 Favorable
B) $800 Unfavorable
C) $880 Favorable
D) $880 Unfavorable
Answer: A
Diff: 2
LO: 8-6
25) The Matthew Company makes tables for which the following standards have been developed:

Direct Materials 17 pounds $5.20 per pound
Production of 200 tables was expected in May, but 220 tables were actually completed. Direct materials
month was $10,620, and the actual pay per hour was $18.00. What is the direct labor price variance for the
month of May?
A) $1,180 Favorable
C) $1,200 Favorable
Answer: B
Diff: 2
LO: 8-6
36
26) The Quinn Company makes tables for which the following standards have been developed:

Production of 200 tables was expected in June, but 220 tables were actually completed. Direct materials
month was $10,620, and the actual pay per hour was $18.00. What is the direct labor quantity variance for
the month of June?
A) $1,120 Favorable
C) $1,260 Favorable
Answer: A
Diff: 2
LO: 8-6
27) The Brucker Company makes mugs for which the following standards have been developed:

Direct Materials 5 ounces $2 per ounce
Direct Labor 1.5 hours $8 per hour
Production of 400 mugs was expected in July, but 440 mugs were actually completed. Direct materials
purchased and used were 2,100 ounces at an actual price of $2.30 per ounce. Direct labor cost for the
month was $5,310, and the actual pay per hour was $9.00. What is the direct material price variance for
July?
A) $400 Favorable
B) $400 Unfavorable
C) $630 Favorable
D) $630 Unfavorable
Answer: D
Diff: 2
LO: 8-6
37
28) The Savage Company makes mugs for which the following standards have been developed:

month was $5,310, and the actual pay per hour was $9.00. What is the direct material quantity variance
for July?
A) $200 Favorable
B) $200 Unfavorable
C) $220 Favorable
D) $220 Unfavorable
Answer: A
Diff: 2
LO: 8-6
29) The Tulip Company makes mugs for which the following standards have been developed:

Production of 400 mugs was expected in August, but 440 mugs were actually completed. Direct materials
month was $5,310, and the actual pay per hour was $9.00. What is the direct labor price variance for
August?
A) $420 Favorable
B) $420 Unfavorable
C) $590 Favorable
D) $590 Unfavorable
Answer: D
Diff: 2
LO: 8-6
38
30) The Banks Company makes mugs for which the following standards have been developed:

month was $5,310, and the actual pay per hour was $9.00. What is the direct labor quantity variance for
July?
A) $560 Favorable
B) $560 Unfavorable
C) $630 Favorable
D) $630 Unfavorable
Answer: A
Diff: 2
LO: 8-6
31) In a manufacturing area of a firm, poor product design and problems with the quality of materials
will, more than likely, result in a(n) ________ variance or ________ variance.
A) unfavorable material efficiency; unfavorable labor usage
B) favorable material efficiency; unfavorable labor price
C) unfavorable material price; unfavorable labor rate
D) unfavorable material price; unfavorable labor usage
Answer: A
Diff: 2
LO: 8-6
32) One cause of a flexible budget variance for direct labor may be a difference between standard and
actual hourly wage rates for factory workers.
Answer: TRUE
Diff: 2
LO: 8-6
39
33) A quantity variance for direct materials measures the deviation between the quantity of inputs that
should have been used to achieve the actual output and the actual quantity of inputs used to achieve the
actual output.
Answer: TRUE
Diff: 2
LO: 8-6
34) The direct materials price variance is based on the standard quantity of inputs allowed for the actual
output.
Answer: FALSE
Diff: 2
LO: 8-6
35) The flexible budget variance for direct labor can be broken down into a price variance and an
effectiveness variance.
Answer: FALSE
Diff: 2
LO: 8-6
36) The quantity variance and efficiency variance for direct labor are different types of variances.
Answer: FALSE
Diff: 1
LO: 8-6
37) The flexible budget variance for direct labor equals the labor price variance plus the labor quantity
variance.
Answer: TRUE
Diff: 2
LO: 8-6
38) A favorable materials price variance may lead to an unfavorable materials usage variance.
Answer: TRUE
Diff: 2
LO: 8-6
40
39) Direct Material Direct Labor
Std. price per unit of input $12 per foot $14 per hour
Actual price per unit of input $14 per foot $13 per hour
Std. inputs allowed per unit of output 5 feet 3 hours
Actual units of input 2,500 feet 1,550 hours
Actual units of output 600 units
Required:
Compute the price and quantity variances for direct materials and direct labor.
Answer: Direct material:
Price variance: ($14 - $12) × 2,500 = $5,000 Unfavorable
Quantity variance: [2,500 - (600 × 5)] × $12 = $6,000 Favorable
Direct labor:
Price variance: ($13 - $14) × 1,550 = $1,550 Favorable
Quantity variance: [1,550 - (600 × 3)] × $14 = $3,500 Favorable
Diff: 2
LO: 8-6
40) The following data was obtained for a company that makes statues:
Standard Inputs Expected Standard Price

