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Exam 16: Fundamentals of Variance Analysis

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Question 51

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The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production.

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Question 52

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Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

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One reason is there are different causes...

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Question 53

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A variance can best be described as:

TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product. $\begin{array}{lclr}&\text { Standard } & \text { Standard } & \text { Standard } \\&\text { Quantity } & \text { Price } & \text { Cost }\\\text { Direct Materials } & \text { 8pounds } & \$ 1.80 \text { per pound } & \$ 14.40 \\\text { Direct Labor } & 0.25 \text { hour } & \$ 8.00 \text { per hour } & \underline{2.00}\\&&& \underline{\$16.40}\end{array}$ During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. - What is the direct labor efficiency variance for November?

In the general model, an efficiency variance is calculated as:

The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output.

Which of the following is not an alternative name for the production volume variance?

The Valenti Company uses flexible budgeting for cost control. Valenti produced 10,800 units of product during October, incurring indirect material costs of $13,000. Valenti's master budget reflected indirect material costs of $180,000 at a production volume of 144,000 units. What was the indirect material cost variance for October?

Which of the following organizational policies is most likely to result in undesirable managerial behavior? (CMA adapted)

In the general model, a price variance is calculated as:

Horton Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product are as follows: $\begin{array}{lrr} \text { Material:8 kilograms@\$5 per kilogram } &\$40.00\\ \text { Labor:6hours@\$8.20per hour} &\$49.20\\\end{array}$ The following operating data were taken from the records for November: $\begin{array}{ll} \text { Units completed } & \text { 5,600units } \\ \text { Budgeted output } & 6,00 \text { units } \\\text { Purchase of materials } & 50,000 \text { kilograms } \\ \text { Total actual labor costs } & \$ 300,760 \\\text { Actual labor hours } & 36,500 \text { hours } \\ \text { Material efficiency (quantity) variance } & \$ 1,50 \text { unfavorable } \\\text { Total material variance } & \$750 \text { unfavorable } \\\end{array}$ Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. What is the direct labor rate variance for November? b. What is the direct labor efficiency variance for November? c. What is the actual kilograms of material used in the production process during November? d. Assume the purchasing department is responsible for the material price variance, what is the actual price paid per kilogram of material during November (assume no increase/decrease in inventory during the month)?

A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad.

Which of these variances is least significant for cost control?

The standards for product J42 call for 3.6 feet of a raw material that costs $14.00 per feet. Last month, 5,500 feet of the raw material were purchased for $76,175. The actual output of the month was 1,260 units of product J42. A total of 4,800 feet of the raw material were used to produce this output. Required: a. What is the materials price variance for the month? b. What is the materials quantity variance for the month? c. Prepare journal entries to record the purchase and use of the raw material during the month. (All raw materials are purchased on account.)

The following information is available for the Danske Company: $\begin{array}{lrr} \text { Denominator hours for May } &15,000\\ \text {Actual hours worked during May } &14,000\\ \text {Standard hours allowed for May } &12,000\\ \text {Flexible budget fixed overhead cost } &\$45,000\\\text { Actual fixed overhead costs for May } &\$48,000\\\end{array}$ Danske Company had total underapplied overhead of $15,000. Additional information is as follows: $\begin{array}{c}\begin{array}{lll} \text {Variable Overhead:}\\ \text {Applied based on standard direct labor hours allowed }\\\text { Budgeted based on standard direct labor hours}\\\\ \text {Fixed Overhead:}\\ \text {Applied based on standard direct labor hours allowed }\\ \text {Budgeted based on standard direct labor hours}\end{array}\begin{array}{lll}\\\$42,000\\38,000\\\\\\\$30,000\\27,000\end{array}\end{array}$ - Is the production volume variance favorable or unfavorable?

Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?

Explain the difference between the sales volume variance and the production volume variance.

The following information relates to the month of April for The Kennedy Manufacturing Company, which uses a standard cost accounting system. $\begin{array}{lrr}\text {Actual total direct labor}&\$43,400\\\text {Actual direct labor hours used}&14,000\\\text {Standard hours allowed for actual output}&15,000\\\text { Variable overhead price variance - unfavorable }&\$1,400\\\text { Actual total overhead } & \$ 32,000 \\\text { Budgeted fixed costs } & \$ 9,000 \\\text { Normal activity in hours } & 12,00 \\\text { Total overhead application rate per DLH } & \$ 2.25\end{array}$ Required: (Be sure to indicate whether the variances are favorable or unfavorable.) a. What is the variable overhead efficiency variance? b. What is the fixed overhead spending variance? c. What is the fixed production volume variance?

Al-Shabad Company produces a single product. The company has set the following standards for materials and labor: $\begin{array}{lcc}&\text {Standard quantity or hours per}\\&\text {unit}&\text {Standard price or rate}\\\text { Direct materials } & ? \text { pounds per unit } & \$ ? \text { per pound } \\\text { Direct labor } & 3 \text { Ohours per unit } & \$ 10 \text { per hour }\end{array}$ During the past month, the company purchased 7,000 pounds of direct materials at a cost of $17,500. All of this material was used in the production of 1,300 units of product. Direct labor cost totaled $36,750 for the month. The following variances have been computed: $\begin{array}{lrr}\text { Materials quantity variance } & \$ & 1,375 \mathrm{U} \\\text { Total materials variance } & \$ & 375 \mathrm{~F} \\\text { Labor efficiency variance } & \$ & 4,000 \mathrm{~F}\end{array}$ Required: 1. For direct materials: a. Compute the standard price per pound of materials. b. Compute the standard quantity allowed for materials for the month's production. c. Compute the standard quantity of materials allowed per unit of product. 2. For direct labor: a. Compute the actual direct labor cost per hour for the month. b. Compute the labor rate variance.

The Tennison Company uses a standard cost system in which manufacturing overhead costs are applied to units of the company's single product on the basis of standard direct labor-hours (DLHs). The standard cost card for the product follows: $\begin{array}{llr}\text { Standard Cost Card-per unit of product }\\ \text {Direct Materials( 4 yards at \$ 3.50 per yard) } &\$14\\ \text { Direct Labor'(1.5 DLHs at \$8 per DLH)} &12\\ \text { Variable Overhead(1.5 DLHs at \$2 per DLH) } &3\\ \text { Fixed Overhead(1.5 DLHs at \( \$ 6 \) per DLH) } &9\\ \text {Standard cost per unit } &\$38\\\end{array}$ The following data pertain to last year's activities: ? The company manufactured 18,000 units of product during the year. A total of 70,200 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 18,000 units. ? The company worked 29,250 direct labor-hours during the year at a cost of $7.80 per hour. ? The denominator activity level was 22,500 direct labor-hours. ? Budgeted fixed manufacturing overhead costs were $135,000 while actual manufacturing overhead costs were $133,200. ? Actual variable overhead costs were $61,425. Required: a. Compute the direct materials price and quantity variances for the year. b. Compute the direct labor rate and efficiency variances for the year. c. Compute the variable overhead rate and efficiency variances for the year. d. Compute the fixed manufacturing overhead budget and volume variances for the year.