Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 23, Problem 3TIF
Variance interpretation
Vanadium Audio Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the past month of operations:
Actual units produced: 15,000 (90% of practical capacity)
The plant manager is not pleased with the $12,320 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:
Plant Manager: I just received this factory report for the latest month of operations. I’m not very pleased with these figures. Before these numbers go to headquarters, you and I need to reach an understanding.
Controller: Go ahead. What’s the problem?
Plant Manager: What’s the problem? Well, everything. Look at the variance. It’s too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I don’t believe these costs are variable at all. I think they are fixed costs. As a result, when we operate below capacity, the costs really don’t go down. I’m being penalized for costs I have no control over. I need this report to be redone to reflect this fact. If anything, the difference between actual and budget is essentially a volume variance. Listen, I know that you’re a team player. You really need to reconsider your assumptions on this one.
Assume you are the controller. Write a memo responding to the plant manager.
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Vanadium Audio Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the past month of operations:
Actual units produced: 15,000 (90% of practical capacity)
The plant manager is not pleased with the $12,320 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:
Plant Manager: I just received this factory report for the latest month of operations. I’m not very pleased with these figures. Before these numbers go to headquarters, you and I need to reach an understanding.
Controller: Go ahead. What’s the problem?
Plant Manager: What’s the problem? Well, everything. Look at the variance. It’s too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I don’t believe…
Quality Motor Company is an auto repair shop that uses standards to control its labor time and labor cost. The standard labor cost for a
motor tune-up is given below:
Motor tune-up
Standard
Hours
2.50
The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls
that 54 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:
Labor rate variance.
Labor spending variance
Standard Rate Standard Cost
$72.50
$29.00
1. Actual labor hours
2. Actual hourly rate
$ 120 F
$ 170 U
Required:
1. Determine the number of actual labor-hours spent on tune-ups during the week.
2. Determine the actual hourly pay rate for tune-ups last week. (Round your answer to 2 decimal places.)
hours
per hour
The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in the shop. The standard
labor cost for a motor tune-up is given below:
Motor tune-up
Standard
Hours
2.50
The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls
that 60 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:
Labor rate variance
Labor spending variance
Standard Rate Standard Cost
$ 35.00
$ 87.50
1. Actual labor hours
2. Actual hourly rate
$ 50 F
$ 55 U
Required:
1. Determine the number of actual labor-hours spent on tune-ups during the week.
2. Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to 2 decimal places.)
hours
per hour
Chapter 23 Solutions
Financial And Managerial Accounting
Ch. 23 - What are the basic objectives in the use of...Ch. 23 - What is meant by reporting by the principle of...Ch. 23 - Prob. 3DQCh. 23 - Prob. 4DQCh. 23 - A. What are the two variances between the actual...Ch. 23 - A new assistant controller recently was heard to...Ch. 23 - Would the use of standards be appropriate in a...Ch. 23 - Prob. 8DQCh. 23 - At the end of the period, the factory overhead...Ch. 23 - If variances are recorded in the accounts at the...
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What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY