Sales & Direct Cost Variance Analysis

Question 1

With regards to sales and direct cost variance analysis, what are the four types of variances you can cover?

Answer 1

1. Price variance
2. Rate variance
3. Usage variance
4. Efficiency variance

Question 2

When calculating variances, what are four variables you want to determine from the problems?

Answer 2

1. AP (Actual)
2. AQ (Actual)
3. SP (Estimated)
4. SQ (Estimated)

Question 3

What is the formula to calculate price/rate variance?

Answer 3

(AP - SP) X AQ = Price & rate variance

Question 4

With regards to price variances relating to direct materials or direct labor, how do you determine if the price/rate variance is favorable or unfavorable?

Answer 4

Favorable: SP > AP
Unfavorable: AP > SP

Question 5

If the problem relates to a SELLING price variance, what would determine if the variance is favorable of unfavorable?

Answer 5

Favorable: AP > SP; since you are selling AP needs to be higher to make a profit
Unfavorable: SP > AP
Favorable for DM or DL price variance would be SP > AP

Question 6

What is the formula to calculate usage/efficiency variance? (Or can be called quantity)

Answer 6

(AQ - SQ) X SP = Usage/Efficiency variance

Question 7

With regards to usage/efficiency variances relating to direct materials or direct labor, how do you determine if the usage/efficiency variance is favorable of unfavorable?

Answer 7

Favorable: SQ > AQ
Unfavorable: AQ > SQ

Question 8

You are given a scenario for a price variance where you are given AP, SP, and not AQ. However, you are given total actual direct labor cost. How do you solve for AQ (remaining variable)?

Answer 8

Total actual cost/actual price = actual quantity

Question 9

How do you solve for a total selling price variance question given two products product A and product B? Price variance = AQ x (AP-SP). AP > SP is favorable in SELLING price problems.

Answer 9

Solve for price variances for both products. Also, determine for each one if they are favorable or unfavorable. If one is favorable and the other is unfavorable then subtract from one another. If both are favorable or vice versa for example, then add the amounts together.

Question 10

How do you calculate standard quantity allowed (SQA) given these two variables? Standard direct materials of 2 pounds per widget. 10,000 total # of widgets produced.

Answer 10

Pounds per widget x # of widgets = Standard quantity

Question 11

When actual sales are less than budgeted sales, does this make the cost of sales commission variance favorable of unfavorable?

Answer 11

Favorable

Question 12

With regards to actual sales vs. budgeted sales, how does this impact building rent?

Answer 12

Has not impact. Building rent will remain unchanged by planned versus actual sales.

Question 13

What is the formula to calculate standard direct labor cost per unit?

1. Weekly wages per worker
2. # of productive hours per work per worker
3. Workers benefits % treated as DL costs
4. Time required to make one unit

Answer 13

Standard direct labor cost per unit = (weekly wages per worker x 1 + % of worker’s benefits)/# of productive hours x Time required to make one unit