Exam 11: Standard Costs and Variance Analysis

Paris Perfumery sells two perfumes, L'Amour and Plaisir. The expected sales mix is one bottle of L'Amour to five bottles of Plaisir. Planned sales and variable costs for last period were as follows: L'Amour Plaisir Total Sales (10,000 units)$600,000 (50,000 units)$400,000 $1,000,000 Variable costs 200,000 230,000 430,000 Contribution Margin $400,000 $170,000 $ 570,000 During the period there was an economic downturn. Sales of L'Amour dropped off, so Paris reduced its price. Actual sales were as follows: L'Amour Plaisir Total Sales (7,500 @ $45)$337,500 (36,000 @ $8)$288,000 $625,500 Variable costs 165,000 153,000 318,000 Contribution Margin $172,500 $135,000 $307,500 (Appendix 11A)The contribution margin budget variance was:

The total standard cost for a unit of output is the sum of the standard costs for the resources used in production.

During the period Richeleau produced 1,000 units of product. The flexible budget for standard costs is: Direct materials $43,000 Direct labour 67,000 Variable overhead 30,000 Fixed overhead 25,000 Variances for the period are: Direct materials price $ 400 U Direct materials efficiency 500 F Direct labour price 600 F Direct labour efficiency 200 U Variable overhead spending 300 F Variable overhead efficiency 100 F Fixed overhead spending 500 F Fixed overhead production volume 1,000 U The total under- or overapplied overhead for the period was:

You are developing a variance report that focuses only on cost control for the production manager. List the variances you would include, and give one reason why you included each one.

White, Inc. produces a chemical product whose primary component is purchased on credit and any discounts are always taken. The following material and labour elements make up the costs of the product: Purchase price for material $30 per litre Freight and handling $130 per 100 litres Each container of the chemical product contains 5.7 quarts of material. During the process 5% of the material is lost due to waste. Each container of product also requires 1.2 hours of labour. Each day 2 hours are taken for set-up, cleaning, and breaks. Also, the wage rate is $15 per hour and fringes/payroll taxes are 20% of wages. Clients can take a 3% discount if they pay invoices within 10 days; otherwise, the entire invoice amount is due within 30 days. 1 litre equals 4 quarts. The standard price per quart for materials is:

Vashon Corporation had the following activity during a recent period: Standard quantity of direct materials 9,000 kilograms Actual quantity of direct materials purchased and used 8,800 kilograms Efficiency variance $2,400 favourable Total direct materials budget variance $200 favourable The actual price per kilogram was:

Solve for the missing amounts in the following data:

Hyteck, Inc. is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget. Master Actual Budget Results Units produced 2,000 1,820 Direct labour hours 10,000 9,200 Fixed overhead $100,000 $98,000 Variable overhead $160,000 $150,000 Direct labour $100,000 $90,000 The direct labour efficiency variance was:

Variances can be caused by: I. Out-of-control operations II. Better-than-expected operations III. Inappropriate benchmarks

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labour hour. The overhead rate is based on 10,000 hours. Actual results were: Standard direct labour hours 9,000 Actual direct labour hours 10,000 Fixed overhead $190,000 Variable overhead $185,000 The variable overhead spending variance was:

Mason, Inc. uses a standard costing system. Overhead costs are allocated based on direct labour hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labour hour, respectively. Data relevant for the current period include: Direct materials purchased 50,000 kg. @ $12 per kg. Direct materials used 50,000 kg. Standard quantity of direct materials For actual production 45,000 kg. Direct materials standard price $13 per kg. Direct labour costs incurred 75,000 hours @ $12 per hour Standard direct labour hours for Actual production 78,000 hours Standard direct labour cost per hour $11 per hour Variable overhead costs incurred $77,070 Fixed overhead costs incurred $381,920 The cost of direct materials added to work in process would be:

Hyteck, Inc. is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget. Master Actual Budget Results Units produced 2,000 1,820 Direct labour hours 10,000 9,200 Fixed overhead $100,000 $98,000 Variable overhead $160,000 $150,000 Direct labour $100,000 $90,000 The direct labour price variance was:

The production volume variance provides information about:

The fixed overhead spending variance is normally zero because fixed costs are constant within a relevant range of activity.

Here is information about standard costs for Rusth Manufacturing: Standard Cost per Unit Direct materials (4 metres @ $6 per metre)$24 Direct labour (? hours @ $? per hour)? During the current period 3,500 units were produced. Rusth purchased 12,000 metre of material at a cost of $81,000. The direct materials inventory decreased by 1,500 metres during the period. 5,000 hours were used at a cost of $41,250. The direct labour efficiency variance was $2,000 favourable and the combined price and efficiency variances for direct labour were $750 favourable. a)Determine direct materials price and efficiency variances. b)Determine the standard cost of direct materials for units produced. c)Determine the direct labour price variance. d)Determine the standard price per direct labour hour and the standard number of direct labour hours per unit.

A contract with a new supplier may cause an unfavourable materials price variance.

Managers investigate:

White, Inc. produces a chemical product whose primary component is purchased on credit and any discounts are always taken. The following material and labour elements make up the costs of the product: Purchase price for material $30 per litre Freight and handling $130 per 100 litres Each container of the chemical product contains 5.7 quarts of material. During the process 5% of the material is lost due to waste. Each container of product also requires 1.2 hours of labour. Each day 2 hours are taken for set-up, cleaning, and breaks. Also, the wage rate is $15 per hour and fringes/payroll taxes are 20% of wages. Clients can take a 3% discount if they pay invoices within 10 days; otherwise, the entire invoice amount is due within 30 days. 1 litre equals 4 quarts. The standard hours per finished unit is:

Given the following account balances at the end of the first year of operations: Direct materials inventory $ 60,000 Work in process inventory 120,000 Finished goods inventory 180,000 Cost of goods sold 600,000 Direct material price variance 65,000 U Direct material efficiency 195,000 F Assuming that variances are considered material, the entry and amount of the direct material efficiency variance allocated to work in process inventory is:

Unattainable standards are likely to lead to: I. Errors in the accounting information system II. Favourable variances III. Unfavourable variances