Exam 7: Flexible Budgets, Variances, and Management Control: I

Determining the actual quantity of the revenue driver is one step in the development of a flexible budget.

The terms, usage variances and efficiency variances mean the same thing.

A flexible budget enables managers to compute a richer set of variances than a static budget does.

Wilson's Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka requires the following: During the third quarter, the company made 1,500 parkas and used 3,150 square metres of fabric costing $39,375. Direct labour totaled 2,100 hours for $45,150. Required: a. Compute the direct materials price and efficiency variances for the quarter. b. Compute the direct manufacturing labour price and efficiency variances for the quarter.

Your company hired a summer student as an accounting intern to prepare variance analysis for the plant manager (the student's father), so that the entire organization could become more effective and efficient. Up to this time, the company used a budget but only one that specified sales and production in units, and each department gauged and reported on its own performance based on historical rules of thumb developed over the years. The plant manager instructed every department manager to assist the new accountant as achieving favourable results would ensure he got a good bonus. For the month of May, the student met with the department heads of each functional area, obtaining from them the data and estimates to come up with: standard costs and prices; and, standard direct material usage and standard direct labour usage. Then in June, July and August the student collected; and, analyzed the variance results, and prepared a report for the plant manager. The report indicated favourable variances in virtually every functional area, allowing the plant manager to receive a larger bonus than usual. Required: Comment on the above process, in terms of variance analysis.

A cost of a given activity decreases over continuous time periods. This is considered to be a continuous improvement variable cost.

Describe the purpose of variance analysis.

Some financial variances show increases in operating income relative to a budgeted or allocated amount, and others show decreases in operating income. Respectively, these variances are

Rate variances are the difference between actual inputs used and budgeted inputs that should have been used, multiplied by the budgeted price.

What are the direct materials quantity variances for the wet and dry ingredients respectively?

For the dry ingredients what are the material mix and yield variances respectively?

To prepare budgets based on actual data from past periods is preferred since past inefficiencies are excluded.

During February the Lungren Manufacturing Company's costing system reported several variances that the production manager was surprised to see. The following information is for the manufacture of garden gates, its only product: 1. Direct materials price variance, $800 unfavourable. 2. Direct materials efficiency variance, $1,800 favourable. 3. Direct manufacturing labour price variance, $4,000 favourable. 4. Direct manufacturing labour efficiency variance, $600 unfavourable. Required: a. Provide the manager with some ideas as to what may have caused the price variances. b. What may have caused the efficiency variances?

Use the information below to answer the following question(s). Tractor Corporation produces toy tractors. The company uses the following direct cost categories: Actual performance and budgeted performance for the company is shown below: Direct Materials: Direct Manufacturing Labour: Direct Marketing Labour: -What is the combined total of the flexible budget variances?

If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness.

Variances can be expected to vary within some normal limits, as standards represent a range of possible acceptable outcomes.

The following data for the telephone company pertain to the production of 450 rolls of telephone wire during June. Selected items are omitted because the costing records were lost in a windstorm. Required: Compute the missing elements in the report represented by the lettered items.

When benchmarking, the best levels of performance are typically found in companies that are totally different.

Use the information below to answer the following question(s). A company makes table lamps, for which the following standards have been developed: During January, production of 100 lamps was expected, but 110 lamps were actually completed. Direct materials purchased and used were 2,100 kilograms at an actual price of $2.20 per kilogram. Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00. -What is the All Good Things Ltd. sales-volume variance?

The type of budget that is based on one level of output, without adjustment for any operational or financial changes is called