Exam 16: Fundamentals of Variance Analysis

Easton Industries developed the following standards for one of its products: Material 5 feet \ 15/ foot \ 75 Labor 10 hours \ 15/ hour \ 150 Total variable cost \2 25 Actual results for September were: Units produced 12,000 Material purchased 40,000 feet for \ 14.25/ foot Material used 70,000 feet Direct Labor 119,500 hours at \ 15.10/ hour Required: (1) Calculate the following variances: (a) Material purchase price variance. (b) Material quantity variance. (c) Labor rate variance. (d) Labor efficiency variance. (2) Why would it be inappropriate to calculate the material price variance at the time the material is used; might there be a situation when it might be all right to do so?

James Manufacturing has the following information available for July: - Was James's activity variance for variable manufacturing costs favorable or unfavorable?

The Matten Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours: Standard costs per unit: Variable portion 2 hours @ \ 3= \6 Fixed portion 2 hours @\ 5=10 \1 6 During April, 85,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relate to April: Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work. Actual overhead incurred totaled $1,378,000; $518,000 variable and $860,000 fixed. All inventories are carried at standard cost. Required: (Be sure to indicate whether the variances are favorable or unfavorable.) a. Compute the fixed overhead spending (budget) variance. b. Compute the production volume variance.

Both the actual material used and the standard quantity allowed for material are based on the actual output attained.

Ralston Corporation makes a product with the following standard costs: Standard Quantity or Standard Price or Standard Cost Inputs Hours Rate Per Unit Direct materials 6.9liters \ 5.00 per liter \ 34.5 Direct labor 0.3 hours \ 17.09 er hour \ 5.1 Variable overhead 0.3 hours \ 6.00 per hour \ 1.8 The company reported the following results concerning this product in August. Originally budgeted output 8,600 annits Actual output 8,400 anits Raw materials used in production 58,330 liters Actual direct labor-hours 2,310 hours Purchases of raw materials 62,500 liters Actual price of raw materials \ 4.90 per liter Actual direct labor rate \ 17.10 per hour Actual variable overhead rate \ 5.50 per hour The materials price variance is recognized when materials are purchased. Variable overhead is applied on the basis of direct labor-hours. Required: a. Compute the materials quantity variance. b. Compute the materials price variance. c. Compute the labor efficiency variance. d. Compute the direct labor rate variance. e. Compute the variable overhead efficiency variance. f. Compute the variable overhead rate variance.

An unfavorable direct labor efficiency variance could be the result of poor supervision or poor scheduling by divisional managers.

Darren Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product are as follows: Material:8 kilograms@ \5 per kilogram \4 0.00 Labor:6hours@ \8 .20perhour \4 9.20 The following operating data were taken from the records for November: Units completed 5,600 units Budgeted output 6,000 units Purchase of materials 50,000 kilograms Total actual labor costs \ 300,760 Actual labor hours 36,50 hours Material efficiency (quantity) variance \ 1,500 Unfavorable Total material variance \ 750 unfavorable Required: Prepare the journal entries to record the following: a. Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained). b. Recognition of direct labor.

If the budgeted activity level is greater than the actual activity level, then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.

The following data for November have been provided by Mazzio Corporation, a producer of precision drills for oil exploration: Budgeted production 4,000 Standard machine-hours per drill 8.4 machine-hours Standard indirect labor \ 9.40 per machine-hour Standard power \ 2.90 per machine-hour Actual production 4,300 drills Actual machine-hours 36,530 machine-hours Actual indirect labor \ 362,756 Actual power \ 97,693 Required: Compute the variable overhead rate variances for indirect labor and for power for November. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work.

In the new cost management scheme of things, what are some of the disadvantages of the traditional standard cost system (list at least four)?

The intercept of the flexible budget line is:

The Rogers Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour. The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows: Nurnber of units produced 6,000 Materials purchased (18,500yards) \ 88,800 Materials used in production (yards) 18,500 Direct labor cost incured ( \6 .50/hour) \ 75,400 Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. Compute the direct material price variance. b. Compute the direct material efficiency variance. c. Compute the direct labor price (rate) variance. d. Compute the direct labor efficiency variance.

An unfavorable direct labor efficiency variance could be caused by: (CMA adapted)

Production cost variances are input variances, while sales activity variances are output variances.

Explain how standards and budgets are different.

James Manufacturing has the following information available for July: - What was James's master budget sales revenue?

Which department is customarily held responsible for an unfavorable materials quantity variance?

A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period.

The Atlas Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours: Standard costs per unit: Variable portion 2 hours@ \3 = \6 Fixed portion 2 hours@ \5 = 10 \1 6 During April, 85,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relate to April: Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work. Actual overhead incurred totaled $1,378,000; $518,000 variable and $860,000 fixed. All inventories are carried at standard cost. Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. Compute the variable overhead price variance. b. Compute the variable overhead efficiency variance.

Jemco Corporation makes automotive engines. For the most recent month, budgeted production was 6,000 engines. The standard power cost is $8.80 per machine-hour. The company's standards indicate that each engine requires 6.1 machine-hours. Actual production was 6,400 engines. Actual machine-hours were 38,730 machine-hours. Actual power cost totaled $350,628. Required: Determine the rate and efficiency variances for the variable overhead power cost and indicate whether those variances are unfavorable or favorable. Show your work.