Question 1

Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

Accepted Answer

One reason is there are different causes

Question 2

Explain how standards and budgets are different.

Accepted Answer

Standards are an estimate of what a unit

Question 3

The following information relates to the month of April for The Trolley Manufacturing Company,which uses a standard cost accounting system. $$\begin{array} { | l | r | } 
\hline \text { Actual direct labor hours used } & 7,000 \
\hline \text { Standard hours allowed for good output } & 7,500 \
\hline \text { Fixed overhead spending variance - untavorable } & \$ 300 \
\hline \text { Actual total ou erhead } & \$ 16,000 \
\hline \text { Budgeted fixed costs } & \$ 4,500 \
\hline \text { Normal activity in hours } & 6,000 \
\hline \text { Total overhead application rate per DLH } & \$ 2.25 \
\hline
\end{array}$$Required:
(Be sure to indicate whether the variances are favorable or unfavorable. )
a.What is the variable overhead efficiency variance?
b.What is the variable overhead price variance?
c.What is the fixed production volume variance?

Accepted Answer

a.$750 favorable
b.$700 unfavorable
c.$1

Question 4

The data below relate to a product of AirWay Company. Required:
(Be sure to indicate whether the variances are favorable or unfavorable. )
a.What is the variable overhead efficiency variance?
b.What is the variable overhead price variance?
c.What is the fixed overhead budget variance?
d.What is the fixed production volume variance?

Accepted Answer

a.$3,380 favorable
b.$3,520 favorable
c

Question 5

The flexible and master budget amounts are the same for fixed marketing and administrative costs.

Accepted Answer

A) True 
 B)False

Question 6

Variance analysis for fixed production costs is virtually the same as for variable production costs.

Accepted Answer

A) True 
 B)False

Question 7

Meera Corporation makes a product with the following standard costs:$$\begin{array} { | l | c | c | } 
\hline \text { Imputs } & \begin{array} { c } 
\text { Standard Quantiyy } \
\text { or Hours }
\end{array} & \begin{array} { c } 
\text { Standard Price } \
\text { or Pate }
\end{array} \
\hline \text { Direct materials } & 8.1 \text { ounces } & \$ 3.00 \text { per ounce } \
\hline \text { Direct labor } & 0.5 \text { hours } & \$ 18.00 \text { per hour } \
\hline \text { Variable overhead } & 0.5 \text { hours } & \$ 2.00 \text { per hour } \
\hline
\end{array}$$ 
In December the company produced 4,200 units using 34,870 ounces of the direct material and 1,900 direct labor-hours.During the month,the company purchased 39,700 ounces of the direct material at a total cost of $111,160.The actual direct labor cost for the month was $35,530 and the actual variable overhead cost was $3,990.The company applies variable overhead on the basis of direct labor-hours.The direct materials purchases variance is computed when the materials are purchased.Required:
a.Compute the materials quantity variance.b.Compute the materials price variance.c.Compute the labor efficiency variance.d.Compute the direct labor rate variance.e.Compute the variable overhead efficiency variance.f.Compute the variable overhead rate variance.

Accepted Answer

a.Materials quantity variance = SP(AQ -

Question 8

The Atlas Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours: $$\begin{array} { | l | l | } 
\hline \text { Standard costs per unit: } & \
\hline \text { Variable portion } & 2 \text { hours } @ \$ 3 = \$ 6 \
\hline \text { Fixed portion } & 2 \text { hours } @ \$ 5 = \underline{ 10 }  \
\hline & \$ 16 \
\hline
\end{array}$$
During April,85,000 units were scheduled for production;however,only 80,000 units were actually produced.The following data relate to April:
Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work.Actual overhead incurred totaled $1,378,000;$518,000 variable and $860,000 fixed.All inventories are carried at standard cost.Required:
(Be sure to indicate whether the variances are favorable or unfavorable. )
a.Compute the variable overhead price variance.b.Compute the variable overhead efficiency variance.

Accepted Answer

a.$23,000 unfavorable
b.$15,00

Question 9

What is the activity variance for the variable manufacturing costs? $\begin{array}{|l|r|r|r|r|r|}
\hline & \begin{array}{r}
\text { Actual } \
\text { Results }
\end{array} & \begin{array}{r}
\text { Flexible } \
\text { Vudget }
\end{array} & \begin{array}{r}
\text { Flexible } \
\text { Budget }
\end{array} & \begin{array}{r}
\text { Variance } \
\text { Activity }
\end{array} & \begin{array}{r}
\text { Master } \
\text { Budget }
\end{array} \
\hline \text { Units } & 13,000 & & ? & 2000 \mathrm{U} & ? \
\hline \text { Sales revenue } & ? & 13,000 \mathrm{~F} & ? & ? & ? \
\hline \begin{array}{l}
\text { Less: }
\end{array} & & & & \
\hline \begin{array}{l}
\text { Variable mfg. } \
\text { Costs }>
\end{array} & \$ 87,750 & & \$ 91,000 & ? & \$ 105,000 \
\hline \begin{array}{l}
\text { Variable } \
\text { mktgiadm.costs }>
\end{array} & ? & \$ 3,250 \cup & ? & \$ 4,000 \mathrm{~F} & 30,000 \
\hline \begin{array}{l}
\text { Contribution } \
\text { margin }
\end{array} & \$ 52,000 & ? & ? & \$ 6,000 \mathrm{U} & ? \
\hline
\end{array}$

