ACC107 Management Accounting
Tutorial 13
Variance Analysis
1. Identify how standard costing is estimated.
2. Determine the factors affecting significance of cost variances.
3. List the common reasons for materials, labour and overhead variances.
4. How do you calculate the following variances?
a. Fixed overhead total variance
b. Fixed overhead expenditure variance
c. Fixed overhead volume variance
d. Fixed overhead volume efficiency variance
e. Fixed overhead volume capacity variance
5. Distinguish between the selling price variance and the sale volume variance.
6. Explain the interdependence between sales price and sales volume variances.
7. State some reasons for variances effecting the possible control actions.
8. A company manufactures a single product for which the standard material needed is 14 kg and it cost $3 per kg.
During July, 800 units were manufactured, 12,000 kg of material were purchased for $33,600, of which 11,500 kg
were issued to production.
What are the material price and usage variances for July?
9. A company expected to produce 200 units of its product, but 260 units were produced. The standard labour cost per
unit was $70 (10 hours at a rate of $7 per hour). The actual labour cost was $18,600 and the labour force worked
2,200 hours although they were paid for 2,300 hours.
What is the direct labour rate and efficiency variance?
10. Product X has a standard direct material cost as follows.
10 kilograms of material Y at $10 per kilogram = $100 per unit of X.
During period 4, 1,000 units of X were manufactured, using 11,700 kilograms of material Y which cost $98,600.
Calculate the following variances.
a. The direct material total variance
b. The direct material price variance
c. The direct material usage variance
11. The standard direct labour cost of product X is as follows.
2 hours of grade Z labour at $5 per hour = $10 per unit of product X.
During period 4, 1,000 units of product X were made, and the direct labour cost of grade Z labour was $8,900 for
2,300 hours of work.
Calculate the following variances.
a. The direct labour total variance
b. The direct labour rate variance
c. The direct labour efficiency (productivity) variance
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ACC107 Management Accounting
12. Suppose that the variable production overhead cost of product X is as follows.
2 hours at $1.50 = $3 per unit
During period 6, 1,000 units of product X were made. The labour force worked 2,020 hours, of which 60 hours were
recorded as idle time. The variable overhead cost was $3,075.
Calculate the following variances.
a. The variable overhead total variance
b. The variable production overhead expenditure variance
c. The variable production overhead efficiency variance
13. Suppose that a company plans to produce 1,000 units of product E during August 20X3. The expected time to produce
a unit of E is five hours, and the budgeted fixed overhead is $20,000. The standard fixed overhead cost per unit of
product E will therefore be as follows.
5 hours at $4 per hour = $20 per unit
Actual fixed overhead expenditure in August 20X3 turns out to be $20,450. The labour force manages to produce
1,100 units of product E in 5,400 hours of work.
Calculate the following variances.
a. The fixed overhead total variance
b. The fixed overhead expenditure variance
c. The fixed overhead volume variance
d. The fixed overhead volume efficiency variance
e. The fixed overhead volume capacity variance
14. A company has the following budget and actual figures for the year.
Budget Actual
Sales units 1,200 1,240
Selling price per unit $60 $58
Standard full cost of production = $56 per unit.
Calculate the selling price variance and the sales volume profit variance.
15. A manufacturing firm operates a standard marginal costing system and makes a single product. Standard costs have
been calculated as follows.
Standard cost schedule Per unit
$
Direct material, 100 kg at $5 per kg 500
Direct labour, 10 hours at $8 per hour 80
Variable production overhead, 10 hours at $2 per hour 20
600
The standard selling price is $900 and the company produces 1,020 units a month.
During September, 1,000 units were produced. Relevant details of this production are as follows.
• Direct material – 90,000 kgs costing $720,000 were bought and used.
• Direct labour – 8,200 hours were worked during the month and total wages were $63,000.
• Variable production overhead – The actual cost for the month was $25,000.
• Inventories of the direct material are valued at the standard price of $5 per kg.
• Each finished product was sold for $975.
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ACC107 Management Accounting
Calculate the following for the month of September.
a. Variable production cost variance
b. Direct labour cost variance, analysed into rate and efficiency variances
c. Direct material cost variance, analysed into price and usage variances
d. Variable production overhead variance, analysed into expenditure and efficiency variances
e. Selling price variance
f. Sales volume contribution variance
16. Sydney manufactures one product, and the entire product is sold as soon as it is produced. There is no opening or
closing inventories and work in progress is negligible. The company operates a standard costing system and analysis
of variances is made every month. The standard cost card for the product is as follows.
$
Direct materials 0.5 kilos at $4 per kilo 2.00
Direct wages 2 hours at $2.00 per hour 4.00
Variable overheads 2 hours at $0.30 per hour 0.60
Fixed overhead 2 hours at $3.70 per hour 7.40
Standard cost 14.00
Standard profit 6.00
Standing selling price 20.00
Budgeted output for the month of June was 5,100 units. Actual results for June were as follows.
• Production of 4,850 units was sold for $95,600.
• Materials consumed in production amounted to 2,300 kgs at a total cost of $9,800.
• Labour hours paid for amounted to 8,500 hours at a cost of $16,800.
• Actual operating hours amounted to 8,000 hours.
• Variable overheads amounted to $2,600.
• Fixed overheads amounted to $42,300.
Calculate the following variances and prepare an operating statement for June.
a. Material price variance
b. Material usage variance
c. Labour rate variance
d. Labour efficiency variance
e. Idle time variance
f. Variable overhead expenditure variance
g. Variable overhead efficiency variance
h. Fixed overhead expenditure variance
i. Fixed overhead volume efficiency variance
j. Fixed overhead volume capacity variance
k. Selling price variance
l. Sales volume profit variance
