Exam 11: Standard Costs and Variance Analysis

The process of calculating variances and analyzing the reasons they occurred is called:

Variance analysis involves the steps listed below. In which order should the steps be performed? 1. Calculate variances 2) Choose variances for further investigation 3) Draw conclusions and take action 4) Identify reasons for variances

The total direct labour variance can be broken down into two components: the efficiency variance and the price variance.

Standard costs are used to:

Variable overhead spending variances can result from unattainable variable allocation rates. In turn, those rates may be caused by: I. Inappropriate allocation bases II. Poor estimates of total overhead costs III. Change in estimated life of amortizable assets

Variance analysis includes which of the following processes? I. Calculating variances II. Analyzing the reasons variances occurred III. Predicting variances in future periods

The standard labour price is $10 per hour. The standard labour hours required per unit are 3. Last month 400 units were produced and 1,500 hours were used. Actual labour cost was $15,750. What are the direct labour price and efficiency variances? Price variance Efficiency variance

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 spending variance equals:

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 material price variance will include a:

At the end of 20x1, ELM Corporation's production manager estimated direct labour overtime hours at 200 for the first quarter of 20x2. At the end of the first quarter, actual overtime hours totalled 180. This difference is most likely to lead to:

The cost categories that are measured and monitored in a given organization depend, in part, on the costs that managers consider important.

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 revenue sales quantity variance for L'Amour was:

Accountants investigate manufacturing overhead spending variances to determine:

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 sales price variance for L'Amour was:

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 over- or underapplied overhead was:

(Appendix 11A)Why would managers want to develop and monitor standards for expected contribution margins?

Which of the following is not a typical step in variance analysis?

The direct materials efficiency variance tells managers about the efficiency of the purchasing process.

Old Rose Nursery sells over 100 varieties of floribunda and hybrid tea roses. Old Rose's accountant, Cynthia, recently calculated several variances for the nursery. Results are shown below: Direct materials price variance $500 unfavourable Direct materials efficiency variance 300 favourable Direct labour price variance 800 favourable Direct labour efficiency variance 250 favourable Variable overhead efficiency variance 150 favourable Variable overhead price variance 230 unfavourable Fixed overhead spending variance 120 unfavourable Fixed overhead production volume variance 130 favourable a)Prior to calculating variances, Cynthia had to establish standard costs for each rose in the nursery. List three types of information she would need to calculate the direct labour efficiency variance. Also identify one reason why each type of information could vary over time. b)Even though Cynthia carefully developed standards and monitored performance, Old Rose could still experience poor profitability. Give two reasons why this could happen. c)Describe one way that Cynthia could use the direct labour efficiency variance to improve operations at the nursery. d)Some of the variances in the table are related to one another. For example, a favourable direct labour efficiency variance and a favourable direct materials efficiency variance could indicate that skilled workers worked more quickly and used less direct material than was budgeted. Identify one other possible relationship between variances in the table.