Exam 16: Fundamentals of Variance Analysis

Explain the difference between operating budgets, financial budgets, and flexible budgets.

In general, the direct labor efficiency variance is the responsibility of the:

The variable overhead price variance is due to:

The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold.

In general, and holding all other things constant, an unfavorable variance decreases operating profits.

Photo Corporation makes a product with the following standard costs: Inputs Standard Quantity or Hours Standard Price or Rate Direct materials 7.8 kilos \ 1.00 per kilo Direct labor 0.4 hours \ 18.00 per hour Variable overhead 0.4 hours \ 3.00 per hour The company reported the following results concerning this product in August. Actual output 8,500 units Raw materials used in production 65,550 kilos Purchases of raw materials 69,000 kilos Actual direct labor-hours 3,410 hours Actual cost of raw materials purchases \ 75,900 Actual direct labor cost \ 66,495 Actual variable overhead cost \ 9,889 The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. 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.

The basic difference between a master budget and a flexible budget is that a:

A standard cost system may be used in: (CPA adapted)

Market Manufacturing Inc. has developed the following standards for one of its products. The materials are not substitutable. Material 1 5yards \ 6/ yard \ 30 Material 2 6pieces \ 5/ piece \ 30 Direct labor 3hours \ 24/ hour \ 72 Total variable cost per unit \1 32 The records for March showed the following actual results: Material 1 Purchased 10,000 yards for \ 58,000 Used 9,500 yards Material 2 Purchased 15,000 pieces for \ 78,750 Used 12,100 pieces Direct labor 5,900 hours for \ 147,500 Units produced 2,000 units Required: (1) Calculate the following variances: (a) Material purchase price variance for material 1. (b) Material quantity variance for material 1. (c) Material purchase price variance for material 2. (d) Material quantity variance for material 2. (e) Labor rate variance. (f) Labor efficiency variance. (2) Give at least one possible cause for each of the following variances: (a) material 2 quantity variance. (b) labor rate variance. (c) labor efficiency variance.

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. Standard Standard Standard Quantity Price Cost Direct Materials 8pounds \ 1.80 per pound \ 14.40 Direct Labor 0.25 hour \ 8.00 per hour 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. - Is the direct labor efficiency variance favorable or unfavorable?

The Morocco 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 4,500 Materials purchased (13,300yards) \ 61,600 Materials used in production (yards) 13,300 Variable overhead costs incurred \ 4,380 Fixed overhead costs incured \ 20,400 Direct labor cost incurred ( \6 .25/hour) \ 75,750 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. c. Incurring actual overhead. d. Application of overhead to production. e. Closing of overhead accounts and recognizing variances. f. Transferring production to finished goods.

The following data pertains to the direct materials cost for the month of October: Standard costs 5,000 units allowed at \ 20 each Actual costs 5,050 units input at \ 19 each What is the direct materials efficiency variance?

Standards and budgets are the same thing.

The purpose of the flexible budget is to:

In general, the terms favorable and unfavorable are used to describe the effect of a variance on:

The following standards have been established for a raw material used in the production of product U98: Standard quantity of the material per unit of output 2.6pounds Standard price of the material \ 14.50 Per pound The following data pertain to a recent month's operations: Actual material purchased 7,606 Pounds Actual cost of material purchased \ 110,960 Actual material used in production 7,300 Actual output 2,800 units of product U98 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.)