Variance Challenge

The standard product cost card of a product is shown.
Fixed overhead was based on 36,000 hours a year.

Total fixed overhead estimated at $144,000 per annum.

Actual data for a month has been ascertained as follows:

Actual hours worked = 3,800; Units of product produced = 900; Material used = 1,900 feet in length; Price per foot = $15; Actual labor wage rate = $5.80; Actual factory overhead: variable = $6,200, fixed = $12,000

Required: Calculate two variances for each of the three elements of the production cost.

• Total material cost variance: $300
  Total labor cost variance: $440
  Factory overhead controllable variance: $1,000
  

• Total material cost variance: -$700
  Total labor cost variance: -$440
  Factory overhead controllable variance: -$1,375

• Total material cost variance: -$300
  Total labor cost variance: -$440
  Factory overhead controllable variance: -$1,000

• Total material cost variance: $700
  Total labor cost variance: $440
  Factory overhead controllable variance: $1,375

• Total material cost variance: $799
  Total labor cost variance: -$4,458
  Factory overhead controllable variance: $1,375

The data shown relates to an industrial organization that manufactures household appliances.

Required: Do you agree with these calculations? If not, provide a correct calculation for the variances.

The following data pertains to a company's first week of operations in June 2011:

Required: Compare the following variances to determine whether they are favorable or unfavorable:

• (A) Material purchase price variance and quantity variance

• (B) Labor rate efficiency variance.

Variance analysis is a form of performance measurement that provides an explanation for deviations between what?

• forecasted and actual amounts
• planned and actual amounts
• standard and actual costs

• estimated and actual expenses

• targeted and actual payables

What is the purpose of variance analysis?

• To compare actual costs with budgeted costs

• To measure the difference between expected and actual sales performance

• To assess cost efficiency in management

• All of these

• None of these

Which type of variance analysis measures the difference between expected and actual labor costs?

• Sales Price Variance
• Material Price Variance
• Fixed Overhead Spending Variance
• Variable Overhead Efficiency Variance
• Labor Rate Variance

What is one advantage of variance analysis?

• Decreasing the need for financial reporting
• Identifying reasons for differences between planned and actual performance
• Eliminating the need for cost control measures
• Increasing accuracy of budget forecasts
• Reducing the need for performance evaluations

What is the one of the purposes of variance analysis in business?

• To identify factors causing unfavorable variances

• To determine employee satisfaction levels
• To assess customer feedback
• To calculate tax liabilities
• To compare budgeted financial results to actual competitor results

Variance analysis is a tool for:

• Performance measurement and control

• Monitoring the overall performance of the business

• Identifying differences between planned and actual numbers

• All of the these

• None of these

You have been tasked with analyzing the manufacturing overhead variance of your company.
Your objective is to determine the causes of the variance and propose appropriate solutions to mitigate its impact. The company produces a single product and uses a standard costing system.

Given information:

• The standard manufacturing overhead rate is $10 per direct labor hour.

• The standard direct labor hours for producing one unit of the product are 4 hours.

• The actual manufacturing overhead incurred during the production period is $48,000.

• The actual direct labor hours worked during the production period are 5,000 hours.

• The actual production output during the period is 1,200 units.

Calculate the standard manufacturing overhead cost for the production period.