5. Cost Acct and Performance Measurement

Question 1

After using standard cost variance analysis there is an unfavorable labor efficiency variance of $8,000. Which of the following is the cause?

• The new labor contract increased wages.
• The maintenance of machinery has been inadequate for the last few months.
• The department manager has chosen to use highly skilled workers.
• The quality of raw materials has improved greatly.

Answer 1

The maintenance of machinery has been inadequate for the last few months.
An unfavorable labor efficiency variance reflects the use of a greater quantity of labor hours than planned. This can be caused by inadequate machine maintenance, which results in equipment not running as fast or as smoothly, increasing labor time. This can also cause machines to create defective units in some cases, which may require additional time for rework.

Question 2

What is the standard direct labor cost per unit?
Time to make one unit: 2 DL hrs
# Direct workers: 50
# hours per week, per worker: 40
Weekly wages per worker: $500
Workers’ benefits (as DL cost): 20% of wages

Answer 2

$30/unit
The stnd DL cost per unit is the product of the standard wage rate per hour used for DL computations, and the standard quantity of hours per unit. This firm includes benefits in the wage rate used for DL application:
Stnd DL cost per unit = ($500)(1.2)/40 hours) = $30
The 1.2 factor above is the effect of including the employee benefits (at 20% of wages) in DL.

Question 3

For the current period production levels, A Co, budgeted 8,500 board feet of production and used 9,000 board feet for actual production. Material cost was budgeted at $2 per foot. The actual cost for the period was $3 per foot. What was the material efficiency variance?

• $1,000 favorable.
• $1,000 unfavorable.
• $1,500 favorable.
• $1,500 unfavorable.

Answer 3

-$1,000 unfavorable
A direct efficiency variance is the difference between the actual quantity and the standard quantity allowed multiplied by the standard price. [(AQ - SQ) x SP]
[9000-8500) x 2]. The variance is unfavorable because the actual quantity is greater than expected based on the standard.

Question 4

Est demand for prod A= 10,000 bottles, B= 30,000 bottles
Est sales price per bottle A= $6.00, B = $8.00
Actual demand for prod A= 8,000 bottles, B= 33,000 bottles.
Actual price per bottle A= $6.20, B = $7.70
What amount would be the total selling price variance for the winery? ($/fav\unfav)

Answer 4

$8,300 unfavorable.
The total selling price variance is determined by taking the difference between the actual and est selling prices for each product and multiplying the diff by the actual sales vol for the product.
Product A price variance = ($6.20 – $6.00) * 8,000 = $1,600 Favorable
Product B price variance = ($7.70 – $8.00) & 33,000 = $9,900 Unfavorable
Total price variance = $1,600 Favorable + $9,900 Unfavorable = $8,300 Unfavorable

Question 5

Actual quantity purchased= 6,500 lbs.
Stnd quantity allowed= 6,000 lbs.
Actual price= $3.80
Stnd price= $4.00
Whats the direct material quantity variance for the product?
$2,000 favorable.
$1,900 favorable.
$1,900 unfavorable.
$2,000 unfavorable.

Answer 5

$2,000 unfavorable.
Quantity variances are calculated as the actual quantity less standard quantity, multiplied by standard price: (AQ – SQ) SP. Thus, (6,500 lbs. – 6,000 lbs.) $4.00 = $2,000. The variance is unfavorable since actual quantity required of 6,500 lbs. was more than the planned level of 6,000 lbs.

Question 6

FOH Manufacturing Costs

Answer 6

4+3=SEVen
Actual, FBE @ Actual, FBE @ std, Applied (4)
break down to Spend, Efficient, Volume (3)
SEV:
Spending: fixed, variable
Efficiency: var
Volume: fixed

Question 7

Variance Analysis: SAD

Answer 7

SAD: Standard - Actual = Difference (+ good)

Question 8

DM Variance Analysis EQs, use SAD

Answer 8

1) DMPriceV: AQ(SP - AP)
[can control Q so AQ], [purchasing]
2) DMUse\QuantityVar: SP(SQ- SA)
[factory can't control price ppl pay] or [$=S] and remember QU so Quantity is same as Usage, [production]
S is standard, A is actual

Question 9

DL Variance Analysis EQs, use SAD

Answer 9

1) DLRateV: AH(SR - AR)
[can control hours worked so AH), [personnel]
2) DLEfficV: SR(SH-AH)
[can’t control pay rate as a factory mngr], [production]

Question 10

SQ x SH

Answer 10

SQ x SH is standard allowed for actual production
Ex) Budget: 50k units x 2 hrs = 100k DL hrs
Actual: 48k units x 2.02 hrs = 97k DL hrs
So looks like you saved time but in reality you produced less units in that time, this is what SAFAP shows.
SAFAP: 48k x 2 hrs = 96k DL hrs (so you’re less efficient)

Question 11

DM/DL Var Analysis EQ hints

Answer 11

1) DMPriceV: AQ(SP - AP)
2) DMUse\QuantityVar: SP(SQ- SA)
3) DLRateV: AH(SR - AR)
4) DLEfficV: SR(SH-AH)
For multiplication variable:
USE = Usage, Efficiency Variances use Standard Allowed
Also use Std Allowed if you can’t control
PAR = Price, Rate Variances use Actual
Also use Actual for things you can control

Question 12

A Co had an unfavorable materials usage variance of $900. What dept should this be allocated to?

• Manufacturing
• Purchasing
• Warehousing
• All 3 evenly

Answer 12

-Manufacturing

SP(SQ-AQ), used too much material in production

Question 13

Standard= 4 meters/unit, $2.50/meter
Actual = 4,200 meters at $10,080 for 1,000 units produced
What is the material price variance? ($, fav/unfav)

Answer 13

$420 favorable
Std Allowed = 4000m (4x1000)
AP = $10,080 / 4200 = $2.40/m
AQ(SP-AP) = 4200(2.5-2.4)

Question 14

Which of the following standard cost variances is least controllable by a production supervisor?

• Overhead volume
• Overhead efficiency
• Labor efficiency
• Material usage

Answer 14

-Overhead volume

Least controllable because fixed OH costs, can’t control

Question 15

Under the 2-variance method, which variances consists of both variable and fixed OH elements?

• Budget Variance
• Budget Variance and Volume Variance
• Volume Variance
• Neither

Answer 15

-Budget Variance

Budget has fixed and variable. Volume has all fixed

Question 16

Std DManuf Labor hrs/unit = 2
Actual Dmanuf labor hrs= 10,500
# of units = 5,000
Std var OH per std DManuf labor hour= $3
Actual Var OH= $28,000
Unfavorable Var OH efficiency was? ($)

Answer 16

($1500)
Start with actual: 28k / 10,500 = $2.66
Then FBE@Std: (3 x [5000 x 2]) = $30k
After do FBE@actual: (3 x 10500) = 31500
The FBE vs FBE is our efficiency variance:
$30000-31500 = (1500)

Question 17

Job Order vs Process Costing

Answer 17

Job order- heterogeneous, expensive goods

Process Costing- homogeneous, similar/inexpensive goods

Question 18

Process Costing: Valuing: Weighted Avg vs FIFO

Answer 18

Weighted: for continuous production (beg + started)
FIFO: more for batches (beginning first, then started)

Question 19

Process Costing: Weighted Avg

Answer 19

WA cost per unit = total cost of output / equiv # of units of output
(basically beg + started)

Question 20

Process Costing: FIFO

Answer 20

FIFO cost per unit= Costs incurred this period / Units worked on this period
(beginning first, then started)

Question 21

Process Costing - Weighted Avg

Answer 21

Beg Units (x % complete) = Cost
+Started in period
=Units accounted for

Completed (x 100%= Equiv Units)
\+Spoilage
\+End (x % complete= Equiv Units)
=Units to account for
Both end unit things should be equal.  Do the math as units and then as costs (with % multiply calc)

Question 22

In a process costing system, the application of FOH usually would be recorded as an increase in:

• Finished goods inv control
• FOH control
• COGS
• WIP inv control

Answer 22

-WIP inv control

Question 23

In computing the current period manuf costs per equiv unit, the FIFO method considers current period costs:

• Only
• Plus beg WIP inv
• Less beg WIP inv
• Plus ending WIP inv

Answer 23

Current period only
For cost per unit! so this is the numerator of your division for cost per unit
W/A uses current plus beg

Question 24

Joint Cost allocation - Relative sales value at split off

Answer 24

You can sell for $8 if you add $3 past split off, back in its worth $5 at split off (sales val @ split off). Then sum all SV@SO numbers and divide the SV@SO over the summed amount. Multiply that fraction times joint costs for the amt of joint costs allocated to the prod

Question 25

K, 1000 units, $50k mkt value, $10k cost after split
W, 1500 units, $40k mkt value, $5k cost after split
Z, 500 units, $7k mkt value, $3k cost after split
$54,000 is the total joint cost. NRV of Z (byproduct) is subtracted from joint prod cost If NRV method is used for allocating joint cost how much should go to K?

Answer 25

$26,666
Z: 7-3=4 = 54-4 = 50
K: 50-10=40 /75 = 53.33% x 50k = $26,667
W: 40-5=35 /75 = 46.66% x 50k = $23,333

Question 26

You are allocating joint costs of P and Q. If the mkt value of P at split off increases and all other costs and selling prices remain equal, the gross margins:

• GM P up, GM Q down
• GM P down, GM Q up
• GM P down, GM Q down
• GM P up, GM Q up

Answer 26

-GM P down, GM Q up
ex) if both were $40 at split, it’d be 50% each (40 / 80)
But P goes up to $60, so it raises total to 100 from 80. This makes 60/100 (P) and 40/100 (Q). So P goes up in COST! this reduces Gross margin!