Test Bank - Chapter 17

Chapter 17
Additional Topics in Variance Analysis
Part B: Computational Questions
Use the following to answer questions 68-70:
The Heavenly Gifts Company, a maker of Holiday novelties, needs your help immediately. The
company's accountant resigned without leaving adequate records or explanations for what she did. In
reviewing the records, you find the following budgeted information for May 2007:
Materials purchased 20,000 units @ $0.60 each

Materials used 15,000 units
You find a copy of the budget which shows that $6,000 was budgeted for fixed overhead and $9,500 for
variable overhead, both when 10,000 direct labor-hours are budgeted for the month. Fixed and variable
overhead are applied to production using the standard direct labor hours allowed for production.
You know that the materials price variance is recorded at the time of purchase and you find some
handwritten notes among the accountant's work papers, which indicate the following:
Materials price variance $200F

Materials efficiency (quantity) variance $600F
68. What was the total actual cost of the direct materials purchased during May?
A) $ 9,000
B) $11,800
C) $12,000
D) $12,200
E) Some other answer _______________.
Answer: B Difficulty: Moderate Learning Objective: 1
Response:
(AP - $.60) x 20,000 = $200 F; AP = $.59
$.59 x 20,000 = $11,800
AACSB: Analytic
69. What was the total standard cost of direct materials purchased during May?
A) $ 9,150
B) $11,800
C) $12,000
D) $12,200
Test Bank, Chapter 17 457

Answer: C Difficulty: Simple Learning Objective: 1
Response: 20,000 x $.60 = $12,000
AACSB: Analytic
70. What was the total standard cost of direct materials used during May?
A) $ 8,260
B) $ 8,400
C) $ 9,440
D) $ 9,600
Answer: D Difficulty: Moderate Learning Objective: 1
Response:
(15,000 - SQA) x $.60 = $600 F; SQA = 16,000
16,000 x $.60 = $9,600
AACSB: Analytic
71. The Wilbur Company gathered the following information for 2007.
Product K Product R Total

Budgeted sales mix (units) 40% 60% 100%
Budgeted and actual sales price $48 $36
Budgeted variable cost per unit $32 $24
Actual sales (units) 126,000
Actual sales mix 60% 40% 100%
Fixed costs $ 80,000
What is the total sales mix variance?

A) $705,600
B) $403,200
C) $302,400
D) $100,800
E) some other answer _______________.
Response:
[(50,400 - 75,600) x $16] + [(75,600 - 50,400) x $12] = ($403,200 F) + ($302,400 U) = $100,800
AACSB: Analytic
A machine distributor sells two models, basic and deluxe. The following information relates to its 2006
master budget.
Basic Deluxe
458 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

Sales (units) 8,000 2,000
Sales price per unit $8,000 $12,000
Variable costs per unit $6,400 $ 9,000
Actual sales for 2006 were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the
same as the budgeted sales prices for both models.
72. What is the 2006 sales mix variance for the basic model based on the sales price per unit?
A) $1,280,000
B) $3,360,000
C) $6,720,000
D) $8,000,000
Answer: C Difficulty: Moderate Learning Objective: 3
Response: 840 x $8,000 = $6,720,000

AACSB: Analytic
73. Is the sales mix variance for the basic model favorable or unfavorable?
A) favorable.
B) unfavorable.
Answer: A Difficulty: Simple Learning Objective: 3

AACSB: Analytic
74. What is the 2006 sales activity variance for the basic model based on the sales price per unit?
A) $1,280,000
B) $3,360,000
C) $6,720,000
D) $8,000,000
Answer: D Difficulty: Simple Learning Objective: 3
Response: (7,000 - 8,000) x $8,000 = $8,000,000

AACSB: Analytic
75. Is the sales activity variance for the basic model favorable or unfavorable?
A) favorable.
B) unfavorable.
Answer: B Difficulty: Simple Learning Objective: 3

AACSB: Analytic

76. What is the 2006 sales mix variance for the basic model based on the contribution margin per
unit?
A) $ 256,000
B) $1,344,000
C) $1,600,000
D) $2,520,000
Response: 840 x ($8,000 - $6,400) = $1,344,000

AACSB: Analytic
77. Is the sales mix variance for the basic model favorable or unfavorable?
A) favorable.
B) unfavorable.

