Variable Cost Variance Analysis
Medium Practice Test
Medium Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. The difference between the standard hours and the actual hours worked multiplied by the standard cost per hour when the activity is labor hours:
a. materials quantity variance
b. labor efficiency variance
c. variable overhead efficiency variance
d. either b. or c.
Answer
D. This is referring to the difference in AQ x SP and SQ x SP. The materials quantity is not related to labor (a.). Both the labor and overhead efficiency variances use the right, and both would use labor hours for the quantity.
2. An unfavorable materials price variance would most likely occur when:
a. the standard price is more than the actual price
b. the actual price is more than the standard price
c. the standard quantity is more than the actual quantity
d. the actual quantity is more than the standard quantity
Answer
B. This variance is the difference between AQ x AP and AQ x SP. Unfavorable means that the actual price was higher/more. The quantity used for both is the same, so the answer can not be related to quantity (c. & d.)
3. When manufacturing overhead is applied to products based on direct labor hours, an unfavorable labor efficiency variance will result in
a. an unfavorable overhead efficiency variance
b. an unfavorable labor spending variance
c. the company spending less money than expected for manufacturing overhead
d. the overhead efficiency variance being equal to the labor efficiency variance
Answer
A. An unfavorable labor efficiency variance means that more labor hours were use than expected to produce that many units. When the overhead is based on direct labor hours, more overhead will be applied than was expected, giving an unfavorable overhead efficiency variance. The labor and overhead efficiency variances behave the same when overhead is based on direct labor hours. If the rates are different, which is normal, the variances will not be equal (d.). The spending variance could still be favorable if the rate paid is lower than expected. (b.) Unfavorable means that more was spent than expected (c.)
4. Standard quantity allowed means
a. the standard output allowed multiplied by the standard input
b. expected units produced multiplied by the standard rate
c. actual units produced multiplied by the standard required per unit
d. estimated quantity for the annual expected production
Answer
C. Standard quantity allowed is another way to say, “what should you have used for what you actually did produce”. It is calculated by multiplying actual units produced x the quantity one unit was expected to use. The answer has to have actual units produced and a., b., and d., do not.
5. Which set of terms describes similar variance types?
a. price, rate, efficiency
b. use, efficiency, quantity
c. use, efficiency, spending
d. price, rate, usage
Answer
B. Price, rate, and spending refer to how much was spent. Use, efficiency, and quantity refer to how much was used. All answers that mix any of the two types are not correct.
6. The term “standard hours allowed” means
a. budget produced x actual total hours worked
b. budget produced x standard total hours worked
c. actual produced x standard hours for one
d. actual produced x actual hours for one
Answer
C. Standard hours allowed refers to the SQ. SQ is calculated by multiplying the actual units produced by the amount one unit requires. Budgeted units produced and total hours is not correct. (a. & b.) Actual hours for one is not correct. (d.)
7. A variable overhead spending variance is caused by
a. using more/less hours than standard allowed for actual units produced
b. paying more/less per unit than the standard price
c. actual hours worked is more than originally budgeted for
d. both a. and c.
Answer
B. The variable overhead spending variance is the difference between the AQ x AP and AQ x SP. The quantity is the same, so (a.) and (c.) are not correct, therefore (d.) is not correct.
8. An unfavorable spending variance indicates the company
a. used more of the activity base than was expected
b. spent more for each time the activity occurred than expected
c. should fire the production manager
d. direct labor was more inefficient than expected.
Answer
B. A spending variance is related to variable overhead and it occurs when you compare actual dollars spent to what was expected to be spent at the actual level of activity. The quantity is the same and the difference comes from the cost. (a. and d.) are related to the volume variance. The production manager is generally responsible for what is used, not the cost of each. (c.)
9. Vulcan Company produces rubber seals used in the aerospace industry. The cost sheet calls for 3.5 pounds of material at $3.40 per pound, .5 hours of labor at $20 per hour, and variable overhead of $7 per direct labor hour. For the year 2003, expected production is 100,000 seals with a total budgeted fixed overhead of $100,000. During the year, a total of 99,000 seals were produced. The company purchased 350,000 pounds of material for $1,260,000 and put into production 341,550 pounds of material. The actual cost of direct labor used was $1,039,000, an average of $20.99 per hour. Actual variable overhead for the year was $350,000. Actual fixed overhead totaled $120,000.
Compute all variable cost variances and state favorable or unfavorable
Answer
Material:
AQ x AP AQ x SP AQ x SP SQ x SP
Purch Purch Used Used
$1,260,000 350,000 x $3.40 341,550 x $3.40 99,000 x 3.5 x $3.40
= $1,190,000 = $1,161,270 = $ 1,178,100
Variance $ 70,000 U $16,830 F
price quantity
Labor:
AQ x AP AQ x SP SQ x SP
$1,039,000 49,500 x $20 99,000 x .5 x $20
= $990,000 = $990,000
Variance $49,000 U $ 0
rate efficiency
Variable Overhead
AQ x AP AQ x SP SQ x SP
$350,000 49,500 x $7 99,000 x .5 x $7
= $346,500 = $346,500
Variance $3,500 U $ 0
spending efficiency
The SQ is the actual units made x the standard that each one takes.
A variance can come out to be 0 but only if actual is equal to standard.
10. The company manufactured 18,000 units and budgeted to produce 15,000 units. 70,200 yards of material were purchased during the year and inventory increased by 500 yards. Materials cost $3.75 per yard. 29,400 direct labor hours were worked at a cost of $7.40 per hour. Actual variable manufacturing overhead costs were $61,980. Actual fixed manufacturing overhead costs were 136,900.
The standard cost sheet shows the following:
Direct materials 4 yards at $3.50 per yard Direct labor 1.5 hours at $8.50 per hour Variable Overhead 1.5 hours at $2.00 per hour Fixed Overhead 1.5 hours at $6.00 per hour
Compute all of the variable cost variances and write the amount as favorable or unfavorable
Answer
Material:
AQ x AP AQ x SP AQ x SP SQ x SP Purchased Purchased Used Used 70,200 x $3.75 70,200 x $3.50 69,700 x $3.50 18,000 x 4 x $3.50 = $263,250 = $245,700 = $ 243,950 = $252,000 Variance $17,550 U $8,050 F price quantity
Labor:
AQ x AP AQ x SP SQ x SP 29,400 x $7.40 29,400 x $8.50 18,000 x 1.5 x $8.50 = $217,560 = $249,900 = $229,500 Variance $32,340 F $20,400 U rate efficiency
Variable Overhead
AQ x AP AQ x SP SQ x SP $61,980 29,400 x $2 18,000 x 1.5 x $2 = $58,800 = $54,000 Variance $3,180 U $4,800 U spending efficiency
Important to notice:
Material quantity purchased less the inventory increase is material used.
When inventory decreases, the material used is higher.
The SQ is the actual units made x the standard that each one takes.
11. The following relates to the operations for the month:
Actual quantity of materials used 10,000 inches Standard quantity of materials 11,100 inches Actual price of materials $0.40 per inch Standard price of materials $0.38 per inch Actual direct labor hours 20,000 Standard direct labor hours 19,000 Actual direct labor rate $9.00 Standard direct labor rate $8.50
Inventory of direct materials did not change.
Compute direct material and direct labor variances and write the amount as favorable or unfavorable
Answer
Material:
AQ x AP AQ x SP AQ x SP SQ x SP Purchased Purchased Used Used 10,000 x $0.40 10,000 x $0.38 10,000 x $0.38 11,100 x $0.38 = $4,000 = $3,800 = $3,800 = $4,218 Variance $200 U $418 F price quantity
Labor:
AQ x AP AQ x SP SQ x SP 20,000 x $9 20,000 x $8.50 19,000 x $8.50 = $180,000 = $170,000 = $161,500 Variance $10,000 U $ 8,500 U rate efficiency
Important to notice:
Standard quantity is the SQ, it represents the actual units made x what one takes
The SQ is sometimes called “standard allowed”
“Inventory levels did not change” means that purchased quantity is equal to used
for materials.