Exam 16: Fundamentals of Variance Analysis

Shum Company manufactures special electrical equipment and parts.Shum employs a standard cost accounting system with separate standards established for each product.A special transformer is manufactured in the Transformer Department.Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead.Standard costs for the special transformer are determined annually in September for the coming year.The standard cost of a transformer was computed at $67.00 as shown below. Direct materials: Iron 5 sheets @\ 2.00 \ 10.00 Copper 3 spools @\ 3.00 9.00 Direct labor 4 hours @\ 7.00 28.00 Variable overhead 4 hours @\ 3.00 12.00 Fixed overhead 4 hours @\ 2.00 Total Overhead rates were based upon normal and expected monthly capacity,both of which were 4,000 direct labor hours.Practical capacity for this department is 5,000 direct labor hours per month.Variable overhead costs are expected to vary with the number of direct labor hours actually used.During October,800 transformers were produced.This was below expectations because a work stoppage occurred at the copper supplier and shipments were delayed. Direct materials: Iron: purchased 5,000 sheets @\ 2.00 sheet Used: 3,900 sheets Copper: purchased 2,200 spools @\ 3.10 Used: 2,600 spools Direct labor: 3,400 hours Total payroll: \ 24,080 Overhead: Variable \ 10,000 Fixed \ 8,800 Required: Compute each of the following variances,showing all your work.Be sure to indicate whether the variances are favorable or unfavorable.a.Variable overhead spending variance.b.Variable overhead efficiency variance.c.Fixed overhead spending (budget)variance.d.Production volume variance.

What is the master budget sales revenue? Actual Results Flexible Vudget Flexible Budget Variance Activity Master Budget Units 13,000 ? 2000 ? Sales revenue ? 13,000 ? ? ? Less: Variable mfg. Costs > \ 87,750 \ 91,000 ? \ 105,000 Variable mktgiadm.costs > ? \ 3,250\cup ? \ 4,000 30,000 Contribution margin \ 52,000 ? ? \ 6,000 ?

If the budgeted activity level is greater than the actual activity level,then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.

The following standards have been established for a raw material used to make product JN36: Standard quantity of the material per unit of output 6.3 pounds Standard pric e of the material \ 15.50 per pound The following data pertain to a recent month's operations: Required: a.What is the materials price variance for the month? b.What is the materials quantity variance for the month?

Standards and budgets are the same thing.

The following standards have been established for a raw material used in the production of product U98: Standard quantity of the material per unit of output 2.6 pounds Standard pric e of the material \ 14.50 per pound The following data pertain to a recent month's operations: Actual material purchased 7,600 Pounds Actual cost of material purchased \ 110,960 Actual material used in production 7,300 Pounds Actual output 2,800 units of product U98 Required: a.What is the materials price variance for the month? b.What is the materials quantity variance for the month? c.Prepare journal entries to record the purchase and use of the raw material during the month.(All raw materials are purchased on account. )

The Valenti Company uses flexible budgeting for cost control.Valenti produced 10,800 units of product during October,incurring indirect material costs of $13,000.Its master budget for the reflected indirect material costs of $180,000 at a production volume of 144,000 units.What was the flexible budget variance for the indirect material costs in October?

The most fundamental variance analysis compares:

The condensed flexible budget of the Evergreen Company for the year is given below: Direct labor-hours The company produces a single product that requires 2.5 direct labor-hours to complete.The direct labor wage rate is $7.50 per hour.Three yards of raw material are required for each unit of product,at a cost of $5 per yard.Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity,but actually worked 48,000 hours during the year,producing 18,500 units.Actual overhead costs for the year are: Variable costs \ 124,800 Fixed costs Total overhead costs Required: (Be sure to indicate whether the variances are favorable or unfavorable. ) a.Compute the variable overhead price variance and the variable overhead efficiency variance.b.Compute the fixed overhead spending (budget)variance and the production volume variance.

The Tennison 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 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.

The following data pertains to the direct materials cost for the month of October: Standard costs 5,000 units allowed at \ 20 each Actual costs 5,050 units input at \ 19 each What is the direct materials efficiency (quantity)variance?

The following data have been provided by Vegas Corporation: Required: Compute the variable overhead rate variances for lubricants and for supplies.Indicate whether each of the variances is favorable (F)or unfavorable (U).Show your work!

The basic difference between a master budget and a flexible budget is that a:

If materials are carried in the direct materials inventory account at standard cost,then it is reasonable to assume that the:

Batson Company produces Trivets.Based on its master budget,the company should produce 1,000 Trivets each month,working 2,500 direct labor hours.During May,only 900 Trivets were produced.The company worked 2,400 direct labor hours.The standard hours allowed for May production would be:

When using standard costing,costs are transferred through the production process at their standard costs.

TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost.TaskMaster has established the following standards for the prime costs of one unit of product. Standard Standard Standard Quantity Price Cost Direct Materials 8 pounds \ 1.80 per pound \ 14.40 Direct Labor .25 hour \ 8.00 per hour 2.00 During November,TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000.The total factory wages for November were $42,000,90% of which were for direct labor.TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.What is the direct materials efficiency (quantity)variance for November?

In the general model,a price variance is calculated as:

Danske Company had total underapplied overhead of $15,000.Additional information is as follows: Denominator hours for May 15,000 Actual hours worked during May 14,000 Standard hours allowed for May 12,000 Flexible budget fixed overhead cost \ 45,000 Actual fixed overhead costs for May \ 48,000 Variable Overheact Applied based on standard direct labor hours allowed \ 42,000 Budgeted based on standard direct labor hours 38,000 Fixed Overhead: Applied based on standard direct labor hours allowed \ 30,000 Budgeted based on standard direct labor hours 27,000 What is the actual total overhead for the period?

What is the sales revenue in the flexible budget? Actual Results Flexible Vudget Flexible Budget Variance Activity Master Budget Units 13,000 ? 2000 ? Sales revenue ? 13,000 ? ? ? Less: Variable mfg. Costs > \ 87,750 \ 91,000 ? \ 105,000 Variable mktgiadm.costs > ? \ 3,250\cup ? \ 4,000 30,000 Contribution margin \ 52,000 ? ? \ 6,000 ?