Bundle: Financial & Managerial Accounting, Loose-leaf Version, 13th + CengageNOWv2, 1 term (6 months) Printed Access Card Corporate Financial ... Access Card for Managerial Accounting, 13th
13th Edition
ISBN: 9781305781429
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 22, Problem 22.4CP
Variance interpretation
Vanadium Audio Inc. is a small manufacturer of electronic musical Instruments. The plant manager received the following variable factory overhead report for the period:
Actual units produced: 15,000 (90% of practical capacity)
The plant manager is not pleased with the $12,320 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred;
Plant Manager: I just received this factory report for the latest month of operator. I'm not very pleased with these figures. Before these numbers go to headquarters, you and I will need to reach an understanding.
Controller Go ahead, what's the problem?
Plant Manager: What's the problem? Well, everything. Look at the variance. It’s too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well I don't believe that these costs are variable at all. I think they are fixed costs. As a result when we operate below capacity, the costs really don't go down at all. I'm being penalized for costs I have no control over at all I need this report to be redone to reflect this fact, if anything, the difference between actual and budget is essentially a volume variance. Listen. I know that you're a tear-payer. You really need to reconsider your assumptions on this one.
If you were in the controller’s position, how would you respond to the plant manager?
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Vanadium Audio Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the past month of operations:
Actual units produced: 15,000 (90% of practical capacity)
The plant manager is not pleased with the $12,320 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:
Plant Manager: I just received this factory report for the latest month of operations. I’m not very pleased with these figures. Before these numbers go to headquarters, you and I need to reach an understanding.
Controller: Go ahead. What’s the problem?
Plant Manager: What’s the problem? Well, everything. Look at the variance. It’s too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I don’t believe…
Required information
[The following information applies to the questions dispiayed below]
Alvarez Company for the current period shows a $22,000 favorable volume variance and a $59.000 unfavorable
controllable variance. Standard overhead applied for the period is $233,000.
Alvarez records standard costs in its accounts. Prepare the journal entry to charge overhead costs to the Work in Process Inventory
account and to record any variances.
View transaction list
Journal entry worksheet
A
Record overhead applied to production and overhead variances.
Note: Enter debits before credits.
Transaction
General Journal
Debit
Credit
1
Record entry
Clear entry
View general journal
The director of cost management for Odessa Company uses a statistical control chart to help management determine when to
investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances
during the first six months of the current year.
January
February
March
April
May
June
$ 300 F
850 U
750 U
950 U
1,100 U
1,480 U
The standard direct-labor cost during each of these months was $24,000. The controller has estimated that the firm's monthly direct-
labor variances have a standard deviation of $1,000.
Required:
2-a. Determine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater than 6
percent of standard cost.
2-b. Based on the cutoff value, which month will have its direct-labor efficiency variance investigated?
Complete this question by entering your answers in the tabs below.
Req 2A
Reg 2B
Determine the cutoff value for investigation if the…
Chapter 22 Solutions
Bundle: Financial & Managerial Accounting, Loose-leaf Version, 13th + CengageNOWv2, 1 term (6 months) Printed Access Card Corporate Financial ... Access Card for Managerial Accounting, 13th
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What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY