Fundamentals of Cost Accounting

William Lanen, Shannon Anderson, Michael Maher

Chapter 16 Fundamentals of Variance Analysis - all with Video Answers

Educators

Chapter Questions

Problem 1

What are the advantages of the contribution margin format based on variable costing compared to the traditional format based on full absorption costing?

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02:42

Problem 2

"The flexible budget for costs is computed by multiplying average total cost at the master budget activity level by the activity at some other level." Is this true or false? Why or why not?

Jonathan Tapiwa

Numerade Educator

A flexible budget is:
a. Appropriate for control of factory overhead but not for control of direct materials and direct labor.
b. Appropriate for control of direct materials and direct labor but not for control of factory overhead.
c. Not appropriate when costs and expenses are affected by fluctuations in volume.
d. Appropriate for any level of activity.

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00:57

Problem 4

What is the basic difference between a master budget and a flexible budget?
a. A flexible budget considers only variable costs; a master budget considers all costs.
b. A master budget is based on a predicted level of activity; a flexible budget is based on the actual level of activity.
c. A master budget is for an entire production facility; a flexible budget is applicable only to individual departments.
d. A flexible budget allows management latitude in meeting goals; a master budget is based on a fixed standard.

Muhammad Ahsan

Numerade Educator

Problem 5

Standards and budgets are the same thing. True or false?

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04:21

Problem 6

Actual direct materials costs differ from the master budget amount. What are the three primary reasons for the difference?

Ameer Said

Numerade Educator

01:40

Problem 7

Fixed cost variances are computed differently from the variances for variable costs. Why?

Jennifer Stoner

Numerade Educator

Problem 8

What is the advantage of preparing the flexible budget? The period is over and the actual results are known. Is this just extra work for the staff?

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Problem 9

What is the link between flexible budgeting and management control?

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Problem 10

"Actual revenues are greater than budgeted for December, so our revenue variance is favorable." Give an example of when this would be "good" news and when it could be "bad" news.

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01:03

Problem 11

Give two reasons why dividing production cost variances into price and efficiency variances is useful for management control.

Brandon Miskanic

Numerade Educator

Problem 12

A rush order for a major customer has led to considerable overtime and an unfavorable variance for production costs. Is this variance the responsibility of the marketing manager, the production manager, both, neither, or someone else?

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02:32

Problem 13

"My firm has a wage contract with the union. Therefore, we do not need to compute a labor price variance; it will always be zero." Comment.

Luis Fernando Olloqui Regalado

Numerade Educator

02:51

Problem 14

The production volume variance indicates whether a company has spent more or less than called for in the budget. True or false?

Pragya Ahuja

Numerade Educator

02:51

Problem 15

The production volume variance should be charged to the production manager. Do you agree? Why or why not?

Ameer Said

Numerade Educator

Problem 16

A CEO tells you, "Division A always reports large, favorable variances. This saves us a lot of time, because we do not have to spend time reviewing their results." Comment.

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Problem 17

The master budget at Windsor, Inc., last period called for sales of 90,000 units at $$\$ 12$$ each. The costs were estimated to be $$\$ 5$$ variable per unit and $$\$ 300,000$$ fixed. During the period, actual production and actual sales were 92,000 units. The selling price was $$\$ 12.15$$ per unit. Variable costs were $$\$ 5.90$$ per unit. Actual fixed costs were $$\$ 300,000$$.
Prepare a flexible budget for Windsor.

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Problem 18

Refer to the data in Exercise 16-17. Prepare a sales activity variance analysis like the one in Exhibit 16.4 .

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Problem 19

Refer to the data in Exercises 16-17 and 16-18. Prepare a profit variance analysis like the one in Exhibit 16.5.

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Problem 20

Figure can't copy
Given the data shown in the graph, determine the following:
a. Budgeted fixed cost per period.
b. Budgeted variable cost per unit.
c. Value of $F$ (that is, the flexible budget for an activity level of 8,000 units).
d. Flexible budget cost amount if the actual activity had been 16,000 units.

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00:48

Problem 21

Fill in the missing amounts for (a) and (b) in the following graph.
Graph can't copy

Erika Bustos

Numerade Educator

01:08

Problem 22

Label (a) and (b) in the graph and give the number of units sold for each.
Graph can't copy

Kevin Luu

Numerade Educator

02:34

Problem 23

Data-2-Go manufactures and sells fl ash drives. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:
table can't copy
Prepare a fl exible budget for Data-2-Go.

Kerry Thornton-Genova

Numerade Educator

Problem 24

Refer to the data in Exercise 16-23. Prepare a sales activity variance analysis for Data-2-Go like the one in Exhibit 16.4.

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05:57

Problem 25

Use the information from Exercise 16-23 to prepare a profit variance analysis for Data-2-Go like the one in Exhibit 16.5.

Derrick Hanson

Numerade Educator

Problem 26

Wallace Manufacturing produces engine parts for auto manufacturers. Recently, one of the major auto firms rejected a load of manifolds as being defective. Wallace's purchasing department had ordered from a new supplier with a much lower price. Unfortunately, the quality was much lower as well. Now the company must produce replacement parts, and the customer will not reimburse Wallace for the original cost.
The manufacturing manager argues that the purchasing department should bear all of the cost of the additional production. The purchasing department manager says that the manufacturing department should have checked the quality of the material when it was delivered.
As the plant manager, how would you assign responsibility?

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Problem 27

Davidson Communications produces mobile phones. In Building 404, the phones are assembled and then sent to Building 405 where they are inspected, packaged, and shipped to the customer. On Thursday, the production supervisor in Building 405 asked the Building 404 manager to stop production. One of the electronic testing machines needed emergency maintenance. The Building 404 manager refused, saying, "I'm paid to maintain production. If I stop, I'm penalized and could lose my bonus."
As a result, the testers in Building 405 tested a smaller sample than usual. Because of this, the return rate on the day's production was much higher than usual. The cost of returns and warranty repairs was $$\$ 75,000$$.
As top management, to whom would you assign the responsibility for the $$\$ 75,000$$ of returns and warranty costs?

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Problem 28

The standard direct labor cost per unit for a company was $$\$ 14$$ ( = $$\$28$$ per hour $\times 0.5$ hours per unit). During the period, actual direct labor costs amounted to $$\$ 91,000,3,200$$ labor-hours were worked, and 5,600 units were produced.
Compute the direct labor price and efficiency variances for the period. (Refer to Exhibit 16.9 for the format to use.)

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Problem 29

The following data reflect the current month's activity for Sills, Inc.:
$$
\begin{array}{|c|c|}
\hline \text { Actual total direct labor } & \$ 546,000 \\
\hline \text { Actual hours worked } & 26,000 \\
\hline \text { Standard labor-hours allowed for actual output (flexible budget)... } & 27,000 \\
\hline \text { Direct labor price variance. . } & \$ 19,500 \mathrm{U} \\
\hline \text { Actual variable overhead. . } & \$ 132,600 \\
\hline \text { Standard variable overhead rate per standard direct labor-h } & \$ 5.25 \\
\hline
\end{array}
$$
Variable overhead is applied based on standard direct labor-hours allowed.
Compute the labor and variable overhead price and effi ciency variances.

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Problem 30

The records of Simon Company show the following for February:
$$
\begin{array}{|c|c|}
\hline \begin{array}{l}
\text { Standard labor-hours allowed per unit of output. ...... } \\
\text { Standard variable overhead rate per }
\end{array} & 1.5 \\
\hline \text { standard direct labor-hour. . ... } & \$ 30 \\
\hline \text { Good units produced ....... } & 60,000 \\
\hline \text { Actual direct labor-hours worked } & 92,000 \\
\hline \text { Actual total direct labor. ....... } & \$ 1,975,000 \\
\hline \text { Direct labor efficiency variance... } & \$ 40,000 \mathrm{U} \\
\hline \text { Actual variable overhead. } & \$ 2,560,000 \\
\hline
\end{array}
$$
Compute the direct labor and variable overhead price and effi ciency variances.

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Problem 31

Information on Thurmster Corporation’s direct materials costs follows:
$$
\begin{array}{|c|c|}
\hline \text { Actual quantities of direct materials used . . . . . . . . . } &7,500 \\
\hline \text { Actual costs of direct materials used. . . . . . . . . . . . .} & \$ 98,550 \\
\hline \text { Standard price per unit of direct materials. . . . . . . . .} & \$ 12.60 \\
\hline \text { Flexible budget for direct materials . . . . . . . . . . . . . .} & \$ 89.775 \\
\hline
\end{array}
$$
Thurmster Corporation has no materials inventories.
a. Prepare a short report for management showing Thurmster Corporation’s direct materials price and effi ciency variances.
b. (Appendix) Prepare the journal entries to record the purchase and use of the direct materials using standard costing.

