Chapter 18 – Standard costing and variance analysis 2: Further aspects
MULTIPLE CHOICE
Figure 18-1
Froelech Company has developed capacity standards. Information is as follows:
Standard cost of the activity capacity acquired
£150,000
Standard cost of the activity capacity used
100,000
Standard cost of the actual activity used
120,000
1. Refer to Figure 18-1. The volume variance is
a.
£20,000 unfavourable.
b.
£30,000 unfavourable.
c.
£50,000 unfavourable.
d.
There is no variance.
2. Refer to Figure 18-1. The unused capacity variance is
a.
£20,000 favourable.
b.
£30,000 favourable.
c.
£50,000 favourable.
d.
There is no variance.
Figure 18-2
Allende Company has developed capacity standards. Information is as follows for a value-added
activity:
Activity capacity acquired
60
Activity capacity used
50
Actual activity usage
30
Standard fixed activity rate
£2,000
3. Refer to Figure 18-2. The unused capacity variance is
a.
£20,000 favourable.
b.
£40,000 favourable.
c.
£60,000 favourable.
d.
There is no variance.
Figure 18-3
Pippen Company’s activity-based performance report revealed that actual inspection costs totaled
£100,000 at an actual activity level of 50 inspections. Further analysis of inspection costs revealed the
following:
Actual Cost
Inspection costs:
Fixed
£30,000
Variable
20,000
Fixed inspection costs consist of the salaries of two inspectors, who are paid £14,250. Each inspector
is capable of efficiently conducting inspections of 30 batches.
Variable inspection costs consist of materials used during the inspections.
4. Refer to Figure 18-3. The volume variance is
a.
£26,250 U.
b.
£26,250 F.
c.
£28,500 U.
d.
£28,500 F.
5. Refer to Figure 18-3. The fixed spending variance is
a.
£1,500 U.
b.
£1,500 F.
c.
£2,100 U.
d.
£2,100 F.
6. When should variances be investigated?
a.
when they fall out of the accepted range or the control limit
b.
when the variances are unfavourable
c.
when the variances are over £10,000
d.
All variances should be investigated.
7. Laune Co.’s standard cost is £200,000, and its allowable deviation is £20,000. Laune’s upper and lower
control limits are
a.
£220,000 and £200,000.
b.
£200,000 and £180,000.
c.
£220,000 and £180,000.
d.
£210,000 and £190,000.
8. Roberts Company uses a standard costing system. The following information pertains to direct
materials for the month of July:
Standard price per lb.
£18.00
Actual purchase price per lb.
£16.50
Quantity purchased
3,100 lbs.
Quantity used
2,950 lbs.
Standard quantity allowed for actual output
3,000 lbs.
Actual output
1,000 units
Roberts Company reports its material price variances at the time of purchase.
What is the journal entry to record material purchases?
a.
Materials 55,800
Accounts Payable 55,800
b.
Accounts Payable 55,800
Materials 55,800
c.
Materials 55,800
Materials Price Variance 4,650
Accounts Payable 51,150
d.
Materials 51,150
Materials Price Variance 4,650
Accounts Payable 55,800
Figure 18-4
Regis Ltd. uses two materials in the production of its product. The materials, X and Y, have the
following standards:
Standard Mix
3,500 units
1,500 units
4,000 units
During April, the following actual production information was provided:
Material
Actual Mix
X
30,000 units
Y
20,000 units
Yield
36,000 units
9. Refer to Figure 18-4. What is the materials usage variance?
a.
£10,000 (U)
b.
£ 8,000 (U)
c.
£ 8,000 (F)
d.
£18,000 (U)
10. Refer to Figure 18-4. What is the materials mix variance?
a.
£5,000 (F)
b.
£10,000 (U)
c.
£10,000 (F)
d.
£15,000 (F)
_15,000
= £10,000 (U) + £8,000 (U) = £18,000 (U)
(AQ – SM)SP
_15,000
11. Refer to Figure 18-4. What is the materials yield variance?
a.
£4,000 (F)
b.
£8,000 (F)
c.
£8,000 (U)
d.
£9,000 (U)
PROBLEM
1. Davis Industries’ activity-based performance report revealed that actual inspection costs totaled
£225,000 at an actual activity level of 80 inspections. Further analysis of inspection costs revealed the
following:
Actual Cost
Budgeted Cost
Inspection costs:
Fixed
£90,000
£84,000
Variable
60,000
56,000
Fixed inspection costs consist of the salaries of four inspectors, paid £21,000 each. Each inspector is
capable of efficiently conducting inspections of 50 batches. Variable inspection costs consist of
materials used during the inspections.
Required:
a.
Calculate the following fixed activity budget variances for inspection:
Total fixed activity variance
Fixed spending variance
Volume variance
Unused capacity variance
b.
Calculate the following variable activity budget variances for inspection:
Spending variance
Efficiency variance
a.
Total fixed activity variance = £90,000 unfavourable
Fixed spending variance = £6,000 unfavourable
Volume variance = £84,000 unfavourable
Unused capacity variance = £16,800 favourable
Supporting calculations:
SP = £84,000/(50 4) = £420 per inspection
AQ = 50 4 = 200 inspections
2. Jann Industries’ activity-based performance report revealed that actual inspection costs totaled
£255,000 at an actual activity level of 150 inspections. Further analysis of inspection costs revealed the
following:
Actual Cost
Budgeted Cost
Inspection Costs:
Fixed
£175,000
£175,000
Variable
80,000
75,000
Fixed inspection costs consist of the salaries of five inspectors, paid £35,000 each. Each inspector is
capable of efficiently conducting inspections of 40 batches. Variable inspection costs consist of
materials used during the inspections.
Required:
Calculate the activity volume variance and unused capacity variance for the inspections.
3. Pine Industries’ activity-based performance report revealed that actual inspection costs totaled
£203,500 at an actual activity level of 350 inspections. Further analysis of inspection costs revealed
the following:
Actual Cost
Budgeted Cost
Inspection Costs:
Fixed
£130,000
£120,000
Variable
73,500
70,000
Fixed inspection costs consist of the salaries of five inspectors, paid £24,000 each. Each inspector is
capable of efficiently conducting inspections of 80 batches. Variable inspection costs consist of
materials used during the inspections.
Required:
Calculate the activity volume variance and unused capacity variance for the inspections.
4. Senocot Ltd. uses two different types of labour to manufacture its product. The types of labour,
Assembly and Finishing, have the following standards:
Labour Type
Standard Unit Price
Standard Cost
Assembly
£12.00 per unit
£9,600
Finishing
8.00 per unit
£1,600
Yield
During January, the following actual production information was provided:
Labour Type
Assembly
Finishing
3,000 units
Yield
45,000 units
Required:
Calculate the labour efficiency and mix and yield variances.
5. Dubuque Company uses three materials in the production of their product. The materials, A, B, and C,
have the following standards:
Standard Mix
5,000 units
3,000 units
2,000 units
Yield
9,000 units
During April, the following actual production information was provided:
Material
Actual Mix
A
40,000 units
B
20,000 units
C
10,000 units
Yield 60,000 units
Required:
Calculate the materials usage, mix, and yield variances.
Labour Type
Assembly
= Mix variance + Yield variance
= £4,000 (F) + £11,200 (U) = £7,200 (U)
ESSAY
1. When should a variance be investigated?