Question 1

A favourable sales volume variance for a substitute product in a multiple-product firm does NOT necessarily imply a favourable sales mix variance for that substitute product.

Accepted Answer

A favourable sales volume variance means that more units of a product were sold than expected, but it says nothing about the proportion of sales compared to other products in the firm. Therefore, a favourable sales volume variance for a substitute product does not necessarily imply a favourable sales mix variance for that substitute product.

Question 2

Because managers want stable unit cost figures,the accountant creates an artificial stability so far as fixed costs are concerned by applying fixed costs to products as if the fixed costs were really variable.

Accepted Answer

Managers typically prefer stable unit cost figures to help with their budgeting and forecasting. However, fixed costs remain constant regardless of the level of production, so the accountant may allocate them to products as if they were variable costs to give the appearance of stability in unit costs. This is an artificial method of achieving stability and not reflective of the true cost behavior of fixed costs.

Question 3

The following materials standards have been established for a particular product:
 $\begin{array}{|l|r|}
\hline \text { Standard quantity per unit of output } & 3.6 \text { metre } \
\hline \text { Standard price } & \$ 10.20 \text { per metre } \
\hline
\end{array}$ 
The following data pertain to operations concerning the product for the last month:
 $\begin{array}{|l|r|}
\hline \text { Actual materials purchased } & 7,100 \text { metres } \
\hline \text { Actual cost of materials purchased } & \$ 68,515 \
\hline \text { Actual materials used in production } & 6,600 \text { metres } \
\hline \text { Actual output } & 1,780 \text { units } \
\hline
\end{array}$ 
Required:
a)What was the materials price variance for the month?
b)What was the materials quantity variance for the month?

Accepted Answer

The answer of The following materials standards have been established...

Question 4

If two products are close substitutes,the sales volume variance for each product can be split into a sales quantity variance and a sales mix variance.

Accepted Answer

When two products are close substitutes, customers may switch between them, causing changes in sales quantities and sales mix. Therefore, the sales volume variance for each product can be split into a sales quantity variance (caused by changes in the number of units sold) and a sales mix variance (caused by changes in the proportion of each product sold).

Question 5

The following materials standards have been established for a particular product:
 $\begin{array}{|l|r|}
\hline \text { Standard quantity per unit of output } & 9.4 \text { kilograms } \
\hline \text { Standard price } & \$ 16.90 \text { per kilograms } \
\hline
\end{array}$ 
The following data pertain to operations concerning the product for the last month:
 $\begin{array}{|l|r|}
\hline \text { Actual materials purchased } & 7,300 \text { kilograms } \
\hline \text { Actual cost of materials purchased } & \$ 116,435 \
\hline \text { Actual materials used in production } & 7,100 \text { kilograms } \
\hline \text { Actual output } & 740 \text { units } \
\hline
\end{array}$ 
Required:
a)What is the materials price variance for the month?
b)What is the materials quantity variance for the month?

Accepted Answer

The answer of The following materials standards have been established...

Question 6

The following materials standards have been established for a particular product:
 $\begin{array}{|l|r|}
\hline \text { Standard quantity per unit of output } & 9.2 \text { grams } \
\hline \text { Standard price } & \$ 14.70 \text { per gram } \
\hline
\end{array}$ 
The following data pertain to operations concerning the product for the last month:
 $\begin{array}{|l|r|}
\hline \text { Actual materials purchased } & 5,500 \text { grams } \
\hline \text { Actual cost of materials purchased } & \$ 76,450 \
\hline \text { Actual materials used in production } & 5,100 \text { grams } \
\hline \text { Actual output } & 540 \text { units } \
\hline
\end{array}$ 
Required:
a)What was the materials price variance for the month?
b)What was the materials quantity variance for the month?

Accepted Answer

The answer of The following materials standards have been established...

Question 7

Direct labour efficiency variance can be analyzed further into mix and yield variances if more than one class of direct labour that are good substitutes is used in operations.

Accepted Answer

Direct labour efficiency variance can be further analyzed into mix and yield variances when more than one class of direct labour that are good substitutes is used in operations. The mix variance arises due to differences in the proportion of the different types of labour used, while the yield variance arises due to differences in the efficiency with which each type of labour is utilized.

Question 8

A favourable sales volume variance for a single-product firm necessarily implies a favourable market share variance.

Accepted Answer

A favourable sales volume variance indicates that a company sold more units than expected, but it does not necessarily mean the company increased its market share. Market share variance depends on the performance of competitors and the overall market size, which can change independently of a single firm's sales volume.

Question 9

If two products are poor substitutes,the calculation of a separate market volume variance and a separate market share variance for each product is NOT useful.

Accepted Answer

Even if two products are poor substitutes, calculating separate market volume variance and market share variance for each can provide valuable insights into how each product is performing in terms of attracting customers and capturing or retaining market share, independent of their substitutability.

Question 10

Capacity analysis is most affected by the presence of variable costs,NOT fixed costs.

Accepted Answer

Capacity analysis is primarily concerned with the maximum output a system can produce, which is more directly influenced by fixed assets and resources (fixed costs) rather than variable costs that fluctuate with production volume.

Question 11

The following labour standards have been established for a particular product:
 $\begin{array}{|l|r|}
\hline \text { Standard labour hours per unit of output } & 2.8 \text { hours } \
\hline \text { Standard labour rate } & \$ 11.50 \text { per hour } \
\hline
\end{array}$ 
The following data pertain to operations concerning the product for the last month:
 $\begin{array}{|l|r|}
\hline \text { Actual hours worked } & 6,900 \text { hours } \
\hline \text { Actual total labour cost } & \$ 80,385 \
\hline \text { Actual output } & 2,300 \text { units } \
\hline
\end{array}$ 
Required:
a)What was the labour rate variance for the month?
b)What was the labour efficiency variance for the month?

Accepted Answer

The answer of The following labour standards have been established...

Question 12

Waste or excessive usage of overhead items will show up as part of the variable overhead efficiency variance.

Accepted Answer

Variable overhead efficiency variance is concerned with the efficiency of using the variable overhead resources, not the waste or excessive usage of overhead items, which would typically affect the variable overhead spending variance.

Question 13

Lido Company's standard and actual costs per unit for the most recent period,during which 400 units were actually produced,are given below:
 $\begin{array}{|l|r|r|}
\hline & \text { Standard } & \text { Actual } \
\hline \text { Materials: } & & \
\hline \text { Standard: } 2 \text { metres at } \$ 1.50 \text { per } \mathrm{m} & \$ 3.00 & \
\hline \text { Actual: } 2.1 \text { metres at } \$ 1.60 \text { per } \mathrm{m} & & \$ 3.36 \
\hline \text { Direct labour: } & & \
\hline \text { Standard: } 1.5 \text { hrs. at } \$ 6.00 \text { per hr. } & 9.00 & \
\hline \text { Actual: } 1.4 \text { hrs. at } \$ 6.50 \text { per hr: } & & 9.10 \\hline \text { Variable overhead: } & & \
\hline \text { Standard: } 1.5 \text { hrs. at } \$ 3.40 \text { per hr. } & 5.10& \
\hline \text { Actual: } 1.4 \text { hrs. at } \$ 3.10 \text { per hr. } & & 4.34 \
\hline \text { Total unit cost } & \$ 17.19 & \$ 16.80 \ \hline
\end{array}$ 
There were no inventory of materials at the beginning or end of the period.
Required:
From the above information,compute the following variances.Show whether the variance is favourable (F)or unfavourable (U):
a)Materials price variance
b)Materials quantity variance
c)Direct labour rate variance
d)Direct labour efficiency variance
e)Variable overhead spending variance
f)Variable overhead efficiency variance

Accepted Answer

The answer of Lido Company's standard and actual costs per...

Question 14

If the denominator activity (in hours)used to compute the predetermined overhead rate is equal to the actual activity (in hours)for the period,then there is no volume variance.

Accepted Answer

The answer of If the denominator activity (in hours)used to...

Question 15

Dodge Company produces a single product.The company has set the following standards for materials and labour:
 $\begin{array}{|l|r|r|}
\hline & \text { Direct Materials } & \text { Direct Labour } \
\hline \text { Standard quantity or hours per unit } & \text { ? kilograms } & \text { 3 hours } \
\hline \text { Standard price or rate } & \text { ? per kilogram } & \text { \$15 per hour } \
\hline \text { Standard cost per unit } & ? & \$ 45 \
\hline
\end{array}$ 
During the past month,the company purchased 7,000 kilograms of direct materials at a cost of $26,250.All of this material was used in the production of 1,300 units of product.Direct labour cost totalled $55,125 for the month.The following variances have been computed:
 $\begin{array}{|l|r|}
\hline \text { Materials price variance } & \$ 1,750 \text { favourable } \
\hline \text { Total materials variance } & \$ 250 \text { unfavourable } \
\hline \text { Labour efficiency variance } & \$ 6,000 \text { favourable } \
\hline
\end{array}$ 
Required:
a)For direct materials,compute the standard price per kilogram,the standard quantity allowed for materials in total for the month's production,and the standard quantity per unit of product.
b)For direct labour,compute the actual direct labour cost per hour for the month and the labour rate variance.

Accepted Answer

The answer of Dodge Company produces a single product.The company...

Question 16

Vernon Mills,Inc.is a large producer of men's and women's clothing.The company uses standard costs for all of its products.The standard costs and actual costs per unit of product for a recent period are given below for one of the company's product lines:
 $\begin{array}{|l|r|r|}
\hline & \text { Standard Cost } & \text { Actual Cost } \
\hline \text { Standard: } 4.0 \text { metres at } \$ 5.40 \text { per metre } & \$ 21.60 & \
\hline \text { Actual: } 4.4 \text { metres at } \$ 5.05 \text { per metre } & & \$ 22.22 \
\hline \text { Direct Labour: } & & \\hline \text { Standard: } 1.6 \text { hours at } \$ 6.75 \text { per hour } & \$ 10.80 & \
\hline \text { Actual: } 1.4 \text { hours at } \$ 7.30 \text { per hour } & & \$ 10.22 \
\hline \text { Variable Overhead: } & & \\hline \text { Standard: } 1.6 \text { hours at } \$ 2.70 \text { per hour } & \$ 4.32 & \
\hline \text { Actual: } 1.4 \text { hours at } \$ 3.25 \text { per hour } & & \$ 4.55 \
\hline \text { Total Cost per Unit } & \$ 36.72 & \$ 36.99 \
\hline
\end{array}$ 
During this period,the company produced 4,800 units of this product.A comparison of standard and actual costs for the period on a total cost basis is given below:
 $\begin{array}{|l|r|}
\hline \text { Actual Costs: } 4,800 \text { units at } \$ 36.99 & \$ 177,552 \
\hline \text { Standard Costs: } 4,800 \text { units at } \$ 36.72 & \$ 176,256 \
\hline \text { Difference in Cost-Unfavourable } & \$ 1,296 \
\hline
\end{array}$ 
There was no inventory of materials on hand at the beginning of the period.During the period,21,120 metres of materials were purchased,all of which were used in production.
Required:
a)(Appendix 10B)For direct materials,compute the price and quantity variances for the period and prepare journal entries to record all activity relating to direct materials for the period.
b)(Appendix 10B)For direct labour,compute the rate and efficiency variances and prepare a journal entry to record the incurrence of direct labour cost for the period.
c)For variable overhead,compute the spending and efficiency variances.

Accepted Answer

The answer of  Vernon Mills,Inc.is a large producer of...

Question 17

The supervisor of the cost department has just conferred with you concerning the variance analysis of direct labour for the month just ended.As she talked,you wrote feverishly,but you weren't able to record all the information she gave you before she dashed off muttering something about "another brush fire to put out." Your efforts are shown below:
 $$\begin{array} { | l | l | l | } 
\hline 4,800 \text { hours *\$7.20 } & \text { hours } \$ \$ & \text { hours } \$ \
\hline \hline & & \
\hline \hline & & \
\hline \hline & & \\hline \hline & & \\hline \hline & & \\hline \hline & & \
\hline
\end{array}$$ 
Efficiency variance
$2,250 U
Total variance,$810 U
Required:
a)To redeem yourself,complete the form above,adding numbers and labels.(The usual notations,AH,SH,AR,SR,etc.,may be used where appropriate.)
b)If you know that 18 minutes of labour is standard per unit of production,how many units were produced?

Accepted Answer

The answer of The supervisor of the cost department has...

