In: Accounting
A&B Co. provides house cleaning services. The company uses the number of jobs to measure activity. At the beginning of April, the company budgeted for 80 jobs, but the actual number of jobs turned out to be 90. A report comparing the budgeted revenues and costs to the actual revenues and costs appears below:
A&B Co. |
||||
For the Month Ended April 30 |
||||
Revenue/Cost Formulas |
Actual Results |
Planning Budget |
||
Number of jobs (Q) |
90 |
80 |
||
Revenue |
$100Q |
8,900 |
8,000 |
|
Expenses: |
||||
Variable expenses |
? |
3,800 |
3,200 |
|
Fixed expense |
? |
2,100 |
2,500 |
|
Total expenses |
5,900 |
5,700 |
||
Net operating income |
3,000 |
2,300 |
What is the amount of spending variance for variable expenses in A&B’s performance report for April?
A. |
$600 favorable |
|
B. |
$600 unfavorable |
|
C. |
$200 favorable |
|
D. |
$200 unfavorable |
Lee Company's standards for the most recent period are given below. Fixed and variable manufacturing overhead costs are applied to products on the basis of machine hours. The denominator volume of machine hours is 9,000.
Standard Quantity or Hours per unit |
Standard Price or Rate per unit |
Standard Cost per unit |
|
Direct Materials |
3 feet |
$6 per foot |
$18 |
Direct Labor |
1.5 direct labor hours |
$10 per direct labor hour |
$15 |
Variable Overhead |
2 machine hours |
$12 per machine hour |
$24 |
Fixed Overhead |
2 machine hours |
$15 per machine hour |
$30 |
Actual costs for the most recent period, during which 5,000 units of output were actually produced and used 9,600 machine hours, are given below:
Direct Materials |
The firm purchased 16,000 feet at $6.30 per foot, but only used 14,500 feet in production. |
Direct Labor |
The firm used 7,150 direct labor hours and paid $11 per direct labor hour. |
Variable Overhead |
Actual variable overhead costs were $122,880. |
Fixed Overhead |
Actual fixed overhead costs were $142,000. |
What was the company’s variable overhead rate variance?
A. |
$7,680 unfavorable |
|
B. |
$2,880 unfavorable |
|
C. |
$7,680 favorable |
|
D. |
$2,880 favorable |
Which of the following statement is FALSE?
A. |
A company’s manufacturing cycle efficiency can be improved by minimizing queue time. |
|
B. |
Throughput time is the elapsed time from when a customer order is received to when the completed order is shipped. |
|
C. |
Process time is the only value-added activity in the four components of throughput time. |
|
D. |
Throughput time is a nonfinancial performance measure. |
Lee Company's standards for the most recent period are given below. Fixed and variable manufacturing overhead costs are applied to products on the basis of machine hours. The denominator volume of machine hours is 9,000.
Standard Quantity or Hours per unit |
Standard Price or Rate per unit |
Standard Cost per unit |
|
Direct Materials |
3 feet |
$6 per foot |
$18 |
Direct Labor |
1.5 direct labor hours |
$10 per direct labor hour |
$15 |
Variable Overhead |
2 machine hours |
$12 per machine hour |
$24 |
Fixed Overhead |
2 machine hours |
$15 per machine hour |
$30 |
Actual costs for the most recent period, during which 5,000 units of output were actually produced and used 9,600 machine hours, are given below:
Direct Materials |
The firm purchased 16,000 feet at $6.30 per foot, but only used 14,500 feet in production. |
Direct Labor |
The firm used 7,150 direct labor hours and paid $11 per direct labor hour. |
Variable Overhead |
Actual variable overhead costs were $122,880. |
Fixed Overhead |
Actual fixed overhead costs were $142,000. |
What was the company’s labor efficiency variance?
A. |
$3,850 unfavorable |
|
B. |
$3,500 unfavorable |
|
C. |
$3,850 favorable |
|
D. |
$3,500 favorable |
Part (1)
Variable expenditure spending variance=(Budgeted overhead for actual unit less Actual variable overhead) | ||||||
Standard variable overhead per job | 3200/80 =40 | |||||
Standard variable overhead for actual no of job | 90*40 = 3600 | |||||
Actual variable overhead | 3800 | |||||
Therefore variable overhead spending variance is (3600-3800) =200 (Unfavourable) |
Part (2)
Variable overhead rate variance=(Budgeted overhead for actual hours less Actual variable overhead) | |
Standard variable overhead per hour | 12 |
Standard variable overhead for actual hours worked | 12*9600 =115200 |
Actual variable overhead | 122880 |
Therefore variable overhead rate variance is (115200-122880) =7680 (Unfavourable) |
Part (3)
Option B is false, | |||||
Through put time is the elapsed time from when production is started until finished goods are shipped |
Part (4)
Labour Efficeincy Variance =Standard cost of standard time for actual production less Standard cost of actual time | ||||||
Standard labour hour for one unit | 1.5 hour | |||||
Actual out put produced | 5000 | |||||
Standard labour hour for actual unit produced | 5000*1.5 =7500 | |||||
Standard rate per hour | 10 | |||||
Standard cost for standard hours for actual production | 7500*10=75000 | |||||
Actual labour hours | 7150 | |||||
Standard labour rate for actual hours | 7150*10=71500 | |||||
Labour Efficeincy Variance (75000-71500) | 3500 | |||||
Therefore labour efficiency variance is 3500 (favourable) |