Exam 10: How Do Managers Evaluate Performance Using Cost Variance Analysis

There is no efficiency variance for fixed manufacturing overhead since,by definition,fixed costs do not change with changes in the activity base.

Cost variance analysis for activity-based costing uses a spending and efficiency variance for each activity.

Exhibit 10-4 Zingler Inc.applies variable manufacturing overhead at a standard rate of $9 per direct labor hour.The standard quantity of direct labor is 4 hours per unit.Variable overhead costs totaled $90,000 for the month of December.A total of 15,000 direct labor hours were worked during December to produce 4,000 units. -Refer to Exhibit 10-4.Based on this information,what is the variable overhead spending variance?

Exhibit 10-5 Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month. -Refer to Exhibit 10-5.What is the variable overhead spending variance for the product testing activity?

Exhibit 10-1 Flatland Company applies fixed manufacturing overhead costs to products based on direct labor hours.Information for the month of April appears below.Flatland expects to produce and sell 18,000 units for the month. Below is budget information for Flatland Company. -Refer to Exhibit 10-1.Based on this information,what is the fixed overhead spending variance?

Exhibit 10-2 Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units. -Refer to Exhibit 10-2.What amount would the flexible budget show for variable manufacturing overhead?

Olympia Inc.produces small row boats.Standard cost information for each boat is presented below. Olympia produced and sold 1,000 boats for the year,and encountered the following production variances. Company policy is to investigate all unfavorable variances above 10 percent of the flexible budget amount for direct materials,direct labor,and variable overhead. a.Identify the variances that should be investigated according to company policy.Show calculations to support your answer. b.What potential weakness exists in the company's current policy?

Jake's Cheese Company produces gourmet cheese for resale at local grocery stores.Jake's expected to use 3.0 pounds of direct materials to produce one unit (batch)of product at a cost of $8 per pound.Actual results are in for last year,which indicates 45,000 batches of cheese were sold.The company purchased 160,000 pounds of materials at $7.50 per pound,and used 145,000 pounds in production. (1)Calculate the materials price variance. (2)Calculate the materials quantity variance. (3)Suggest several possible reasons for the materials price and quantity variances calculated in requirements (1)and (2).

When establishing ideal standards,several factors are considered including machine downtime,electricity outages,and materials waste.

Kelton Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company identified three activities with the following information for last month. Kelton Company produced 18,750 units last month.Prepare a variance analysis,clearly labeling each variance as favorable or unfavorable.

The performance report for Clouse Company showed the flexible budget for direct materials as $100,000 and actual direct materials as $86,000.This means there was a $14,000 unfavorable variance for the period.

If Ever Green Corporation has an unfavorable fixed overhead spending variance,which of the following would most likely be the reason for this variance?

A favorable labor rate variance might be explained by an unexpected increase in available employees that caused lower wage rates than were anticipated.

Exhibit 10-3 Glenbrook Inc.has the following standard costs the one product the company produces. Direct Materials (2 pounds at $18.00 per pound)= $36.00 per unit Direct Labor (0.6 hours at $48.00 per hour)= $28.80 per unit During March,Glenbrook produced 2,000 units,bought and used 4,200 pounds of direct materials at $19.20 per pound,and used 1,100 hours of labor at a total cost of $56,100. -Refer to Exhibit 10-3.Based on this information,what is the direct labor efficiency variance?

A flexible budget is a revised master budget based on the actual activity level.

Which of the following is most likely to cause an unfavorable direct materials quantity variance?

The variable overhead efficiency variance is the difference between the actual hours worked at the actual rate and the standard hours worked at standard rate.

Actual sales rarely match budgeted sales in the master budget.

Exhibit 10-2 Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units. -Refer to Exhibit 10-2.What is the standard cost per unit for variable manufacturing overhead?

In the planning phase of budgeting,managers evaluate the company's performance by comparing budgeted amounts to actual results.