Exam 11: Standard Costs and Variance Analysis

Pardee, Inc. 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 \ 4,500 Unfavourable Standard price \ 10 per unit Actual units purchased 9,000 Inventory decrease 1,000 units Budget variance \ 900 Favourable The actual direct materials price paid per unit was:

Hyteck, Inc. 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 Actual Units produced 2,000 1,820 Direct labour hours 10,000 9,200 Fixed overhead \ 100,000 \ 98,000 Variable overhead \ 160,000 \ 150,000 Direct labour \ 100,000 \ 90,000 The direct labour efficiency variance was:

Hogle Mfg. Co. uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: Units produced 3,100 Units sold 2,800 Machine hours required 12,800 Actual overhead costs \ 136,000 The variable overhead efficiency variance was:

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

Identifying the reasons for variances is usually a quick and easy process.

The process of calculating variances and analyzing the reasons they occurred is called:

How do managers decide which variances are important enough to investigate? I. By considering whether they are favourable or unfavourable II. By calculating and investigating all possible variances III. By considering whether it is large enough to justify investigation

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

Everett, Inc. budgeted $1,488,000 for total overhead. The standard variable overhead rate was $2 per direct labour hour, or $6 per unit, based on an anticipated activity level of 600,000 direct labour hours. During the year 220,000 units were produced. Fixed overhead costs incurred were $300,000. The variable overhead budget variance was $19,800 unfavourable, and the actual variable overhead rate was $2.10 per direct labour hour. The actual variable overhead costs incurred were:

The variable overhead spending variance is calculated by comparing:

Everett, Inc. budgeted $1,488,000 for total overhead. The standard variable overhead rate was $2 per direct labour hour, or $6 per unit, based on an anticipated activity level of 600,000 direct labour hours. During the year 220,000 units were produced. Fixed overhead costs incurred were $300,000. The variable overhead budget variance was $19,800 unfavourable, and the actual variable overhead rate was $2.10 per direct labour hour. The standard fixed overhead rate per direct labour hour was:

Hogle Mfg. Co. uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: Units produced 3,100 Units sold 2,800 Machine hours required 12,800 Actual overhead costs \ 136,000 The combined fixed and variable overhead spending variance was:

Mason, Inc. uses a standard costing system. Overhead costs are allocated based on direct labour hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labour hour, respectively. Data relevant for the current period include: The direct materials efficiency variance is:

White, Inc. produces a chemical product whose primary component is purchased on credit and any discounts are always taken. The following material and labour elements make up the costs of the product: Purchase price for material \ 30 per litre Freight and handling \ 130 per 100 litres Each container of the chemical product contains 5.7 quarts of material. During the process 5% of the material is lost due to waste. Each container of product also requires 1.2 hours of labour. Each day 2 hours are taken for set-up, cleaning, and breaks. Also, the wage rate is $15 per hour and fringes/payroll taxes are 20% of wages. Clients can take a 3% discount if they pay invoices within 10 days; otherwise, the entire invoice amount is due within 30 days. 1 litre equals 4 quarts. The standard quantity of material per finished unit is:

Variable overhead spending variances can result from unattainable variable allocation rates. In turn, those rates may be caused by: I. Inappropriate allocation bases II. Poor estimates of total overhead costs III. Change in estimated life of amortizable assets

Baldwin, Inc uses a standard job cost system and purchased 25,000 kg of material at $6 per kg, and used it all. The standard amount allowed for the output achieved is 22,500 kg, and the standard price is $6.50 per kg. The company also incurred 37,500 direct labour hours for $450,000. The standard hourly price was $11 per hour, and 39,000 hours were allowed at standard. Assuming all variances are immaterial, answer the following questions: The entry to record the direct labour variances will include a:

Errors in the accounting records related to actual production output could lead to a fixed overhead production volume variance.

Welch Company budgeted the following cost standards for the current year: Direct materials $= 1.40$ kilograms per unit $@\$ 1.50$ per kilogram Direct labour $= 0.75$ hours per unit $@ \$ 6$ per hour Actual production and costs were as follows: Units produced $= 2,800$ Direct materials used $= 4,500 \mathrm {~kg}$ Direct materials purchased $= 5,000 \mathrm {~kg}@$ a cost of $\$ 5,850$ Direct labour incurred $= 2,000$ hours at a cost of $\$ 13,000$ The labour efficiency variance was:

Hogle Mfg. Co. uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: Units produced 3,100 Units sold 2,800 Machine hours required 12,800 Actual overhead costs \ 136,000 The total overhead allocated was:

If a variance is unfavourable, it should be closed directly to cost of goods sold.