Question

1)Which of the following represents the correct order for preparing the indicated budget documents for a manufacturing company?

A. Sales budget, cash budget, direct materials budget, direct labor budget

B. Sales budget, cash budget, production budget, direct materials budget

C. Production budget, sales budget, direct materials budget, direct labor budget

D. Production budget, direct labor budget, direct materials budget, cash budget

2). Ideal standards

A. generally provide the best motivation for workers.

B. make allowances for waste, spoilage and machine breakdowns.

C. are better suited for cash budgeting than practical standards.

D. aid the planning of managers seeking continual improvement.

3). ABC Company planned to produce 3,000 cell phone covers during November. The standards for one cell phone cover specify 6 ounces of resin at $0.30 per ounce. Actual production in November was 3,100 cell phone covers. There was an unfavorable materials price variance of $380 and a favorable materials quantity variance of $120. Based on these variances one could conclude

A. more materials were purchased than were used.

B. more materials were used than were purchased.

C. the actual cost per pound for materials was less than the standard cost per pound

D. the actual usage of materials was less than the standard allowed.

4). The following variable overhead standards have been established for a particular product:

Standard variable overhead rate                            $1.70 per direct labor hour

Standard labor-hours per unit of output               .80 hours per unit

Budgeted production                                                 9,800 units

The following data pertain to operations concerning the product for the last month:

Actual hours worked                                                  7,980

Actual total variable overhead cost                       $14,364

Actual output                                                               9,900 units

What is the variable overhead rate variance?

A.    798 U

B.    792 U

C.    102U

D.    238 U

Answer 1

1) ANS: B .Sales budget, cash budget, production budget, direct materials budget

First we should prepare sales budget. S o option C and D are excluded.Before direct material budget we should prepare production budget so option A is also excluded. Therefore option B is the correct order.

2) Ans: D

Option A,B and option C are incorrect.

Ideal standard

A. generally do not provide the best motivation for workers.

B. do not make allowances for waste, spoilage and machine breakdowns.

C. may be better than practical standards when managers seek continual improvement.

3) Ans: D

Material price variance is unfavourable when standard price is less than actual price.

Material Quantity variance is favourable when standard quantity of material is more than actual quantity of material.

Material quantity variance formula is used at the time of consumption i.e. not at the time of purchase.

4) Ans:A

Variable overhead rate variance= AH(SR-AR)

AH=ACTUAL HOURS WORKED

AR=ACTUAL VARIABLE OVERHEAD RATE

SR=STANDARD VARIABLE OVERHEAD RATE

GIVEN IN QUESTION

ACTUAL TOTAL VARIABLE OVERHEAD COST=$14,364

STANDARD VARIABLE OVERHEAD RATE=$1.70 PER HOUR

NOW,

VARIABLE OVERHEAD RATE VARIANCE=AH(SR-AR)

=7980(1.70-1.8)

=7980 × $0.1

=798U

WORKING NOTE: ACTUAL VARIABLE OVERHEAD RATE =$14,364/7980=$1.8 PER HOUR