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Exam 11: Standard Costs and Variance Analysis

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Question 71

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Hyteck, Inc. is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget. $\begin{array}{lrr}&\text { Master } & \text { Actual } \\&\text { Budget } & \text { Results } \\\hline\text { Units produced } & 2,000 & 1,820 \\\text { Direct labour hours } & 10,000 & 9,200 \\\text { Fixed overhead } & \$ 100,000 & \$ 98,000 \\\text { Variable overhead } & \$ 160,000 & \$ 150,000 \\\text { Direct labour } & \$ 100,000 & \$ 90,000\end{array}$ The variable overhead spending variance was:

A) $1,200 F
B) $2,000 F
C) $2,800 U
D) $1,600 U

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Question 72

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At the end of the period:

A) All variances are closed to cost of goods sold if they are material
B) Variances are summed but they need not be recorded
C) Variances are prorated to inventory and cost of goods sold if they are material
D) Ignored if they are immaterial

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Question 73

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Standard costs should be reviewed:

Which of the following variances is least likely to provide useful information for making decisions, if calculated as part of a comprehensive set of variances?

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labour hour. The overhead rate is based on 10,000 hours. Actual results were: $\begin{array} { l r } \text { Standard direct labour hours } & 9,000 \\\text { Actual direct labour hours } & 10,000 \\\text { Fixed overhead } & \$ 190,000 \\\text { Variable overhead } & \$ 185,000\end{array}$ The variable overhead spending variance was:

Rewarding employees in one production department for meeting or exceeding standard cost benchmarks can create new sets of problems for organizations. Which of the following is not one of them?

White, Inc. produces a chemical product whose primary component is purchased on credit and any discounts are always taken. The following material and labour elements make up the costs of the product: $\begin{array} { l r } \text { Purchase price for material } & \$ 30 \text { per litre } \\\text { Freight and handling } & \$ 130 \text { per } 100 \text { litres }\end{array}$ Each container of the chemical product contains 5.7 quarts of material. During the process 5% of the material is lost due to waste. Each container of product also requires 1.2 hours of labour. Each day 2 hours are taken for set-up, cleaning, and breaks. Also, the wage rate is $15 per hour and fringes/payroll taxes are 20% of wages. Clients can take a 3% discount if they pay invoices within 10 days; otherwise, the entire invoice amount is due within 30 days. 1 litre equals 4 quarts. The standard rate per hour is:

Bellingham, Inc. incurred the following during a recent period: $\begin{array}{l}\begin{array} { l l l } &\text { Actual } &\text {Standard }\\\text { Machine hours } & 1,350 & 1,425 \\\text { Units produced } & 570 & 570 \\\text { Variable overhead costs } & \$ 2,775& \$ 2,850\end{array}\end{array}$ The variable overhead efficiency variance equals: