Advanced variance analysis

Question 1

What are the advanced variance techniques mentioned in the learning objective?

Answer 1

• Sales mix and quantity variances
• Material mix and yield variances
• Planning and operational variances

These techniques help in evaluating performance against standards.

Question 2

What is the purpose of variance calculations in organizations?

Answer 2

To evaluate actual performance against expected standards for various costs

This includes sales revenue, material cost, labour cost, variable overheads, and fixed overheads.

Question 3

What must be separated before using variances for performance evaluation?

Answer 3

• Controllable (operational variance)
• Noncontrollable (planning variance)

This ensures that only factors within the control of the manager are considered.

Question 4

What does the sales volume variance need to be analyzed into if an organization sells multiple products?

Answer 4

• Sales mix variances
• Quantity variances

This analysis helps determine the profitability of the sales mix.

Question 5

What are the two types of factors that cause variances?

Answer 5

• Controllable operational factors
• Uncontrollable planning factors

These factors influence the variances between standards and actual results.

Question 6

Give examples of uncontrollable planning factors.

Answer 6

• Changes in legislation
• Technological advancements
• Social factors
• Changes in the economy
• Weather conditions
• Actions of competitors

These factors are beyond the control of department heads or managers.

Question 7

What is the impact of incorporating noncontrollable factors in performance appraisal?

Answer 7

It can lead to demotivation and dysfunctional behavior of managers

This is because managers may be held accountable for factors outside their control.

Question 8

What is the material price variance calculation formula?

Answer 8

Actual quantity purchased × Actual price per kilogram = Total actual cost

This formula helps in determining the variance from expected material costs.

Question 9

In the example of Gibson Co, what was the adverse material price variance calculated?

Answer 9

$33,000

This variance was due to an increase in cocoa prices affected by weather conditions.

Question 10

What is the revised standard price for cocoa used in Gibson Co’s calculation?

Answer 10

$2.90 per kilogram

This reflects the market price increase due to external factors.

Question 11

What are the two components of the material price variance for Gibson Co?

Answer 11

• Controllable operational variance
• Uncontrollable planning variance

These components help in accurately appraising performance.

Question 12

What is the total standard marginal cost for producing one Ultra equipment bag at Sports Right Inc?

Answer 12

$9.83

This includes costs for fabric, assembly labour, and variable production overheads.

Question 13

What was the actual assembly labour cost for Month 3 at Sports Right Inc?

Answer 13

$316,800

This cost was affected by industrial action taken by factory workers.

Question 14

What is the labour rate variance reported for Month 3?

Answer 14

($31,680)

This variance indicates an adverse impact on labour costs due to increased hourly rates.

Question 15

How much of the $1.2m (adverse) sales price variance is controllable by the sales department at Bradford Inc?

Answer 15

$300,000

This amount reflects the controllable element of the adverse sales price variance.

Question 16

What is the controllable element of the material price variance for Harland Inc?

Answer 16

$18,750

This amount is calculated using the revised standard price reflecting market conditions.

Question 17

What is the controllable element of the sales price variance?

Answer 17

$300,000

This amount represents the difference between the actual selling price per unit and the expected selling price using the revised standard.

Question 18

True or false: The sales volume variance identifies the difference in profit due to the difference between budgeted and actual sales volume.

Answer 18

TRUE

It is calculated using standard contribution or profit per unit.

Question 19

What are the two variances calculated using the principles of the sales volume variance?

Answer 19

• Sales mix variance
• Sales quantity variance

These variances help analyze the profitability of different products sold.

Question 20

In the sales mix variance, what does it identify?

Answer 20

Whether the actual sales mix is more or less profitable than the standard sales mix

Each product has a different profit per unit.

Question 21

What is the sales quantity variance?

Answer 21

Determines whether the business sold more or less units than budgeted

It is calculated using the actual sales volume compared to the budgeted sales volume.

Question 22

What is the total sales volume variance?

Answer 22

$264,000 (favourable)

It is the difference between actual sales volume in the actual mix and budgeted sales volume in the standard mix.

Question 23

What is the sales mix variance for Sports Right Inc (SR)?

Answer 23

$60,000 (favourable)

This indicates that the actual sales mix resulted in a higher standard profit than the standard sales mix.

Question 24

What is the sales quantity variance for Sports Right Inc (SR)?

Answer 24

$204,000 (favourable)

This arises from actual sales volume being greater than budgeted sales volume.

Question 25

What is the **budgeted sales volume** for Product F at Oldham LLC?

Answer 25

22,750 units ## Footnote This is part of the total budgeted sales volume of 65,000 units.

Question 26

What is the **actual sales volume** for Product V at Oldham LLC?

Answer 26

42,000 units ## Footnote This is part of the total actual sales volume of 70,000 units.

Question 27

What is the **sales mix variance** for Oldham LLC?

Answer 27

$14,000 (adverse) ## Footnote This indicates that the actual sales mix resulted in a lower standard profit than the standard sales mix.

Question 28

What is the **sales quantity variance** for Oldham LLC?

Answer 28

$68,000 (favourable) ## Footnote This indicates that the actual sales volume resulted in a higher total standard contribution than the budgeted volume.

Question 29

What can cause **variances** in an organization?

Answer 29

* Type of standard set * Wastage * Quality of materials * Workforce skill level * Machinery condition ## Footnote These factors can lead to either favourable or adverse variances.

Question 30

What are the **adverse variances** that can occur due to unrealistic standards in budgeting?

Answer 30

Many adverse variances may occur ## Footnote This is due to the standards set and used in the budget being unrealistic to achieve.

Question 31

What can cause **wastage** and losses in the manufacturing process?

Answer 31

* Purchase of poorer quality materials * Employing a lower skilled workforce * Old machinery nearing end of useful life ## Footnote These factors may result in adverse material usage variances.

Question 32

Define **economies of scale**.

Answer 32

Cost savings from large scale production ## Footnote For example, buying materials in bulk often leads to quantity discounts.

Question 33

What is the **learning effect** in the context of labor efficiency?

Answer 33

Improvements in labor efficiency from experience ## Footnote A more experienced workforce requires fewer hours in production.

Question 34

How can **inflation** affect material price or labor rate variances?

Answer 34

Higher prices for materials and wages ## Footnote This occurs if inflation rates are higher than expected.

Question 35

What is the impact of a **more highly skilled workforce** on labor variances?

Answer 35

* Adverse labor rate variance * Favorable labor efficiency variance * Favorable variable overhead efficiency variance * Favorable fixed overhead efficiency variance ## Footnote A highly skilled workforce is more expensive but operates more efficiently.

Question 36

What does the **interdependence of variances** refer to?

Answer 36

One factor affecting multiple variances ## Footnote Actions in one department can have knock-on effects on others.

Question 37

What happens when the purchasing department buys **higher quality material**?

Answer 37

* Increase in material price per unit (adverse variance) * Decrease in material wastage (positive effect) * Decrease in labor cost per unit (positive effect) ## Footnote This can positively affect the production manager’s performance.

Question 38

What is the conclusion regarding **variance analysis** in evaluating departmental performance?

Answer 38

Requires careful attention to controllable and noncontrollable events ## Footnote This ensures fair evaluations and prevents demotivation of department managers.

Question 39

Why is it important to use **detailed variances** of sales mix and quantity?

Answer 39

Highlights impact of changes in sales mix on profit ## Footnote This is crucial when an organization sells more than one product or service.

Question 40

What is a core purpose of **variance analysis calculation**?

Answer 40

Identify possible causes of variances for corrective actions ## Footnote This helps in future periods and considers noncontrollable factors.