Exam 9: Variance Analysis: Revenue and Cost

Variable overhead variances are closed to spending and efficiency variance accounts.

Consider the following data for Morethanmoney Ltd. Standard revenue per unit $10.00 Budgeted sales volume 5,000 Actual sales volume 5,500 Total standard cost per unit $8.00 Actual total revenue $53,900 The sales price variance for Morethanmoney Ltd is:

Scenesay Ltd 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 Budget Actual Results Units produced 4,000 3,620 Direct Labour Hours 10,000 11,000 Fixed Overhead \ 200,000 \ 205,000 Variable Overhead \ 320,000 \ 355,000 Direct Labour \ 200,000 \ 180,000 The budget variance for variable overhead was:

Viatix introduced a new automated production process that has reduced the amount of labour needed, but not affected the use of materials. The standard cost system has not been changed yet to reflect this new process. Assuming the machinery is functioning properly and that workers were properly trained in its use, which of the following variances is most likely to result?

If a variance is favourable, it should be closed directly to cost of sales.

Total budgeted revenues can be calculated using standard sales prices multiplied by budgeted volume.

Skillful Ltd budgeted $900,000 for total overhead. The standard variable overhead rate was $1 per direct labour hour, or $3 per unit, based on an anticipated activity level of 300,000 direct labour hours. During the year 110,000 units were produced. Fixed overhead costs incurred were $90,000. The variable overhead budget variance was $5,500 unfavourable, and the actual variable overhead rate was $1.10 per direct labour hour. The standard direct labour hours allowed were:

Skillful Ltd budgeted $900,000 for total overhead. The standard variable overhead rate was $1 per direct labour hour, or $3 per unit, based on an anticipated activity level of 300,000 direct labour hours. During the year 110,000 units were produced. Fixed overhead costs incurred were $590,000. The variable overhead budget variance was $5,500 unfavourable, and the actual variable overhead rate was $1.10 per direct labour hour. The actual variable overhead costs incurred were:

The sales price variance can be broken down into market size variance, market share variance and product mix variance.

The revenue budget variance is determined by comparing total budgeted revenues to actual revenues.

If manufacturing cost variances are considered to be immaterial they are directly charged to the statement of profit of loss.

Which of the following is a possible cause of a favourable materials efficiency variance?

The direct materials price variance is usually based on materials purchased, rather than on materials used.

Fixed overheard variances are closed to spending and efficiency variance accounts.

For overhead variances, the difference between the flexible budget amounts and actual costs incurred is called the:

Normal fluctuations in labour hours may cause a favourable direct price variance.

In Command Ltd 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 \ 9,000 Unfavourable Stardard price \ 10 per unit Actual units purchased 18,000 Inventory decrease 1,000 units Budget variarice \ 1,800 Favourable The standard quantity of direct materials allowed for the month was:

The static budget is equal to budgeted revenue and costs multiplied by budgeted volume.

The difference between the standard amount of fixed overhead cost allocated to products and estimated fixed overhead costs is the production volume variance.

The sales quantity variance is calculated by (actual volume - budgeted volume) multiplied by standard price.