Exam 9: Variance Analysis: Revenue and Cost

Variable costs per unit of volume increase when volume increases.

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 standard fixed overhead rate per direct labour hour was:

The production volume variance provides information about:

The production volume variance is calculated only for:

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 The budgeted revenue for Morethanmoney Ltd is:

Valatia Ltd has gathered the following data in preparing to record their direct labour payroll costs for the week: Actual hours worked 9,500 Stardard hours allowed 10,000 Total direct labour variance \ 1,810 Direct labour price variance \ 190 The actual direct labour price was:

The variable overhead efficiency variance will be present whenever the expected volume of the allocation base is different from the actual volume.

The variable overhead spending variance can be caused by higher or lower usage of the variable overhead allocation base.

The product mix variance is only useful when the products involved are not substitutable.

Given the following account balances at the end of the first year of operations: Work in process inventory \ 100,000 Finished goods inventory 200,000 Cost of goods sold 500,000 Direct labour price variance 40,000 Direct labour efficiency variance 20,000 Assuming that variances are considered material, the entry and amount of direct labour variances allocated to the Finished Goods Inventory is:

The amount of fixed overhead cost in the static budget compared to the flexible budget is

If the total variances in the accounting information system are favourable, the accounting treatment is to adjust accounts by decreasing costs during the closing process.

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 labour price variance was:

The best way to develop standards for revenue is to use historical sales data.

Castinata Co. uses a standard job cost system and a denominator volume of 25,000 direct labour hours for allocating overhead. The actual output was 12,000 units, which cost $185,700 for direct labour (23,000 hours), $28,000 for variable overhead, and $150,000 for fixed overhead. The standard variable overhead per unit is $2 (2 hours @ $1 per hour), and the standard fixed overhead per unit is $10 (2 hours @ $5 per hour). All variances are immaterial and are closed to Cost of Sales at the end of the period. The entry to close the fixed overhead variances includes a:

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 cost of direct materials added to work in process would be:

The variable overhead spending variance focuses on the volume difference in the allocation base used.

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 combined fixed and variable overhead spending variance was:

Revenue variances are excluded from variance analysis because they are outside the control of the business.

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 urit Actual units purchased 18,000 Inventory decrease 1,000 units Budget variance \ 1,800 Favourable The standard cost of the direct materials used was: