68. Refer to the JAX Inc. information above. What was JAX Inc.’s direct materials usage variance for
2012?
a.
$2,800 F
b.
$2,800 U
c.
$2,688 F
d.
$2,688 U
69. Refer to the JAX Inc. information above. What was JAX Inc.’s direct materials price variance for
2012?
a.
$952 F
b.
$952 U
c.
$1,120 F
d.
$1,120 U
70. Refer to the JAX Inc. information above. What was JAX Inc.’s direct labor rate variance for 2012?
a.
$3,360 F
b.
$3,360 U
c.
$3,472 F
d.
$3,472 U
71. Refer to the JAX Inc. information above. What was JAX Inc.’s direct labor efficiency variance for
2012?
a.
$1,120 F
b.
$1,120 U
c.
$1,232 F
d.
$1,232 U
Moreland Manufacturing Inc.
Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the
company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand,
7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of
direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per
minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050
ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per
minute).
72. Refer to the Moreland Manufacturing Inc. information above. Moreland’s direct materials price
variance is:
a.
$1,050.00 F.
b.
$1,050.00 U.
c.
$1,060.50 F.
d.
$1,060.50 U.
73. Refer to the Moreland Manufacturing Inc. information above. Moreland’s direct materials usage
variance is:
a.
$ 420 U.
b.
$ 420 F.
c.
$6,420 U.
d.
$6,420 F.
74. Refer to the Moreland Manufacturing Inc. information above. Moreland’s direct labor rate variance is:
a.
$2,100 F.
b.
$1,800 F.
c.
$1,960 U.
d.
$ 560 U.
75. Refer to the Moreland Manufacturing Inc. information above. Moreland’s direct labor efficiency
variance is:
a.
$1,600 U.
b.
$1,400 F.
c.
$2,100 U.
d.
$2,100 F.
Paw-Paw Products
Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had
expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is
available regarding the standard cost to produce a single dogbed:
Direct materials:
5 yards at $1.50 per yard
Direct labor:
40 minutes at $.20 per minute
In the current year, 44,000 yards of material were purchased and used at a cost of $1.60 per yard and
365,500 direct labor minutes were incurred at a cost of $.23 per minute.
76. Refer to the Paw-Paw Products information above. The company’s direct material price variance for
the current year is:
a.
$4,250 F.
b.
$6,650 U.
c.
$4,400 U.
d.
$3,750 F.
77. Refer to the Paw-Paw Products information above. The company’s direct material usage variance for
the current year is:
a.
$3,750 U.
b.
$2,250 U.
c.
$6,000 U.
d.
$6,650 U.
78. Refer to the Paw-Paw Products information above. The company’s direct labor rate variance for the
current year is:
a.
$ 2,550 F.
b.
$10,200 F.
c.
$10,965 U.
d.
$16,065 U.
79. Refer to the Paw-Paw Products information above. The company’s direct labor efficiency variance for
the current year is:
a.
$ 5,100 U.
b.
$ 9,100 U.
c.
$ 5,865 F.
d.
$20,065 F.
Meow Products Ltd.
Meow Products Ltd. produces and sells scratching posts for cats. In the current year, the company had
expected to sell 12,000 posts but actually produced and sold 10,000 posts. The following information
is available regarding the standard cost to produce a single post:
Direct materials:
3 feet @ 1.75 per foot
Direct labor:
15 minutes @ $.30 per minute
In the current year, 38,000 feet of material were purchased out of which 35,000 feet were used at a cost
of $1.55 per foot, and 160,000 direct labor minutes were incurred at a cost of $.32 per minute.
80. Refer to the Meow Products Ltd. information above. The company’s direct materials price variance
for the current year is:
a.
$2,350 F.
b.
$7,600 F.
c.
$7,000 U.
d.
$4,100 U.
81. Refer to the Meow Products Ltd. information above. The company’s direct materials usage variance
for the current year is:
a.
$14,000 F.
b.
$ 1,750 F.
c.
$ 3,500 U.
d.
$ 8,750 U.
82. Refer to the Meow Products Ltd. information above. The company’s direct labor rate variance for the
current year is:
a.
$ 200 F.
b.
$ 200 U.
c.
$3,200 F.
d.
$3,200 U.
83. Refer to the Meow Products Ltd. information above. The company’s direct labor efficiency variance
for the current year is:
a.
$ 3,000 U.
b.
$ 3,000 F.
c.
$12,000 U.
d.
$12,000 F.
Carlton Corporation
Carlton Corporation produces and sells faux-leather handbags. In the current year, the company
budgeted for the production and sale of 1,000 handbags; however, 900 handbags were actually
produced and sold. Each bag has a standard requiring two yards of material at a cost of $4.00 per yard
and 1 hour of assembly time at a cost of $9.50 per hour. Actual costs for the production of 900 bags
were $7,215 for materials (1,850 yards purchased and used @ $3.90 per yard) and $10,125 for labor
(1,125 hours @ $9.00 per hour).
84. Refer to the Carlton Corporation information above. Carlton‘s direct materials price variance is:
a.
$195 U.
b.
$ 15 U.
c.
$185 F.
d.
$180 F.
85. Refer to the Carlton Corporation information above. Carlton‘s direct materials usage variance is:
a.
$585 U.
b.
$600 U.
c.
$195 F.
d.
$200 U.
86. Refer to the Carlton Corporation information above. Carlton‘s direct labor efficiency variance is:
a.
$ 562.50 F.
b.
$2,137.50 U.
c.
$1,187.50 U.
d.
$2,025.00 F.
87. Refer to the Carlton Corporation information above. Carlton‘s direct labor rate variance is:
a.
$562.50 F.
b.
$562.50 U.
c.
$450.00 F.
d.
$450.00 U.
SHORT ANSWER
1. As a manager, how would you determine the standard price and quantity of materials, labor, and
overhead for a particular product?
2. What is “task analysis” and how is it used in the context of variance analysis?
3. Answer the following questions:
A.
How do ideal and practical standards differ?
B.
As an employee, who is evaluated based upon standards, which would you prefer and
why?
An ideal standard is one that is attainable only in near-perfect conditions, whereas a
4. What is the difference between a static and a flexible budget? Which one is most often used in
variance analysis and why?
5. At the end of the current year, Bowman Products has the following information available comparing
the cost of direct materials on its flexible budget with the actual cost of direct materials:
Actual results
Difference
Direct materials
$30,000
(6,000)
Sally Vincent, the company’s controller, has requested a meeting with Hank Rowland, the operations
manager, asking him to explain why direct materials costs were more than what had been budgeted.
What two kinds of variance analysis should Hank do before his meeting with Sally? What would each
of these variances measure?
6. GEO Inc. has an unfavorable direct materials price variance.
A.
Give two possible reasons for this variance.
B.
Using one of the above reasons, how could this particular variance affect one of the
other variances (ex. direct materials usage, direct labor rate, direct labor efficiency)?
A.
have a problem with its management team and their supervisory skills. Poor management
7. Harkin Ltd. has a $5,000 unfavorable variable overhead spending variance. Give two possible reasons
for this variance.
•
8. Drummel Ltd. has a $7,000 unfavorable variable overhead efficiency variance. Give one possible
reason for this variance.
9. What is “management by exception”? Do you think it represents an efficient use of management time?
Why or why not?
10. At the end of the year, your company had the following variances:
Direct material price variance
$3,000 F
Direct material usage variance
$3,500 U
Direct labor rate variance
$5,200 U
Direct labor efficiency variance
$7,000 U
Give at least one possible cause for each of the variances and discuss the possible relationships
between them.
Possible causes:
Direct material usage
variance (U):
Direct labor rate
variance (U):
11. True or False: Indicate whether each of the following statements is true (T) or false (F).
1.
The sales price variance is computed by comparing the actual sales price to the
flexible budget sales price and multiplying that amount by the actual sales
volume.
2.
The computation for the flexible budget variance can be thought of as taking the
difference between operating income on the static budget and actual operating
income.
3.
Any differences in sales revenue between the flexible budget and actual results
must be attributable to differences in the budgeted sales volume and actual sales
volume.
4.
When the quantity of direct materials purchased and used are not the same, the
direct materials price variance can not be computed.
5.
The direct labor rate variance measures how well employees made efficient use
of their production time.
PROBLEM
1. Jackie makes and sells handmade beaded jewelry. She anticipates selling 150 necklaces in March and
prepared the following static budget as a result:
at 150 units
Direct labor
efficiency variance
(U):
Sales revenue
$6,000
Variable costs:
Direct materials
1,200
Direct labor
1,500
Overhead
450
Fixed costs
750
Net operating income
$2,100
During March, Jackie actually produced and sold 190 necklaces.
Required: Prepare a flexible budget for the month of March.
2. Bayou Barbecue Inc. bottles and sells barbecue sauce. In the current year, the company had expected
to sell 500,000 bottles but actually bottled and sold 600,000 bottles. The standard direct materials cost
for each bottle is $.36 comprised of 12 ounces of material at a cost of $.03 per ounce. During the year,
7,800,000 ounces of material was purchased out of which 7,350,000 ounces were used at a cost of
$.035 per ounce.