Accepted Answer

A)  $4,000. 
B)  $14,000. 
C)  $24,000. 
D)  $34,000. 
A)  $4,000. 
B)  $14,000. 
C)  $24,000. 
D)  $34,000.

Question 10

Which of the following is the name of a form providing standard quantities of inputs used to produce a unit of output and the standard prices for the inputs?

Accepted Answer

A)  A static budget. 
B)  A standard cost sheet. 
C)  A variance account. 
D)  A master budget. 
A)  A static budget. 
B)  A standard cost sheet. 
C)  A variance account. 
D)  A master budget.

Question 11

A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following variances will always be favorable when actual sales exceeds budgeted sales?

Accepted Answer

A)  Variable cost. 
B)  Fixed cost. 
C)  Sales activity. 
D)  Operating profit. 
A)  Variable cost. 
B)  Fixed cost. 
C)  Sales activity. 
D)  Operating profit.

Question 13

The difference between operating profits in the master budget and operating profits in the flexible budget is called:

Accepted Answer

A)  sales activity variance. 
B)  flexible budget variance. 
C)  production volume variance. 
D)  total operating profit variance. 
A)  sales activity variance. 
B)  flexible budget variance. 
C)  production volume variance. 
D)  total operating profit variance.

Question 14

Darren Company adopted a standard cost system several years ago.The standard costs for the prime costs of its single product are as follows:

$$\begin{array} { | l | l | } 
\hline \text { Material: } 8 \text { klograms } @ \$ 5 \text { per kilogram } & \$ 40.00 \
\hline \text { Labor: } 6 \text { hours } @ \$ 8.20 \text { per hour } & \$ 49.20 \
\hline
\end{array}$$The following operating data were taken from the records for November: $$\begin{array} { | l | l | } 
\hline \text { Units completed } & 5,600 \text { units } \
\hline \text { Budgeted output } & 6,000 \text { units } \
\hline \text { Purchase of materials } & 50,000 \text { kilograms } \
\hline \text { Total actual labor costs } & \$ 300,760 \
\hline \text { Actual labor hours } & 36,500 \text { hours } \
\hline \text { Material efficiency (quantity) variance } & \$ 1,500 \text { unfavorable } \
\hline \text { Total material variance } & \$ 750 \text { unfavorable } \
\hline
\end{array}$$Required:
Prepare the journal entries to record the following:
a.Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained).b.Recognition of direct labor.

Accepted Answer

a.

\[\begin{array} { | c | r | r | }

Question 15

The Morroco Company uses a standard cost accounting system and estimates production for the year to be 60,000 units.At this volume,the company's variable overhead costs are $0.50 per direct labor hour.The company's single product has a standard cost of $30.00 per unit.Included in the $30.00 is $13.20 for direct materials (3 yards)and $12.00 of direct labor (2 hours).Production information for the month of March follows:$$\begin{array} { | l | r | } 
\hline \text { Number of units produced } & 4,500 \
\hline \text { Materials purchased (13,300 yards) } & \$ 61,600 \
\hline \text { Materials used in production bards) } & 13,300 \
\hline \text { Variable overhead costs incurred } & \$ 4,380 \
\hline \text { Fixed overhead costs incurred } & \$ 20,400 \
\hline \text { Direct labor cost incurred (\$6.25ihour) } & \$ 57,750 \
\hline
\end{array}$$ 
Required:
Prepare the journal entries to record the following:
a.Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained).b.Recognition of direct labor.c.Incurring actual overhead.d.Application of overhead to production.e.Closing of overhead accounts and recognizing variances.f.Transferring production to finished goods.

Accepted Answer

@#IMG-DLM&Feedback: a.DM Price: $61,600 - [($13.20

Question 16

The Matten Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours:$$\begin{array} { | l | l | r | } 
\hline \text { Standard costs per unit: } & & \
\hline \text { Variable portion } & 2 \text { hours } @ \$ 3 = & \$ 6 \
\hline \text { Fixed portion } & 2 \text { hours } @ \$ 5 = & \underline { 10} \
\hline & & \$ 16 \
\hline
\end{array}$$ 
During April,85,000 units were scheduled for production;however,only 80,000 units were actually produced.The following data relate to April:
Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work.Actual overhead incurred totaled $1,378,000;$518,000 variable and $860,000 fixed.All inventories are carried at standard cost.Required:
(Be sure to indicate whether the variances are favorable or unfavorable. )
a.Compute the fixed overhead spending (budget)variance.b.Compute the production volume variance.

