Exam 11: Standard Costs and Variance Analysis

A favourable variance in one area might be offset by:

Pardee, Inc. completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: Efficiency variance $4,500 Unfavourable Standard price $10 per unit Actual units purchased 9,000 Inventory decrease 1,000 units Budget variance $900 Favourable The standard quantity of direct materials allowed for the month was:

Boulder Corporation uses a standard costing system. The following factory overhead and production data were reported in September: Standard fixed overhead allocation rate per direct labour hour $2 Estimated monthly direct labour hours 40,000 Standard direct labour hours for actual output in September 42,000 The fixed overhead production volume variance is:

Hogle Mfg. Co. uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: Units produced 3,100 Units sold 2,800 Machine hours required 12,800 Actual overhead costs $136,000 The fixed overhead production volume variance was:

At the end of the period:

The fixed overhead budget variance can be broken down into two parts: the spending variance and the production volume variance.

Hogle Mfg. Co. uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: Units produced 3,100 Units sold 2,800 Machine hours required 12,800 Actual overhead costs $136,000 The total overhead allocated was:

Unreasonable standards may be the cause of direct materials variances, but not of direct labour variances.

A standard cost variance is a difference between a standard cost and an actual cost.

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 standard price per kilogram was:

Overhead efficiency variances:

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 variable overhead spending variance was:

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 budget variance was:

If a variance analysis shows that operations are better than expected, managers should:

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 direct materials inventory increased during the period by 1,000 (at standard cost). What was the actual cost of direct materials purchased during the period?

Theft of raw materials is most likely to lead to:

Henton, Inc. budgeted $270,000 for overhead. Based on a normal activity level of 6,000 units and a standard of 3 machine hours per unit, the standard fixed overhead allocation rate is $12 per machine hour. During the current period, 6,200 units were produced and 5,600 units were sold. Actual machine hours were 18,000, and actual overhead was $272,000. a)Calculate the combined variable and fixed overhead spending variance. b)Calculate the variable overhead efficiency variance. c)Calculate the fixed overhead production volume variance. d)By how much was total overhead overapplied or underapplied? e)Explain why actual overhead costs are usually different than budgeted overhead costs. f)Explain why managers do not need to investigate a variable overhead efficiency variance, regardless of its materiality.

If a variance is investigated and determined to be random, managers should:

Fixed overhead costs are not expected to vary with production volumes. Therefore, production volume variances:

If a variance is considered material, it should be allocated to work in process inventory, finished goods inventory, and cost of goods sold.