Exam 9: Variance Analysis: Revenue and Cost

Under standard costing direct labour is recorded in the work in process account at standard cost.

Adizero Ltd uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labour hour. The overhead rate is based on 10,000 hours. Actual results were: Standard direct labour hours 9,000 Actual direct labour hours 10,000 Fixed overhead \ 190,000 Variable overhead \ 185,000 The fixed overhead budget variance was:

Usually companies produce more or less than expected and this causes a production volume variance.

Aztec Bromac budgeted the following cost standards for the current year: Direct materials = 2.8 kilos per unit @ $3.00 per kilo Direct labour = 1.5 hours per unit @ $6 per hour Actual production and costs were as follows: Units produced = 3,600 Direct materials used = 9,000 kg. Direct materials purchased = 10,000 kg. @ a cost of $29,000 Direct labour incurred = 4,000 hours at a cost of $26,000 The material price variance for materials purchased was :

The direct labour price variance is calculated using (actual labour price per hour - standard labour price per hour) multiplied by actual hours used.

The standard variable overhead allocation rate is calculated using estimated variable overhead cost divided by estimated volume of the allocation base.

The journal entry to record direct labour for Aztec Bromac is:

The variable overhead budget variance is the difference between allocated variable overhead cost and actual fixed overhead cost.

The market share variance is calculated using planned market size multiplied by change in market share multiplied by planned average contribution margin.

Actual production volume may be different than expected due to machine breakdowns, unreasonable estimates or normal fluctuations.

The fixed overhead spending variance is favourable when more is spent on fixed overhead than expected.

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 actual cost of direct labour incurred was:

Assume the additional information for Morethanmoney Ltd. Planned Market Size 20,000 Actual Market Size 19,800 Morethanmoney Ltd's planned market share 25% The market share variance is:

Errors in the accounting records can only cause price variance not efficiency variances.

Adizero Ltd uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labour hour. The overhead rate is based on 10,000 hours. Actual results were: Standard direct labour hours 9,000 Actual direct labour hours 10,000 Fixed overhead \ 190,000 Variable overhead \ 185,000 The variable overhead spending variance was:

Tycoon Manufacturing uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 5,000 units monthly. Overhead costs were estimated to be $250,000. The standard variable overhead rate is $5 per machine hour. During October the following results were recorded: Units produced 4,900 Units sold 4,600 Machine hours required 20,500 Actual overhead cost \ 248,000 The total overhead allocated was:

Theft of raw materials may cause a favourable materials efficiency variance.

The use of standards allows managers to:

Change in market size multiplied by budgeted market share multiplied by planned average contribution margin is the market size variance.

The market size variance provides an indication of the proportion of sales volume variance that can be attributed to unexpected changes in market size.