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Direct materials price variance
B.
Direct materials usage variance
Direct materials price variance = AQpurchased (AP − SP)
Direct materials price variance = 7,800,000 ($0.035 − 0.03) = $39,000 U
Direct materials usage variance = $.03 (7,350,000 − 7,200,000) = $4,500 U
[($6,000 / 150) 190 units]
Variable costs:
[($1,200 / 150) 190 units]
[($1,500 / 150) 190 units]
[($450 / 150) 190 units]
Fixed costs
750
Net operating income
$2,860
3. Carolina Tile Company manufactures and installs industrial tile flooring. In the current year, the
company had anticipated producing and installing 50,000 tiles but actually produced installed 65,000
tiles. The standard direct materials cost for each square foot of tile is $5.60 comprised of 2.80 pounds
of material at a cost of $2 per pound. During the year, 200,000 pounds of material were purchased out
of which 190,000 pounds were used at a cost of $1.85 per pound.
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Direct materials price variance
B.
Direct materials usage variance
4. Gantt Textiles Inc. incurred actual variable overhead expenses of $50,000 in the current year for the
production of 6,000 units. Variable overhead was applied at a rate of $3.25 per direct labor hour and 2
direct labor hours were budgeted for each unit. The company used 16,000 direct labor hours for
production.
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Variable overhead spending variance
B.
Variable overhead efficiency variance
Variable overhead spending variance = Actual variable overhead − (AH SVR)
Variable overhead spending variance = $50,000 − (16,000 $3.25) = $2,000 F
Variable overhead efficiency variance = $3.25 (16,000 − 12,000) = $13,000 U
Direct materials price variance = AQpurchased (AP − SP)
Direct materials price variance = 200,000 ($1.85 − 2.00) = $30,000 F
Direct materials usage variance = $2.00 (190,000 − 182,000) = $16,000 U
5. Lancaster Ltd. produces a unique item. Lancaster’s management team wishes to perform a variance
analysis on its fixed overhead. Fixed overhead is applied to units produced using direct labor hours as
its cost driver. The company’s managerial accountant has compiled the following information:
Projected data:
Estimated direct labor hours
40,000 hours
Estimated fixed overhead
$90,000
Actual data:
Actual production
300,000 units
Actual direct labor hours used
50,000 hours
Actual fixed overhead
$100,000
Required:
A.
Compute the fixed overhead spending variance.
B.
Compute the fixed overhead volume variance.
6. In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sale of 20,000 units at
a sales price of $25 per unit. The following information is available regarding the standard cost for
each unit:
Direct materials:
$6.00 (3 pounds at $2.00 per lb)
Direct labor:
$3.50 (10 minutes of assembly at $.35 per minute)
Actual results for 2012 were determined to be as follows:
Number of units produced
and sold:
18,000 units
Sales revenue:
$477,000 ($26.5 per unit)
Direct materials cost:
$119,925 (58,500 lbs purchased and used at $2.05 per lb)
Direct labor cost:
$51,300 (171,000 minutes at $.30 per minute)
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Sales price variance
Fixed overhead spending variance = Actual fixed overhead − Budgeted fixed overhead
Fixed overhead spending variance = $100,000 − 90,000 = $10,000 U
Fixed overhead volume variance = Budgeted fixed overhead − Applied fixed overhead
where applied fixed overhead is equal to $2.25 50,000 hours = $112,500
when the application rate is $2.25 ($90,000 / 40,000 hours)
Fixed overhead volume variance = $90,000 − 112,500 = $22,500
B.
Direct materials price variance
C.
Direct materials usage variance
D.
Direct labor rate variance
E.
Direct labor efficiency variance
7. Kincaid Ltd. produces and sells leather wallets. In the current year, the company budgeted for the
production and sale of 18,000 wallets; however, 21,000 wallets were actually produced and sold. Each
wallet has a standard requiring eight square inches of material at a cost of .20 per inch and ten minutes
of assembly time at a cost of $.15 per minute. Actual costs for the production of 21,000 wallets were
$36,080 for materials (164,000 inches purchased and used @ $.22 per inch) and $36,000 for labor
(225,000 minutes @ $.16 per minute).
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Direct materials price variance
B.
Direct materials usage variance
C.
Direct labor rate variance
D.
Direct labor efficiency variance
Direct materials price variance = AQ (AP − SP)
Direct materials price variance = 164,000 ($0.22 − 0.20) = $3,280 U
Sales price variance = (Actual − Expected sales price) Actual volume
Sales price variance = ($26.50 − 25) 18,000 = $27,000 F
Direct materials price variance = AQ (AP − SP)
Direct materials price variance = 58,500 ($2.05 − 2.00) = $2,925 U
Direct materials usage variance = SP (AQ − SQ) where SQ = 18,000 3 lbs = 54,000 lbs
Direct materials usage variance = $2.00 (58,500 −54,000) = $9,000 U
Direct labor rate variance = AH (AR − SR)
Direct labor rate variance = 171,000 ($0.30 − 0.35) = $8,550 F
Direct labor efficiency variance = $0.35 (171,000 − 180,000) = $3,150 F
8. Gemma Products produces and sells a variety of domestic goods including sheets. In the current year,
the company budgeted for the production and sale of 10,000 sets; however, 12,000 sets were actually
produced and sold. Each set has a standard requiring 10 yards of material at a cost of $1.10 per yard
and 20 minutes of direct labor (for sewing, assembly, and inspection) at a cost of $.20 per minute.
Actual costs for the production of 12,000 sets were $138,240 for materials (128,000 yards purchased
and used @ $1.08 per yard) and $55,200 for labor (230,000 minutes @ $.24 per minute).
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Direct materials price variance
B.
Direct materials usage variance
C.
Direct labor rate variance
D.
Direct labor efficiency variance
Direct materials price variance = AQ (AP − SP)
Direct materials price variance = 128,000 ($1.08 − 1.10) = $2,560 F
Direct materials usage variance = $1.10 (128,000 − 120,000) = $8,800 U
Direct labor rate variance = AH (AR − SR)
Direct labor rate variance = 230,000 ($0.24 − 0.20) = $9,200 U
240,000 min
Direct labor efficiency variance = $0.20 (230,000 − 240,000) = $2,000 F
Direct materials usage variance = $0.20 (164,000 − 168,000) = $800 F
Direct labor rate variance = AH (AR − SR)
Direct labor rate variance = 225,000 ($0.16 − 0.15) = $2,250 U
Direct labor efficiency variance = $0.15 (225,000 − 210,000) = $2,250 U
9. Henninger’s Nursery sells a variety of plants. Henninger sells most of its plants to local landscapers in
the community. These plants come in “flats” containing 12 plants each. In May of the current year,
Henninger had expected to sell 900 flats of petunias but produced and sold 940 flats instead. The
company expects each flat to require 25 minutes of labor at a cost of $.15 per minute. In addition,
variable overhead is applied at a rate of $.05 per minute.
Actual costs incurred during May for the production and sale of 940 flats was as follows:
Direct labor
$3,416 (24,400 minutes at $.14 per minute)
Variable overhead
$1,200
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or
unfavorable (U).
A.
Direct labor rate variance
B.
Direct labor efficiency variance
C.
Variable overhead spending variance
D.
Variable overhead efficiency variance
Direct labor rate variance = AH (AR − SR)
Direct labor rate variance = 24,400 ($0.14 − 0.15) = $244 F
Direct labor efficiency variance = $0.15 (24,400 − 23,500) = $135 U
Variable overhead spending variance = Actual variable overhead − (AH SVR)
Variable overhead spending variance = $1,200 − (24,400 $0.05) = $20 F
23,500 min
Variable overhead efficiency variance = $0.05 (24,400 − 23,500) = $45 U
10. Unified Products Inc. makes and sells a unique product. At the beginning of the current year, the
company had anticipated selling 10,000 of these units; however, 11,000 units were actually produced
and sold. Below is the company’s static budget as well as actual results for the year:
(static budget)
(actual results)
at 10,000 units
at 11,000 units
Sales revenue
$800,000
$902,000
Variable costs:
Direct materials
90,000
103,400
Direct labor
100,000
121,000
Overhead
50,000
60,500
Contribution margin
$560,000
$617,100
Fixed costs
200,000
210,000
Net operating income
$360,000
$407,100
Required:
A.
Prepare a flexible budget for the year.
B.
Calculate the flexible budget variance for the year. Indicate whether it is favorable or
unfavorable.
C.
Calculate the sales price variance for the year. Indicate whether it is favorable or
unfavorable.
A.
[($800,000/10,000) 11,000]
Variable costs:
[($90,000/10,000) 11,000]
[($100,000/10,000) 11,000]
[($50,000/10,000) 11,000]
Contribution margin
Fixed costs
Net operating income
Flexible budget variance = $416,000 − 407,100 = $8,900 U
Sales price variance = (Actual sales price − Expected sales price) Actual volume
Sales price variance = ($82* − 80**) 11,000 = $22,000 F
* = $902,000/11,000 = $82
** = $880,000/11,000 = $80