Exam 17: Additional Topics in Variance Analysis

Two important characteristics to consider when deciding how many variances to review are how large the variance is and the extent to which the variance can be managed.

Explain what production mix and production yield variances measure.How do these variances relate to efficiency variances?

The next year's budget for Trend,Inc. ,a multi-product company,is given below: Product A Product B Sales \ 1,890,000 \ 1,377,000 Variable costs 926,100 596,700 Fixed costs 500,000 500,000 Net income Units 252,000 108,000 At the end of the year,the total fixed costs and the variable costs per unit were exactly as budgeted,but the following units per product line were sold.Trend,Inc.analyzes the effects its sales variances have on the profitability of the company. Product Lines Units Sales A 253,230 \ 1,848,579 B 113,770 \ 1,479,010 What is the total sales mix variance?

The sales mix variance would be:

The Fantasy Gifts Company,a maker of Holiday novelties,needs your help immediately.The company's accountant resigned without leaving adequate records or explanations for what she did.In reviewing the records,you find the following information for May: Materials Purchased 20,000 units Materials Used 15,000 units You find a copy of the budget which shows that materials were budgeted at $0.60/unit.You know that the materials price variance is recorded at the time of purchase and you find some handwritten notes among the accountant's work papers,which indicate the following: Materials price variance \ 200 Materials efficiency (quantity) variance \ 600 What was the total actual cost of the direct materials purchased during May?

The Becton Enterprises (BE)produces a gasoline additive,Charger Power.This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process.Careful controls are required during the production process to insure that the proper mix of input chemicals is achieved and that evaporation is controlled.Loss of output and efficiency may result if the controls are not effective.The standard cost of producing a 500-liter batch of Charger Power is $135.The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Std imput cuantly Std cost per liter Total cost Echol 200 \ 0.200 \ 40.00 Protex 100 0.425 42.50 Benz 250 0.150 37.50 CT-40 50 0.300 15.00 The quantities of chemicals purchased and used during the current production period are shown in the schedule below.A total of 140 batches of Charger Power were manufactured during the current production period.The controller of BE has determined its costs and chemical usage variations at the end of the production period. Chemical Quantity Purchased Total Cost Quantity Used Echol 25,000 \ 5,365 26,600 Protex 13,000 6,240 12,880 Benz 40,000 5,840 37,800 CT-40 2,220 85,500 84,420 What is the total materials mix variance?

The Foggybottom Chemicals produces a product by mixing three ingredients to make a finished product.The standard cost of producing a 50-gallon drum of the product is $19.50.The standard materials mix and related standard cost of each chemical used in a 50-gallon batch are: Chemical Std imput quantity Std cost per gal Total cost A 30 \ 0.25 \ 7.50 B 20 0.45 9.00 C 10 0.30 3.00 The quantities of chemicals purchased and used during the current production period are shown in the schedule below.A total of 520 batches were manufactured during the current production period.The costs and chemical usage variations at the end of the production period are: Chemical Quantity purchased Total cost Quantity used A 17,800 \ 4,365 16,600 B 13,000 6,240 11,880 C 5,500 1,520 5,140 Required: (Be sure to indicate whether the variance is favorable or unfavorable. ) a.If variances are recorded at the earliest possible moment,what is the material price variance (in total and for each ingredient)? b.What is the material efficiency variance (in total and for each ingredient)? c.What is the materials yield variance (in total and for each ingredient)? d.What is the materials mix variance (in total and for each ingredient)?

The next year's budget for Trend,Inc. ,a multi-product company,is given below: Product A Product B Sales \ 1,890,000 \ 1,377,000 Variable costs 926,100 596,700 Fixed costs 500,000 500,000 Net income Units 252,000 108,000 At the end of the year,the total fixed costs and the variable costs per unit were exactly as budgeted,but the following units per product line were sold.Trend,Inc.analyzes the effects its sales variances have on the profitability of the company. Product Lines Units Sales A 253,230 \ 1,848,579 B 113,770 \ 1,479,010 What is the total sales quantity variance?

A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs)as the measure of activity.Data from the company's flexible budget for manufacturing overhead are given below: Level of activity' 2,500 Overhead costs at the denominator activity lev' el: Variable overhead cost \ 8,500 Fred overhead cost \ 34,625 The following data pertain to operations for the most recent period: Actual hours Standard hours allowed for the actual output 2,600 Actual total variable manufacturing overhead cost 2,692 Actual total fixed manufacturing overhead cost \ 9,100 What is the predetermined overhead rate to the nearest cent?