Direct material 5 pounds $12 per pound
Direct labor 1.5 hours $12 per hour
During the month of July, the company actually produced 1,000 statutes, which is 100 units less than
expected. Direct material purchased and used amounted to 5,500 pounds at a cost of $12.50 per pound.
Actual direct labor was 1,450 hours at an actual cost of $13.00 per hour.
Required:
A) Compute the price and quantity variances for direct materials.
B) Compute the price and quantity variances for direct labor.
Answer: A) Price variance = ($12.50 - $12.00) × 5,500 = $2,750 Unfavorable
Quantity variance = (5,500 - 5,000) × $12 = $6,000 Unfavorable
B) Price variance = ($13.00 - $12.00) × 1,450 = $1,450 Unfavorable
Quantity variance = (1,450 - 1,500) × $12.00 = $600 Favorable
Diff: 2
LO: 8-6
41
41) What are some common causes of unfavorable quantity variances for direct labor?
Answer: Some common causes are poor quality of material, untrained workers, poor workmanship,
changes in production method, new workers, machine breakdowns, faulty product designs, and
inefficient machines.
Diff: 2
LO: 8-6
8.7 Questions
1) Variable overhead efficiency variances are unfavorable when ________.

A) the actual cost-driver activity exceeds the standard activity allowed for the actual output
B) the actual cost-driver activity is less than the standard activity allowed for the actual output
C) the actual cost-driver activity exceeds the standard activity allowed for the static budget output
D) the actual cost-driver activity is less than the standard activity allowed for the static budget output
Answer: A
Diff: 3
LO: 8-7
2) Simmons Company has the following information available for variable overhead costs. Direct labor
hours are the cost driver for variable overhead costs.
Actual variable overhead costs $4,700

Standard variable overhead costs $1.20 per hour
Actual direct labor hours 3,750 hours
Standard direct labor hours per unit 5 hours
Units produced 700
What is the variable overhead spending variance?

A) $200 Favorable
B) $200 Unfavorable
C) $500 Favorable
D) $500 Unfavorable
Answer: B
Diff: 3
LO: 8-7
42
3) Dooley Company has the following information available for variable overhead costs. Direct labor

Units produced 700
What is the variable overhead efficiency variance?

A) $300 Favorable
B) $300 Unfavorable
C) $500 Favorable
D) $500 Unfavorable
Answer: B
Diff: 3
LO: 8-7
4) Indian Company has the following information available for variable overhead costs. Direct labor

Units produced 1,000

A) $880 Favorable
C) $3,880 Favorable
Answer: A
Diff: 3
LO: 8-7
43
5) Switsdorf Company has the following information available for variable overhead costs. Direct labor

Units produced 1,000
What is the variable overhead efficiency variance?

A) $1,000 Favorable
C) $2,000 Favorable
D) $3,000 Favorable
Answer: D
Diff: 3
LO: 8-7
6) At 60,000 machine hours, Norwall Company's static budget for variable overhead costs is $180,000. At
60,000 machine hours, the company's static budget for fixed overhead costs is $300,000. Machine hours
are the cost driver of all overhead costs. The static budget is based on 60,000 machine hours. At 60,000
machine hours, the company produces 40,000 units. The following data is available:
Actual units produced and sold 42,000

Actual machine hours 64,000
Actual fixed overhead costs $302,400

B) $6,400 Favorable
C) $1,000 Favorable
Answer: B
Diff: 3
LO: 8-7
44
7) The flexible budget variance for variable overhead costs is composed of a(n) ________ variance and a(n)
________ variance.
A) efficiency; effective
B) spending; rate
C) quantity; efficiency
D) spending; efficiency
Answer: D
Diff: 2
LO: 8-7
8) The variable overhead efficiency variance depends on whether the quantity of the cost driver used is
more or less than ________.
A) the standard amount of output for the expected amount of output
B) the quantity allowed for the expected amount of output
C) the quantity allowed for the static budget amount of output
D) the standard quantity allowed for the actual output
Answer: D
Diff: 2
LO: 8-7
9) The variable overhead spending variance combines ________ and ________ effects.
A) price; quantity
B) price; efficiency
C) efficiency; sales activity
D) rate; sales activity
Answer: A
Diff: 2
LO: 8-7
10) Variable overhead efficiency variances are unfavorable when actual cost driver activity exceeds the
________.
A) standard cost-driver activity allowed for the actual output
B) activity allowed for the expected output
C) activity allowed for the planned output
D) activity allowed for last period's output
Answer: A
Diff: 2
LO: 8-7
45
11) The variable overhead spending variance is the difference between the actual variable overhead cost
and the amount of variable overhead cost budgeted for the actual level of cost driver activity.
Answer: TRUE
Diff: 2
LO: 8-7
12) The variable overhead efficiency variance indicates to management how much variable overhead cost
it may waste by not controlling the use of cost-driver activity.
Answer: TRUE
Diff: 2
LO: 8-7
13)
Answer: Spending variance = $20,570 - (2,450 × $8) = $970 Unfavorable
Efficiency variance = [2,450 - (500 × 5)] × $8 = $400 Favorable
variances
Diff: 2
LO: 8-7
8.8 Questions
1) For fixed overhead costs, the spending variance is ________ equal to the flexible-budget variance.
A) always
B) sometimes
C) never
D) indeterminate
Answer: A
Diff: 2
LO: 8-8
46
2) Wendel Company has actual fixed overhead costs of $14,700. Fixed overhead costs based on the flexible
budget and the actual use of the cost driver are $14,400. Actual variable overhead costs are $14,500. What
is the flexible-budget variance for fixed overhead costs?
A) $300 Favorable
B) $300 Unfavorable
C) $100 Favorable
D) $100 Unfavorable
Answer: B
Diff: 3
LO: 8-8
3) Wetzel Company has actual fixed overhead costs of $14,500. Fixed overhead costs based on the flexible
budget and the standard use of the cost driver are $14,400. Actual variable overhead costs are $14,700.
Flexible budget costs for variable overhead costs are $15,000. What is the flexible-budget variance for
fixed overhead costs?
A) $100 Favorable
B) $100 Unfavorable
C) $300 Favorable
D) $300 Unfavorable
Answer: B
Diff: 3
LO: 8-8
4) The efficiency variance for fixed overhead costs ________.

A) is greater than the flexible budget variance for fixed overhead costs
B) is greater than the spending variance for fixed overhead costs
C) is greater than the flexible budget variance for variable overhead costs
D) does not exist
Answer: D
Diff: 2
LO: 8-8
47
5) At 60,000 machine hours, Clark Company's static budget for variable overhead costs is $180,000. At
60,000 machine hours, the company's static budget for fixed overhead costs is $300,000. Machine hours
are the cost driver of all overhead costs. The static budget is based on 60,000 machine hours. At 60,000
machine hours, the company produces 40,000 units. The following data is available:
Actual units produced and sold 42,000

Actual machine hours 64,000
Actual fixed overhead costs $302,400
What is the fixed overhead spending variance?

B) $2,400 Favorable
C) $1,000 Favorable
Answer: A
Diff: 3
LO: 8-8
6) The flexible budget variance for fixed overhead costs equals the ________ variance.
A) efficiency
B) spending
C) static budget
D) operating budget
Answer: B
Diff: 2
LO: 8-8
48
7) Sloth Company reports the following information for the last year of operations:
Actual fixed overhead costs(7,000 units) $77,000

Budgeted fixed overhead costs(10,000 units) 80,000
Planned level of operations(in units) 10,000
Actual level of operations(in units) 7,000
What is the fixed overhead spending variance?

A) $3,000 Favorable
Answer: A
Diff: 2
LO: 8-8
8) In the relevant range, fixed overhead costs do not vary with cost driver activity.
Answer: TRUE
Diff: 2
LO: 8-8
49

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Introduction to Management Accounting, 16e, Global Edition (Horngren)

Chapter 8 Flexible Budgets and Variance Analysis

1) An example of a favorable variance is ________.

3) Unfavorable variances ________ represent bad decisions made by managers.

1) A budget prepared for one expected level of activity is called a ________.

2) A budget prepared for different levels of activity is called a ________.

5) A static budget has multiple levels of activity.

6) A flexible budget is different from a variable budget.

1) To calculate the numbers in a flexible budget, managers use ________.

3) Which of the following statements is FALSE?

4) Oroz Company had the following information available:

Expected Costs and Selling Price Based on 5,000 units:

Expected production level 5,000 units

Expected Costs and Selling Price Based on 5,000 Units:

Expected production level 5,000 units

7) Which of the following is used to develop flexible budgets?

Operating income _____ _____ _____

Sales price $12.00 per unit

Fixed costs(at 5,000 units):

Budgeted cost of direct materials at 900,000 units $900,000

6) Margaret Duffy Company has the following information available:

Budgeted cost of direct materials at 900,000 units $900,000

Actual operating loss at 5,000 units $(11,000)

11) Potter Company has the following information:

Actual operating loss at 5,000 units $(11,000)

Flexible Budget for

The flexible budget variance for operating income is ________.

20) The following data are for California Closets:

Flexible Budget for

The sales activity variance for operating income is ________.

Flexible Budget for

The static budget variance for operating income is ________.

Static budget data:

Variable Overhead Costs Cost Formula

2) Which of the following is NOT an example of efficient performance?

9) Variances should be investigated if they ________.

10) Favorable variances do not require investigation.

11) Favorable flexible budget variances are always good news.

15) Ideal standards have an adverse effect on employee motivation.

17) Efficiency is the degree to which a goal or objective is met.

1) The following information is available for Munter Manufacturing Company.

What is the direct materials price variance?

2) The following information is available for Maher Manufacturing Company.

What is the direct materials quantity variance?

4) The direct materials price variance reflects the effects of ________.

5) The following information is presented for the Maybeel Manufacturing Company.

Standard price per pound of input $25

How many pounds of material were used?

Standard price per pound of input ?

What is the standard price per pound of input?

Standards for one unit of product:

Materials and Labor Used to produce 8,500 units:

Standards for one unit of product:

Materials and Labor Used to produce 8,500 units:

Standards for one unit of product:

Materials and Labor Used to produce 8,500 units:

Standards for one unit of product:

Materials and Labor Used to produce 8,500 units:

Direct Materials (measured in pounds)

What is the flexible budget variance for direct materials?

Standard Inputs Expected Standard Price Expected

Standard Inputs Expected Standard Price Expected

Standard Inputs Expected Standard Price Expected

Standard Inputs Expected Standard Price Expected

Operating income ___ _ ___