Question 1

During the year, Octagon produced 8,000 units, used 24,000 direct labor hours, and incurred variable overhead of $120,000.Budgeted variable overhead for the year was $90,000.The hours allowed per unit are 2.The standard variable overhead rate is $3.00 per direct labor hour.The variable overhead spending variance is:

Accepted Answer

Variable overhead spending variance = Actual variable overhead - (Standard variable overhead rate × Actual direct labor hours worked) = $120,000 - ($3.00 × 24,000) = $48,000 U

Question 2

Which of the following is used to calculate total variable overhead variance where VOH = Variable Overhead, SVOR = Standard Variable Overhead Rate, SH = Standard Hour Allowed, and AH = Actual Direct Labor Hours Used?

Accepted Answer

Total VOH Variance can be calculated by subtracting the product of standardized hourly rate and standard hours allowed from actual variable overheads incurred. Therefore, Total VOH Variance = Actual VOH - SVOR x SH.

Question 3

Inefficient usage of labor implies a(n)

Accepted Answer

Inefficient usage of labor means that more labor hours were used than necessary to complete a task, resulting in a higher variable overhead cost. This leads to an unfavorable variable overhead efficiency variance because the actual amount of labor hours used exceeded the standard amount of labor hours allowed for the production of a unit.

Question 4

The two variances for variable overhead are

Accepted Answer

The two variances for variable overhead are spending variance and efficiency variance. Spending variance measures the difference between actual variable overhead cost incurred and the budgeted variable overhead cost. Efficiency variance measures the difference between the actual quantity of variable overhead used and the standard quantity allowed for the actual output achieved.

Question 5

The Perfect Tool Company (South America Division) produced 80,000 saw blades during the year.It took 1.5 hours of labor per blade at a rate of $8.50 per hour.However, its standard labor rate is $8.00.Its labor efficiency variance was an unfavorable $40,000.  
-
What is the journal entry to record both labor variances?

Accepted Answer

11ea8a4c_4972_822f_a0e6_a7c901608cb4_TB5550_00

Question 6

James Company manufactures t-shirts.During the year, it manufactured 250,000 t-shirts, using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:

-  It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
What is James' materials usage variance?

Accepted Answer

11ea8a4c_4972_f763_a0e6_1d5db0994ebd_TB5550_00 SQ = 1,500,000 = 250,000 × 6

Question 7

Responsibility for the variable overhead spending variance is usually assigned to

Accepted Answer

The production department is typically responsible for the variable overhead spending variance because it directly influences the efficiency and volume of production, which in turn affects variable overhead costs such as utilities and indirect materials.

Question 8

A performance report for variable overhead reveals

Accepted Answer

A performance report for variable overhead should provide both the aggregate spending and efficiency variances, as well as the spending and efficiency variances for each individual item, in order to give a comprehensive analysis of the causes and effects of the variances on overall performance. Option A provides only the aggregate variances, while option B focuses only on volume and spending variances, and option C only provides variances for each item without showing the overall picture. Option E includes volume and spending variances but leaves out the important breakdown of variances for each item.

Question 9

James Company manufactures t-shirts.During the year, it manufactured 250,000 t-shirts, using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:  
 
-  It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
What is the entry to record the purchase of materials?

Accepted Answer

11ea8a4c_4973_bab9_a0e6_f74440cc4397_TB5550_00

Question 10

The variable overhead efficiency variance claims to measure

Accepted Answer

The variable overhead efficiency variance is used to measure the change in variable overhead costs due to the efficient or inefficient use of the cost driver. It is calculated by comparing the actual amount of the cost driver used to produce a unit of output with the standard amount of the cost driver that should have been used. Therefore, it measures productive efficiency and the optimal use of resources. The other options are not accurate descriptions of the variable overhead efficiency variance.

Question 11

Ketone Inc.produces small engines.For last year's operations, the following data were gathered: Ketone Inc.employs a standard costing system.During the year, a variable overhead rate of $5.00 was used.The labor standard requires 1 hour per unit produced.The variable overhead spending and efficiency variances are:

Accepted Answer

Variable overhead spending variance = Actual variable overhead - (Actual direct labor hours worked × Standard variable overhead rate) = $1,000,000 - ($5.00 × 120,000) = $400,000 U
Variable overhead efficiency variance = (Actual hours - Standard hours) × Standard variable overhead rate = [120,000 - (110,000 × 1)] × $5.00 = $50,000 U

Question 12

James Company manufactures t-shirts.During the year, it manufactured 250,000 t-shirts, using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:  
 
-  It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
What is James' labor rate variance?

Accepted Answer

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Question 13

The formula for calculating the variable overhead efficiency variance is

Accepted Answer

The variable overhead efficiency variance is calculated as the difference between the actual hours worked and the standard hours allowed for the actual production, multiplied by the standard variable overhead rate (SVOR). This measures how efficiently the variable overhead resources are used.

Question 14

In a standard cost system, variable overhead is applied

Accepted Answer

In a standard cost system, variable overhead is applied using standard direct labor hours. This is because direct labor hours are a logical base for applying variable overhead, as the cost of direct labor is often highly correlated with the cost of variable overhead. Using standard direct labor hours helps ensure that the variable overhead rate is based on a realistic estimate of how much indirect cost will be incurred for each unit of direct labor.

Question 15

James Company manufactures t-shirts.During the year, it manufactured 250,000 t-shirts, using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:

-What is James' materials price variance assuming that materials purchased equals materials used?

Accepted Answer

11ea8a4c_4972_d051_a0e6_f1015af288f8_TB5550_00

Question 16

Hexene, Inc.produces a specialized machine part used in forklifts.For last year's operations, the following data were gathered:  
 Hexene employs a standard costing system.During the year, a variable overhead rate of $6.00 was used.The labor standard requires 0.75 hours per unit produced.The variable overhead spending and efficiency variances are:

Accepted Answer

Variable overhead spending variance = Actual variable overhead - (Actual direct labor hours worked × Standard variable overhead rate) = $140,000 - ($6.00 × 32,000) = $52,000 F
Variable overhead efficiency variance = (Actual hours - Standard hours) × Standard variable overhead rate
 
Variable overhead efficiency variance = [32,000 - (40,000 × 0.75)] × $6.00 = $12,000 U

Question 17

Pentyl Company manufactures t-shirts.During the year, it manufactured 100,000 t-shirts, using 3 hours of direct labor at a rate of $7 per hour.The materials and labor standards for manufacturing the t-shirts are as follows:

- It took Pentyl 600,000 yards at $3.50 per yard to make the 100,000 t-shirts.
What is the entry to record the issuance and usage of materials?

Accepted Answer

Materials = Standard price × Actual quantity = $4 × 600,000 = $2,400,000
Work in process = Standard quantity × Standard price = (100,000 × 5) × $4 = $2,000,000
Material usage variance = [600,000 - (100,000 × 5)] × $4 = $400,000 U

Question 18

James Company manufactures t-shirts.During the year, it manufactured 250,000 t-shirts, using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:

- It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
What is the entry to close the variances of labor and materials?

Accepted Answer

LRV = (AR - SR) × AH
 11ea8a4c_4974_56fc_a0e6_936801e57896_TB5550_00 = ($8.50 - $8.00) × 500,000 = $250,000 U

Question 19

James Company manufactures t-shirts.During the year, it manufactured 250,000 t-shirts, using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:  
 
-  It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
What is James' labor efficiency variance?

Accepted Answer

11ea8a4c_4973_6c97_a0e6_a50c79d6d6a8_TB5550_00

Question 20

The variable overhead spending variance is expressed as the difference between:

Accepted Answer

The variable overhead spending variance is the difference between the actual variable overhead (the cost actually incurred for variable overhead) and the budgeted variable overhead based on actual hours used to produce the actual output (the amount of variable overhead that should have been incurred based on the actual output produced). Option A is talking about the variable overhead efficiency variance, option B is incorrect as it refers to the budgeted output instead of the actual output, option D is talking about the variable overhead efficiency variance, and option E is not correct as there is a correct answer.

Quiz 10: Standard Costing and Variance Analysis

Which of the following is used to calculate total variable overhead variance where VOH = Variable Overhead, SVOR = Standard Variable Overhead Rate, SH = Standard Hour Allowed, and AH = Actual Direct Labor Hours Used?

Inefficient usage of labor implies a(n)

The two variances for variable overhead are

Responsibility for the variable overhead spending variance is usually assigned to

A performance report for variable overhead reveals

The variable overhead efficiency variance claims to measure

The formula for calculating the variable overhead efficiency variance is

In a standard cost system, variable overhead is applied

The variable overhead spending variance is expressed as the difference between: