Sales and Direct Cost Variance Analysis Flashcards
Relevant information for material A follows:
Actual quantity purchased 6,500 lbs.
Standard quantity allowed 6,000 lbs.
Actual price $3.80
Standard price $4.00
What was the direct material quantity variance for material A? A. $2,000 favorable. B. $1,900 favorable. C. $1,900 unfavorable. D. $2,000 unfavorable.
D. $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.
Right side of chart
Central Winery manufactured two products, A and B. The estimated demand for product A was 10,000 bottles, and for product B, 30,000 bottles. The estimated sales price per bottle for A was $6.00, and for B, $8.00. The actual demand for product A was 8,000 bottles, and for product B, 33,000 bottles. The actual price per bottle for A was $6.20, and for B, $7.70.
What amount would be the total selling price variance for Central Winery?
A. $3,700 unfavorable.
B. $8,300 unfavorable.
C. $3,700 favorable.
B. $8,300 unfavorable
The total selling price variance is determined by taking the difference between the actual and estimated selling prices for each product and multiplying the difference by the actual sales volume for the product. It is calculated as follows:
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
Yola Co. manufactures one product with a standard direct labor cost of four hours at $12.00 per hour. In June, 1,000 units were produced using 4,100 hours at $12.20 per hour. The unfavorable direct labor efficiency variance was A. $1,220. B. $1,200. C. $820. D. $400.
B. $1,200.
The DL efficiency variance =
(actual labor hours)(standard wage rate) - (standard labor hours)(standard wage rate) =
(4,100)($12) - (1,000 units x 4 hours)($12) =
$49,200 - $48,000 = $1,200
or
4100-4000=100*$12=$1200
Smart Co. uses a static budget. When actual sales are less than budget, Smart would report favorable variances on which of the following expense categories?
Sales commissions Building rent Yes Yes Yes No No Yes No No
Sales commissions Building rent
Yes No
Correct!
When actual sales are less than budget, the cost of sales commissions will be less than planned. This results in a favorable cost variance on sales commissions. Building rent will remain unchanged by planned versus actual sales.
Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of materials at a cost of $70,000. The materials usage variance was $2,500 unfavorable, and the standard materials allowed for May production was 17,000 pounds. What was the materials price variance for May? A. $17,500 favorable. B. $17,500 unfavorable. C. $15,000 favorable. D. $15,000 unfavorable.
A. $17,500 favorable
This answer is correct. Using the model suggested in the study text to perform the calculations:
Units Price/Unit Total Standard Costs 17,000 lbs. x Std. Price = ??? Actual Costs 17,500 lbs. x $4.00* = $70,000 Differences (500) lbs. ??? ??? *Actual Price = $70,000/17,500 lbs. = $4.00
Usage variance = ($2,500) = Difference in Units x Std. Price
= (500) x Std. Price
Std. Price = ($2,500) / (500) = $5.00 per unit
Substituting the standard price into the previous calculation, we now have:
Units Price/Unit Total Standard Costs 17,000 lbs. x $5.00 = $85,000 Actual Costs 17,500 lbs. x $4.00* = $70,000 Differences (500) lbs. $1.00 $15,000
Price variance = Difference in Price x Actual Quantity Used =
$1.00 x 17,500 = 17,500 favorable various
Check: Usage Variance + Price Variance = Total Difference in Costs
($2,500) + $17,500 = $15,000
Selected costs associated with a product are as follows:
Total standard hours for units produced 5,000
Total actual direct labor cost $111,625.00
Actual per hour labor rate $23.50
Standard per hour labor rate $24.00
What amount is the total direct labor price variance? A. $2,375 unfavorable. B. $2,375 favorable. C. $2,500 unfavorable. D. $2,500 favorable.
B. $2,375 favorable.
To solve this we would use the formula (SP - AP) AQ. We are given SP and AP, but not AQ. We can find the AQ by dividing the actual total cost of $111,625 by the AP of $23.50 to get 4,750 hours. Now we multiply AQ of 4,750 by the $0.50 difference between the SP of $24 and the AP of $23.50 to get the price variance of $2,375. Since the actual price of $23.50 is less than the expected standard cost of $24, the variance is favorable.
The following direct labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker $500
Workers’ benefits treated as direct labor costs 20% of wages
What is the standard direct labor cost per unit of product Glu? A. $30. B. $24. C. $15. D. $12.
A. $30.
The standard direct labor cost per unit is the product of the standard wage rate per hour used for direct labor computations, and the standard quantity of hours per unit. This firm includes benefits in the wage rate used for direct labor application:
Standard direct labor 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 direct labor.
For the current period production levels, XL Molding 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 XL’s material efficiency variance for the period?
A. $1,000 favorable. B. $1,000 unfavorable. C. $1,500 favorable. D. $1,500 unfavorable.
B. $1,000 unfavorable.
A direct efficiency variance is the difference between the actual quantity and the standard quantity allowed multiplied by the standard price. The variance is unfavorable because the actual quantity is greater than expected based on the standard.
A manufacturing company that produces trivets has established the following standards for the current year:
Standard price per pound $3.00
Standard material usage per trivet 2.00
During April, the company purchased 10,000 pounds of material for $33,000 and used 9,400 pounds to produce 4,500 trivets. Four thousand trivets were sold during April. What amount should be reported as the materials' quantity (usage) variance? A. $1,200 unfavorable. B. $1,320 unfavorable. C. $3,000 unfavorable. D. $4,200 unfavorable.
A. $1,200 unfavorable.
Since this is a usage variance and we are given the standard price of $3, we only need to multiply that sp = $3 by the difference between the quantities. Actual quantity used of 9,400 lbs. is given. Std quantity allowed is found by multiplying the 2 lb. std quantity by the actual outputs of 4,500 lbs. = 9,000 lbs. By using the formula (SQ - AQ) SP we have (9,000 - 9,400) $3 = $1,200.
