# Module 7 Review Questions_Costing_Solutions

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Module 7 Review
Questions

I.
Preparation of flexible budgets

Mesa Company’s fixed budget for the first
quarter of calendar year 2014 reveals the following.

Sales (10,000
units)……………… \$3,000,000

Cost of prods sold

Direct materials ……………… \$320,000

Direct labor…………………. 680,000

Production supplies …………… 264,000

Plant manager salary…………… 60,000 1,324,000

Gross profit…………………… l, 676,000

Selling Expenses

Sales commissions…………….. 120,000

Packaging…………………… 210,000

Advertising …………………. 100,000 430,000

Administrative salaries …………. 60,000

Deprecationâ€”office
equip………. 30,000

Insurance…………………… 13,000

Office rent………………….. 24,000 152.000

Income from operations………….. \$1,094,000

========

Prepare flexible budgets, following the
format of Exhibit 8.3, that show variable costs per unit, fixed costs, and
three different flexible budgets for sales volumes of 7,500, 10,000, and 12,500
units.

II.
Computation and interpretation of labor variances

After evaluating Zero Company’s
manufacturing process, management decided to establish standards of 1.5 hours
of direct labor per unit of product and \$11 per hour for the labor rate. During
October, the company used 3,780 hours of direct labor at \$45,360 total cost to
produce 2,700 unit of product. In November, the company used 4,480 hours of
direct labor at a \$47,040 total cost to produce 2,800 units of product.

1.
Compute the labor rate variance, the labor efficiency variance, and the
total direct labor cost variance for October and for November.

2. Interpret the October direct labor
variances.

Computation and interpretation of
materials variances

BTS Company made 6,000 bookshelves using
88,000 board feet of wood costing \$607,200. The company’s direct materials
standards for one bookshelf are 16 board feet of wood at \$7 per board foot.

1.
Compute the direct material variances incurred in manufacturing these
bookshelves.

2.
Interpret the direct materials variances

IV.
Computation of total overhead rate and total overhead variance

Tuna Company set the following standard
unit costs for its single product.

Direct materials (25 lbs. @ \$4 per
Ib.) …………….. \$100.00

Direct labor (6 hrs. @ \$6 per
hr.)………………… 48.00

Factory overheadâ€”variable (6 hrs. @ \$5
per hr.)…….. 30.00

Factory overheadâ€”fixed (6 hrs. @ \$7 per
hr.) ………. 42.00

Total standard cost …………………………… \$220.00

The predetermined overhead rate is based
on a planned operating volume of 80% of the productive capacity of 60,000 units
per quarter. The following flexible budget information is available.

Operating Levels

70% 80% 90%

Production in units……………. 42,000 48,000 54,000

Standard direct labor hours ……… 252,000 288,000 324,000

Fixed factory overhead……….. \$2,016,000 \$2,016,000 \$2,016,000

Variable factory overhead……… \$1,260,000 \$1,440,000 \$1,620,000

During the current quarter, the company
operated at 70% of capacity and produced 42,000 units of product; actual direct
labor totaled 250,000 hours. Units produced were assigned the following
standard costs:

Direct materials (1,050,000 lbs. @ \$4 per
Ib.)……… \$4,200,000

Direct labor (252,000 hrs. @ \$8 per
hr.)…………. 2,016,000

Factory overhead (252,000 hrs. @ \$12 per
hr.)…….. 3,024,000

Total standard
cost………………………….
\$9,240.000

Actual costs incurred during the current
quarter follow:

Direct materials (1,000,000 lbs. @ \$4.25)………… \$4,250,000

Direct labor (250,000 hrs. @ \$7.75) ……………. 1,937.500

Fixed factory Overhead costs …………………. 1,960,000

Variable factory overhead costs ……………….. 1,200,000

Total actual
costs…………………………..
\$9,347,500

========

1.
Compute the direct materials cost variances, including its price and
quantity variances.

2.
Compute the direct labor variances, including its rate and efficiency
variances.

3.
Compute the overhead controllable and volume variances.

4.
Compute the variable overhead spending and efficiency variance

5. Compute the fixed overhead spending and
volume variance.

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