Managerial Accounting: Module 7 Review Questions (4 Problems)

Managerial Accounting 
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 1,676,000 
Selling Expenses 
Sales commissions 120,000 
Packaging 210,000 
Advertising 100,000 430,000 
Administrative Expenses 
Administrative salaries 80,000 
Depreciation—office equip 30,000 
Insurance 18,000 
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. 

III. 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 overhead—variable (6 hrs. @ $5 per hr.) 30.00 
Factory overhead—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 

Budgeted overhead 
Fixed factory overhead 2,016,000 2,016,000 2,016,000 
Variable factory overhead 1,260,000 1,440,000 1,620,000 
5.00 5.00 5.00 
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 

Required: 
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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