Accepted Answer

a.$40,000 favorable
b.$100,000

Question 17

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers.

Accepted Answer

A) True 
 B)False

Question 18

Ole Company manufactures special electrical equipment and parts.Ole 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 $57.00 as shown below.
 $$\begin{array} { | l | r | r | r | } 
\hline \text { Direct materials: } & & & \
\hline \text { Copper } & 3 \text { spools } & @ \$ 3.00 & 9.00 \
\hline \text { Direct labor } & 4 \text { hours } & @ \$ 7.00 & 28.00 \
\hline \text { Variable overhead } & 4 \text { hours } & @ \$ 3.00 & 12.00 \
\hline \text { Fixed owerhead } & 4 \text { hours } & @ \$ 2.00 &\underline{ 8.00 }\
\hline \text { Total } & & & \$ 57.00 \
\hline
\end{array}$$ 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,900 transformers were produced.This was below expectations because a work stoppage occurred during contract negotiations with the labor force.Once the contract was settled,the wage rate was increased to $7.25/hour and overtime was scheduled in an attempt to catch up to expected production levels.The following costs were incurred in October:$$\begin{array} { | l | r | } 
\hline \text { Overhead: } & \
\hline \text { Variable } & \$ 16,670 \
\hline \text { Fixed } & \$ 8,800 \
\hline
\end{array}$$600 of the 1,400 hours were subject to overtime premium.The total overtime premium is included in variable overhead in accordance with company accounting practices. $$\begin{array} { | l | l | } 
\hline \text { Direct materials: } & \
\hline \text { Copper: } & \text { purchased } 2,600 \text { spools } @ \$ 3.08 \text { spool } \
\hline & \text { Used: } 2,600 \text { spools } \
\hline \text { Direct labor: } & \
\hline \text { Regular time } & 2,000 \text { hours } @ \$ 7.00 \
\hline \text { Overtime } & 1,400 \text { hours } @ \$ 7.25 \
\hline
\end{array}$$ Required:
Compute each of the following variances,showing all your work.Be sure to indicate whether the variances are favorable or unfavorable.a.Direct materials price variance.b.Direct material efficiency (quantity)variance.c.Direct labor rate variance.d.Direct labor efficiency variance.e.Variable overhead spending variance.f.Variable overhead efficiency variance.g.Fixed overhead spending (budget)variance.h.Production volume variance.

Accepted Answer

a.$208 unfavorable
b.$300 favorable
c.$

Question 19

The Ornate Company has the following information pertaining to the month of March:$$\begin{array} { | l | r | r | } 
\hline \text { Units of output, actual } & \$ 21,000 & \
\hline \text { Fixed costs, actual } & \$ 497,000 & \
\hline \text { Operating profit, master budget } & \$ 220,000 & \
\hline \text { Sales price variance } & \$ 84,000 & \mathrm { U } \
\hline \text { Beginning and ending inventories } & 0 & \
\hline \text { Sales volume variance, revenue } & \$ 300,000 & \mathrm { U } \
\hline \text { Budgeted selling price per unit } & \$ 100 & \
\hline \text { Variable costs, master budget } & \$ 1,680,000 & \
\hline \text { Contribution margin, actual } & \$ 516,000 & \
\hline
\end{array}$$ 
Required:
Prepare a performance report for March including columns for the (a)actual results, (b)flexible budget, (c)flexible budget variance, (d)master budget,and (e)sales activity variance.

Accepted Answer

\[\begin{array} { | l | r | r | r | r |

Question 20

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.

Accepted Answer

A) True 
 B)False

Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

Explain how standards and budgets are different.

The flexible and master budget amounts are the same for fixed marketing and administrative costs.

Variance analysis for fixed production costs is virtually the same as for variable production costs.

Which of the following is the name of a form providing standard quantities of inputs used to produce a unit of output and the standard prices for the inputs?

A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.

Which of the following variances will always be favorable when actual sales exceeds budgeted sales?

The difference between operating profits in the master budget and operating profits in the flexible budget is called:

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers.

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Exam 16: Fundamentals of Variance Analysis

Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

Explain how standards and budgets are different.

The flexible and master budget amounts are the same for fixed marketing and administrative costs.

Variance analysis for fixed production costs is virtually the same as for variable production costs.

Which of the following is the name of a form providing standard quantities of inputs used to produce a unit of output and the standard prices for the inputs?

A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.

Which of the following variances will always be favorable when actual sales exceeds budgeted sales?

The difference between operating profits in the master budget and operating profits in the flexible budget is called:

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers.

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters