Question

Continue the FlexTex example from a few slides ago. Assume the company actually produced and sold 12,000 units, and actual costs and revenue were:

Revenue	$119,200
Direct Materials	($34,000)
Direct Labor	($33,000)
Utilities	($10,600)
Indirect Materials	($4,120)
Factory Rent	($7,850)
Depreciation	($6,000)
Operating Income	$23,630

Required:

Prepare the flexible budget for the actual number of units produced, and compare the flexible to the actual costs. What are the flexible budget variances in each budget component? Indicate whether they are favorable or unfavorable.

1. If actual number of units this period is different from the number of units planned in the static/planned budget, then the static/planned budget and the flexible budget will differ in:

A. Only fixed costs
B. Fixed and variable costs
C. Only variable costs

2. Standard cost is defined as:

A.The budgeted cost of a single unit under realistic conditions

B.The opportunity cost of producing one unit

C.The total budgeted cost of all units planned for the period under realistic conditions

D. The ideal cost of one unit under perfect manufacturing conditions

3. If the material quantity variance is favorable it means that:

A.The price of the materials was cheaper than allowed/expected in our standard

B.We used more materials than allowed/expected by the standard

C.We used less materials than allowed/expected by the standard

D.The price of materials is higher than allowed/expected in our standard

Please answer all questions. show work where needed. thank you.

Answer 1

Ans 1: C. Only variable costs

Reason: The variable cost changes with the no of unit whereas remain constant irrespective of number of units produced.

Ans 2:The budgeted cost of a single unit under realistic conditions

Reason: Standard cost is the estimated cost of producing a unit of product under normal condition taking all conditions associated with it in consideration.

Ans 3: We used less materials than allowed/expected by the standard

Reason:the formula for material quantity variance is: AP(SQ-AQ), so if standard quantity(sq) is more than actual quantity than the variance is favourable.