Katniss Company produces and sells hunting bows and has developed standard quantities and

prices for its direct materials and direct labor. The company uses a standard quantity of 2 pounds

of material in the production of each bow and expects to pay the supplier $3 per pound for the

material. Each bow also requires 1 hour of direct labor at a standard rate of $15 per hour. At

year end, Katniss analysts discovered that the company used exactly 2 pounds of material for

each of the bows it sold. The company had no beginning or ending inventories.

The following is Katniss Companys analysis of actual results (partial) versus budget for the year

ended 2015:

Master

Budget

Variance Flexible

Budget

Variance Actual Results

Volume 10,000 units ? 9,000 units

DM $60,000 ? $58,500

DL $150,000 ? $130,000

Variable OH $30,000 $27,000 $27,000

Fixed OH $15,000 ? $13,500

4. What is the flexible budget amount of Direct Material?

A. $60,000

B. $59,000

C. $57,000

D. $54,000

E. $51,000

5. What is the direct material price variance?

A. $4,500 Favorable

B. $4,500 Unfavorable

C. $3,000 Favorable

D. $3,000 Unfavorable

E. $1,500 Unfavorable

6. What is the amount of Fixed Overhead variance?

A. $4,500 Favorable

B. $4,500 Unfavorable

C. $3,000 Favorable

D. $1,500 Favorable

E. $1,500 Unfavorable

If a company produces more units than it sells in a period, net operating income under

absorption costing will:

A. Be the same as it would be under variable costing

B. Be equal to the net operating income using variable costing less fixed manufacturing

costs

C. Be more than it would be under variable costing

D. Be less than it would be under variable costing

E. Be equal to the net operating income using variable costing plus selling and

administrative costs

USE THE FOLLOWING INFORMATION FOR QUESTION 14

Direct Labor

Standard price per direct labor hour $10

Actual price per direct labor hour $11

Standard inputs allowed/unit of output 2 hours

Actual hours 38,000 hours

Actual units of output 20,000 units

14. The efficiency variance for direct labor is

A. $40,000 favorable

B. $20,000 unfavorable

C. $20,000 favorable

D. $38,000 favorable

E. $38,000 unfavorable

20. In the month of December, the Valhalla Company produced 28,000 units and sold 30,000

units. Under absorption costing:

A. Fixed manufacturing costs will be released from inventory and therefore net operating

income will be lower than it would under variable costing

B. Fixed selling & administrative costs will be released from inventory and therefore net

operating income will be lower than it would under variable costing

C. Fixed manufacturing costs will be included in inventory instead of on the income

statement and therefore net operating income will be higher than it would under variable

costing

D. All fixed costs will be released from inventory and therefore net operating income will

be lower than it would under variable costing

21. In 2012, the Jetson Company reported net operating income of $160,000 using absorption

costing and $146,000 using variable costing. With this information only, you can assume:

A. Units sold exceeded units produced

B. Units produced and sold were equal

C. There was no beginning inventory

D. Units produced exceeded units sold

28. In 2013, the Yankee Company had average operating assets of $200,000. If the company

reported a return on investment of 50% then net operating income for 2013 must have been:

A. $50,000

B. $100,000

C. $400,000

D. $200,000