Question

Q1:

Which of the following would explain an unfavorable Direct Materials Quantity Variance in the manufacturing area of an all wood table manufacturer:

A.Scrap costs related to wood has decreased 5% during the period.

B.The cost per Board Foot of lumber has increased by 10%.

C.Factory Depreciation on machinery used to cut wood increased.

D.Less experienced machine operators were used during the period which increased scrap.

Q2:

A favorable Labor Rate variance:

A.indicates that the time it took to make a unit this period was lower than Standard.

B.indicates that the wage rate paid to direct laborers was lower than Standard.

C.indicates that the wage rate paid to direct laborers was higher than Standard.

D.can only occur if there is a favorable Labor Time variance.

Q3:

The Atlantic Company sells a product with a break-even point of 6,117 sales units. The variable cost is $67 per unit, and fixed costs are $171,276.

Determine the unit sales price. Round answer to nearest whole number.
$

Determine the break-even points in sales units if the company desires a target profit of $52,724. Round answer to the nearest whole number.
units

Answer 1

Q1.

Answer is option (D). Less experienced machine operators were used during the period which increased scrap.

Explanation;

As we know that when less experienced machine operators were used during the period which increased scrap then actual direct materials used will be higher in compare to standard quantity. And as a result direct materials quantity variance will be unfavourable.

Q2.

Answer is option (B). indicates that the wage rate paid to direct laborers was lower than Standard.

Explanation;

If actual wage rate is lower than standard wage rate then it will result into favourable Labor Rate variance because actual wages paid will be less than standard wages.

Q3.

Unit sales price = $95

Explanation;

Break-even point = Fixed costs / (Sale price – variable cost)

6117 = $171276 / (Sale price - $67)

6117 Sale price - $409839 = $171276

6117 Sale price = $171276 + $409839

Sale price = $581115 / 6117

Unit sale price = $95

Break-even point (in units) = 8000 units

Explanation;

Break-even point = Fixed costs + Target profit / (Sale price – variable cost)

Break-even point = $171276 + $52724 / ($95 - $67)

Break-even point = $224000 / ($95 - $67)

Break-even point = $224000 / $28

Break-even point (in units) = 8000 units