Grüning additional Exercises (KLAUSUR!!!)

Question 1

How do you calculate standard cost per unit in variance analysis?

Answer 1

(Total Direct Material Cost + Total Direct Labour Costs + Total production overhead [variable + fixed]) / units

Question 2

Calculate Material price variance

Answer 2

(standard/budgeted price – actual price) x actual quantity

Question 3

Calculate Material quantity variance

Answer 3

(standard quantity – actual quantity) x standard price

Question 4

Calculate Total direct material variance

Answer 4

• standard costs – actual costs

* material price variance + material quantity variance

Question 5

Calculate Wage rate variance

Answer 5

(standard/budget rate – actual rate) x actual hours

Question 6

Calculate Labour rate efficiency Variance

Answer 6

(standard/budget hours – actual hours) x standard/budget rate

Question 7

Calculate Total Labour Variance

Answer 7

• standard costs – actual costs

* wage rate variance + labour efficiency variance

Question 8

Calculate Variable overhead expenditure variance

Answer 8

(actual hour x standard/budget rate) – actual cost

budget rate= Production overhead / (budget production volume * budget hrs per unit)

Question 9

Calculate Variable overhead efficiency variance

Answer 9

(standard/budget hours – actual hours) · standard/budget rate

budget rate= Production overhead / (budget production volume * budget hrs per unit)

Question 10

Calculate Total variable overhead variance

Answer 10

• standard/budget costs – actual costs

* variable overhead expenditure variance + variable overhead efficiency variance

Question 11

Calculate Fixed overhead expenditure variance

Answer 11

• budgeted fixed overhead – actual fixed overhead

Question 12

Calculate Total sales margin variance

Answer 12

(actual contribution – budgeted contribution)

Question 13

Calculate Sales margin price variance

Answer 13

(actual price – standard/budget price) x actual volume

Question 14

Calculate sales margin volume variance

Answer 14

(actual sales volume – budgeted sales volume) · standard/budgeted unit contribution margin

Question 15

Calculate Cost per Unit Output acc. to process costing

Answer 15

Total Cost for the period / Output of the period

Total Costs = (Total direct costs + total indirect costs [overhead x % of the product to other products] - scrap value of normal losses)

Question 16

Calculate Cost of abnormal losses for process X

Answer 16

Actual Output - Budgeted Output - normal loss = amount of abnormal loss

Cost of normal loss = Amount of abnormal loss x Cost per Output

Question 17

Calculate the cost per unit for each product using conventional methods

Answer 17

Cost per Unit = (direct labour * time per unit) + direct materials + (overhead total * multiplicator)

Question 18

Calculate the cost per unit for each product using ABC principles

Answer 18

1. Calculate the overhead assignes to cost pools
   a. total all overheads assigned to all products in EUR
   b. multiply total from a by % of cost pool (e.g. 35% for set-up costs)
2. calculate cost driver rates
   a. divide total cost per cost driver with amount of cost driver in total (e.g. 300.000€/500 set-ups=600€/set-up)
3. assign overhead costs to each product
   a. multiply cost per cost driver by amount assigned to one product (600€/set-up x 200 set-ups for product X = 120.000€ for product X)
4. calculate overhead per product
   a. divide total overhead per product by product output (e.g. 120.000€ setup overhead for product X / 1.200 output of product x = 100 €/setup per product X)

Question 19

Comment on the reasons for any differences in the costs in your answers to traditional costing and process costing.

Answer 19

The traditional method allocates overheads in proportion to machine hours to products (4.8% to X, 5.3% to Y and 89.9% to Z). However, when overheads are assigned on the basis of number of set-ups, movements of materials and inspections the proportion of overheads assigned to product Z are 72% (480/670) for set-up costs, 72% (87/120) for materials handling costs and 67% (670/1,000) for inspection costs. In contrast, the traditional method allocates approximately 90% of all costs to product Z. Therefore the unit cost for product is higher with the traditional method. The opposite situation applies with products X and Y and, as a result, unit costs are lower with the traditional method.

Question 20

Explain the possible causes of the material usage variance

Answer 20

Common causes of material usage variances include the careless handling of materials by production personnel, the purchase of inferior quality materials, pilferage, changes in quality control requirements, or changes in methods of production

Question 21

Explain the possible causes of the labour rate variance

Answer 21

Reasons might include the use of inferior materials, different grades of labour, failure to maintain machinery in proper condition, the introduction of new equipment or tools and changes in the production processes

Question 22

Explain the possible cuases for differences of the sales margin volume variance

Answer 22

The sales margin volume variance is difficult to interpret as changes in sales volume might be induced by changes in sales price. A further problem is that the variance may arise from external factors and may not be controllable by the management. For example, a reduction in sales volume may be the result of an economic recession that was not foreseen when the budget was prepared

Question 23

Explain the meaning and relevance of interdependence of variances when reporting to managers

Answer 23

Interdependence occurs when an event has a favourable impact on one variance but an adverse impact on another variance. For example, the purchase of inferior quality materials may account for a favourable material price variance but it may also have a negative impact on the material usage and labour efficiency variances due to the poorer quality causing an increase in usage

Question 24

Explain what reconciliation means in a variance analysis context!

Answer 24

Once all variances have been calculated, a statement can be prepared to reconcile actual profit to budgeted profit. In the reconciliation the sum of all variances (considering whether favourable or unfavourable) is equal to the difference between actual and budgeted profit

Question 25

Admin overhead expenditure variance

Answer 25

Budgeted admin cost – Actual admin cost