Exam 9: Variance Analysis: Revenue and Cost

The production volume variance is used for book keeping purposes only.

Revenue variance analysis can also be called "competiveness effectiveness".

The profit variance includes variances due to volume, price and efficiency.

Which of the following may have affected Morethanmoney Ltd's market share variance:

The fixed overhead spending variance can be caused by an increase in the activity level to a new relevant range.

The journal entry to record the purchase of direct materials for Aztec Bromac is:

Hiring highly skilled workers could result in a favourable direct labour price variance and a favourable direct materials efficiency variance.

Under standard costing direct materials are recorded in raw materials inventory at the actual cost.

A change in quality of materials may cause both efficiency and price variances for direct materials.

The total direct labour variance can be broken down into two components: the efficiency variance and the hourly variance.

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 fixed overhead spending variance was:

Revenue variances can be broken down into:

Product mix variance = change in average standard contribution margin multiplied by actual unit volume.

Rilloto Ltd uses a standard costing system. Overhead costs are allocated based on direct labour hours. The standard variable overhead and fixed overhead rates are $3 and $10 per direct labour hour, respectively. Data relevant for the current period include: Direct Materials Purchased 75,000@,\ 11 per kg Direct Materials Used 75,000 Standard quartity of direct materials for actual production 80,000 Direct Materials stardard price \ 13 per kg Direct labour costs incured 76,000@\ 14 per hour Standard Direct Lubour hours for actual production 78,000 hours Stardard Direct Labour cost per hour \ 15 per hour Variable overhead costs incured \ 231,210 Fixed overhead costs ircured \ 763,000 The purchase of direct materials would be recorded in direct materials inventory at:

The standard fixed overhead allocation rate is calculated by estimated fixed overhead cost divided by estimated volume of an allocation base.

During the period Cash Spinner produced 2,000 units of product. The flexible budget for standard costs is: Direct materials \ 43,000 Direct labor 67,000 Variable overhead 30,000 Fixed overhead 25,000 Variances for the period are: Direct materials price \ 400 Direct materials efficiency 500 Direct labor price 600 Direct labor efficiency 200 Variable overhead spending 300 Variable overhead efficiency 100 Fixed overhead spending 500 Fixed overhead production volume 1,000 The direct materials inventory increased during the period by 500 (at standard cost). The total under- or overapplied overhead for the period was:

If actual volumes of the allocation base are less than estimated then the production volume variance will be unfavourable.

During the middle of the fiscal year, Fui Ltd unexpectedly revised its estimate of a plant asset's life from 6 years to 8 years. That revision is most likely to lead to:

Unreasonable standards may be the cause of direct materials efficiency variances, but not of direct labour efficiency variances.

Trade-offs mean that an unfavourable variance could be offset by a favourable variance in another area.