Question

DRUMMOND’s Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance.

                                                               Flexible                ------------Variances-------------

                                                                Budget                      Price                 Efficiency

            Material A                                   $20,000                  $1,000F                    $3,000U

            Material B                                     30,000                      500U                      1,500F

            Direct manufacturing labor             40,000                      500U                      2,500F

[Please note that Flexible Budget is the same as standard costs of material or labor at actual production. Also Price is the same as Rate (for labor) and Efficiency is the same as Quantity (for material)]

46     The MOST likely explanation of the above variances for Material A is that

                  A)     a lower price than expected was paid for Material A.

                  B)     higher-quality raw materials were used than were planned.

                  C)     the company used a higher-priced supplier.

                  D)     Material A used during September was $2,000 less than expected.

                  E)      none of the above

47.                  The actual amount spent for Material B was

                        A)       $28,000.

                        B)       $29,000.

                        C)       $30,000.

                        D)       $31,000.

                        E)       none of the above

48.             The MOST likely explanation of the above direct manufacturing labor variances is that

                  A)     the average wage rate paid to employees was less than expected.

                  B)     employees did not work as efficiently as expected to accomplish the job.

                  C)     the company may have assigned more experienced employees this month than originally

                           planned.

                  D)     management may have a problem with budget slack and be using lax standards for both labor-wage rates and expected efficiency.

                  E)      none of the above

Answer 1

Question 46

Option A is correct

Question 47

Amount spent on material B= 30000-500+1500= 29000 Therefore option B is correct

Question 48

Option C is correct.