Exam 11: Standard Costs and Variance Analysis

Dem Mfg. has gathered the following data in preparing to record their direct labour payroll costs for the week: Actual hours worked 18,500 Standard hours allowed 20,000 Total direct labour variance $8,300 F Direct labour price variance $3,700 U The actual direct labour costs were:

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 direct labour price variance 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 price variance allocated to Cost of Goods Sold is:

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 actual cost of direct labour incurred was:

Errors in the accounting records related to actual production output could lead to a fixed overhead production volume variance.

Calculating variances is a necessary, but not sufficient, step for completing a variance analysis.

Which of the following is a possible cause of an unfavourable materials efficiency variance?

Baldwin, Inc uses a standard job cost system and purchased 25,000 kg. of material at $6 per kg., and used it all. The standard amount allowed for the output achieved is 22,500 kg, and the standard price is $6.50 per kg. The company also incurred 37,500 direct labour hours for $450,000. The standard hourly price was $11 per hour, and 39,000 hours were allowed at standard. Assuming all variances are immaterial, answer the following questions: The entry to record the direct labour variances will include a:

How do managers decide which variances are important enough to investigate? I. By considering whether they are favourable or unfavourable II. By calculating and investigating all possible variances III. By considering whether it is large enough to justify investigation

The fixed overhead spending variance measures:

The direct materials price variance is often based on materials purchased, rather than on materials used.

Everett, Inc. budgeted $1,488,000 for total overhead. The standard variable overhead rate was $2 per direct labour hour, or $6 per unit, based on an anticipated activity level of 600,000 direct labour hours. During the year 220,000 units were produced. Fixed overhead costs incurred were $300,000. The variable overhead budget variance was $19,800 unfavourable, and the actual variable overhead rate was $2.10 per direct labour hour. The fixed overhead allocated was:

Why would favourable variances be investigated?

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 fixed overhead production volume variance was:

Bellingham, Inc. incurred the following during a recent period: Actual Standard Machine hours 1,350 1,425 Units produced 570 570 Variable overhead costs $2,775 $2,850 The variable overhead efficiency variance equals:

Given the following account balances at the end of the first year of operations: Work in process inventory $ 90,000 Finished goods inventory 165,000 Cost of goods sold 495,000 Direct labour price variance 35,000 U Direct labour efficiency variance 17,000 F Assuming that variances are considered material, the entry and amount of direct labour variances allocated to the Finished Goods Inventory is:

Dem Mfg. has gathered the following data in preparing to record their direct labour payroll costs for the week: Actual hours worked 18,500 Standard hours allowed 20,000 Total direct labour variance $8,300 F Direct labour price variance $3,700 U The actual direct labour price was:

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 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 direct materials efficiency variance is: