Webster BUSN 6070 - Management Accounting

Chapter 10--Profit and Cost Center Performance Evaluation

Student: ___________________________________________________________________________

1. Which of the following might cause a materials variance? A. Failing to take purchase discounts. B. Using a better grade of raw material. C. Changes in the market supply for the raw materials. D. All of the above.

2. Which of the following is not a major group responsible for variances in organizations? A. Marketing B. Consulting C. Administration D. Production

3. Why might a material variance arise? A. More efficient use of materials than the standard. B. The purchase of inferior raw materials. C. Both a and b above. D. None of the above.

4. Why do direct labor variances occur? A. Managers do not correctly anticipate changes in wage rates. B. Poor materials are used in production. C. Supervisors encounter scheduling problems. D. All of the above.

5. Which is not a reason direct labor variances may occur? A. Managers do not correctly anticipate changes in wage rates. B. Poor materials are used in production. C. Prices rise with direct materials. D. All of the above.

6. Fixed production costs variances are calculated as A. the difference between actual and budgeted fixed costs. B. (actual hours standard inputs) budgeted fixed costs. C. (actual hours standard outputs) budgeted fixed costs. D. (actual hours standard outputs) actual fixed costs.

7. Why do fixed manufacturing cost variances occur? A. Managers do not correctly anticipate changes in wage rates. B. Poor materials are used in production. C. Supervisors encounter scheduling problems. D. Actual fixed costs differ from budgeted fixed costs.

8. Which of the following terms describes the difference between the budgeted (or standard) price and the actual price paid for each unit of input? A. Price variance. B. Efficiency variance. C. Usage variance. D. Quantity variance.

9. Which variance measures the efficiency with which the firm uses inputs to produce outputs? A. Throughput. B. Efficiency. C. Economy. D. Effectiveness.

10. To analyze variances, the variable cost variance model is applied to the calculation of which of the following? A. Direct materials variances. B. Direct labor variances. C. Variable manufacturing overhead price and efficiency variances. D. All of the above.

11. Which of the following does the cost variance model use to analyze differences between actual and budgeted profits? A. Flexible production budget. B. Fixed production budget. C. Prior periods production budget. D. Generally accepted accounting principles.

12. To help managers in their efforts to control overhead costs, managers and accountants analyze overhead variances using the variable cost variance model by separating variable overhead variances into A. price and quality components. B. economy and efficiency components. C. price and efficiency components. D. economy and effectiveness components.

13. What is the term that describes the rate companies frequently use to apply fixed overhead costs to units produced? A. Actual overhead rate. B. Predetermined overhead rate. C. Post-determined overhead rate. D. Variable overhead rate.

14. The production volume variance is the difference between which of the following two costs? A. Budgeted and applied fixed costs. B. Actual costs and the budgeted costs. C. Budgeted and actual fixed costs. D. Variable costs and the budgeted costs.

15. The production price (spending) variance is the difference between which of the following two costs? A. Budgeted and applied costs. B. Actual and budgeted costs. C. Applied and actual costs. D. Variable and budgeted costs.

16. Which statement is true concerning the fixed overhead production efficiency variance? A. The production efficiency variance exists as fixed costs are assumed to vary inversely with volume. B. The production efficiency variance exists as fixed costs are assumed to vary along with volume. C. The production efficiency variance exists as fixed costs are assumed to vary exponentially with volume. D. The production efficiency variance does not exist as fixed costs are assumed not to vary with volume.

17. Which variance(s) are generally calculated to analyze fixed manufacturing overhead costs? A. Production volume variances only. B. Price variances only. C. Production volume and price variances only. D. Production volume, price, and efficiency variances.

18. Tool(s) that managers can use to decide when to investigate variances include which of the following? A. Use of both tolerance limits and decision models. B. Use of tolerance limits only. C. Decision models only. D. None of the above.

19. Activity-based costing is commonly used with standard costing. Using activity-based costing, a company has A. a single cost driver B. multiple cost drivers. C. no cost drivers. D. the same cost drivers as standard costing.

20. Activity-based costing is commonly used with standard costing. Using more activity drivers increases the potential for managers to A. get much more information from activity-based costing than from the traditional approach. B. get much more information from the traditional approach than from activity-based costing. C. get the same information from activity-based costing as from the traditional approach. D. None of the above.

21. Activity-based costing raises numerous specific questions that managers can address to improve which of the following? A. Productivity and quality. B. Price and efficiency. C. Efficiency only. D. Productivity only.

22. What is the result of substituting computerized equipment for direct labor? A. Less direct material and more manufacturing overhead. B. Less direct labor and more manufacturing overhead. C. Less manufacturing overhead and more direct materials. D. Less direct labor and more direct material.

23. When substituting computerized equipment for direct labor, a firm should treat labor as which of the following? A. Fixed (or capacity) costs. B. Mixed costs. C. Opportunity costs. D. Variable costs.

24. When substituting computerized equipment for direct labor, variable overhead may be associated more with A. labor hours than machine usage. B. machine usage than labor hours. C. machine usage than direct materials. D. machine usage than manufacturing overhead.

25. For managerial accounting purposes, how are fixed manufacturing costs treated? A. As product costs. B. As period costs. C. As opportunity costs. D. As variable costs.

26. For external reporting purposes, how are fixed manufacturing costs treated? A. As period costs. B. Expensed as incurred. C. Period costs included in the value of inventory. D. Product costs included in the value of inventory.

27. For financial reporting purposes, how are fixed manufacturing costs treated? A. As period costs. B. As product costs. C. As direct materials costs. D. None of the above.

28. How are fixed manufacturing costs treated? A. Period costs for managerial accounting and product costs for financial accounting purposes. B. Product costs for managerial accounting and financial accounting purposes. C. Period cost for managerial accounting and financial accounting purposes. D. Product costs for managerial accounting and period costs for financial accounting purposes.

29. For financial reporting purposes, how are fixed manufacturing costs treated? A. Included in the value of inventory. B. Not included in the value of inventory. C. Treated the same as in managerial accounting. D. Not reported.

30. Bens Delivery Company Bens Delivery Company reports the following information for 2010: Actual:

Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead variance for fuel costs? A. $12.00 U B. $12.00 F C. $6.00 U D. $6.00 F


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead price variance for fuel costs? A. $32.00 F B. $ 6.00 U C. $12.00 F D. $20.00 U


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead efficiency variance for fuel costs? A. $32.00 F B. $ 6.00 U C. $12.00 F D. $20.00 U


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the actual fuel cost for March 2010? A. $374.00 B. $352.00 C. $340.00 D. $320.00


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead flexible budget for March 2010? A. $374.00 B. $352.00 C. $340.00 D. $320.00

35. Lydias Delivery Company Lydias Delivery Company reports the following information for 2010: Actual:

Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Lydias Delivery Company. What is the variable overhead variance for fuel costs? A. $12.00 U B. $12.00 F C. $6.00 U D. $6.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Lydias Delivery Company. What is the variable overhead price variance for fuel costs? A. $10.00 U B. $16.00 F C. $26.00 F D. $ 6.00F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Lydias Delivery Company. What is the variable overhead efficiency variance for fuel costs? A. $10.00 U B. $16.00 F C. $26.00 F D. $ 6.00F

38. Dougs Delivery Company Dougs Delivery Company reports the following information for 2010: Actual:

Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead variance for fuel costs? A. $20.00 U B. $20.00 F C. $2.00 U D. $2.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead price variance for fuel costs? A. $20.00 U B. $20.00 F C. $2.00 U D. $2.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead efficiency variance for fuel costs? A. $20.00 U B. $20.00 F C. $18.00 U D. $18.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the actual fuel cost for March 2010? A. $240.00 B. $220.00 C. $200.00 D. $180.00


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead flexible budget for March 2010? A. $180.00 B. $198.00 C. $220.00 D. $240.00

43. Most companies report which of the following variances? A. Each type of material. B. Each category of labor. C. Major cost components of variable overhead. D. All of the above.

44. Which of the following is an example of a major cost component of variable overhead? A. Direct material. B. Direct labor. C. Indirect material. D. All of the above.

45. Java Gourmet Coffee Java Gourmet Coffee reports the following data for April 2010 where 200,000 pounds of roasted gourmet coffee beans were actually produced (note: standard costs do not allow for any wastage), Actual:

Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the total direct materials variance. A. $15,500 U B. $10,500 U C. $15,500 F D. $10,500 F


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000

Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct materials price variance. A. $15,500 U B. $10,500 U C. $15,500 F D. $10,500 F


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the actual amount paid for coffee. A. $115,500 B. $105,000 C. $100,000 D. $ 95,500


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct materials efficiency variance. A. $5,000 U B. $10,500 U C. $5,000 F D. $10,500 F



Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the flexible budget for direct materials. A. $115,500 B. $105,500 C. $100,000 D. $ 95,500


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the total direct labor variance. A. $11,000 F B. $9,000 U C. $20,000 U D. $9,500 U


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct labor price variance. A. $11,000 F B. $9,000 U C. $20,000 U D. $9,500 U



Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct labor efficiency variance. A. $11,000 F B. $9,000 U C. $20,000 U D. $9,500 U


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the variable manufacturing overhead variance. A. $1,000 U B. $2,000 U C. $1,000 F D. $2,000 F

55. Freds Fine Roasted Coffee Freds Fine Roasted Coffee reports the following data for April 2010 where 500,000 pounds of roasted gourmet coffee beans were actually produced (note: standard costs do not allow for any wastage),

Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the total direct materials variance. A. $56,000 U B. $40,500 U C. $56,000 F D. $40,500 U


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct materials price variance. A. $51,000 U B. $56,000 U C. $5,000 U D. $40,500 U


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct materials efficiency variance. A. $51,000 U B. $56,000 U C. $5,000 U D. $40,500 U


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the total direct labor variance. A. $48,000 F B. $20,000 F C. $68,000 F D. $28,000 F


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct labor price variance. A. $48,000 F B. $20,000 F C. $68,000 F D. $28,000 F


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct labor efficiency variance. A. $48,000 F B. $20,000 F C. $68,000 F D. $28,000 F

61. ABC Company ABC Company reports the following information for the most recent period when 2,750 units were produced.

Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct materials efficiency variance. A. $7,150 U B. $7,500 U C. $7,150 F D. $7,500 F


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct materials price variance. A. $350 F B. $-0- C. $350 U D. $7,150 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the total direct materials variance. A. $7,500 U B. $7,850 U C. $7,150 U D. $7,000 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the total direct labor variance. A. $70 F B. $200 U C. $270 U D. $130 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct labor price variance. A. $70 F B. $200 U C. $270 U D. $130 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct labor efficiency variance. A. $70 F B. $200 U C. $270 U D. $130 U

67. KF Company KF Company uses standard costing. The company reported the following information for the current period:

Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200 Refer to KF Company. Calculate the total Variable Overhead variance. A. $1,000 U B. $ 500 F C. $1,000 F D. $ 500 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200 Refer to KF Company. Calculate the variable overhead price variance. A. $1,000 U B. $ 500 F C. $1,000 F D. $ 500 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200 Refer to KF Company. Calculate the variable overhead efficiency variance. A. $1,000 U B. $ 500 F C. $1,000 F D. $ 500 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200

Refer to KF Company. Calculate the total fixed overhead efficiency variance. A. $8,000 F B. $300 F C. $500 U D. $1,000 U

71. When multiple inputs are used to produce the output, the efficiency variance can be broken down into which of the following? A. mix and match variances. B. mix and yield variances. C. profit and yield variances. D. benefit and match variances.

72. The yield variance is the portion of the efficiency variance that is not a A. match variance. B. mix variance. C. quantity variance. D. price variance.

73. Explain how variable production cost variances are calculated and why they occur.

74. How are fixed production cost variances calculated and why do they occur?

75. What is the difference between price and efficiency variances?

76. How do you analyze variances using the variable cost variance model?

77. How do you analyze overhead variances using the variable cost variance model?

78. What is the relationship between actual, budgeted, and applied fixed manufacturing costs?

79. What tools do managers use to decide when to investigate variances?

80. How do you apply activity-based costing to variance analysis?

81. How does technology impact variance analyses?

82. How do you calculate the mix variance portion of the efficiency variance?

83. How are fixed manufacturing costs treated for managerial and external reporting purposes?

84. Bens Delivery Company reports the following information for 2010: Actual:

Output: 6,000 parcels picked up or delivered Fuel required: 500 Gallons Cost per gallon: $2.25 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $2.00 per gallon REQUIRED: What was the actual fuel cost, flexible budget for fuel cost, and the fuel cost variance?

85. Sallys Delivery Company reports the following information for 2010: Actual:

Output: 10,000 parcels picked up or delivered Fuel required: 1,200 Gallons Cost per gallon: $3.05 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $3.10 per gallon

REQUIRED: Calculate the following: 1) Variable overhead variance for fuel 2) Variable overhead price variance for fuel 3) Variable overhead efficiency variance for fuel 4) Actual fuel costs 5) Flexible budget for fuel cost

86. Houser Parcel Moving Express reports the following information for 2010: Actual:

Output: 8,000 parcels picked up or delivered Fuel required: 1,000 Gallons Cost per gallon: $3.00 per gallon Standard: Fuel allowed: 0.08 gallon per parcel picked up or delivered Cost per gallon: $2.95 per gallon REQUIRED: Calculate the following: 1) Variable overhead variance for fuel 2) Variable overhead price variance for fuel 3) Variable overhead efficiency variance for fuel 4) Actual fuel costs 5) Flexible budget for fuel cost

87. JM Company uses standard costing. The company reported the following information for the current period:

Actual overhead incurred $15,000 of which $5,000 is fixed Budgeted fixed overhead $4,800 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 1,950 Actual machine hours used 2,200 REQUIRED: Calculate the following variances: 1) Variable overhead price variance 2) Variable overhead efficiency variance 3) Total variable overhead variance 4) Total fixed overhead variance

88. Hightown Company uses a predetermined overhead rate for applying overhead cost to products. Rates for the current year follow: Variable Overhead Rate: $2.50 per unit Fixed Overhead Rate: $5.00 per unit Actual overhead costs:

Variable Overhead: $275,000 Fixed Overhead: $630,000 The company expected to produce 125,000 units during the year, but only produced 120,000. REQUIRED: 1) Calculate the amount of budgeted fixed overhead costs for the year. 2) Calculate the fixed overhead price (spending) variance. 3) Calculate the fixed overhead production volume variance. 4) Calculate the variable overhead price variance.

89. Estimating flexible selling expense budget and computing variances. Georgia Peaches estimates the following selling expenses next period:

Salaries (fixed) $ 30,000 Commissions (0.05% of sales revenue) 17,875 Travel (0.03% of sales revenue) 10,725 Advertising (fixed) 60,000 Sales Office Costs ($3,750 plus $0.05 per unit sold) 7,000 Shipping Costs ($0.10 per unit sold) 6,500 Total Selling Expenses $132,100 Required: a. Derive the cost equation (y = a + bx) for selling expenses. (Hint: y = a + bx + cy.) b. Assume that Georgia actually sells 50,000 units during the period at an average price of $6 per unit. The company had budgeted sales for the period to be: volume, 65,000 units; price, $5.50. Calculate the sales price and volume variance. c. The actual selling expenses incurred during the period were $80,000 fixed and $30,000 variable. Prepare a profit variance analysis for sales revenue and selling expenses.

90. Estimating flexible selling expense budget and computing variances. Golden Nugget estimates the following selling expenses next period:

Salaries (fixed) $ 35,000 Commissions (0.04% of sales revenue) 17,875 Travel (0.02% of sales revenue) 10,725 Advertising (fixed) 65,000 Sales Office Costs ($3,950 plus $0.08 per unit sold) 7,000 Shipping Costs ($0.12 per unit sold) 6,500 Total Selling Expenses $132,100

Required: a. Derive the cost equation (y = a + bx) for selling expenses. (Hint: y = a + bx + cy.) b. Assume that Golden actually sells 60,000 units during the period at an average price of $7 per unit. The company had budgeted sales for the period to be: volume, 75,000 units; price, $6.50. Calculate the sales price and volume variance. c. The actual selling expenses incurred during the period were $90,000 fixed and $40,000 variable. Prepare a profit variance analysis for sales revenue and selling expenses.

