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

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. Standard Actual Actual Quantity Activity Standard Rate per Unit Costs Quantity Produced Purchase \ 80 per order 0.50 order per unit \ 78,000 1,000 order's orders Product testing \ 10 per test 0.9 minutes per \ 28,000 2,000 test minute unit minutes direct labor \ 16 per direct 5 hours per unit \ 140,000 8,000 direct labor hour labor hour -Refer to Exhibit 10-5.What is the variable overhead spending variance for the purchase order activity?

If an analysis shows an unfavorable labor rate variance of $18,000 and a favorable labor efficiency variance of $10,000,the entry to record the cost of direct labor and related variances would include:

When ideal standards are used,which of the following is most likely true?

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. Standard Actual Actual Quantity Activity Standard Rate per Unit Costs Quantity Produced Purchase \ 80 per order 0.50 order per unit \ 78,000 1,000 order's orders Product testing \ 10 per test 0.9 minutes per \ 28,000 2,000 test minute unit minutes direct labor \ 16 per direct 5 hours per unit \ 140,000 8,000 direct labor hour labor hour -Refer to Exhibit 10-5.What is the variable overhead spending variance for the product testing activity?

Actual sales rarely match budgeted sales in the master budget.

Management by exception is a term used to describe managers who focus solely on variances that are significant.

A favorable materials price variance may be caused by:

All of the following are possible causes of a favorable labor rate variance except:

Which of the following remains the same when comparing a flexible budget to a master budget?

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).

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 direct materials?

Jake's cheese Company produces gourmet cheese for resale at local grocery stores.Jake's expected to use 0.50 direct labor hours to produce one unit (batch)of product,and the variable overhead rate is $5.00 per hour.Actual results are in for last year,which indicates 45,000 batches of cheese were produced and sold.The company's direct labor workforce worked 27,500 hours,and variable overhead costs totaled $144,000. (1)Calculate the variable overhead spending variance. (2)Calculate the variable overhead efficiency variance. (3)Suggest several possible reasons for the variable overhead spending and efficiency variances.

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.

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. Budgeted fixed overhead costs \ 270,000 Budgeted direct labor hours 90,000 hours Standard direct labor hours per unit 5 hours per unit Actual production 17,000 Actual fixed overhead costs \ 280,000 -Refer to Exhibit 10-1.Based on this information,what is the standard cost per direct labor hour (rounded to the nearest cent)?

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 direct labor?

Unfavorable variances are recorded with a debit to the appropriate variance account.

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. Standard Actual Actual Quantity Activity Standard Rate per Unit Costs Quantity Produced Purchase \ 80 per order 0.50 order per unit \ 78,000 1,000 order's orders Product testing \ 10 per test 0.9 minutes per \ 28,000 2,000 test minute unit minutes direct labor \ 16 per direct 5 hours per unit \ 140,000 8,000 direct labor hour labor hour -Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the indirect labor activity?

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. Standard Actual Actual Quantity Activity Standard Rate per Unit Costs Quantity Produced Purchase \ 80 per order 0.50 order per unit \ 78,000 1,000 order's orders Product testing \ 10 per test 0.9 minutes per \ 28,000 2,000 test minute unit minutes direct labor \ 16 per direct 5 hours per unit \ 140,000 8,000 direct labor hour labor hour -Refer to Exhibit 10-5.What is the variable overhead spending variance for the indirect labor activity?

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?

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