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02:10

Problem 32

Information on Canyon Chemical’s direct materials costs follows:
$$
\begin{array}{lc}
\text { Quantities of chemical Y purchased and used } \ldots & 57,600 \text { gallons } \\
\text { Actual cost of chemical } Y \text { used } \ldots \ldots \ldots \ldots \ldots & \$ 650,000 \\
\text { Standard price per gallon of chemical } Y \ldots \ldots \ldots & \$ 11.25 \\
\text { Standard quantity of chemical } Y \text { allowed } \ldots \ldots \ldots & 52,800 \text { gallons }
\end{array}
$$
a. What were Canyon Chemical’s direct materials price and effi ciency variances?
b. (Appendix) Prepare the journal entries to record the purchase and use of chemical Y using standard costing.

Victor Salazar

Numerade Educator

Problem 33

Information on Carney Company’s fi xed overhead costs follows:
$$
\begin{array}{|c|c|}
\hline \text { Overhead applied } & \$ 360,000 \\
\hline \text { Actual overhead .. } & 385,500 \\
\hline \text { Budgeted overhead. . } & 369,000 \\
\hline
\end{array}
$$
What are the fixed overhead price and production volume variances? (Refer to Exhibit 16.13 for the format to use.)

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00:19

Problem 34

Refer to the data in Exercise 16-33. Management would like to see results reported graphically.
Prepare a graph like that shown in Exhibit 16.14.

Hossam Mohamed

Numerade Educator

Problem 35

Hilo Corporation applies fixed overhead at the rate of $$\$ 3.30$$ per unit. Budgeted fixed overhead was $$\$ 415,000$$. This month 130,000 units were produced, and actual overhead was $$\$ 400,000$$.
What are the fixed overhead price and production volume variances for Hilo?

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01:00

Problem 36

Stoker Corporation applies fixed overhead at the rate of $$\$ 0.50$$ per unit. For May, budgeted fixed overhead was $$\$ 403,000$$. The production volume variance amounted to $$\$ 3,000$$ unfavorable, and the price variance was $$\$ 10,000$$ unfavorable.
Required
a. What was the budgeted volume in units for May?
b. What was the actual volume of units produced in May?
c. What was the actual fixed overhead incurred for May?

Kratika Bhadauria

Numerade Educator

01:28

Problem 37

Wagner, Inc., manufactures truck tires. The following information is available for the last operating period.
• Wagner produced and sold 46,000 tires for $$\$ 60$$ each. Budgeted production was 50,000 tires
• Standard variable costs per tire follow:
$$
\begin{array}{|c|c|}
\hline \text { Direct materials: } 4 \text { pounds at } \$ 3 \text {. } & \$ 12.00 \\
\hline \text { Direct labor: } 0.8 \text { hours at } \$ 13.50 \ldots & 10.80 \\
\hline \text { Variable production overhead: } 0.18 \text { machine-hours at } \$ 15 \text { per hour. ... } & 2.70 \\
\hline \text { Total variable costs } & \$ 25.50 \\
\hline
\end{array}
$$
• Fixed production overhead costs:
$$
\text { Monthly budget } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \quad \$ 1,000,000
$$
• Fixed overhead is applied at the rate of $$\$20$$ per tire.
• Actual production costs:
$$
\begin{array}{|c|c|}
\hline \text { chased and used: } 192,000 \text { pounds at } \$ 2.70 & \text { \$ } 518,400 \\
\hline \text { Direct labor: } 35,200 \text { hours at } \$ 13.80 \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 485,760 \\
\hline \text { Variable overhead: } 8,640 \text { machine-hours at } \$ 15.30 \text { per hour . } & 132,192 \\
\hline{ Fixed overhead} \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 1,075,000 \\
\hline
\end{array}
$$
a. Prepare a cost variance analysis for each variable cost for Wagner.
b. Prepare a fi xed overhead cost variance analysis.
c. Prepare the journal entries to record the activity for the last period using standard costing. Assume that all variances are closed to Cost of Goods Sold at the end of the operating period.

Joseph Liao

Numerade Educator

Problem 38

Pueblo Service is a fast-growing chain of oil-change stores. The following data are available for last year’s services:
• Pueblo Service performed 396,000 oil changes last year. It had budgeted 360,000 oil changes, averaging 10 minutes each.
• Standard variable labor and support costs per oil change were as follows:
$$
\begin{aligned}
\text {Direct oil specialist services: 10 minutes at \$12 per hour . . . . . . . } &\$ 2\\
\text {Variable support staff and overhead: 7.5 minutes at \$8 per hour . . . } &1\\
\end{aligned}
$$
• Fixed overhead costs:
$$
\begin{aligned}
&\text { Annual budget......... } &\$ 432,000\\
\end{aligned}
$$
• Fixed overhead is applied at the rate of $$\$1.20$$ per oil change.
• Actual oil change costs:
$$
\begin{aligned}
\text {Direct oil specialist services: 396,000 changes averaging }\\
\text {12 minutes at \$13.00 per hour . . . . . . . . . . . . . . . . . . . .} &\$1,029,600\\
\text {Variable support staff and overhead: 0.14 labor-hours at} &\\
\text {\$7.50 per hour 396,000 changes . . . . . . . . . . . . . . . .} &415,800\\
\text {Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .} &500,000\\
\end{aligned}
$$
a. Prepare a cost variance analysis for each variable cost for last year.
b. Prepare a fi xed overhead cost variance analysis like the one in Exhibit 16.13 .

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Problem 39

Three Bridges, Inc., shows the following overhead information for the current period:
$$
\begin{aligned}
\text {Actual overhead incurred. . . . . . . . . . } &\$700,000 (\$184,000 fixed and \$516,000 variable)\\
\text {Budgeted fi xed overhead. . . . . . . . . .} &\$187,200 (12,000 direct labor-hours budgeted)\\
\text {Standard variable overhead rate} &\\
\text {per direct labor-hour. . . . . . . . . . . .} &\$36\\
\text {Standard hours allowed for} &\\
\text {actual production . . . . . . . . . . . . . .} & 14,000 hours\\
\text {Actual labor-hours used. . . . . . . . . . .} & 14,500 hours\\
\end{aligned}
$$
What are the variable overhead price and effi ciency variances and the fi xed overhead price variance?

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Problem 40

A new accounting intern at Gibson Corporation lost the only copy of this period’s master budget. The CFO wants to evaluate performance for this period but needs the master budget to do so. Actual results for the period follow:
table can't copy
The company planned to produce and sell 108,000 units for $$\$ 5$$ each. At that volume, the contribution margin would have been $$\$ 380,000$$. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $$\$ 2$$ per unit at the normal volume of 108,000 units. Management notes, "We budget an operating profit of $$\$ 1$$ per unit at the normal volume."
Required
a. Construct the master budget for the period.
b. Prepare a profit variance analysis like the one in Exhibit 16.5.

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03:27

Problem 41

Table can't copy
Find the values of the missing items ( a ) through ( q ). Assume that the actual sales volume equals actual production volume. (There are no inventory level changes.)

Zach Steedman

Numerade Educator

02:17

Problem 42

Table can't copy
Find the values of the missing items (a) through ( $\mathrm{x}$ ). Assume that actual sales volume equals actual production volume. (There are no inventory level changes.)

Lu He

Numerade Educator

Problem 43

A new CEO has come in from the outside to turn struggling Doak Industries into a profitable organization. Relying on market research, she wanted to focus production on the two specific product lines produced by the papers division.
Market research proved correct, and, by the end of the year, the papers division had exceeded budgeted profits by 18 percent. The controller, Ray Green, knew that his annual bonus depended on exceeding budgeted profit and that his bonus would plateau at 10 percent above budgeted profit. Ray expected that next year's profit plan would be similar but that next year's budget would consider the changes in the product lines. Ray discovered that he could accrue some of next year's expenses and defer some of this year's revenue while still exceeding budgeted profit by 10 percent.
Why would Ray Green, Doak's controller, want to defer revenue but accrue expenses? Is this ethical?

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Problem 44

1The following information is provided concerning the operations of Tolstoy Corporation for the current period:
Table can't copy
There are no inventories.
Prepare a flexible budget for Tolstoy Corporation.

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Problem 45

Refer to the data in Problem 16-44. Prepare a sales activity variance analysis for Tolstoy Corporation like the one in Exhibit 16.4.

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Problem 46

Use the information for Tolstoy Corporation in Problem 16-44 to prepare a profit variance analysis like the one in Exhibit 16.5.

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Problem 47

Hayden Corporation provides you with the following information for the month of June:
table can't copy
Required
Prepare a flexible budget for Hayden Corporation for June.

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Problem 48

Refer to the data in Problem 16-47. Prepare a sales activity variance analysis for Hayden Corporation like the one in Exhibit 16.4.

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Problem 49

Refer to the data in Problem 16-47. Prepare a profit variance analysis for Hayden Corporation like the one in Exhibit 16.5.

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02:20

Problem 50

Information about Clearwater Company's direct materials cost follows:
$$
\begin{array}{|c|c|}
\hline \text { Standard price per materials gram .. } & \$ 20 \\
\hline \text { ual quantity used. } & 900 \text { grams } \\
\hline \text { tandard quantity allowed for production } & 950 \text { grams } \\
\hline \text { fice variance } & \$ 7,200 \mathrm{~F} \\
\hline
\end{array}
$$
What was the actual purchase price per gram?

Muhammad Ahsan

Numerade Educator

Problem 51

Thomas Company reports the following direct labor information for one of its products for April:
$$
\begin{array}{|c|c|}
\hline \text { lard rate. } & \$ 21.00 \text { per hour } \\
\hline \text { al rate paid ...... } & \$ 21.60 \text { per hour } \\
\hline \text { Standard hours allowed for actual production } & 5,600 \text { hours } \\
\hline \text { Labor efficiency variance } . . . . . . . . & \$ 16,800 \mathrm{~F} \\
\hline
\end{array}
$$
Based on these data, what was the number of actual hours worked and what was the labor price variance?

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Problem 52

Lima Parts, Inc., shows the following overhead information for the current period:
table can't copy
What are the variable overhead price and effi ciency variances and fi xed overhead price variance?

James Kiss

Numerade Educator

Problem 53

Clemson Company prepares its budgets on the basis of standard costs. A responsibility report is prepared monthly showing the differences between master budget and actual results.
Variances are analyzed and reported separately. There are no materials inventories.
The following information relates to the current period:
table can't copy
Actual costs and activities for the month follow:
$$
\begin{array}{ll}
\text { Materials used } \ldots \ldots \ldots \ldots & 4,200 \text { gallons at } \$ 5,40 \text { per gallon } \\
\text { Output } \ldots \ldots \ldots \ldots & 1,900 \text { units } \\
\text { Actual labor costs } \ldots \ldots \ldots \ldots & 6,400 \text { hours at } \$ 30 \text { per hour } \\
\text { Actual variable overhead. } \ldots \ldots & \$ 54,000
\end{array}
$$
Prepare a cost variance analysis for the variable costs.

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Problem 54

Fargo Corporation reported a $$\$ 800$$ favorable price variance for variable overhead and a $$\$ 8,000$$ favorable price variance for fixed overhead. The flexible budget had $$\$ 513,600$$ variable overhead based on 21,400 direct labor-hours; only 21,200 hours were worked. Total actual overhead was $$\$ 869,600$$. The number of estimated hours for computing the fixed overhead application rate totaled 22,000 hours.
a. Prepare a variable overhead analysis like the one in Exhibit 16.10.
b. Prepare a fixed overhead analysis like the one in Exhibit 16.13.

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Problem 55

Mary is the production manager of the Cabot plant, a division of the larger corporation, Triparte, Inc. She has complained several times to the corporate office that the cost reports used to evaluate her plant are misleading. She states, "I know how to get good quality product out. Over a number of years, Ive even cut the amount of raw materials used to do it. The cost reports don't show any of this; they're always negative, no matter what I do. There's no way I can win with accounting or the people at headquarters who use these reports."
A copy of the latest report follows.
$$
\begin{array}{|c|c|c|c|}
\hline & \text { Master Budget } & \text { Actual Cost } & \text { Excess Co } \\
\hline \text { Raw material . ........ } & \$ 1,200 & \$ 1,311 & \$ 111 \\
\hline \text { Direct labor .......... } & 1,680 & 1,620 & (60) \\
\hline \text { Overhead ...... } & 300 & 402 & 102 \\
\hline \text { Total. } & \$ 3.180 & \$ 3,333 & \$ 153 \\
\hline
\end{array}
$$
Identify and explain at least three changes to the report that would make the cost information more meaningful and less threatening to the production managers.

Oluwadamilola Ameobi

Numerade Educator

Problem 56

Osage Electronics has been experiencing declining profit margins and has been looking for ways to increase operating income. It cannot raise selling prices for fear of losing business to its competitors. It must either cut costs or improve productivity.
Osage uses a standard cost system to evaluate the performance of the soldering department. It investigates all unfavorable variances at the end of the month. The soldering department rarely completes the operations in less time than the standard allows (which would result in a favorable variance). In most months, the variance is zero or slightly unfavorable. Reasoning that the application of lower standard costs to the products manufactured will result in improved profit margins, the production manager has recommended that all standard times for soldering operations be drastically reduced. The production manager has informed the soldering personnel that she expects the soldering department to meet these new standards.
Will the lowering of the standard costs (by reducing the time of the soldering operations) result in improved profit margins and increased productivity?

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07:21

Problem 57

Farmer Frank's produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company's controller, is planning to implement a standard cost system for Farmer Frank's. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blucberry preserves (Farmer Frank's most popular product). Margaret reported that blueberries cost $$\$ 0.75$$ per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $$\$ 0.60$$ per quart. Margaret is sure that the \$0.75 price will be enough to pull her friend's farm out of the red and into the black.
Is Margaret's behavior regarding the cost information she provided to Susan unethical? Explain your answer.

Jennifer Stoner

Numerade Educator

Problem 58

Trenton Manufacturing Company manufactures one product, with a standard cost detailed as follows:
Table can't copy
Standards have been computed based on a master budget activity level of 14,400 direct labor-hours per month. Actual activity for the past month was as follows:
$$
\begin{array}{|c|c|}
\hline \text { Materials used. } & 9,500 \text { yards at } \$ 6.15 \text { per yard } \\
\hline \text { Direct labor ......... } & 12,600 \text { hours at } \$ 5.10 \text { per hour } \\
\hline \text { Total factory overhead. } & \$ 55,500 \\
\hline \text { Production } & 500 \text { units } \\
\hline
\end{array}
$$
Prepare variance analyses for the variable and fi xed costs. Indicate which variances cannot be computed. Materials are purchased as they are used.

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Problem 59

Assume that Timekiller, Inc., manufactures a new electronic game console. The current standard costs sheet for a game console follows:
table can't copy
Assume that the following data appeared in Timekiller’s records at the end of the past month:
$$
\begin{array}{|c|c|}
\hline \text { ctual production } & 24,000 \text { units } \\
\hline \text { Actual sales. . } & 15,000 \text { units } \\
\hline \text { Materials (37,500 kilograms) . . } & \$ 157,500 \\
\hline \text { Materials price variance } \ldots \ldots \ldots \ldots \ldots \ldots & 7,500 \mathrm{U} \\
\hline \text { Materials efficiency variance . .......... } & 6,000 \mathrm{U} \\
\hline \text { Direct labor price variance ........ } & 4,560 \mathrm{U} \\
\hline \text { Direct labor }(5,700 \text { hours }) . \ldots \ldots \ldots \ldots \ldots \ldots . . . . . & 95,760 \\
\hline \text { derapplied overhead (total). } & 3,000 \mathrm{U} \\
\hline
\end{array}
$$
There are no materials inventories.
a. Prepare a variance analysis for direct materials and direct labor and complete the standard cost sheet.
b. Assume that all production overhead is fi xed and that the $$\$3,000$$ underapplied is the only overhead variance that can be computed. What are the actual and applied overhead amounts?

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Problem 60

The following information is provided to assist you in evaluating the performance of the production operations of Studio Company:
table can't copy
Variable overhead is applied on the basis of direct labor-hours.
Prepare a report that shows all variable production cost price and effi ciency variances and fixed production cost price and production volume variances.

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Problem 61

Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget on the basis of standard costs. The following data are for March:
a. Prepare a variance analysis for each variable cost for each product.
b. Prepare a fi xed overhead variance analysis for each product like the one in Exhibit 16.13 .

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Problem 62

I thought the Internet would be an ideal way to distribute our products. We've had a lot of success with our direct sales, but now we can reach a much larger audience. The baskets we make and sell appeal to people everywhere. I thought about opening stores in other towns or maybe even franchising, but the Web offers me a way to expand without losing control.
That's why the results for the first quarter of our Web-based unit are so disappointing. We expected a small loss, because of marketing and other start-up expenses, but I was not prepared for the beating we took.
a. What were the factors that caused actual quarterly income to be less than budgeted? Quantify the effect of each of these factors. Be as specific as possible.
b. For which of these factors, if any, should Mary be held responsible?
c. Should Maya rewrite the agreement with Mary?

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