EBK CORNERSTONES OF COST MANAGEMENT
3rd Edition
ISBN: 8220100474972
Author: MOWEN
Publisher: CENGAGE L
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Chapter 9, Problem 27E
To determine
Indicate the most likely cause of the variance.
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Vincent Bassani has come to the accounting department for help in interpreting
his variance report. He says that he understands that last month was not a very good
one for output, but he really thought everyone put forth good effort, so he is confused
about the existence of an unfavorable labor efficiency variance. He cites as an example
of the workers' effort their willingness to work extra hours to get full output, even when
a whole week's worth of production had to be scrapped. He knew that his materials
costs would be higher, and that overtime would make his rate variance unfavorable,
but he certainly didn't think his workers had been inefficient.
Required:
Write a short note to Vincent explaining the probable cause of the unfavorable labor efficiency variance
The calculation of direct labour variances shows a favourable labour rate variance of £2,600 and an adverse labour efficiency variance of £3,200. Which
ONE of the following sentences is the best interpretation of this result?
C
O A. The department has introduced new methods of working and there have been overtime payments to compensate for extra hours of working
OB. A machine was not working, leading to idle time for which the employees should not be blamed
C. A lower grade of employee has been employed compared with the grade used for the budget, but the employees have taken a longer time to
complete the work required
D. The union has negotiated higher-than-expected pay increases
1. In 2020 standard cost variance analysis report presented by the controller of ABC Corporation, the labor cost variance shows that efficiency has resulted to favorable variance, while rate shows unfavorable variance. Which of the following could have been the reason for the said outcome?
a) The workers assigned in the production department were experienced and skilled individuals and relatively high paid
b) The workers assigned by the human resources management were unskilled and relatively low paid
c)The workers were pushed to over time due to inefficiency in making the product.
d) Low quality materials were used and caused more labor hours to be produced
2.
Which of the following would result to a favorable volume variance?
a)There is a favorable spending variance
b)Production is equal to sales
c)There is a favorable efficiency variance
d)Production is greater than budgeted
3. Which of the following…
Chapter 9 Solutions
EBK CORNERSTONES OF COST MANAGEMENT
Ch. 9 - Discuss the difference between budgets and...Ch. 9 - What is the quantity decision? The pricing...Ch. 9 - Why is historical experience often a poor basis...Ch. 9 - Prob. 4DQCh. 9 - How does standard costing improve the control...Ch. 9 - The budget variance for variable production costs...Ch. 9 - Explain why the direct materials price variance is...Ch. 9 - The direct materials usage variance is always the...Ch. 9 - The direct labor rate variance is never...Ch. 9 - Prob. 10DQ
Ch. 9 - Prob. 11DQCh. 9 - What is the cause of an unfavorable volume...Ch. 9 - Prob. 13DQCh. 9 - Explain how the two-, three-, and four-variance...Ch. 9 - Prob. 15DQCh. 9 - Prob. 1CECh. 9 - Direct Materials Usage Variance Refer to...Ch. 9 - Refer to Cornerstone Exercise 9.1. Guillermos Oil...Ch. 9 - Kavallia Company set a standard cost for one item...Ch. 9 - Yohan Company has the following balances in its...Ch. 9 - Standish Company manufactures consumer products...Ch. 9 - Variances Refer to Cornerstone Exercise 9.6....Ch. 9 - Standish Company manufactures consumer products...Ch. 9 - Mangia Pizza Company makes frozen pizzas that are...Ch. 9 - Mangia Pizza Company makes frozen pizzas that are...Ch. 9 - Refer to Cornerstone Exercise 9.9. Required: 1....Ch. 9 - Quincy Farms is a producer of items made from farm...Ch. 9 - During the year, Dorner Company produced 280,000...Ch. 9 - Zoller Company produces a dark chocolate candy...Ch. 9 - Oerstman, Inc., uses a standard costing system and...Ch. 9 - Refer to the data in Exercise 9.15. Required: 1....Ch. 9 - Chypre, Inc., produces a cologne mist using a...Ch. 9 - Refer to Exercise 9.17. Chypre, Inc., purchased...Ch. 9 - Delano Company uses two types of direct labor for...Ch. 9 - Jameson Company produces paper towels. The company...Ch. 9 - Madison Company uses the following rule to...Ch. 9 - Laughlin, Inc., uses a standard costing system....Ch. 9 - Prob. 23ECh. 9 - Prob. 24ECh. 9 - A company uses a standard costing system. At the...Ch. 9 - Prob. 26ECh. 9 - Prob. 27ECh. 9 - Haversham Corporation produces dress shirts. The...Ch. 9 - Plimpton Company produces countertop ovens....Ch. 9 - Algers Company produces dry fertilizer. At the...Ch. 9 - Misterio Company uses a standard costing system....Ch. 9 - Petrillo Company produces engine parts for large...Ch. 9 - Business Specialty, Inc., manufactures two...Ch. 9 - Vet-Pro, Inc., produces a veterinary grade...Ch. 9 - Refer to the data in Problem 9.34. Vet-Pro, Inc.,...Ch. 9 - Energy Products Company produces a gasoline...Ch. 9 - Nuevo Company produces a single product. Nuevo...Ch. 9 - Ingles Company manufactures external hard drives....Ch. 9 - As part of its cost control program, Tracer...Ch. 9 - Aspen Medical Laboratory performs comprehensive...Ch. 9 - Prob. 41P
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- In 2020 standard cost variance analysis report presented by the controller of ABC Corporation, the labor cost variance shows that efficiency has resulted to favorable variance, while rate shows unfavorable variance. Which of the following could have been the reason for the said outcome? a. The workers assigned by the human resources management were unskilled and relatively low paid b. The workers assigned in the production department were experienced and skilled individuals and relatively high paid c.Low quality materials were used and caused more labor hours to be produced d.The workers were pushed to over time due to inefficiency in making the product. . Which of the following would result to a favorable volume variance? a. There is a favorable spending variance b. Production is equal to sales c. Production is greater than budgeted d. There is a favorable efficiency variancearrow_forwardBrandt Gardner, the owner-manager of a small firm that manufactures feed processing equipment and round-hay bailers, is unhappy with the latest report on financial performance in the Kansas City, Missouri, plant. The company had recently installed a standard cost system in the Kansas City plant with the objective of controlling manufacturing costs. The performance report for the year ended revealed that the variances for materials, labor, and variable overhead were all within the desired ranges, but the fixed overhead spending and volume variances were both significantly unfavorable. Brandt wanted an explanation of the fixed overhead variances and a recommendation. Which do you think is more important for control of fixed overhead costs: the spending variance or the volume variance? Explain.arrow_forwardBelle Manufacturing has an unfavorable direct labor rate variance. Which of the following would be the most likely reason for this variance? * The company used lower-paid workers than they had expected. Employees took a longer amount of time to produce the product than expected. The company gave employees an unexpected raise due to union negotiations. Employees used more direct materials in the production process than expected.arrow_forward