91. Materials and labor variances. The Sweet Tooth Chocolate Company presents the following data for October:

Standards per Batch Actual Total Materials 1 Pound at $2.50 per Pound 49,000 Pounds Labor. 1.5 Hours at $3.00 per Hour 70,000 Hours Batches Produced 48,000 Batches During the month, the firm purchased 49,000 pounds of materials for $127,500. Wages earned were $214,000. Required: 1. Compute the labor and material variances. 2. Based on the information for the company, write a short report explaining the cause of the variances that you computed.

92. Materials and labor variances. The Chocolate Factory presents the following data for September:

Standards per Batch Actual Total Materials 1 Pound at $3.50 per Pound 59,000 Pounds Labor. 1.5 Hours at $4.00 per Hour 82,000 Hours Batches Produced 58,000 Batches

During the month, the firm purchased 59,000 pounds of materials for $216,500. Wages earned were $330,000. Required: 1. Compute the labor and material variances. 2. Based on the information for the company, write a short report explaining the cause of the variances that you computed.

93. Nonmanufacturing variances. Ralphs Sales uses standard costs and variances for controlling costs. As a result of studying past cost data, it has established standards as follows: variable costs, $6 per sales call; nine sales calls per unit sold. Actual data for May, June, and July follow:

Sales Calls Units Sold Actual Costs May 140,000 15,000 $ 900,000 June 160,000 20,000 1,000,000 July 130,000 10,000 800,000 Required: Compute the variable cost price and efficiency variances for each month.

94. Nonmanufacturing variances. Appliance Sales uses standard costs and variances for controlling costs. As a result of studying past cost data, it has established standards as follows: variable costs, $7 per sales call; six sales calls per unit sold. Actual data for May, June, and July follow:

Sales Calls Units Sold Actual Costs May 150,000 16,000 $ 1,100,000 June 170,000 22,000 1,200,000 July 140,000 11,000 1,000,000

Required: Compute the variable cost price and efficiency variances for each month.

95. Solving for materials and labor. Clayton Company makes fireplace screens. Under the flexible budget, when the firm uses 75,000 direct labor hours, budgeted variable overhead is $75,000, whereas budgeted direct labor costs are $450,000. The company applies variable overhead to production units on the basis of direct labor hours. All data apply to the month of February. The following are some of the variances for February (F denotes favorable; U denotes unfavorable):

Variable Overhead Price Variance $12,000 U Variable Overhead Efficiency Variance $20,000 U Materials Price Variance $30,000 F Materials Efficiency Variance $20,000 U During February, the firm incurred $400,000 of direct labor costs. According to the standards, each fireplace screen uses one pound of materials at a standard price of $4.00 per pound. The firm produced 100,000 fireplace screens in February. The materials price variance was $0.30 per pound, whereas the average wage rate exceeded the standard average rate by $0.50 per hour. Required: Compute the following for February, assuming there are beginning inventories but no ending inventories of materials: a. pounds of materials purchased b. pounds of material usage over standard c. standard hourly wage rate d. standard direct labor hours for the total February production

96. Solving for materials and labor. Howard Company makes screen doors. Under the flexible budget, when the firm uses 85,000 direct labor hours, budgeted variable overhead is $85,000, whereas budgeted direct labor costs are $573,750. The company applies variable overhead to production units on the basis of direct labor hours. All data apply to the month of February. The following are some of the variances for February (F denotes favorable; U denotes unfavorable):

Variable Overhead Price Variance $12,000 U Variable Overhead Efficiency Variance $30,000 U Materials Price Variance $60,000 F Materials Efficiency Variance $30,000 U During February, the firm incurred $600,000 of direct labor costs. According to the standards, each screen door uses one pound of materials at a standard price of $5.00 per pound. The firm produced 100,000 screen doors in February. The materials price variance was $0.40 per pound, whereas the average wage rate exceeded the standard average rate by $0.50 per hour. Required: Compute the following for February, assuming there are beginning inventories but no ending inventories of materials: a. pounds of materials purchased b. pounds of material usage over standard c. standard hourly wage rate d. standard direct labor hours for the total February production

97. Overhead variances. Upton, Inc., uses standard costing. The company reported the following overhead information for the current period:

Actual Overhead Incurred $13,600, of which $3,500 is fixed Budgeted Fixed Overhead $3,300 Variable Overhead Rate per Machine Hour $ 3 Standard Hours Allowed for Actual Production 3,500 Actual Machine Hours Used 3,200 Required: Calculate the variable and fixed overhead variances.

98. Overhead variances. Trevor, Inc., uses standard costing. The company reported the following overhead information for the current period:

Actual Overhead Incurred $19,600, of which $5,500 is fixed Budgeted Fixed Overhead $4,300 Variable Overhead Rate per Machine Hour $ 3 Standard Hours Allowed for Actual Production 5,000 Actual Machine Hours Used 4,100 Required: Calculate the variable and fixed overhead variances.

99. Solving for labor hours. Bills Engineering Consulting reports the following direct labor information for clerical staff:

Month: April Standard Rate $15 per Hour Actual Rate Paid $17 per Hour Standard Hours Allowed for Actual Production 1,600 Hours Labor Efficiency Variance $860 U Required: What are the actual hours worked, rounded to the nearest hour?

100. Solving for labor hours. Lances Engineering Consulting reports the following direct labor information for clerical staff:

Month: March Standard Rate $25 per Hour Actual Rate Paid $27 per Hour Standard Hours Allowed for Actual Production 1,500 Hours Labor Efficiency Variance $2,000 U Required: What are the actual hours worked, rounded to the nearest hour?

Chapter 10--Profit and Cost Center Performance Evaluation Key

1. Which of the following might cause a materials variance? A. Failing to take purchase discounts. B. Using a better grade of raw material. C. Changes in the market supply for the raw materials. D. All of the above.

2. Which of the following is not a major group responsible for variances in organizations? A. Marketing B. Consulting C. Administration D. Production

3. Why might a material variance arise? A. More efficient use of materials than the standard. B. The purchase of inferior raw materials. C. Both a and b above. D. None of the above.

4. Why do direct labor variances occur? A. Managers do not correctly anticipate changes in wage rates. B. Poor materials are used in production. C. Supervisors encounter scheduling problems. D. All of the above.

5. Which is not a reason direct labor variances may occur? A. Managers do not correctly anticipate changes in wage rates. B. Poor materials are used in production. C. Prices rise with direct materials. D. All of the above.

6. Fixed production costs variances are calculated as A. the difference between actual and budgeted fixed costs. B. (actual hours standard inputs) budgeted fixed costs. C. (actual hours standard outputs) budgeted fixed costs. D. (actual hours standard outputs) actual fixed costs.

7. Why do fixed manufacturing cost variances occur? A. Managers do not correctly anticipate changes in wage rates. B. Poor materials are used in production. C. Supervisors encounter scheduling problems. D. Actual fixed costs differ from budgeted fixed costs.

8. Which of the following terms describes the difference between the budgeted (or standard) price and the actual price paid for each unit of input? A. Price variance. B. Efficiency variance. C. Usage variance. D. Quantity variance.

9. Which variance measures the efficiency with which the firm uses inputs to produce outputs? A. Throughput. B. Efficiency. C. Economy. D. Effectiveness.

10. To analyze variances, the variable cost variance model is applied to the calculation of which of the following? A. Direct materials variances. B. Direct labor variances. C. Variable manufacturing overhead price and efficiency variances. D. All of the above.

11. Which of the following does the cost variance model use to analyze differences between actual and budgeted profits? A. Flexible production budget. B. Fixed production budget. C. Prior periods production budget. D. Generally accepted accounting principles.

12. To help managers in their efforts to control overhead costs, managers and accountants analyze overhead variances using the variable cost variance model by separating variable overhead variances into A. price and quality components. B. economy and efficiency components. C. price and efficiency components. D. economy and effectiveness components.

13. What is the term that describes the rate companies frequently use to apply fixed overhead costs to units produced? A. Actual overhead rate. B. Predetermined overhead rate. C. Post-determined overhead rate. D. Variable overhead rate.

14. The production volume variance is the difference between which of the following two costs? A. Budgeted and applied fixed costs. B. Actual costs and the budgeted costs. C. Budgeted and actual fixed costs. D. Variable costs and the budgeted costs.

15. The production price (spending) variance is the difference between which of the following two costs? A. Budgeted and applied costs. B. Actual and budgeted costs. C. Applied and actual costs. D. Variable and budgeted costs.

16. Which statement is true concerning the fixed overhead production efficiency variance? A. The production efficiency variance exists as fixed costs are assumed to vary inversely with volume. B. The production efficiency variance exists as fixed costs are assumed to vary along with volume. C. The production efficiency variance exists as fixed costs are assumed to vary exponentially with volume. D. The production efficiency variance does not exist as fixed costs are assumed not to vary with volume.

17. Which variance(s) are generally calculated to analyze fixed manufacturing overhead costs? A. Production volume variances only. B. Price variances only. C. Production volume and price variances only. D. Production volume, price, and efficiency variances.

18. Tool(s) that managers can use to decide when to investigate variances include which of the following? A. Use of both tolerance limits and decision models. B. Use of tolerance limits only. C. Decision models only. D. None of the above.

19. Activity-based costing is commonly used with standard costing. Using activity-based costing, a company has A. a single cost driver B. multiple cost drivers. C. no cost drivers. D. the same cost drivers as standard costing.

20. Activity-based costing is commonly used with standard costing. Using more activity drivers increases the potential for managers to A. get much more information from activity-based costing than from the traditional approach. B. get much more information from the traditional approach than from activity-based costing. C. get the same information from activity-based costing as from the traditional approach. D. None of the above.

21. Activity-based costing raises numerous specific questions that managers can address to improve which of the following? A. Productivity and quality. B. Price and efficiency. C. Efficiency only. D. Productivity only.

22. What is the result of substituting computerized equipment for direct labor? A. Less direct material and more manufacturing overhead. B. Less direct labor and more manufacturing overhead. C. Less manufacturing overhead and more direct materials. D. Less direct labor and more direct material.

23. When substituting computerized equipment for direct labor, a firm should treat labor as which of the following? A. Fixed (or capacity) costs. B. Mixed costs. C. Opportunity costs. D. Variable costs.

24. When substituting computerized equipment for direct labor, variable overhead may be associated more with A. labor hours than machine usage. B. machine usage than labor hours. C. machine usage than direct materials. D. machine usage than manufacturing overhead.

25. For managerial accounting purposes, how are fixed manufacturing costs treated? A. As product costs. B. As period costs. C. As opportunity costs. D. As variable costs.

26. For external reporting purposes, how are fixed manufacturing costs treated? A. As period costs. B. Expensed as incurred. C. Period costs included in the value of inventory. D. Product costs included in the value of inventory.

27. For financial reporting purposes, how are fixed manufacturing costs treated? A. As period costs. B. As product costs. C. As direct materials costs. D. None of the above.

28. How are fixed manufacturing costs treated? A. Period costs for managerial accounting and product costs for financial accounting purposes. B. Product costs for managerial accounting and financial accounting purposes. C. Period cost for managerial accounting and financial accounting purposes. D. Product costs for managerial accounting and period costs for financial accounting purposes.

29. For financial reporting purposes, how are fixed manufacturing costs treated? A. Included in the value of inventory. B. Not included in the value of inventory. C. Treated the same as in managerial accounting. D. Not reported.


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead variance for fuel costs? A. $12.00 U B. $12.00 F C. $6.00 U D. $6.00 F


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead price variance for fuel costs? A. $32.00 F B. $ 6.00 U C. $12.00 F D. $20.00 U


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead efficiency variance for fuel costs? A. $32.00 F B. $ 6.00 U C. $12.00 F D. $20.00 U


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the actual fuel cost for March 2010? A. $374.00 B. $352.00 C. $340.00 D. $320.00


Output: 2,200 parcels picked up or delivered Fuel required: 200 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Bens Delivery Company. What is the variable overhead flexible budget for March 2010? A. $374.00 B. $352.00 C. $340.00 D. $320.00


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Lydias Delivery Company. What is the variable overhead variance for fuel costs? A. $12.00 U B. $12.00 F C. $6.00 U D. $6.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Lydias Delivery Company. What is the variable overhead price variance for fuel costs? A. $10.00 U B. $16.00 F C. $26.00 F D. $ 6.00F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $1.70 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.60 per gallon Refer to Lydias Delivery Company. What is the variable overhead efficiency variance for fuel costs? A. $10.00 U B. $16.00 F C. $26.00 F D. $ 6.00F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead variance for fuel costs? A. $20.00 U B. $20.00 F C. $2.00 U D. $2.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead price variance for fuel costs? A. $20.00 U B. $20.00 F C. $2.00 U D. $2.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead efficiency variance for fuel costs? A. $20.00 U B. $20.00 F C. $18.00 U D. $18.00 F


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the actual fuel cost for March 2010? A. $240.00 B. $220.00 C. $200.00 D. $180.00


Output: 1,100 parcels picked up or delivered Fuel required: 100 Gallons Cost per gallon: $2.00 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $1.80 per gallon Refer to Dougs Delivery Company. What is the variable overhead flexible budget for March 2010? A. $180.00 B. $198.00 C. $220.00 D. $240.00

43. Most companies report which of the following variances? A. Each type of material. B. Each category of labor. C. Major cost components of variable overhead. D. All of the above.

44. Which of the following is an example of a major cost component of variable overhead? A. Direct material. B. Direct labor. C. Indirect material. D. All of the above.


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the total direct materials variance. A. $15,500 U B. $10,500 U C. $15,500 F D. $10,500 F



Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct materials price variance. A. $15,500 U B. $10,500 U C. $15,500 F D. $10,500 F


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the actual amount paid for coffee. A. $115,500 B. $105,000 C. $100,000 D. $ 95,500


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct materials efficiency variance. A. $5,000 U B. $10,500 U C. $5,000 F D. $10,500 F



Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the flexible budget for direct materials. A. $115,500 B. $105,500 C. $100,000 D. $ 95,500


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the total direct labor variance. A. $11,000 F B. $9,000 U C. $20,000 U D. $9,500 U


Direct Materials: Quantity of coffee beans: 210,000 pounds Cost per pound: $0.55 per pound Direct Labor: Direct labor rate: $19.00 per hour Labor hours used: 11,000 hours Variable Overhead: Actual costs: $21,000 Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct labor price variance. A. $11,000 F B. $9,000 U C. $20,000 U D. $9,500 U



Standard: Direct Materials: Quantity of coffee beans: 200,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Java Gourmet Coffee. Calculate the direct labor efficiency variance. A. $11,000 F B. $9,000 U C. $20,000 U D. $9,500 U




Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the total direct materials variance. A. $56,000 U B. $40,500 U C. $56,000 F D. $40,500 U


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct materials price variance. A. $51,000 U B. $56,000 U C. $5,000 U D. $40,500 U


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct materials efficiency variance. A. $51,000 U B. $56,000 U C. $5,000 U D. $40,500 U


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the total direct labor variance. A. $48,000 F B. $20,000 F C. $68,000 F D. $28,000 F


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct labor price variance. A. $48,000 F B. $20,000 F C. $68,000 F D. $28,000 F


Actual: Direct Materials: Quantity of coffee beans: 510,000 pounds Cost per pound: $0.60 per pound Direct Labor: Direct labor rate: $18.00 per hour Labor hours used: 24,000 hours Variable Overhead: Actual costs: $49,000 Standard: Direct Materials: Quantity of coffee beans: 500,000 pounds Cost per pound: $0.50 per pound Direct Labor: Direct labor rate: $20.00 per hour Labor hours to be used: 0.05 hours per pound Variable overhead: $.10 per pound Refer to Freds Fine Roasted Coffee. Calculate the direct labor efficiency variance. A. $48,000 F B. $20,000 F C. $68,000 F D. $28,000 F


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct materials efficiency variance. A. $7,150 U B. $7,500 U C. $7,150 F D. $7,500 F


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct materials price variance. A. $350 F B. $-0- C. $350 U D. $7,150 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the total direct materials variance. A. $7,500 U B. $7,850 U C. $7,150 U D. $7,000 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the total direct labor variance. A. $70 F B. $200 U C. $270 U D. $130 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct labor price variance. A. $70 F B. $200 U C. $270 U D. $130 U


Cost Standard Actual Materials 2 lbs. @ $5.00 per pound 7,000 pounds purchased for $34,650 Labor 0.50 hours @ $8.00 per hour 1,400 hours @ $7.95 per hour Refer to ABC Company. Calculate the direct labor efficiency variance. A. $70 F B. $200 U C. $270 U D. $130 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200 Refer to KF Company. Calculate the total Variable Overhead variance. A. $1,000 U B. $ 500 F C. $1,000 F D. $ 500 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200 Refer to KF Company. Calculate the variable overhead price variance. A. $1,000 U B. $ 500 F C. $1,000 F D. $ 500 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200 Refer to KF Company. Calculate the variable overhead efficiency variance. A. $1,000 U B. $ 500 F C. $1,000 F D. $ 500 U


Actual overhead incurred $25,000 of which $8,000 is fixed Budgeted fixed overhead $8,300 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 3,300 Actual machine hours used 3,200

Refer to KF Company. Calculate the total fixed overhead efficiency variance. A. $8,000 F B. $300 F C. $500 U D. $1,000 U

71. When multiple inputs are used to produce the output, the efficiency variance can be broken down into which of the following? A. mix and match variances. B. mix and yield variances. C. profit and yield variances. D. benefit and match variances.

72. The yield variance is the portion of the efficiency variance that is not a A. match variance. B. mix variance. C. quantity variance. D. price variance.

73. Explain how variable production cost variances are calculated and why they occur.

Material variances may be the result of failing to take purchase discounts, using a better (or worse) grade of raw material, or changes in the market supply or demand for the raw material that affected prices. Materials variances may arise due to more (or less) efficient use of materials than the standard or the purchase of inferior raw materials. Direct labor variances can occur because managers do not correctly anticipate changes in wage rates. These variances may also be caused by the workers themselves, poor materials, faulty equipment, poor supervision, and scheduling problems.

74. How are fixed production cost variances calculated and why do they occur?

The only fixed cost variance computed for managerial purposes is the difference between actual and budgeted fixed costs. This variance occurs because actual fixed costs differ from budgeted fixed costs.

75. What is the difference between price and efficiency variances?

The price variance is the difference between the budgeted (or standard) price and the actual price paid for each unit of input. The efficiency variance measures the efficiency with which the firm uses inputs to produce outputs.

76. How do you analyze variances using the variable cost variance model?

The variable cost variance model is applied to the calculation of direct materials, direct labor, and variable manufacturing overhead price and efficiency variances. The model uses the flexible production budget to analyze differences between actual and budgeted profits.

77. How do you analyze overhead variances using the variable cost variance model?

Separating variable overhead variances into price and efficiency components helps managers in their effort to control overhead costs. The manager can use the same method to compute price and efficiency variances for variable overhead as for other variable manufacturing costs using an appropriate input activity measure.

78. What is the relationship between actual, budgeted, and applied fixed manufacturing costs?

Companies frequently use a predetermined overhead rate to apply fixed overhead to units produced. The production volume variance is the difference between the budgeted and applied fixed costs. The price variance is the difference between the actual costs and the budgeted costs. There is no efficiency variance calculated because fixed costs are assumed not to vary with volume.

79. What tools do managers use to decide when to investigate variances?

Managers can deal with the decision of whether to investigate a variance like other decisions -- on a cost benefit basis. Therefore, managers should investigate variances if they expect the benefits from investigation to exceed the costs of investigation. One method of identification where the benefit might be greater than the cost is the use of tolerance limits; the other is a decision model.

80. How do you apply activity-based costing to variance analysis?

Activity-based costing is commonly used with standard costing. Using activity-based costing, a company has multiple cost drivers. The same approach is used for variance analysis as for traditional costing. Using more activity drivers increases the potential for managers to get much more information from activity-based costing than from the traditional approach. Activity-based costing raises numerous specific questions that managers can address to improve quality and productivity.

81. How does technology impact variance analyses?

Most changes toward high technology involve substituting computerized equipment for direct labor. The result is less direct labor and more manufacturing overhead. This implies that the firm should treat labor as a fixed, or capacity, cost and that variable overhead may be associated more with machine usage than labor hours.

82. How do you calculate the mix variance portion of the efficiency variance?

When multiple inputs are used to produce the output, the efficiency variance can be broken down into mix and yield variances. The mix variance shows the impact on profits of using something other than the budgeted mix of inputs. The yield variance is the portion of the efficiency variance that is not a mix variance.

83. How are fixed manufacturing costs treated for managerial and external reporting purposes?

For managerial accounting purposes, fixed manufacturing costs are treated as period costs. However for external reporting purposes, fixed manufacturing costs are treated as product costs and included in the value of inventory.

84. Bens Delivery Company reports the following information for 2010: Actual:

Output: 6,000 parcels picked up or delivered Fuel required: 500 Gallons Cost per gallon: $2.25 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $2.00 per gallon REQUIRED: What was the actual fuel cost, flexible budget for fuel cost, and the fuel cost variance?

SUPPORTING CALCULATIONS: Actual: $2.25 per gallon 500 gallons = $1,125 Flexible budget: $2.00 per gallon (.10 6,000) = $1,200 Fuel cost variance = Actual cost - Flexible budget = $1,125 - $1,200 = $75.00 F

85. Sallys Delivery Company reports the following information for 2010: Actual:

Output: 10,000 parcels picked up or delivered Fuel required: 1,200 Gallons Cost per gallon: $3.05 per gallon

Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $3.10 per gallon REQUIRED: Calculate the following: 1) Variable overhead variance for fuel 2) Variable overhead price variance for fuel 3) Variable overhead efficiency variance for fuel 4) Actual fuel costs 5) Flexible budget for fuel cost

SUPPORTING CALCULATIONS:

AP AQ SP AQ SP SQ $3.05 1,200 $3.10 1,200 $3.10 (0.10 10,000) = $3,660 = $3,720 = $3,100 |______$60 F _______|________ $620 U_____| 1) Total Variable overhead variance = $ 560 U 2) Variable overhead price variance = $ 60 F 3) Variable overhead efficiency variance = $ 620 U 4) Actual: $3.05 per gallon 1,200 gallons = $3,660 5) Flexible budget: $3.10 per gallon (.10 10,000) = $3,100

86. Houser Parcel Moving Express reports the following information for 2010: Actual:

Output: 8,000 parcels picked up or delivered Fuel required: 1,000 Gallons Cost per gallon: $3.00 per gallon Standard: Fuel allowed: 0.08 gallon per parcel picked up or delivered Cost per gallon: $2.95 per gallon REQUIRED: Calculate the following: 1) Variable overhead variance for fuel 2) Variable overhead price variance for fuel 3) Variable overhead efficiency variance for fuel 4) Actual fuel costs 5) Flexible budget for fuel cost


AP AQ SP AQ SP SQ $3.00 1,000 $2.95 1,000 $2.95 (0.08 8,000) = $3,000 = $2,950 = $1,888 |______$50 U _______|________ $1,062 U_____| 1) Total Variable overhead variance = $ 1,112 U 2) Variable overhead price variance = $ 50 U 3) Variable overhead efficiency variance = $ 1,062 U 4) Actual: $3.00 per gallon 1,000 gallons = $3,000 5) Flexible budget: $2.95 per gallon (.08 8,000) = $1,888

87. JM Company uses standard costing. The company reported the following information for the current period:

Actual overhead incurred $15,000 of which $5,000 is fixed Budgeted fixed overhead $4,800 Variable overhead rate per machine hour $5.00 Standard machine hours allowed for production 1,950 Actual machine hours used 2,200 REQUIRED: Calculate the following variances: 1) Variable overhead price variance 2) Variable overhead efficiency variance 3) Total variable overhead variance 4) Total fixed overhead variance


Variable Overhead Price Variable Overhead Efficiency

AP AQ SP AQ SP SQ Given $5.00

2,200 $5.00 1,950

= $10,000 = $11,000 = $9,750 |______$1,000 F _______|________ $1,250 U_____| 1) Variable overhead price variance = $ 1,000 F 2) Variable overhead efficiency variance = $ 1,250 U 3) Total Variable overhead variance = $ 250 U 4) Actual Fixed overhead $5,000 - budgeted fixed overhead $4,800 = $200 U

88. Hightown Company uses a predetermined overhead rate for applying overhead cost to products. Rates for the current year follow: Variable Overhead Rate: $2.50 per unit Fixed Overhead Rate: $5.00 per unit Actual overhead costs:

Variable Overhead: $275,000 Fixed Overhead: $630,000 The company expected to produce 125,000 units during the year, but only produced 120,000. REQUIRED: 1) Calculate the amount of budgeted fixed overhead costs for the year. 2) Calculate the fixed overhead price (spending) variance. 3) Calculate the fixed overhead production volume variance. 4) Calculate the variable overhead price variance.


1) $5.00 125,000 = $625,000 2) $630,000 - $625,000 = $5,000 U 3) $625,000 - ($5 120,000) = $25,000 U 4) $275,000 - ($2.50 120,000) = $25,000 F

89. Estimating flexible selling expense budget and computing variances. Georgia Peaches estimates the following selling expenses next period:

Salaries (fixed) $ 30,000 Commissions (0.05% of sales revenue) 17,875 Travel (0.03% of sales revenue) 10,725 Advertising (fixed) 60,000 Sales Office Costs ($3,750 plus $0.05 per unit sold) 7,000 Shipping Costs ($0.10 per unit sold) 6,500 Total Selling Expenses $132,100

Required: a. Derive the cost equation (y = a + bx) for selling expenses. (Hint: y = a + bx + cy.) b. Assume that Georgia actually sells 50,000 units during the period at an average price of $6 per u

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Webster BUSN 6070 - Management Accounting