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Hand Cost 1 Test 3 (Chapter 7-9) Problems
1.
Lincoln Corporation used the following data to evaluate their current operating system.
The company sells items for \$18 each and used a budgeted selling price of \$18 per unit.
Actual
Budgeted
Units sold
45,000 units
31,000 units
Variable costs
\$161,000
\$150,000
Fixed costs
\$44,000
\$50,000
What is the static-budget variance of variable costs?
Solution
Variable cost variance
= actual variable costs
– budgeted variable cost
= \$161,000
– \$150,000
= \$11,000 Unfavorable
================
Note: the variance is unfavorable since the actual costs are higher than the budgeted
costs.
2.
Good Company planned to use \$153 of material per unit but actually used \$140 of
material per unit, and planned to make 1,100 units but actually made 940 units. The
flexible-budget amount for materials is ________.
Solution
Flexible budget
=
planned price
*
actual production number
=
\$153
*
940
=
\$143,820
=======
*
Continued

3.
Better Products Inc. planned to use \$40 of material per unit but actually used \$30 of
material per unit. Better planned to make 1,560 units but actually made 1,310 units. The
sales-volume variance for materials is ________.
Solution
Sales volume variance
= flexible budget
– static budget
= [std price * qty allowed]
– [std price * planned qty]
= [\$40 * 1,310]
– [\$40 * 1,560]
= \$52,400
– \$62,400
= \$10,000 favorable
=============
Note: the variance is considered favorable because the flexible budget was less than the
static budget.
5.
Standard material cost per kg of raw material is \$6.50. Standard material allowed per unit
is 5 Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is \$6.00. What is the
standard cost per output unit?
Solution
Standard cost per unit
=
standard price
*
standard quantity
=
\$6.50
*
5
=
\$32.50
=====
*
Continued

6.
Heavy Products, Inc. developed standard costs for direct material and direct labor. In
2017, Heavy estimated the following standard costs for one of their major products, the
10-gallon plastic container.
Budgeted quantity
Budgeted price
Direct materials
0.70 pounds
\$70 per pound
Direct labor
0.10 hours
\$35 per hour
During June, Heavy Products produced and sold 25,000 containers using 23,000 pounds
of direct materials at an average cost per pound of \$75 and 17,500 direct manufacturing
labor-hours at an average wage of \$35.75 per hour. The direct material price variance
during June is ________.
Solution
Price variance
= [actual qty at actual price]
– [actual qty at standard price]
= [23,000 lbs, * \$75 per lb.]
– [23,000 lbs. * \$70 per lb.]
= \$1,725,000
– \$1,610,000
= \$ 115,000 Unfavorable
==================
Note: the variance is considered unfavorable because the actual input price was higher
than standard input price.
7.
Green Company developed standard costs for direct material and direct labor. In 2017,
Green estimated the following standard costs for one of their major products, the 30-
gallon heavy-duty plastic container.
Budgeted quantity
Budgeted price
Direct materials
0.40 pounds
\$50 per pound
Direct labor
0.50 hours
\$11 per hour
During July, Green produced and sold 4,000 containers using 1,750 pounds of direct
materials at an average cost per pound of \$48 and 2,090 direct manufacturing labor hours
at an average wage of \$11.30 per hour. The direct manufacturing labor efficiency
variance during July is ________.
Solution
Efficiency variance
= [actual qty at std price]
– [std qty at standard price]
= [2,090 hours * \$11 per hr.]
– [4K *0.5 hours * \$11 per hr.]
= \$22,990
– \$22,000
= \$ 990 Unfavorable
================
Note: the variance is considered unfavorable because the actual input quantity was higher
than standard input quantity.
*
Continued

13.
Great Corporation manufactures industrial-sized landscaping trailers and uses budgeted
machine-hours to allocate variable manufacturing overhead. The following information
pertains to the company’s manufacturing overhead data:
Budgeted output units
40,000 units
Budgeted machine-hours
10,000 hours
Budgeted variable manufacturing overhead costs for 40,000 units
\$310,000
Actual output units produced
36,500 units
Actual machine-hours used
14,600 hours
\$350,400
What is the budgeted variable overhead cost rate per output unit?
Solution
budgeted per unit cost
=
budgeted cost
/ budgeted number of units
=
\$310,000
/ 40,000
=
\$7.75
====
14.
Lance Corporation manufactures tennis gear and uses budgeted machine-hours to allocate
variable manufacturing overhead. The following information relates to the company’s
Budgeted output units
8,000 units
Budgeted machine-hours
24,000 hours
Budgeted variable manufacturing overhead costs for 8,000 units
\$288,000
Actual output units produced
8,500 units
Actual machine-hours used
23,750 hours
\$250,000
What is the flexible-budget amount for variable manufacturing overhead?
Solution
Flexible budget
=
actual production
*
unit standard
=
8,500
*
[\$288,000 / 8,000]
=
8,500
*
\$36
=
\$306,000
=======
*
Continued

15.
Beta Corporation manufactured 21,000 air conditioners during November. The overhead
cost-allocation base is \$34.25 per machine-hour. The following variable overhead data
pertain to November:
Actual
Budgeted
Production
21,000 units
24,000 units
Machine-hours
13,300 hours
14,400 hours
\$34.00
\$34.25
Solution
Spending variance
=
[actual qty at actual price]
– [actual qty at standard price]
= [13,300 lbs, * \$34 per hr.]
– [13,300 lbs. * \$34.25 per hr.]
= \$452,200
– \$455,525
= \$<3,325> Favorable
===============
Note: the variance is considered favorable because the actual input price was lower
than standard input price.
16.
Gamma Corporation manufactured 17,000 air conditioners during November. The
overhead cost-allocation rate is \$35.50 per machine-hour. The following variable
Actual
Budgeted
Production
17,000 units
19,000 units
Machine-hours
8,325 hours
9,500 hours
\$35.00
\$35.50
What is the variable overhead efficiency variance?
Solution
Efficiency variance
= [actual qty at std price]
– [std qty at std price]
= [8,325 * \$35.50]
– [9,500/19,000 *17,000 * \$35.50]
= \$295,537.50
– [0.5 * 17,000 * \$35.50]
= \$295,537.50
– \$301,750
= \$<6,212.50> Favorable
=================
Note: the variance is considered favorable because the actual input quantity was lower
than standard input quantity.
*
Continued

17.
Russo Corporation manufactured 21,000 air conditioners during November. The
overhead cost-allocation base is \$34.50 per machine-hour. The following variable
Actual
Budgeted
Production
21,000 units
23,000 units
Machine-hours
12,700 hours
13,800 hours
\$34.00
\$34.50
What is the total variable overhead variance?
Solution
total
= [actual quantity at act rate]
– [std qty allowed at std rate]
variance
= [12,700 * \$34]
– [13,800 / 23,000 * 21,000 * \$34.50]
= \$431,800
– \$434,700
= \$<2,900> Favorable
================
Note: the variance is considered favorable because the actual input quantity at the actual
input price was lower
than standard input quantity at the standard price.
18.
At the start of 2017, Juice budgeted its fixed overhead costs to be \$280,000 per month.
The actual amount for April 2017 turned out to be \$290,000. The fixed overhead flexible-
budget variance is _____.
Solution
=
actual costs

budgeted costs
=
\$290,000

\$280,000
=
\$10,000 Unfavorable
================
Note: the variance is considered unfavorable because actual costs were greater than
budgeted costs.
*
Continued

21.
AAA Manufacturing Inc, makes a product with the following costs per unit:
Direct materials
\$180
Direct labor
\$ 20
\$ 30
\$130
Marketing costs
\$ 75
What would be the inventoriable cost per unit under absorption costing?
Solution
Direct materials
\$180
Direct labor
\$ 20
\$ 30
\$130
——
Absorption costing unit cost
\$360
====
22.
VVV Manufacturing Inc, makes a product with the following costs per unit: Direct
materials, \$180; Direct labor, \$20; Manufacturing overhead (variable), \$30;
Manufacturing overhead (fixed), \$130; and Marketing costs, \$75. What would be the
inventoriable cost per unit under variable costing and what would it be under absorption
costing?
Solution
Direct materials
\$180
Direct labor
\$ 20
\$ 30
——
Variable costing unit cost
\$230
====
*
Continued

23.
Swan Company produces and sells a decorative pillow for \$98.00 per unit. In the first
month of operation, 2,300 units were manufactured, and there were 1,800 units were sold.
Actual fixed costs are the same as the amount budgeted for the month. Other information
for the month includes: Variable manufacturing costs, \$23 per unit; Variable marketing
costs, \$6 per unit; Fixed manufacturing costs, \$15 per unit; and administrative expenses,
all fixed \$21 per unit.
Ending inventories:
Direct materials
-0-
WIP
-0-
Finished goods
500 units
What is the contribution margin using variable costing?
Solution
Sales [\$98 * 1,800]
\$176,400
Less variable cost [(\$23 + \$6) * 1,800]
<55,200>
———–
Contribution margin
\$124,200
=======
*
Continued
24.
Goose Company produces and sells a decorative pillow for \$98.00 per unit. In the first
month of operation, 2,200 units were produced and 1,800 units were sold. Actual fixed

costs are the same as the amount budgeted for the month. Other information for the
month includes:
Variable manufacturing costs
\$22.00 per unit
Variable marketing costs
\$ 3.90 per unit
Fixed manufacturing costs
\$14.00 per unit
\$19.50 per unit
Ending inventories:
Direct materials
-0-
WIP
-0-
Finished goods
400 units
What is the operating income using variable costing?
Solution
Sales [\$98 * 1,800]
\$176,400
Less variable cost [(\$22 + \$3.90) * 1,800]
<46,620>
———–
Contribution margin
\$129,780
Less fixed cost [\$14 + \$19.50) * 2,200]
<73,700>
———–
Operating income using variable costs
\$ 56,080
=======
26.
Glass Company produces decorative statues. Management has provided the following
information:
Actual sales
34,000 statues
Budgeted production
53,000 statues
Selling price
\$46 per statue
Direct material costs
\$7.50 per statue
Variable manufacturing costs
\$3.60 per statue
\$5.85 per statue
\$4.80 per statue
What is the cost per statue if throughput costing is used?
Solution
Direct material costs
\$7.50 per statue
===========
Note: Only direct materials costs are considered product costs in throughput costing.
*
Continued
30.
Jenkins Corporation sells one product. The following information is available for the
current month:

Selling price per unit
\$110
Standard fixed manufacturing costs per unit
\$49
Variable selling and administrative costs per unit
\$8
Standard variable manufacturing costs per unit
\$3
\$44,000
Units produced
14,000 units
Units sold
9,600 units
What is the variable costing breakeven point in units? (Round your final answer up to the
next whole unit.)
Solution
variable costing
=
Total fixed costs
/
unit contribution margin
break-even units
=
[manufacturing + S&A]
/ [\$110 â€“ (man + S&A)]
=
[(\$49 * 14,000) + \$44,000]
/ [\$110 â€“ (\$3 + \$8)]
=
[\$686,000 + \$44,000]
/ [\$110 – \$11]
=
\$730,000
/ \$99
=
7,374 (rounded up)
==============
Proof: not required
Sales
[\$110 * 7,374]
\$811,140
Less variable costs
[(\$3 * \$8) * 7,374]
<81,114>
———–
Contribution margin
\$730,026
Less fixed costs [see above]
<730,000
———–
Operating income
\$ 26
=======
Note: The positive net income versus zero income is due to the â€œrounding up

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