BGN 5e Exam Questions - Chapter 9

1. Blondie Company employs a standard cost system in which direct materials inventory is
carried at standard cost. The company has established the following standards for the
prime costs of one unit of product:

Standard Standard Standard

Quantity Price Cost
Direct materials 12.0 pounds $ 7.00/pound $ 84.00
Direct labor 2.6 hours $22.00/hour 57.20
$141.20

During June, the company purchased 330,000 pounds of direct material at a total cost of
$2,343,000. The total factory wages for June were $1,600,000, 90 percent of which were
for direct labor. The company manufactured 25,000 units of product during June using
302,000 pounds of direct material and 64,000 direct labor hours. The price variance for
the direct material acquired by the company during June is:
A) $30,200 favorable.
B) $30,200 unfavorable.
C) $33,000 favorable.
D) $33,000 unfavorable.

Feedback – The correct answer is D:

Learning Objective 2 – First, determine the actual price per unit of materials as follows:
Actual price per unit = Total purchase price ÷ Quantity purchased
$2,343,000 ÷ 330,000 lbs. = $7.10 per pound
Then, determine the materials price variance as follows:
Materials price variance = Actual quantity x (Actual price – Standard price)
Materials price variance = AQ x (AP – SP)
Materials price variance = 330,000 x ($7.10 – $7.00) = $33,000 Unfavorable (U)

2. Blondie Company employs a standard cost system in which direct materials inventory is
carried at standard cost. The company has established the following standards for the
prime costs of one unit of product:

Standard Standard Standard

Quantity Price Cost
Direct materials 12.0 pounds $ 7.00/pound $ 84.00
Direct labor 2.6 hours $22.00/hour 57.20
$141.20

During June, the company purchased 330,000 pounds of direct material at a total cost of
$2,343,000. The total factory wages for June were $1,600,000, 90 percent of which were
for direct labor. The company manufactured 25,000 units of product during June using
 302,000 pounds of direct material and 64,000 direct labor hours. The direct material
quantity variance for June is:
A) $14,000 favorable.
B) $14,000 unfavorable.
C) $14,200 favorable.
D) $14,200 unfavorable.

Feedback – The correct answer is B:

Learning Objective 2 – First, determine the standard quantity allowed for actual output
as follows:
Standard quantity allowed for actual output = Actual output (in units) x Standard direct
quantity per unit
Standard quantity allowed for actual output = 25,000 units x 12.0 pounds per unit =
300,000 pounds
Then, determine the direct material quantity variance as follows:
Materials quantity variance = Standard price x (Actual quantity – Standard quantity)
Materials quantity variance = SP x (AQ – SQ)
Materials quantity variance = $7.00 x (302,000 – 300,000) = $14,000 Unfavorable (U)

3. Blondie Company employs a standard cost system in which direct materials inventory is
carried at standard cost. The company has established the following standards for the
prime costs of one unit of product:

Standard Standard Standard

Quantity Price Cost
Direct materials 12.0 pounds $ 7.00/pound $ 84.00
Direct labor 2.6 hours $22.00/hour 57.20
$141.20

During June, the company purchased 330,000 pounds of direct material at a total cost of
$2,343,000. The total factory wages for June were $1,600,000, 90 percent of which were
for direct labor. The company manufactured 25,000 units of product during June using
302,000 pounds of direct material and 64,000 direct labor hours. The direct labor
efficiency variance for June is:
A) $22,000 favorable.
B) $22,000 unfavorable.
C) $22,500 favorable.
D) $22,500 unfavorable.

Feedback – The correct answer is A:

Learning Objective 3 – First, determine the standard hours allowed for actual output as
follows:
Standard hours allowed for actual output = Actual output (in units) x Standard direct
 labor hours per unit
Standard hours allowed for actual output = 25,000 units x 2.6 hours per unit = 65,000
hours
Then, determine the direct labor efficiency variance as follows:
Direct labor efficiency variance = Standard rate x (Actual hours – Standard hours)
Direct labor efficiency variance = SR x (AH – SH)
Direct labor efficiency variance = $22.00 x (64,000 – 65,000) = $22,000 Favorable (F)

4. Randall Company applies manufacturing overhead costs to products on the basis of direct
labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit
of product. For August, the company budgeted to work 360,000 direct labor-hours and to
incur the following total manufacturing overhead costs:

Total variable overhead costs $396,00

0
Total fixed overhead costs $475,20
0

During August, the company completed 28,000 units of product, worked 344,000 direct
labor-hours, and incurred the following total manufacturing overhead costs:

Total variable overhead costs $395,60

0
Total fixed overhead costs $461,20
0

The denominator activity in the predetermined overhead rate is 360,000 direct labor-
hours. The variable overhead spending variance for August is:
A) $17,200 F.
B) $17,200 U.
C) $26,000 F.
D) $26,000 U.

Feedback – The correct answer is B:

Learning Objective 4 – First, determine the variable overhead (VOH) rate as follows:
Budgeted variable overhead costs ÷ budgeted direct labor hours = VOH rate
$396,000 ÷ 360,000 direct labor hours = $1.10 per direct labor hour
Then, determine the variable overhead (VOH) spending variance as follows:
VOH spending variance = (AH x AR) – (AH x SR)
Note that (AH x AR) is the same as the actual VOH cost incurred, so this formula can be
rewritten as follows:
VOH spending variance = Actual VOH incurred – (Actual direct labor hours x VOH rate
per direct labor hour)
VOH spending variance = $395,600 – (344,000 hours x $1.10 per hour) = $17,200 U
 The variance is unfavorable because the actual overhead costs were more than the
benchmark (that is, how much should have been spent in total on variable overhead items
during the period).

5. Randall Company applies manufacturing overhead costs to products on the basis of direct
labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit
of product. For August, the company budgeted to work 360,000 direct labor-hours and to
incur the following total manufacturing overhead costs:

Total variable overhead costs $396,00

0
Total fixed overhead costs $475,20
0

During August, the company completed 28,000 units of product, worked 344,000 direct
labor-hours, and incurred the following total manufacturing overhead costs:

Total variable overhead costs $395,60

0
Total fixed overhead costs $461,20
0

The denominator activity in the predetermined overhead rate is 360,000 direct labor-
hours. The fixed overhead volume variance for August is:
A) $17,200 U.
B) $19,920 F.
C) $19,920U.
D) $31,680 U.

Feedback – The correct answer is D:

Learning Objective 5 (Appendix 9A) – First, determine the fixed overhead (FOH) rate
as follows:
Budgeted fixed overhead costs ÷ budgeted direct labor hours = FOH rate
$475,200 ÷ 360,000 direct labor hours = $1.32 per direct labor hour
Volume variance = Budgeted fixed overhead – Fixed overhead applied
Volume variance = Budgeted fixed overhead – (Standard hours allowed for actual output
x FOH rate)
Volume variance = $475,200 – ((28,000 units x 12) x $1.32) = $31,680 U
Since budgeted fixed overhead was more than the amount applied to work in process
during the period, the volume variance is unfavorable.