Variance Set Up

Question 0

Set up the table from left to right:

Compute flexible budget variance, spending variance and efficiency variance for variable manufacturing overhead?

Answer 0

1: actual costs incurred (actual input quantity x actual rate)
2: actual input quantity x budgeted rate
Note: spending variance = 1 - 2
3: flexible budget: budgeted input quantity allowed for actual output x budgeted rate
Note: efficiency variance = 2 - 3
4: allocated: budgeted input quantity allowed for actual output x budgeted rate
Note flexible budget variance = 1 - 3

Question 1

Setting up the table from left to right:

direct materials price variance, direct materials efficiency variance, direct manufacturing labor efficiency variance?

Answer 1

Left 1: actual costs incurred (actual input quantity x actual price)
Left 2 = 1 - 3: material price var /or labor rate variance
Center 3: actual input quantity x budgeted price
4 = 3 - 5: material efficiency variance /or labor efficiency variance
5: flexible budget (budgeted input quantity allowed for actual output x budgeted price)

Question 2

Set up the table from left to right:

Compute spending variance and production volume variance for fixed manufacturing overhead?

Answer 2

1: actual costs incurred
2: same budgeted lump sum (as in static budget) regardless of output level
Note: spending variance = 1 - 2
3: flexible budget: same budgeted lump sum (as in static budget) regardless of output level
4: Allocated: budgeted input quantity allowed for actual output x budgeted rate
Note: production volume variance = 3 - 4

Question 3

Income statement setup variable costing?

Answer 3

Revenues
Variable costs
  Beginning inventory
  Variable manufacturing costs
  Cost of goods available for sale
  Deduct ending inventory
  Variable cost of goods sold
  Variable operating costs
     Total variable costs
fixed costs
  Fixed manufacturing costs
  Fixed operating costs
    Total fixed costs
Operating income

Question 4

Income statement set up absorption costing?

Answer 4

Revenues
Cost of goods sold:
  Beginning inventory
  Variable manufacturing costs
  Allocated Fixed manufacturing costs
  Cost of goods available for sale
  Deduct ending inventory
  Adjustment for Production volume variance
    Cost of goods sold
Gross margin
Operating expenses:
  Variable operating costs
  Fixed operating costs
  Total. Operating expenses
Operating income

Question 5

How do you reconcile the difference between operating income under variable and absorption costing?

Answer 5

Absorption costing operating income
- variable costing operating income
=
fixed manufacturing costs in ending inventory
- fixed manufacturing costs in beginning. Inventory

Question 6

What are the benefits of theoretical or practical capacity?

Answer 6

They signal divergence btw supply of capacity and demand
Of capacity

Useful input to managers

Question 7

2 Disadvantages of master budget denominator level in the cost base pricing system? What do both result in?

Answer 7

High prices when demand is low

Low prices when demand is high

Result in downward demand spiral

Question 8

What are 2 advantages of using master budget denominator level under the cost-based pricing system?

Answer 8

1 based on demand for product and indicates price
Where all costs/unit would be recovered leading to profits

2 good benchmark against which to evaluate performance

Question 9

Variance between actual results and flexible budget?

Answer 9

Flexible budget variance

Question 10

Variance between a flexible budget and static budget?

Answer 10

Sales volume variance