AACSB: Analytic
78. What is the 2006 sales quantity variance for the basic model based on the contribution margin per
unit?
A) $ 120,000
B) $ 256,000
C) $1,344,000
D) $1,600,000
Response: (9,800 - 10,000) x (8,000/10,000) x ($8,000 - $6,400) = $256,000

AACSB: Analytic
79. Is the sales quantity variance for the basic model favorable or unfavorable?
A) favorable.
B) unfavorable.

AACSB: Analytic
80. What is the 2006 sales mix variance for the deluxe model based on the contribution margin per
unit?
A) $1,176,000
B) $1,344,000

C) $2,400,000
D) $2,520,000
Response: x ($12,000 - $9,000) = $2,520,000

AACSB: Analytic
81. Is the sales mix variance for the deluxe model favorable or unfavorable?
A) favorable.
B) unfavorable.

AACSB: Analytic
82. What is the 2006 sales activity variance for the deluxe model based on the contribution margin
per unit?
A) $ 400,000
B) $ 800,000
C) $1,600,000
D) $2,400,000
Response: (2,800 - 2,000) x ($12,000 - $9,000) = $2,400,000

AACSB: Analytic
83. Is the sales activity variance for the deluxe model favorable or unfavorable?
A) favorable.
B) unfavorable.

AACSB: Analytic
The XYZ Company had the following expectations for 2007:

Total market for the product 175,000 units
XYZ's budgeted sales volume $1,763,125
Variable costs per unit $18.75
Selling price per unit $32.50
Actual results for 2007 were:

XYZ's budgeted sales volume 56,525
Total variable costs $1,073,975
Total sales $1,752,275
84. What is XYZ's market share variance for 2007?

A) $ 37,296.88
B) $ 40,906.25
C) $ 35,700.00
D) $ 32,550.00
Answer: A Difficulty: Moderate Learning Objective: 3
Response: (166,250 - 175,000) x [($1,763,125/$32.50)/175,000] x ($32.50 - $18.75) =

$37,296.88
AACSB: Analytic
85. Is the market share variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
The next year's budget for Green, Inc., a multi-product company, is given below:
Product A Product B
Sales $1,890,000 $1,377,000
Variable costs 926,100 596,700
Fixed costs 500,000 500,000
Net income 463,900 280,300
Units 252,000 108,000
At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but
the following units per product line were sold. Green analyzes the effects its sales variances have on the
profitability of the company.
Product lines Units Sales

A 253,230 $1,848,579
B 113,770 $1,479,010
86. What is the total sales price variance?

A) $22,203.50

B) $28,442.50
C) $50,646.50
D) $79,088.50
Answer: A Difficulty: Complex Learning Objective: 3
Response:
A: $1,890,000/252,000 = $7.50; $1,848,579/253,230 = $7.30
B: $1,377,000/108,000 = $12.75; $1,479,010/113,770 = $13.00
[($7.30 - $7.50) x 253,230] + [($13.00 - $12.75) x 113,770] = $22,203.50 U
AACSB: Analytic
87. Is the total sales price variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
88. What is the total sales mix variance?

A) $12,478.00
B) $20,815.00
C) $33,915.00
D) $40,553.50
Response:
A: 252,000/360,000 = .70; 253,230/367,000 = .69
B: 108,000/360,000 = .30; 113,770/367,000 = .31
[(.69 - .70) x 367,000 x $3.825] + [(.31 - .30) x 367,000 x $7.225] = $12,478.00 F
AACSB: Analytic
89. Is the total sales mix variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
90. What is the total sales quantity variance?

