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22 Variance analysis – interpretation

1 Which of the following would help to explain an adverse direct material price variance? (i) The
material purchased was of a higher quality than standard (ii) A reduction in the level of
purchases meant that expected bulk discounts were forgone (iii) The standard price per unit of
direct material was unrealistically high A All of them B (i) and (ii) only C (ii) and (iii) only D (i) and
(iii) only
Questions 2 Which of the following would help to explain a favourable direct labour efficiency
variance? (i) Employees were of a lower skill level than specified in the standard (ii) Better
quality material was easier to process (iii) Suggestions for improved working methods were
implemented during the period A All of them B (i) and (ii) only C (ii) and (iii) only D (i) and (iii)
only
3 Which of the following is not a reason for an idle time variance? A Wage rate increase B
Machine breakdown C Non-availability of material D Illness or injury to worker
4 Which of the following would help to explain a favourable direct material usage variance? (i)
The material purchased was of a higher quality than standard (ii) Losses due to evaporation
were less than expected (iii) Activity levels were lower than budget therefore less material was
used A All of them B (i) and (ii) only C (ii) and (iii) only D (i) and (iii) only
5 Which of the following would help to explain a favourable direct labour rate variance? (i)
Employees were of a lower grade than standard (ii) The standard hourly rate of pay was set
unrealistically high (iii) A pay increase which had been anticipated in the budget was not
awarded A All of them B (i) and (ii) only C (ii) and (iii) only D (i) and (iii) only
6 Put the reasons for variances listed below into the correct place in the tables. Machine
breakdown Defective material More economical use of non-material resources Wage rate
increase Unforeseen discounts received Lack of training of production workers

7 A company revises its standards at the beginning of each year. Because of inflation, it sets its
standard price for materials at the estimated price level for the middle of the year. During one
control period early in the year, a fairly large favourable direct materials price variance was
reported. Which of the following would help to explain this variance? (i) The control period was
early in the year (ii) Direct materials were purchased in greater bulk than usual (iii) Discounts
were taken from suppliers for early settlement of invoices A All of them B (i) and (ii) only C (ii)
and (iii) only D (i) and (iii) only

8 If a more expensive material than the standard material is used in the production of product A,
there will be an adverse material price variance. Which of the following might be an interrelated
variance? Put a tick in all boxes that apply. A favourable sales volume variance A favourable
labour efficiency variance A favourable material usage variance A favourable sales price
variance
9 The following variances are extracted from the monthly management accounts of SG Co.
Direct material total variance $800 (A) Direct material usage variance $1,200 (F) Which of the
following statements are consistent with these variances? (i) High quality material was
purchased, which led to a lower level of quality control rejects of completed output (ii) Rapid
inflation affected the price of the company's raw material so efforts were made to reduce the
quantity of material used per unit of output A (i) only B (ii) only C (i) and (ii) D Neither of the
statements is consistent with the variances

10 Which of the following would help to explain an adverse variable production overhead
efficiency variance? (i) Employees were of a lower skill level than specified in the standard (ii)
Unexpected idle time resulted from a series of machine breakdowns (iii) Poor quality material
was difficult to process A All of them B (i) and (ii) only C (ii) and (iii) only D (i) and (iii) only

Which of the following is not a suitable basis for valuing the sales volume variance? A Selling
price B Contribution C Absorption rate D Profit ans - absorption rate

Budgeted sales 40,000 units Standard selling price $50 per unit Standard contribution $26 per
unit Fixed cost per unit $4 per unit Actual sales 42,000 units Average selling price $49 Calculate
the sales volume revenue variance
Ans - 40k-42k = 2k F*50 = 1 lakhF

19th
4 R Co uses a standard costing system. The budget for one of its products for September
includes direct labour cost (based on 4 hours per unit) of $117,600. During September 3,350
units were made which was 150 units less than budgeted. The direct labour cost incurred was
$111,850 and the number of direct labour hours worked was 13,450. (a) The direct labour rate
variance for the month was
Ans -

5 Budgeted prodc 200 units. 260 acual prod std labour cost per unit was $70 (10 @ $7 per
hour). actual labour cost $18,600 ,abour force worked 2,200 hours although they were paid for
2,300 hours. - the std format eg is
DL 4.5 hours@6.40 per hour =xyx-this xyz amt dosent matter
Here DL 10 hours @7 $ per hour = 70$
(c) idle time var
Ans -

8 800 units actual prod , adv labour efficiency -26K. Workers were paid $8 per hour, total
wages were $294,800 and there was a nil rate variance. Standard hours per unit =

9 17,500 labour hours were worked at a std cost of $6.50 per hour.labour efficiency var was
$7,800 favourable.std hours produced?
10 12,250 units were made & there was a fav labour efficiency $11,250. 41K labour hours were
worked & std wage rate was $6 per hour, std hours allowed per unit?

21
7 abs costing . Budgeted sales (units) 7,100 Actual sales (units) 6,600 Actual sales revenue
262,750 Sales price var $1,250 (A) std SP per unit?
Ans
6std abs costing. Std cost 62 Budgeted sales (units) 14,200 Actual sales (units) 13,200 Sales
price var,500 (A) Sales vol var 9K (A) (based on profit margin) sales revenue ?

5 std MC $56, std SP$140. Budgeted sales 3,000 units but actually 3,200 were sold at a price of
$120. actual contri margin achieved on these units was $55.. Sales vol contri ?
Ans - 140-56 = std contri per unit