Question 1

Which of the following is a possible cause for an unfavorable labor rate variance?

Accepted Answer

An unfavorable labor rate variance occurs when the actual labor rate is higher than the standard rate. This can happen if there is an unexpected increase in demand causing the workforce to work overtime, which typically involves higher pay rates.

Question 2

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
 $\begin{array}{lcccc}
&&\text { Standard} & \text { Actual } & \text { Actual } \
&&\text { Quantity }\
\text { Activity } & \text { Standard Rate } & 
\text { per Unit } & \text { Costs } & \text { Quantity } \
&&\text { Produced }\
\hline 
\text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \
\text { orders }\

\text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per }  & \$ 28,000&2,000 \text { test } \
&\text { minute }&\text { unit }&&\text { minutes }\
 \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \
&\text{labor hour}&&&\text{labor hour}
\end{array}$ 
-Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the purchase order activity?

Accepted Answer

The answer of Exhibit 10-5
Catalina Company uses activity-based costing to...

Question 3

Exhibit 10-4
Zingler Inc.applies variable manufacturing overhead at a standard rate of $9 per direct labor hour.The standard quantity of direct labor is 4 hours per unit.Variable overhead costs totaled $90,000 for the month of December.A total of 15,000 direct labor hours were worked during December to produce 4,000 units.
-Refer to Exhibit 10-4.Based on this information,what is the variable overhead spending variance?

Accepted Answer

The answer of Exhibit 10-4
Zingler Inc.applies variable manufacturing overhead at...

Question 4

Which of the following could be indicated by the fixed overhead production volume variance?

Accepted Answer

The fixed overhead production volume variance measures the difference between the actual overhead incurred and the budgeted overhead for the level of production achieved. Therefore, the quantity of units produced being different than expected would be reflected in this variance. Choices A, B, and C are not related to fixed overhead production volume variance.

Question 5

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
 $\begin{array}{lcccc}
&&\text { Standard} & \text { Actual } & \text { Actual } \
&&\text { Quantity }\
\text { Activity } & \text { Standard Rate } & 
\text { per Unit } & \text { Costs } & \text { Quantity } \
&&\text { Produced }\
\hline 
\text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \
\text { orders }\

\text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per }  & \$ 28,000&2,000 \text { test } \
&\text { minute }&\text { unit }&&\text { minutes }\
 \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \
&\text{labor hour}&&&\text{labor hour}
\end{array}$ 
-Refer to Exhibit 10-5.What is the variable overhead spending variance for the product testing activity?

Accepted Answer

Variable overhead spending variance = Actual variable overhead cost incurred - (Actual units of cost driver x budgeted variable overhead rate per unit of cost driver)
For product testing activity,
Actual variable overhead cost incurred = $89,000
Actual units of cost driver = 1,000 tests
Budgeted variable overhead rate per unit of cost driver = $80
Variable overhead spending variance = 89,000 - (1,000 x 97) = $8,000 unfavorable

Question 6

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
 $\begin{array}{lcccc}
&&\text { Standard} & \text { Actual } & \text { Actual } \
&&\text { Quantity }\
\text { Activity } & \text { Standard Rate } & 
\text { per Unit } & \text { Costs } & \text { Quantity } \
&&\text { Produced }\
\hline 
\text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \
\text { orders }\

\text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per }  & \$ 28,000&2,000 \text { test } \
&\text { minute }&\text { unit }&&\text { minutes }\
 \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \
&\text{labor hour}&&&\text{labor hour}
\end{array}$ 
-Refer to Exhibit 10-5.What is the variable overhead spending variance for the indirect labor activity?

Accepted Answer

The variable overhead spending variance is calculated as actual cost incurred minus budgeted cost based on the actual activity level. For the indirect labor activity, the actual cost incurred was $56,000 and the budgeted cost based on the actual activity level was $44,000 (1,800 units x 2 hours per unit x $12 per hour). Therefore, the variable overhead spending variance is $56,000 - $44,000 = $12,000 unfavorable.

Question 7

Which of the following is true about managers who adhere to the concept of "management by exception"?

Accepted Answer

Management by exception is a management style where managers only investigate variances that are significant, meaning they deviate from expected performance by a notable amount. This approach allows managers to focus their time and resources on addressing the most impactful issues.

Question 8

Which of the following is true about "management by exception"?

Accepted Answer

"Management by exception" is a management approach in which managers focus on investigating and addressing significant deviations from expected results or standards. Variance analysis is a tool commonly used in this approach to identify and analyze significant deviations. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect statements.

Question 9

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
 $\begin{array}{lcccc}
&&\text { Standard} & \text { Actual } & \text { Actual } \
&&\text { Quantity }\
\text { Activity } & \text { Standard Rate } & 
\text { per Unit } & \text { Costs } & \text { Quantity } \
&&\text { Produced }\
\hline 
\text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \
\text { orders }\

\text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per }  & \$ 28,000&2,000 \text { test } \
&\text { minute }&\text { unit }&&\text { minutes }\
 \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \
&\text{labor hour}&&&\text{labor hour}
\end{array}$ 
-Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the indirect labor activity?

Accepted Answer

The variable overhead efficiency variance for the indirect labor activity is $16,000 favorable. This is because the actual quantity of direct labor hours used was less than the standard quantity, which means that the company was more efficient in using direct labor than it had planned.

Question 10

Which of the following is most likely to cause an unfavorable direct materials quantity variance?

Accepted Answer

Using low quality materials is likely to result in increased waste of materials, which would lead to an unfavorable direct materials quantity variance.

Question 11

Colfax Company incurred production labor costs of $5,400 in February (payable in March)for work requiring 1,100 standard hours at a standard rate of $15 per hour;1,200 actual direct labor hours were worked.Based on this information,which one of the following would be included in the journal entry to record the labor costs?

Accepted Answer

The labor costs incurred are $5,400 for 1,100 standard hours, which gives a standard rate of $5 per hour ($5,400/1,100). However, 1,200 actual hours were worked, so the total labor cost is $7,200 (1,200 actual hours x $6 standard rate). This labor cost is payable in March and should be recorded with a credit to Wages Payable. Therefore, the correct choice is C, $16,200 credit to Wages Payable. The other options are not relevant to this scenario.

Question 12

If an analysis shows an unfavorable labor rate variance of $18,000 and a favorable labor efficiency variance of $10,000,the entry to record the cost of direct labor and related variances would include:

Accepted Answer

An unfavorable labor rate variance means that the actual labor rate was higher than expected, leading to an additional cost. This is recorded as a debit to Labor Rate Variance for $18,000, reflecting the increased expense.

Question 13

Exhibit 10-3
Glenbrook Inc.has the following standard costs the one product the company produces.
Direct Materials (2 pounds at $18.00 per pound)= $36.00 per unit
Direct Labor (0.6 hours at $48.00 per hour)= $28.80 per unit
During March,Glenbrook produced 2,000 units,bought and used 4,200 pounds of direct materials at $19.20 per pound,and used 1,100 hours of labor at a total cost of $56,100.
-Refer to Exhibit 10-3.Based on this information,what is the direct labor efficiency variance?

Accepted Answer

The direct labor efficiency variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. Standard hours for 2,000 units = 2,000 x 0.6 = 1,200 hours. Actual hours = 1,100. Standard rate = $48. Efficiency variance = (1,100 - 1,200) x $48 = -100 x $48 = $4,800 favorable.

Question 14

Exhibit 10-4
Zingler Inc.applies variable manufacturing overhead at a standard rate of $9 per direct labor hour.The standard quantity of direct labor is 4 hours per unit.Variable overhead costs totaled $90,000 for the month of December.A total of 15,000 direct labor hours were worked during December to produce 4,000 units.
-Refer to Exhibit 10-4.Based on this information,what is the variable overhead efficiency variance?

Accepted Answer

The variable overhead efficiency variance is calculated as (Actual hours - Standard hours) x Standard rate. Standard hours for 4,000 units is 4,000 units x 4 hours/unit = 16,000 hours. The variance is (15,000 - 16,000) x $9 = -1,000 x $9 = $9,000 favorable.

Question 15

If Ever Green Corporation has an unfavorable fixed overhead spending variance,which of the following would most likely be the reason for this variance?

Accepted Answer

An unfavorable fixed overhead spending variance means that the actual fixed overhead cost was greater than the budgeted or predicted fixed overhead cost. Therefore, choice C, actual fixed overhead was more than predicted, would be the most likely reason for this variance.

Question 16

If an analysis shows an unfavorable materials price variance of $22,000,the journal entry to record the purchase of direct materials and the related price variance would include:

Accepted Answer

The journal entry to record the purchase of direct materials and the related price variance would include a debit to the Materials Inventory account for the actual cost of the materials purchased and a debit to the Materials Price Variance account for the unfavorable variance. Therefore, the correct choice is option B, which suggests a debit for $22,000 to Materials Price Variance. None of the other options would correctly record the materials price variance.

Question 17

Which of the following would most likely be the reason for an unfavorable labor efficiency variance?

Accepted Answer

Using lower skilled workers than anticipated may result in a higher number of hours to complete the same amount of work, leading to an unfavorable labor efficiency variance.

Question 18

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
 $\begin{array}{lcccc}
&&\text { Standard} & \text { Actual } & \text { Actual } \
&&\text { Quantity }\
\text { Activity } & \text { Standard Rate } & 
\text { per Unit } & \text { Costs } & \text { Quantity } \
&&\text { Produced }\
\hline 
\text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \
\text { orders }\

\text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per }  & \$ 28,000&2,000 \text { test } \
&\text { minute }&\text { unit }&&\text { minutes }\
 \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \
&\text{labor hour}&&&\text{labor hour}
\end{array}$ 
-Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the product testing activity?

Accepted Answer

The variable overhead efficiency variance measures the difference between the actual hours of activity used and the standard hours allowed for the actual level of output. The standard hours for product testing activity is 50 hours per 600 units, or 75 hours for 900 units produced. However, actual hours used is 100 hours for 1,800 units produced. Therefore, the efficiency variance is: 
Standard hours = 75 hours
Actual hours = 100 hours 
Rate = $40 per hour 
Efficiency variance = (Standard hours - Actual hours) x Rate 
= (75 - 100) x $40 
= $3,800 unfavorable.

Question 19

Exhibit 10-3
Glenbrook Inc.has the following standard costs the one product the company produces.
Direct Materials (2 pounds at $18.00 per pound)= $36.00 per unit
Direct Labor (0.6 hours at $48.00 per hour)= $28.80 per unit
During March,Glenbrook produced 2,000 units,bought and used 4,200 pounds of direct materials at $19.20 per pound,and used 1,100 hours of labor at a total cost of $56,100.
-Refer to Exhibit 10-3.Based on this information,what is the direct labor rate variance?

Accepted Answer

- The actual hours of labor used = 1,100 hours
- The actual cost of labor = $56,100
- The actual rate of labor = Actual cost of labor / Actual hours of labor = $56,100 / 1,100 = $51 per hour
- The standard rate of labor = $48 per hour
- Direct labor rate variance = (Actual rate - Standard rate) x Actual hours of labor
- Direct labor rate variance = ($51 - $48) x 1,100 = $3,300 unfavorable. 
Therefore, the answer is D) $3,300 unfavorable.

Question 20

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
 $\begin{array}{lcccc}
&&\text { Standard} & \text { Actual } & \text { Actual } \
&&\text { Quantity }\
\text { Activity } & \text { Standard Rate } & 
\text { per Unit } & \text { Costs } & \text { Quantity } \
&&\text { Produced }\
\hline 
\text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \
\text { orders }\

\text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per }  & \$ 28,000&2,000 \text { test } \
&\text { minute }&\text { unit }&&\text { minutes }\
 \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \
&\text{labor hour}&&&\text{labor hour}
\end{array}$ 
-Refer to Exhibit 10-5.What is the variable overhead spending variance for the purchase order activity?

Accepted Answer

The variable overhead spending variance for the purchase order activity is $2,000 favorable. This is because the actual costs for the purchase order activity were $78,000, which is $2,000 less than the standard costs of $80,000.

Quiz 10: How Do Managers Evaluate Performance Using Cost Variance Analysis