A) $ 3,570.00
B) $20,815.00

C) $33,915.00
D) $40,553.50
Answer: C Difficulty: Complex Learning Objective: 3
Response:
[(367,000 – 360,000) x .70 x $3.825] + {(367,000 – 360,000 x .30 x $7.225] = $33,915 F
AACSB: Analytic
91. Is the total sales quantity variance favorable or unfavorable?

A) favorable
B) unfavorable

AACSB: Analytic
The Genes Company makes a product, Z, from two materials: X and Y. The standard prices and
quantities are as follows:
X Y
Price per pound $6 $9
Pounds per unit of product Z 10 5
In May, 21,000 units of Z were produced by Genes Company, with the following actual prices
and quantities of materials used:
X Y
Price per pound $5.70 $8.40
Pounds used 216,000 114,000
92. What is the total direct materials mix variance for May?
A) $12,000
B) $24,000
C) $36,000
D) $60,000
Response: X: 216,000 [(10/15) x (216,000 + 114,000)] x $6 = $24,000 F

Y: 114,000 [(5/15) x (216,000 + 114,000)] x $9 = $36,000 U
Total mix variance = $12,000 U
AACSB: Analytic

93. Is the total direct materials mix variance favorable or unfavorable?
A) favorable
B) unfavorable

AACSB: Analytic
94. What is the total direct material yield variance for May?
A) $ 45,000
B) $ 81,000
C) $109,800
D) $117,000
Response: [(216,000 - 210,000) x $6] + [(114,000 - 105,000) x $9] = $117,000 U

AACSB: Analytic
95. Is the total direct material yield variance favorable or unfavorable?

A) favorable
B) unfavorable

AACSB: Analytic
The Kinetic Modification Group (KMG) produces a gasoline additive, Gas Gain. This product increases
engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion
process. Careful controls are required during the production process to insure that the proper mix of input
chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the
controls are not effective.
The standard cost of producing a 500liter batch of Gas Gain is $135. The standard materials mix and
related standard cost of each chemical used in a 500liter batch are:
Standard Input Standard Cost Total

Chemical Quantity in Liters per Liter Cost
Echol 200 $.200 $ 40.00
Protex 100 .425 42.50
Benz 250 .150 37.50
CT-40 50 .300 15.00
600 $135.00
The quantities of chemicals purchased and used during the current production period are shown in the
schedule below. A total of 140 batches of Gas Gain were manufactured during the current production

period. Silly Willy, the controller of KMG, determines its costs and chemical usage variations at the end
of each production period.
Quantity Purchased Total Quantity Used

Chemical (Liters) Purchase Price (Liters)
Echol 25,000 $5,365 26,600
Protex 13,000 6,240 12,880
Benz 40,000 5,840 37,800
CT-40 7,500 2,220 7,140
85,500 84,420
96. If KMG recognizes all variances at the earliest possible moment, what is the total material price
variance?
A) $ 160
B) $ 540
C) $ 890
D) $1,270
Response:
{[($5,365/25,000) - .200] x 25,000} + {[($6,240/13,000) - .425] x 13,000}
+ {[($5,840/40,000) - .150] x 40,000} + {[($2,220/7,500) - .300] x 7,500} = $890 U
AACSB: Analytic
97. Is the total material price variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
98. What is the total materials yield variance?

A) $388.50
B) $294.50
C) $280.00
D) $ 94.50
Answer: D Difficulty: Complex Learning Objective: 4
Response:
[[(200/600)84,420(.20)]+[(100/600)(84,420)(.425)]+[(250/600)(84420)(.150)]+{(50/600)
(84,420)(.3)]- [(200/600)(84,000) x .200] ]+ [[(100/600)(84,000) x .425] + [(250/600)(84000) x .
150] + [(50/600)(84000) x .300]] = $94.50 U

AACSB: Analytic
99. Is the materials yield variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
100. What is the total materials mix variance?

