Exam 11: Standard Costs and Variance Analysis

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

During the middle of the fiscal year, AWR Corporation unexpectedly revised its estimate of a plant asset's life from 5 years to 7 years. That revision is most likely to lead to:

Burkett Company 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 over- or underapplied overhead was:

Given the following account balances at the end of the first year of operations: Direct materials inventory \ 60,000 Work in process inventory 120,000 Finished goods inventory 180,000 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 efficiency variance allocated to work in process inventory is:

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 Budget Results 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 budget variance for variable overhead 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 labour price variance is:

Variance analysis is used for monitoring and performance evaluation.

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 standard quantity of direct materials allowed for the month was:

The direct materials efficiency variance tells managers about the efficiency of the purchasing process.

During the period Richeleau produced 1,000 units of product. The flexible budget for standard costs is: Direct materials \ 43,000 Direct labour 67,000 Variable overhead 30,000 Fixed overhead 25,000 Variances for the period are: Direct materials price 400 Direct materials efficiency 500 Direct labour price 600 Direct labour efficiency 200 Variable overhead spending 300 Variable overhead efficiency 100 Fixed overhead spending 500 Fixed overhead production volume 1,000 The actual cost of direct labour incurred was:

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

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 company has an 8-hour work day and makes 5 containers each day per employee. The standard hours per finished unit is:

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 material efficiency variance will include a;

Standard costs are developed using:

Dem Mfg. has gathered the following data in preparing to record their direct labour payroll costs for the week: Actual hours morked 18,500 Standard hours allowed 20,000 Total direct labour variance \ 8,300 Direct labour price variance \ 3,700 The standard direct labour price was:

Given the following account balances at the end of the first year of operations: Work in process inventory \ 90,000 Finished goods inventory 165,000 Cost of goods sold 495,000 Direct labour price variance 35,000 Direct labour efficiency variance 17,000 Assuming that variances are considered material, the entry and amount of direct labour variances allocated to the Finished Goods Inventory is:

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 fixed overhead allocated was:

Unattainable standards are likely to lead to: I. Errors in the accounting information system II. Favourable variances III. Unfavourable variances

The production manager of CLR Corporation calculated a material and unfavourable variance of $4,000 with respect to the cost of direct materials. Which of the following is a likely next step for the production manager?

The difference between actual capacity used and budgeted capacity can be reflected in which variance?