Question

In: Accounting

A&B Co. provides house cleaning services. The company uses the number of jobs to measure activity....

  1. 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

  2. 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

  3. 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.

  4. 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

Solutions

Expert Solution

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)

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