A) $476.00
B) $420.00
C) $388.33
D) $280.00
Response: ($.2204 - $.225) x 84,420 = $388.33 F

AACSB: Analytic
101. Is the materials mix variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
A company makes a product using two materials, one of which is interchangeable with a third material.
The standards for producing one 200-pound batch are presented below. The last 200-pound batch was
produced using 140 pounds of M and 90 pounds of O. The price of M was $.03 per pound and the actual
price of O was $.10.
Standard LBS Standard

Material Quantity (lbs) Cost/lb. Total Cost
O 0 $.10 $ 0
H 80 .08 6.40
M 120 .02 2.40
200 $8.80
102. What is the materials mix variance?

A) $1.68
B) $3.00
C) $1.32
D) $ .84
Answer: B Difficulty: Complex Learning Objective: 4
Response:
O: [(90/230) x 230 x .10)] - [(0/200 x 200 x .10] = $9.00 U
M: [(140/230) x 230 x .02] - [(120/200) x 200 x .02] = $.40 U
H: [(0/230) x 230 x .08] - [(80/200) x 200 x .08] = $6.40 F
Total mix variance = $9.40 U + $.40 U + $6.40 F = $3.00 U
AACSB: Analytic
103. Is the materials mix variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
104. What is the materials yield variance?

A) $1.12
B) $1.68
C) $3.00
D) $1.32
Response: (230 - 200) x ($8.80/200) = $1.32 U

AACSB: Analytic
105. Is the materials yield variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic

Tiger Company's direct labor cost for March was as follows:
Actual direct labor hours 30,000

Standard direct labor hours 31,500
Rate variance $4,500 U
Total payroll $189,000
Labor mix variance $4,225 U
106. What was Tiger's direct labor yield variance?

A) $13,450
B) $ 9,675
C) $ 9,225
D) $ 5,000
Response:
$4,500 = $189,000 - (30,000 x SR); SR = $6.15
Efficiency variance = (30,000 - 31,500) x $6.15; EV = $9,225 F
$9,225 F = $4,225 U + Yield variance; Yield variance = $13,450 F
AACSB: Analytic
107. Is the direct labor yield variance favorable or unfavorable?

A) favorable.
B) unfavorable.

AACSB: Analytic
Total payroll $165,300

Standard direct labor hours 45,000
Labor rate variance $ 8,700 F
Labor mix variance $ 4,000 F
Labor yield variance $ 2,000 F
108. What was the standard direct labor rate?

A) $3.50
B) $3.80
C) $4.00
D) $5.80

Response:
Efficiency variance = $4,000 F + $2,000 F = $6,000 F
(AH - 45,000) x SR = $6,000; $165,300 - (AH x SR) = 8,700; SR = $4.00
AACSB: Analytic
109. What was Sample's actual direct labor rate?

A) $3.60.
B) $3.70.
C) $3.80.
D) $3.90.
Response: $165,300 - (AH x $4.00) = $8,700; AH = 43,500

(AR - $4.00) x 43,500 = 8,700 F; AR = $3.80
AACSB: Analytic
Part C: Professional Examination Questions
110. Which of the following is not an acceptable treatment of factory overhead variances at an interim
reporting date? (CPA adapted)
A) Apportion the total only among work-in-process and finished goods inventories on hand at
the end of the interim reporting period.
B) Apportion the total only between that part of the current period's production remaining in
inventories at the end of the period and that part sold during the period.
C) Carry forward the total to be offset by opposite balances in later periods.
D) Charge or credit the total to the cost of goods sold during the period.

AACSB: Analytic
111. The budget for a given cost during a given period was $80,000. The actual cost for the period was
$72,000. Considering these facts, the plant manager has done a better-than-expected job in
controlling the cost if (CPA adapted)
A) the cost is variable and actual production was 90% of budgeted production.
B) the cost is variable and actual production equals budgeted production.
C) the cost is variable and actual production was 80% of budgeted production.
D) the cost is a discretionary fixed cost and actual production equals budgeted production.

AACSB: Analytic
112. For a company that produces more than one product, the sales volume variance can be divided

into which two of the following additional variances? (CMA adapted)
A) Sales price variance and flexible budget variance.
B) Sales mix variance and sales price variance.
C) Sales efficiency variance and sales price variance.
D) Sales quantity variance and sales mix variance.
Answer: D Difficulty: Complex Learning Objective: 3

AACSB: Analytic
113. Actual and budgeted information about the sales of a product are presented below for June: (CIA
adapted)
Actual Budget
Units 8,000 10,000
Sales Revenue $92,000 $105,000
The sales price variance for June was

A) $ 8,000 favorable.
B) $ 8,000 unfavorable.
C) $10,000 unfavorable.
D) $10,500 unfavorable.
E) $10,500 favorable.
Response: [($92,000/8,000) - ($105,000/10,000)] x 8,000 = $8,000 F

AACSB: Analytic
114. The exhibit below reflects a summary of performance for a single item of a retail store's inventory
for the month ended April 30, 2007. (CIA adapted)
Flexible Static
Actual Budget Flexible (Master)
Results Variances Budget Budget
Sales (units) 11,000 -- 11,000 12,000
Revenue (sales) $208,000 $12,000 U $220,000 $240,000
Variable costs 121,000 11,000 U 110,000 120,000
Contribution margin $ 87,000 $23,000 U $110,000 $120,000
Fixed costs 72,000 -- 72,000 72,000
Operating Income $ 15,000 $23,000 U $38,000 $ 48,000
The sales volume variance is

A) $10,000 favorable.
B) $10,000 unfavorable.
C) $11,000 favorable.
E) $12,000 favorable.

Response: $120,000 - $110,000 = $10,000 U

AACSB: Analytic
Folsom Fashions sells a line of women's dresses. Folsom's performance report for November is shown
below. (CMA adapted)
The company uses a flexible budget to analyze its performance and to measure the effect on operating
income of the various factors affecting the difference between budgeted and actual operating income.
Actual Budget
Dresses sold 5,000 6,000
Sales $235,000 $300,000
Variable costs ( 145,000 ) ( 180,000 )
Contribution margin $ 90,000 120,000
Fixed Costs ( 84,000 ) ( 80,000 )
Operating income $ 6,000 $ 40,000
115. The effect of the sales quantity variance on the contribution margin for November is
A) $30,000 unfavorable.
Response: (5,000 - 6,000) x ($120,000/6,000) = $20,000 U

AACSB: Analytic
116. The sales price variance for November is

A) $30,000 unfavorable.
Response: ($50 - $47) x 5,000 = $15,000 U

AACSB: Analytic
117. The variable cost flexible budget variance for November is

A) $5,000 favorable.
C) $4,000 favorable.
Response: $145,000 - [($180,000/6,000) x 5,000] = $5,000 F

AACSB: Analytic
118. What additional information is needed for Folsom to calculate the dollar impact of a change in
market share on operating income for November? (CMA adapted)
A) Folsom's budgeted market share and the budgeted total market size.
B) Folsom's budgeted market share, the budgeted total market size, and average market selling
price.
C) Folsom's budgeted market share and the actual total market size.*
D) Folsom's actual market share and the actual total market size.