A chemical company produces a product used by manufacturers of plastics.Two basic chemicals go into this product.The standards for one-liter of this product are: Chemical 1: 800 ml.@ $50 per liter Chemical 2: 200 ml.@ $200 per liter During the last period,5,000 liters of the solvent were produced and the company purchased the following amounts of each chemical: Chemical 1: 5,400 liters @ $59.00 per liter Chemical 2: 900 liters @ $225.00 per liter Because these chemicals are volatile,the company uses them immediately upon purchase,so there are no beginning and ending inventories.Required: (Be sure to indicate whether the variance is favorable or unfavorable. ) a.Compute the direct material price variances.b.Compute the direct material efficiency variances.c.Compute the direct material mix variances.d.Compute the direct material yield variances.

The Becton Enterprises (BE)produces a gasoline additive,Charger Power.This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process.Careful controls are required during the production process to insure that the proper mix of input chemicals is achieved and that evaporation is controlled.Loss of output and efficiency may result if the controls are not effective.The standard cost of producing a 500-liter batch of Charger Power is $135.The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Std imput cuantly Std cost per liter Total cost Echol 200 \ 0.200 \ 40.00 Protex 100 0.425 42.50 Benz 250 0.150 37.50 CT-40 50 0.300 15.00 The quantities of chemicals purchased and used during the current production period are shown in the schedule below.A total of 140 batches of Charger Power were manufactured during the current production period.The controller of BE has determined its costs and chemical usage variations at the end of the production period. Chemical Quantity Purchased Total Cost Quantity Used Echol 25,000 \ 5,365 26,600 Protex 13,000 6,240 12,880 Benz 40,000 5,840 37,800 CT-40 2,220 85,500 84,420 What is the total materials yield variance?

Compass Company uses labor hours to allocate its variable overhead costs.Mr.Dailey,the production manager has been told that his direct labor and variable overhead variances for the past month were as follows: T Direct labor rate variance: \ 3,000 Direct labor efficiency variance: \ 6,000 Variable overhead spending variance: \ 2,000 Variable overhead efficiency variance: \ 3,000 he production V.P.has asked Mr.Dailey to account for his overhead variances for the month.Required: Explain the meaning of the two variable overhead variances and Mr.Dailey's responsibility for them.

Vegas Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours.At standard,each unit of product requires one machine-hour to complete.The standard variable overhead is $1.75 per machine-hour and Budgeted Fixed Manufacturing Costs are $300,000 per year.The level of activity is 150,000 machine-hours,or 150,000 units.Actual data for the year were as follows: Actual variable overhead cost \ 211,680 Actual fixed manufacturing overhead cost \ 315,000 Actual machinehours 126,000 Units produced 120,000 Required: a.What are the predetermined variable and fixed manufacturing overhead rates for the year? b.Compute the variable overhead rate and efficiency variances for the year.c.Compute the fixed manufacturing overhead budget and volume variances for the year.

Standard costs should be based on:

Virginia Enterprises produces two products,Standard and Deluxe.Actual and budgeted information for the year is provided below: Required: (Be sure to indicate whether the variance is favorable or unfavorable. ) a.Compute the sales activity variance for each product.b.Compute the sales mix variance for each product.c.Compute the sales quantity variance for each product.

The Vargas Company had the following expectations for the year: Total market for the product 175,000 units XYZ's budgeted sales \ 1,763,125 Variable costs per unit \ 18.75 Selling price per unit \ 32.50 Actual results for the year vere: Total market for the product 166,250 units XYZ's actual sales 56,525 Total Variable costs \ 1,073,975 Total sales \ 1,752,275 What is Vargas' market share variance?

The Halcion Company uses a standard cost system in which manufacturing overhead costs are applied to units of the company's single product on the basis of standard direct labor-hours (DLHs).The standard cost card for the product follows: Standard Cost Cardper unit of product Direct Materials, 4 yards at \ 3.60 pery ard \ 14 Direct Labor, 1.5 DLHs at \ 8 per DLH 12 Variable Ovemead, 1.5 DLHs at \ 2 per DLH 3 Fixed Overhead, 1.5 DLHs at \ 6 per DLH 9 Standard cost per unit \ 38 The following data pertain to last year's activities: Required: a.Compute the direct materials price and quantity variances for the year.b.Compute the direct labor rate and efficiency variances for the year.c.Compute the variable overhead rate and efficiency variances for the year.d.Compute the fixed manufacturing overhead budget and volume variances for the year.

An increase in an industry's volume and a decrease in a company's market share implies that the company's sales price variance is unfavorable.

Tallon & Associates is a consulting firm specializing in business location studies.The results for last year,along with the budget,are as follows: Actual Budget Billable hours 25,200 24,000 Revenue \ 2,772,000 \ 2,400,000 Protessional s alaries (variable) 1,310,000 1,200,000 Othervariable costs 488,000 400,000 Fixed costs 492,000 450,000 Office management salaries (fixed) 317,000 225,000 Operating profit Required: (Be sure to indicate whether the variance is favorable or unfavorable. ) a.Prepare a flexible budget using billable hours as the measure of output.b.Prepare a sales activity variance analysis.c.Compute the sales price variance.

What is the advantage of recognizing materials price variances at the time of purchase rather than at the time of use?