Exam 10: Variance Analysis A Tool for Cost Control and Performance Evaluation

Carlton Corporation Carlton Corporation produces and sells faux-leather handbags. In the current year, the company budgeted for the production and sale of 1,000 handbags; however, 900 handbags were actually produced and sold. Each bag has a standard requiring two yards of material at a cost of $4.00 per yard and 1 hour of assembly time at a cost of $9.50 per hour. Actual costs for the production of 900 bags were $7,215 for materials (1,850 yards purchased and used @ $3.90 per yard) and $10,125 for labor (1,125 hours @ $9.00 per hour). Refer to the Carlton Corporation information above. Carlton's direct labor efficiency variance is:

Drummel Ltd. has a $7,000 unfavorable variable overhead efficiency variance. Give one possible reason for this variance.

Task analysis:

Prevo Products Inc. has a $15,000 unfavorable flexible budget variance for July. Which of the following statements is true, if July's actual net operating income was $300,000?

In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sale of 20,000 units at a sales price of $25 per unit. The following information is available regarding the standard cost for each unit: Actual results for 2012 were determined to be as follows: Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or unfavorable (U).

Sampson Apparel Inc. Sampson Apparel Inc. incurred actual variable overhead expenses of $20,000 in the current year for the production of 5,000 units. Variable overhead was applied at a rate of $1.50 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 9,000 direct labor hours for production. Refer to the Sampson Apparel Inc. information above. What was Sampson's variable overhead spending variance?

What is the difference between a static and a flexible budget? Which one is most often used in variance analysis and why?

Latimer Textiles Inc. Latimer Textiles Inc. incurred actual variable overhead expenses of $27,000 in the current year for the production of 8,000 units. Variable overhead was applied at a rate of $1.75 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 17,400 direct labor hours for production. Refer to the Latimer Textiles Inc. information above. What was Latimer's variable overhead spending variance?

Bukowitz Inc. has a favorable direct labor rate variance. Which of the following would be the most likely reason for this variance?

Violetta Inc. manufactures plastic storage boxes. Management has determined that each medium-sized box has a standard materials cost of $1.20 when 4 pounds of raw material at a cost of $.30 per pound are used. The static budget for the month of March showed an estimated production of 15,000 boxes in March. During March, 17,000 boxes were actually produced. The actual cost for each box was $1.56 when 3.9 pounds of raw material at a cost of $.40 per pound were purchased and used. What should be the total direct materials cost according to Violetta's flexible budget for March?

When the quantity of materials purchased and materials used is different, which of the following is more relevant for the purpose of calculating the direct materials price variance?

Which of the following statements is false regarding variance analysis in the modern manufacturing environment?

Mary's Fine Fashions Mary's Fine Fashions manufactures and sells various types of women's clothing. At the end of 2011, Mary had estimated for the production and sale of 25,000 short-sleeve shirts. Each shirt has a standard calling for 2.5 yards of direct material at a standard rate of $1.25 per yard and 12 minutes of direct labor time at a standard rate of $.20 per minute. During 2012, the company actually produced and sold 23,000 shirts. These 23,000 shirts had an actual direct materials cost of $77,142 (59,340 yards at $1.30 per yard) and an actual direct labor cost of $63,250 (253,000 minutes at $.25 per minute). Each shirt sells for $20. Refer to the Mary's Fine Fashions information above. What is Mary's flexible budget variance?

Bellow Ltd. uses direct labor hours as the cost driver for variable overhead. Which of the following items does not need to be known, in order to calculate the variable overhead efficiency variance?

The fixed overhead volume variance is calculated by taking the difference between:

Meow Products Ltd. Meow Products Ltd. produces and sells scratching posts for cats. In the current year, the company had expected to sell 12,000 posts but actually produced and sold 10,000 posts. The following information is available regarding the standard cost to produce a single post: In the current year, 38,000 feet of material were purchased out of which 35,000 feet were used at a cost of $1.55 per foot, and 160,000 direct labor minutes were incurred at a cost of $.32 per minute. Refer to the Meow Products Ltd. information above. The company's direct materials price variance for the current year is:

Meow Products Ltd. Meow Products Ltd. produces and sells scratching posts for cats. In the current year, the company had expected to sell 12,000 posts but actually produced and sold 10,000 posts. The following information is available regarding the standard cost to produce a single post: In the current year, 38,000 feet of material were purchased out of which 35,000 feet were used at a cost of $1.55 per foot, and 160,000 direct labor minutes were incurred at a cost of $.32 per minute. Refer to the Meow Products Ltd. information above. The company's direct materials usage variance for the current year is:

Which of the following types of companies would not have a need to calculate a fixed overhead volume variance?

The difference between operating income on a flexible budget and actual operating income is called the:

At the end of the current year, Bowman Products has the following information available comparing the cost of direct materials on its flexible budget with the actual cost of direct materials: Sally Vincent, the company's controller, has requested a meeting with Hank Rowland, the operations manager, asking him to explain why direct materials costs were more than what had been budgeted. What two kinds of variance analysis should Hank do before his meeting with Sally? What would each of these variances measure?