AACSB: Analytic
Essay Questions
119. Marie Enterprises produces two products two products, AR-10 and AR-7. Actual and budgeted
information for the year ending April 30, 2006 is provided below:
Product AR-10 Product AR-7

Budget Actual Budget Actual
Units sales 2,000 2,800 6,000 5,600
Sales $6,000 $7,560 $12,000 $11,760
Fixed Costs 1,800 1,900 2,400 2,800
Variable Costs 2,400 2,800 6,000 5,880
Required:
(A) Compute the net effect on income of the sales activity variance for each product.
(B) Compute the net effect on income of the sales mix variance for each product.
(C) Compute the net effect on income of the sales price variance for each product.
Answer:
a.
AR-10 Sales Activity = (2800*.33*1.8) – (2000*.25*1.8)
= 1663 – 900
= $763 F
AR- 7 Sales Activity = (5600*.66*1) – (6000*.75*1)

= 3696 – 4500
= $804 U

Total Sales Activity Variance = 763 F + 804 U = 41 U
b and c.
Actual Actual Sales Bud. Sales Budgeted Sales Mix
Units x Mix % - Mix % x CM = Variance
AR-10 2800 0.33 0.25 1.8 420F
AR-7 5600 0.66 0.75 1 504U
84U
Actual Budgeted Units Sales-Price

Price - Price x Sold = Variance
AR-10 3.00 2.70 2800 840U
AR-7 2.00 2.10 5600 560F
280U
AACSB: Analytic
120. The next year's budget for Green, Inc., a multi-product company, is given below:
Product A Product B
Sales $1,890,000 $1,377,000
Variable costs 926,100 596,700
Fixed costs 500,000 500,000
Net income $ 463,900 $ 280,300
Units 252,000 108,000
At the end of the year, the total fixed costs and the variable costs per unit were exactly as
budgeted, but the following units per product line were sold. Green analyzes the effects its sales
variances have on the profitability of the company.
Product line Units Sales

A 253,230 $1,848,579
B 113,770 $1,479,010
Required:
(A) Compute the sales price variance for each product.
(B) Compute the sales mix variance for each product.
(C) Compute the sales quantity variance for each product.
(D) Compute the market share and industry volume variance for each product assuming the
following information.
Market Shares
Product Actual Budget
A 15.0% 12.5%
B 17.0% 20.0%
Answer:
(a)
A: $1,890,000/252,000 = $7.50; $1,848,579/253,230 = $7.30
[($7.30 - $7.50) x 253,230] = $50,646 U

B: $1,377,000/108,000 = $12.75; $1,479,010/113,770 = $13.00
[($13.00 - $12.75) x 113,770] = $28,443 F
(b)
A: 252,000/360,000 = .70; 253,230/367,000 = .69
[(.69 - .70) x 367,000 x $3.825] = $14,037.75 U
B: 108,000/360,000 = .30; 113,770/367,000 = .31
[(.31 - .30) x 367,000 x $7.225] = $26,515.75 F
(c)
A: [(367,000 – 360,000) x .70 x $3.825] = $18,742.50 F
B: [(367,000 – 360,000) x .30 x $7.225] = $15,172.50 F
Sales-
a. Actual Budgeted Units Price
Price - Price x Sold = Variance
Product A 7.50 7.30 253,230 50646U
Product B 12.75 13.00 113,770 28443F
22204U
b. Actual Actual Sales Bud. Sales Budgeted Sales Mix

Units x Mix % - Mix % x CM = Variance
Product A 253230 0.69 0.70 3.825 9686.05F
Product B 113770 0.31 0.30 7.225 8219.88U
1466.17F
Sales-
c. Actual Budgeted Budgeted Budgeted Quantity
Units Sold - Units Sold x Sales Mix x CM = Variance
Product A 253230 252000 0.70 3.825 3293.33F
Product B 113770 108000 0.30 7.225 12506.48F
15799.81 F
Actual Market
d. Actual Market Budgeted Bud. CM/ Share
Market Size x Share - Market Share x Comp. Unit = Variance
Product A 253230 0.15 0.125 3.825 24215.12F
Product B 113770 0.17 0.20 7.225 24659.65U
444.53F
Budgeted
Actual Market Budgeted Bud. CM/ Market Size
Market Size - Size x Market Share x Comp. Unit = Variance
Product A 253230 252000 0.125 3.825 588.09F
Product B 113770 108000 0.20 7.225 8337.65F
8925.74F
AACSB: Analytic
121. The XYZ Company had the following expectations for 2007:

XYZ's budgeted sales volume $1,763,125
Variable costs per unit $18.75
Selling price per unit $32.50
Actual results for 2000 were:
XYZ's sales volume (units) 56,525
Total variable costs $1,073,975
Total sales $1,752,275
Required: (Be sure to indicate whether the variance is favorable or unfavorable.)

(A) Compute XYZ's market share variance for 2007.
(B) Computer XYZ's industry volume variance 2007.
Answer:
a.
Actual market share = 56,525/166,250 = .34
Budgeted market share = ($1,763,125/$32.50)/175,000 = 54,250/175,000 = .31
Market share variance = (.34 - .31) x 166,250 x ($32.50 - $18.75) = $68,578.13 F
b.
(166,250 – 175,000) x (54,250/175,000] x ($32.50 - $18.75) = $37,296.88 U
AACSB: Analytic
122. A chemical company in the Midwest produces a solvent used by manufacturers of plastics. Three
basic chemicals go into this solvent. The standards for one-liter of this product are:
Chemical A 500 ml. @ $10 per liter

Chemical B 100 ml. @ $50 per liter
Chemical C 400 ml. @ $20 per liter
During the last period, 10,000 liters of the solvent were produced and the company purchased the
following amounts of each chemical:
Chemical A 6,400 liters @ $9.00 per liter

Chemical B 900 liters @ $75.00 per liter
Chemical C 4,200 liters @ $20.00 per liter
Because these chemicals are volatile, the company uses them immediately upon purchase, so
there are no beginning and ending inventories.
Required:
(a) Compute the direct material price and efficiency variances.
(b) Compute the direct material mix and yield variances.
Answer:
a.
Chemical A
Price variance = (6,400 x $9) – (6,400 x $10) = $6,400 F
Efficiency variance = (6,400 x $10) – (.5 x 10,000 x $10) = $14,000 U
Chemical B
Price variance = (900 x $75) – (900 x $50) = $22,500 U

Efficiency variance = (900 x $50) – (.1 x 10,000 x $50) = $5,000 F
Chemical C
Price variance = (4,200 x $20) – (4,200 x $20) = $0 F
Efficiency variance = (4,200 x $20) – (.4 x 10,000 x $20) = $4,000 U
b.
Chemical A
Mix variance = (6,400 x $10) – (.5 x 11,500 x $10) = $6,500 U
Yield variance = (.5 x 11,500 x $10) – (.5 x 10,000 x $10) = $7,500 U
Chemical B
Mix variance = (900 x $50) – (.1 x 11,500 x $50) = $12,500 F
Chemical C
Mix variance = (4,200 x $20) – (.4 x 11,500 x $20) = $8,000 F
AACSB: Analytic
123. A company's direct labor standards for a given operation and the actual results for the current
period are provided below:
Standard rates:
Level One $20 per hour
Level Two $15 per hour
Time to produce one unit:

Two (2) Level One workers at 15-minutes each
Three (3) Level Two workers at 10 minutes each
Actual Results:
Units produced: 10,000
Labor used:
4,000 hours of Level One workers at $25 per hour
6,800 hours of Level Two workers at $15 per hour
Required:
(a) Compute the labor price (rate) and efficiency variances for each worker level.
(b) Compute the labor mix and labor yield variances for each worker level.
Answer:
a.
Level One
Rate variance = (4,000 x $25) – (4,000 x $20) = $20,000 U
Efficiency variance = (4,000 x $20) – (2 x .25 x $20 x 10,000) = $20,000 F
Level Two
Rate variance = (6,800 x $15) – (6,800 x $15) = $0 F
Efficiency variance = (6,800 x $15) – (3 x 1/6 x $15 x 10,000) = $27,000 U

b.
Level One
Mix variance = (4,000 x $20) – (.5 x 10,800 x $20) = $28,000 F
Yield variance = (.5 x 10,800 x $20) – (2 x .25 x $20 x 10,000) = $8,000 U
Level Two
Mix variance = (6,800 x $15) – (.5 x $15 x 10,800) = $21,000 U
(.5 x $15 x 10,800) - (3 x 1/6 x $15 x 10,000) = $6,000 U
AACSB: Analytic

Test Bank - Chapter 17

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Test Bank - Chapter 17

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Chapter 17

Additional Topics in Variance Analysis

Part B: Computational Questions

Use the following to answer questions 68-70:

Materials purchased 20,000 units @ $0.60 each

Materials price variance $200F

Answer: B Difficulty: Moderate Learning Objective: 1

Test Bank, Chapter 17 457

Answer: D Difficulty: Moderate Learning Objective: 1

Product K Product R Total

What is the total sales mix variance?

Answer: D Difficulty: Moderate Learning Objective: 3

Use the following to answer questions 72-83:

458 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

Answer: C Difficulty: Moderate Learning Objective: 3

Response: 840 x $8,000 = $6,720,000

Answer: A Difficulty: Simple Learning Objective: 3

Answer: D Difficulty: Simple Learning Objective: 3

Response: (7,000 - 8,000) x $8,000 = $8,000,000

Answer: B Difficulty: Simple Learning Objective: 3

Test Bank, Chapter 17 459

Answer: B Difficulty: Moderate Learning Objective: 3

Response: 840 x ($8,000 - $6,400) = $1,344,000

Answer: B Difficulty: Simple Learning Objective: 3

Answer: B Difficulty: Moderate Learning Objective: 1

Response: (9,800 - 10,000) x (8,000/10,000) x ($8,000 - $6,400) = $256,000

Answer: B Difficulty: Moderate Learning Objective: 3

460 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

Answer: D Difficulty: Moderate Learning Objective: 1

Response: x ($12,000 - $9,000) = $2,520,000

Answer: A Difficulty: Simple Learning Objective: 3

Answer: D Difficulty: Moderate Learning Objective: 3

Response: (2,800 - 2,000) x ($12,000 - $9,000) = $2,400,000

Answer: A Difficulty: Simple Learning Objective: 3

Use the following to answer questions 84-85:

The XYZ Company had the following expectations for 2007:

Actual results for 2007 were:

Test Bank, Chapter 17 461

84. What is XYZ's market share variance for 2007?

Answer: A Difficulty: Moderate Learning Objective: 3

Response: (166,250 - 175,000) x [($1,763,125/$32.50)/175,000] x ($32.50 - $18.75) =

85. Is the market share variance favorable or unfavorable?

Answer: B Difficulty: Simple Learning Objective: 3

Use the following to answer questions 86-91:

Product lines Units Sales

86. What is the total sales price variance?

462 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

Answer: A Difficulty: Complex Learning Objective: 3

87. Is the total sales price variance favorable or unfavorable?

Answer: B Difficulty: Simple Learning Objective: 3

88. What is the total sales mix variance?

Answer: A Difficulty: Complex Learning Objective: 3

89. Is the total sales mix variance favorable or unfavorable?

Answer: A Difficulty: Simple Learning Objective: 3

90. What is the total sales quantity variance?

Test Bank, Chapter 17 463

Answer: C Difficulty: Complex Learning Objective: 3

91. Is the total sales quantity variance favorable or unfavorable?

Answer: A Difficulty: Simple Learning Objective: 3

Use the following to answer questions 92-95:

Answer: A Difficulty: Moderate Learning Objective: 4

Response: X: 216,000 [(10/15) x (216,000 + 114,000)] x $6 = $24,000 F

464 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

Answer: B Difficulty: Simple Learning Objective: 4