Question 18

The Lahn Company produces and sells a single product.Standards have been established for the product as follows:
 $\begin{array}{|l|l|}
\hline \text { Direct Materials } & 5 \mathrm{kgs} @ \$ 3.50 / 1 \mathrm{~b} .=\$ 17.50 / \text { unit } \
\hline \text { Direct Labour } & 3 \mathrm{hrs} @ \$ 5.50 / \mathrm{hr}=\$ 16.50 / \text { unit } \
\hline
\end{array}$ 
Actual cost and usage figures for the past month follow:
 $\begin{array}{|l|r|}
\hline \text { Units Produced } & 750 \
\hline \text { Direct Materials Used } & 4,000 \text { kilograms } \
\hline \text { Direct Materials Purchased } & \$ 14,400(4,500 \mathrm{kgs}) \
\hline \text { Direct Labour Cost } & \$ 11,200(2,000 \mathrm{hrs}) \
\hline
\end{array}$ 
Required:
Prepare journal entries to record:
a)The purchase of raw materials.
b)The usage of raw materials in production.
c)The incurrence of direct labour cost.

Accepted Answer

The answer of  The Lahn Company produces and sells...

Question 19

Albert Manufacturing Company manufactures a single product.The standard cost of one unit of this product is:
 $\begin{array}{|l|r|}
\hline \text { Direct Materials: } 6 \text { metres at } \$ 1.50 & \$ 9.00 \
\hline \text { Direct Labour: } 1 \text { hour at } \$ 6.75 & \$ 6.75 \
\hline \text { Variable Overhead: } 1 \text { hour at } \$ 4.50 & \$ 4.50 \
\hline \text { Total Standard Variable Cost per Unit } & \$ 20.25 \
\hline
\end{array}$ 
During the month of October,6,000 units were produced.Selected cost data relating to the month's production follow:
 $\begin{array}{|l|r|}
\hline \text { Materials Purcahsed: } 60,000 \text { metres at } \$ 1.43 & \$ 85,800 \
\hline \text { Material Used in Production: } 38,000 \text { metres } &  \
\hline \text { Direct Labour: ? hours at } \$ ? \text { per hr } &\$ 41,925\
\hline \text { Variable Overhead Cost Incurred } & \$ 30,713  \
\hline \text { Variable Overhead Efficiency Variance } & \$ 2,250 \text { unfavourable } \
\hline
\end{array}$ 
There was no beginning inventory of raw materials.The variable overhead rate is based on direct labour-hours.
Required:
a)(Appendix 10B)For direct materials,compute the price and quantity variances for the month,and prepare journal entries to record activity for the month.
b)(Appendix 10B)For direct labour,compute the rate and efficiency variances for the month,and prepare a journal entry to record labour activity for the month.
c)For variable overhead,compute the spending variance for the month,and prove the efficiency variance given above.

Accepted Answer

The answer of  Albert Manufacturing Company manufactures a single...

Question 20

If two products are good substitutes,the sales quantity variance for each product can be analyzed further into a market volume variance and a market share variance.

Accepted Answer

The answer of  If two products are good substitutes,the...

Quiz 10: Standard Costs and Overhead Analysis

A favourable sales volume variance for a substitute product in a multiple-product firm does NOT necessarily imply a favourable sales mix variance for that substitute product.

Because managers want stable unit cost figures,the accountant creates an artificial stability so far as fixed costs are concerned by applying fixed costs to products as if the fixed costs were really variable.

If two products are close substitutes,the sales volume variance for each product can be split into a sales quantity variance and a sales mix variance.

Direct labour efficiency variance can be analyzed further into mix and yield variances if more than one class of direct labour that are good substitutes is used in operations.

A favourable sales volume variance for a single-product firm necessarily implies a favourable market share variance.

If two products are poor substitutes,the calculation of a separate market volume variance and a separate market share variance for each product is NOT useful.

Capacity analysis is most affected by the presence of variable costs,NOT fixed costs.

Waste or excessive usage of overhead items will show up as part of the variable overhead efficiency variance.

If the denominator activity (in hours)used to compute the predetermined overhead rate is equal to the actual activity (in hours)for the period,then there is no volume variance.

If two products are good substitutes,the sales quantity variance for each product can be analyzed further into a market volume variance and a market share variance.