Exam 9: Variance Analysis: Revenue and Cost

Managers should consider sales levels when investigating the production volume variance.

The allocation base for variable overhead should reflect the use of variable resources.

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 production volume 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 variable overhead efficiency variance was:

Unfavourable price variances can occur because of:

Fixed overhead costs are not expected to vary with production volumes. Therefore, production volume variances:

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 variable overhead efficiency variance was:

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 production volume variance was:

When standard volume exceeds actual sales volume the sales quantity variance is favourable.

The only variance for overhead is the production volume variance.

The revenue budget variance cannot be caused by changes in sales mix as total sales is unaffected by sales mix.

Unanticipated overtime hours may cause an unfavourable direct labour price variance.

The fixed overhead budget variance can be broken down into two parts: the spending variance and the volume variance.

Given the following account balances at the end of the first year of operations: Direct materials inventory \ 60,000 Work in process inventory 200,000 Finished goods inventory 200,000 Cost of goods sold 600,000 Direct material price variance 65,000 Direct material efficiency 195,000 Assuming that variances are considered material, the entry and amount of the direct material price variance allocated to Work in Process Inventory is:

Employee theft is most likely to result in which type of variance?

Fixed overhead costs do not vary with volume.

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 size variance is:

When is it appropriate to calculate a product mix variance?

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 variable overhead spending variance is:

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 budgeted fixed overhead was: