Essay Questions
98. Accounting terminology
Listed below are seven technical accounting terms introduced or emphasized in this chapter:
Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the terms.
______ (a) A materials variance which is the responsibility of the Purchasing Department.
______ (b) The variance which exists whenever actual production levels differ from normal levels.
______ (c) Unit costs expected to be incurred under normal conditions.
______ (d) A labor variance caused by a difference between standard and actual hours required to complete a task.
_____ (e) The variance caused by incurring more overhead costs than allowed for at a given level of production.
99. Standard cost systems variance computations
Livingston Corporation recently implemented a standard cost system. The company’s cost accountant has provided the following data to perform a variance analysis for May:
Compute the following variances. Indicate whether each variance is favorable (F) or unfavorable (U):
(a) Materials price variance: $___________
(b) Materials quantity variance: $___________
(c) Labor rate variance: $___________
(d) Labor efficiency variance: $___________
(e) Overhead spending variance: $___________
(f) Overhead volume variance: $___________
100. Standard cost system overhead variances
Rogers Manufacturing produces a component part used throughout the computer industry. Variable overhead is allocated to production at a rate of $5 per unit. The company’s monthly fixed overhead costs average $30,000. Normal output levels average 40,000 units per month. During April, Rogers produced 50,000 units and incurred actual overhead costs of $280,000.
(a) Total overhead applied to production in April amounted to $__________.
(b) Total overhead budgeted in April for the level of output achieved amounted to $__________.
(c) April’s overhead spending variance was $___________ (favorable/unfavorable).
(d) April’s overhead volume variance was $___________ (favorable/unfavorable).
(e) For which of Rogers’ two overhead variances is the production manager held responsible?
101. Standard cost system materials variances
Levron Corporation manufactures a line of cosmetics. The standard price of the ingredients in its beauty cream is $7 per ounce; the standard amount of material allowed per jar is 1.25 ounces. During December, 5,300 jars were produced, requiring 6,784 ounces of ingredients at a total direct materials cost of $37,312.
(a) Calculate the materials price variance for December. Indicate whether it is favorable (F) or unfavorable (U). $___________.
(b) Who is responsible for this variance? _________.
(c) Calculate the materials quantity variance for December. Indicate whether it is favorable (F) or unfavorable (U). $___________.
(d) What is Levron Corporation’s total materials variance for December? Indicate whether it is favorable (F) or unfavorable (U). $___________.
102. Standard cost system labor variance
The following computations of March labor variances for Sam’s Supply Company are incomplete. The missing items are labeled (a) through (d).
Labor rate variance = 4,800 hours x [(a) – $8.50] = $350 favorable
Labor efficiency variance = (b) x [(c) – 5,000 hours] = $(d)
On the appropriately labeled line, identify each missing item by name (a through c) and show the missing value (a through d). Show supporting computations in the space provided.
(a) _________________________ $________________
(b) _________________________ $________________
(c) _________________________ ____________________ hours
(d) $_______________ F or U (Circle the correct term.)
(e) During March, the supervisor left for vacation without arranging for a replacement. Which variances would have been most affected by this situation? _________________________ Computations
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