Exam 17: Additional Topics in Variance Analysis

Ingredient B4376 is used to make Razor Corporation's major product. The standard cost of Ingredient B4376 is $24.50 per ounce and the standard quantity is 6.1 ounces per unit of output. In the most recent month, 5,030 ounces of the compound were used to make 700 units of the output. When recording the use of materials in production under a standard costing system, Materials Inventory would be:

The market share variance is more controllable by the marketing department than the industry volume variance.

An increase in an industry's volume and a decrease in a company's market share implies that the company's sales price variance is unfavorable.

The Foggybottom Chemicals produces a product by mixing three ingredients to make a finished product. The standard cost of producing a 50-gallon drum of the product is $19.50. The standard materials mix and related standard cost of each chemical used in a 50-gallon batch are: Chemical Std input quantity Std cost per gal Total cost A 30 \ 0.25 \ 7.50 B 20 0.45 9.00 C 0.30 The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 520 batches were manufactured during the current production period. The costs and chemical usage variations at the end of the production period are: Chemical Quantity Purchased Total Cost Quantity Used 17,800 \ 4,365 16,600 13,000 6,240 11,880 1,520 Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. If variances are recorded at the earliest possible moment, what is the material price variance (in total and for each ingredient)? b. What is the material efficiency variance (in total and for each ingredient)? c. What is the material yield variance (in total and for each ingredient)? d. What is the material mix variance (in total and for each ingredient)?

Next year's budget for Temper, Inc., is given below: Product A Product B Sales \9 45,000 \6 88,500 Variable costs 459,900 297,000 Fixed costs Net income Units 126,000 54,000 At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold: Product Line Units Sales 1 126,200 \ 958,579 2 56,800 \ 721,010 Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the sales activity variance for each product. b. Compute the sales mix variance for each product. c. Compute the sales quantity variance for each product.

The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Std input quantity Std cost per liter Total cost Echol 200 \ 0.200 \ 40.00 Protex 100 0.425 42.50 Benz 250 0.150 37.50 CT -40 0.300 The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 140 batches of Charger Power were manufactured during the current production period. The controller of BE has determined its costs and chemical usage variations at the end of the production period. Chemical Quantity Purchased Total Cost Quantity Used Echol 25,000 \ 5,365 26,600 Protex 13,000 6,240 12,880 Benz 40,000 5,840 37,800 CT-40 2,220 - Is the material mix variance favorable or unfavorable?

Virginia Enterprises produces two products, Standard and Deluxe. Actual and budgeted information for the year is provided below: Standard Deluxe Budget Actual Budget Actual Unit sales 4,000 5,600 12,000 11,200 Sales \ 6,000 \ 7,560 \ 12,000 \ 11,760 Variable costs 2,400 2,800 \ 6,000 5,800 Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the sales activity variance for each product. b. Compute the sales mix variance for each product. c. Compute the sales quantity variance for each product.

The only variances that should be investigated are those for which the expected benefits of correction exceed the costs of investigating and correcting.

A company makes a product using two materials, one of which is interchangeable with a third material. The standards for producing one 200-pound batch are presented below. The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O. The price of M was $0.03 per pound and the actual price of O was $0.10. Standard Quartity Standard Material () Cost/lb. Total Cost 0 \ 0.10 \ 0 80 0.08 6.40 0.02 - What is the material yield variance?

A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Deluxe Sales (units) 8,000 2,000 Sales price per unit \ 8,000 \ 12,000 Variable costs per unit \ 6,400 \ 9,000 Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. - Is the sales activity variance for the basic model favorable or unfavorable?

The Foxmoore Company experienced a $100,000 shortfall in sales revenues for the year. Top management is quite disturbed about this and has decided to use variance analysis in assigning the responsibility for the decline. Which of the following variances would most likely be within the control of the marketing department?

Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output. Data concerning the compound for October appear below: Cost of material purchased in October \ 23.10 per ounce Material purchased in October 2,300 ournces Material used in production in October 2,120 ounces Actual output in October 600 units The material was purchased on account and Calvin Corporation uses a standard costing system. - The Material Price Variance for October would be recorded as a:

If a company sells two products, it is possible for both products to have an unfavorable sales quantity variance.

If variances are not prorated at the end of the accounting period, they are closed to the Cost of Goods Sold.

The industry volume variance is the portion of the sales activity variance due to a change in the company's proportion of sales in the markets in which they operate.

The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Y Price per pound \6 \9 Pounds per unit of product Z 10 5 In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: X Y Price per pound \5 .70 \8 .40 Pounds used 216,000 114,000 - Is the total direct materials mix variance favorable or unfavorable?

Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income. Actual Budget Dresses sold Sales \ 235,000 \ 300,00 Variable costs Contribution margin \9 0,000 120,000 Fixed Costs Operating income \& \& - The sales price variance for November is:

Explain what production mix and production yield variances measure. How do these variances relate to efficiency variances?