Exam 11: Standard Costs and Variance Analysis

Scotch Brand Products produces packaging tape and has determined the following to be its standard cost of producing one case of budget packaging tape: Material ( 3.50 ounces at \ 1.30 per ounce) \ 4.55 Labor ( 0.30 hour at \ 12.00 per hour) 3.60 Overhead 2.20 Total \1 0.35 At the start of 2014, Scotch Brand planned to produce 80,000 cases of tape during the year. Overhead is allocated based on the number of cases of tape produced. Annual fixed overhead is budgeted at $56,000 and the standard for variable overhead is $1.50 per case. The following information summarizes the results for 2014: .Actual production, 75,000 cases .Purchased 275,000 ounces of material at a total cost of $343,750 .Used 266,250 ounces of material in production .Employees worked 22,000 hours, total labor cost $275,000 .Actual overhead incurred, $175,000 What is the material price variance for 2014?

Unfavorable variances are red flags that a manager has performed poorly.

Scotch Brand Products produces packaging tape and has determined the following to be its standard cost of producing one case of budget packaging tape: Material ( 3.50 ounces at \ 1.30 per ounce) \ 4.55 Labor (0.30 hour at \ 12.00 per hour ) 3.60 Overhead 2.20 Total \ 10.35 At the start of 2014, Scotch Brand planned to produce 80,000 cases of tape during the year. Overhead is allocated based on the number of cases of tape produced. Annual fixed overhead is budgeted at $56,000 and the variable overhead costs are budgeted at $1.50 per case. The following information summarizes the results for 2014: .Actual production, 75,000 cases .Purchased 275,000 ounces of material at a total cost of $343,750 .Used 266,250 ounces of material in production .Employees worked 22,000 hours, total labor cost $275,000 .Actual overhead incurred, $175,000 How much is the overhead volume variance for 2014?

Which one of the following determines the material price variance?

Rumington Popcorn uses a standard cost system and applies overhead on a per unit basis. The company estimated that 30,000 units would be produced in 2014 and uses this quantity to establish its standard overhead cost per unit. The cost formula for overhead costs used to develop the standard overhead cost per unit was: Overhead = $120,000 + $6 per unit During the year, actual overhead cost was $340,000. Actual units produced were 32,000. How much is the amount of under or over applied overhead for 2014?

Sigorny Company uses standard costing and applies overhead on the basis of units produced. The company provided the following for July: Predetermined overhead rate per unit produced \ 6.20 Budgeted fixed overhead \ 12,600 Variable overhead budgeted per unit \ 2.00 Actual units produced 3,100 How much is the budgeted variable overhead in July?

Capital Leather Company produces leather footballs. The standard cost for each football is: Direct material 2 feet of leather at $4.00 per foot Direct labor 1.5 hours at $12.00 per hour During February, 1,200 footballs were produced and 2,600 feet of leather were purchased at $4.25 per foot. Production usage was 2,300 feet. Direct labor cost incurred was $20,930 for 1,820 hours. How much is the direct labor efficiency variance?

In some instances, process improvement can lead to unfavorable variances.

Steep, Inc. budgeted 6,000 cup holders for March. Each holder is sold for $12. Manufacturing overhead is applied based on units produced. Actual production for March was 6,300 cup holders. Standards and actual costs follow for March: Standards Actual Materials 1.1 pounds @ \2 .40 a pound 6,400 pounds purchased for \ 15,040 6,450 pounds used Labor 0.10 hours @ \ 14.00 per hour 620 hours @ \ 14.30 per hour Variable overhead \ 16,800 \ 18,400 Fixed overhead \ 9,600 \ 10,300 How much is the overhead volume variance?

For what reason(s) might the overhead volume variance occur? I. Overhead cost control is poor. II. The actual activity level was less than estimated. III. The expected production level was greater than budgeted.

As a practical matter, to which account are variance accounts with insignificant balances usually closed?

A favorable material quantity variance is recorded with a credit to the Material Quantity Variance account. Material from the appendix to the chapter is marked with an asterisk (*).

Variances that are large in absolute dollar value or as a percent of budgeted amounts are generally considered exceptional in a management by exception approach.

Wilson Manufacturing uses a standard costing system. When Wilson sells its inventory units, by how much is the Finished Goods Inventory account reduced?

Blue Box Beach Chairs has the following standards to make beach chairs: Standard Ouantity Standard Price Direct materials 2.2 pounds of polywood per chair \ 3.50 per pound Direct labor 0.65 hours per chair \ 13.00 per hour The static budget was based on the production of 6,200 beach chairs. The company used 13,000 pounds of polywood in order to make 6,000 chairs in April. The company purchased 7,000 pounds of polywood at a total cost of $24,150. It also used 3,840 labor hours at a cost of $12.70 per hour. How much is the direct labor efficiency variance?

When Walston Corporation prepared its budget for 2014, it estimated fixed overhead of $540,000 ($45,000 per month) and variable overhead at $3.00 per unit produced. The company planned to produce 48,000 units during the year at a rate of 4,000 units each month. During April, the company produced 3,800 units and total overhead costs were $59,000. How much is the controllable overhead variance for April?

The total variance for manufacturing overhead is the difference between the flexible budget for overhead and actual overhead costs.

In a standard costing system, the cost transferred out of Work in Process inventory is equal to the standard cost per items produced time the number of completed units.

Radical Company produces versascopes. It has a standard wage rate of $9.50 per hour. It has determined that the standard time to assemble one versascope is 2.75 hours. During August, the company's employees assembled 600 versascopes, and they were paid $15,974 for 1,630 hours of work. What is Radical's labor efficiency variance?

A variance analysis generally involves decomposing the difference between standard and actual costs into three components-direct materials, direct labor, and manufacturing overhead.