- The following computations are incomplete. The missing items are labeled (a) through (d). identify each missing item by name (a through c) and show the missing value (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) Also, if the manager of the company left without arranging for a replacement, which variances would have been most affected?arrow_forwardLast year, a department's standard costing system reported an unfavorablevariable overhead spending variance and an unfavorable volume variance. Thedenominator activity level selected for allocating overhead to the product wasbased on 80% of capacity. If 100% of capacity had been selected instead as thedenominator level, how would the reported unfavorable spending and volumevariances be affected respectively? A. increase, inchangedB. increased , increasedC. unchanged, increasedD. unchanged, unchangedarrow_forward1)A firm follows labour hours to allocate fixed overhead. A positive volume variance occurs a) When managers controlled fixed overhead during the period b) When employees turned more productive c) When actual labour hours is less than budgeted labour hours d) When actual labour hours is more than budgeted labour hours 2) A firm follows machine hours to allocate machine related variable overhead. During the month, the firm reported adverse variable overhead spending variance and favorable variable overhead efficiency variance. It means a)The firm took more hours than standard hours but controlled machine expenses b) The firm controlled machine hours but incurred more expense on operating the machine c) Firm failed on both controlling machine hours and cost but production volume increases d) Firms controlled machine hours, controlled expenses but production volume declined 3) A firm uses machine hours to allocate overhead cost. During the period, budgeted variable overhead is…arrow_forward
- Critiquing a Cost Report; Preparing a Performance Report Frank Weston, supervisor of the Freemont Corporation’s matching department, was visibly upset after being reprimanded for his department’s poor performance over the prior month. The department’s cost control report is given below: “I just can’t understand all of these unfavorable variances,” Weston complained to the supervisor of another department. “When the boss called me in, 1 thought he was going to give me a pat on the back because 1 know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable.” Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The…arrow_forwardManagement should focus its sales and production efforts on the product or products that will provide a. the lowest product costs b. the lowest direct labor hours c. the highest sales revenue d. the maximum contribution margin The following data relate to direct labor costs for the current period: Standard costs 7,500 hours at $11.70 Actual costs 6,000 hours at $12.00 What is the direct labor time variance? a. $18,000 favorable b. $17,550 unfavorable c. $17,550 favorable d. $18,000 unfavorable Which of the following is not a factory overhead allocation method? a. factory costing b. multiple departmental rates c. activity-based costing d. single plantwide ratearrow_forwardWhy is the identification of favorable and unfavorable variances so important to a company? How can the identification of the variances help management control costs? Please explain. As you are considering the flexible budgeting topic of the week, it is important for you to look at this analysis as a significant contribution to the management of the company. Knowing what the bottom line profit or loss is important. But what is more important is to understand how your actual results varied in terms of units sold versus how the actual cost of each unit differed from the budget.arrow_forward
- In the last quarter Company X has sourced a higher grade of material for its main product the Gyro. The material is more expensive than the previous material used but it has been found that significantly less of the new material is needed for each unit of the Gyro produced than the previous material. Which variances would you expect to see in the operating statement of company X for the last quarter? A.An adverse material price variance A favourable material usage variance B.A favourable material price variance An adverse material usage variance C.An adverse material price variance An adverse material usage variance D.A favourable material price variance A favourable material usage variancearrow_forwardYour managerial accountant has provided you with the following variance report as it relates to direct labor: Price variance $12,000, favorable Quantity variance ($9,000), unfavorable Total variance $3,000, favorable Select all the reasonable qualitative considerations to this report. The quantity variance indicates that we exceeded our standards for direct labor quantity, and is therefore qualitatively unfavorable. The price variance is qualitatively favorable because it indicates that we are investing in more qualified and experienced employees, and thus have to provide an increased wage rate to compensate for the additional experience. These employees are able to provide our services at a higher quality. The price variance is qualitatively unfavorable because it indicates that we are hiring inexperienced employees. Their inexperience will reduce the quality of the service being provided. The total direct labor variance is qualitatively…arrow_forwardOverhead variances, service setting. Carlyle Capital Company offers financial services to its clients. Recently, Carlyle has experienced rapid growth and has increased both its client base and the variety of services it offers. The company is becoming concerned about its rising costs, however, particularly related to technology overhead. After some study, Carlyle determines that its variable and fixed technology overhead costs are both driven by the processing time involved in meeting client requests. This is typically measured in CPU units of their computer usage. Carlyle’s measure of output is the number of client interactions in a given period.arrow_forward
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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