Chapter 23: Q6RQ (page 1305)
Question: What are the two components of the static budget variance? How are they calculated?
Answer
Static budget variance is calculated by summing up the sales volume and flexible budget variance.
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Question:Give the general formulas for determining cost and efficiency variances.
Murphy Company managers received the following incomplete performance report:
Units Actual Results Flexible Budget Variance Static Budget Flexible Budget Sales Volume Variance Sales Revenue Contribution Margin Fixed Expenses Operating Income 35,000 (a) (b) 5,000 F
Complete the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasoning.
Question:Tipton Company manufactures shirts. During June, Tipton made 1,200 shirts and gathered the following additional data:
Direct materials cost standard \(6.00 per yard of fabric
Direct materials efficiency standard 1.50 yards per shirt
Actual amount of fabric purchased and used 1,680 yards
Actual cost of fabric purchased and used \)10,500
Direct labor cost standard \(15.00 per DLHr
Direct labor efficiency standard 2.00 DLHr per shirt
Actual amount of direct labor hours 2,520 DLHr
Actual cost of direct labor \)36,540
Calculate the following variances:
7. Direct materials cost variance
8. Direct materials efficiency variance
9. Total direct materials variance
10. Direct labor cost variance
11. Direct labor efficiency variance
12. Total direct labor variance
Preparing flexible budgets
Moje, Inc. manufactures travel locks. The budgeted selling price is
Drew Castello, general manager of Sunflower Manufacturing, was frustrated. He wanted the budgeted results, and his staff was not getting them to him fast enough. Drew decided to pay a visit to the accounting office, where Jeff Hollingsworth was supposed to be working on the reports. Jeff had recently been hired to update the accounting system and speed up the reporting process.
“What’s taking so long?” Drew asked. “When am I going to get the variance reports?” Jeff sighed and attempted to explain the problem. “Some of the variances appear to be way off. We either have a serious problem in production, or there is an error in the spreadsheet. I want to recheck the spreadsheet before I distribute the report.” Drew pulled up a chair, and the two men went through the spreadsheet together. The formulas in the spreadsheet were correct and showed a large unfavorable direct labor efficiency variance. It was time for Drew and Jeff to do some investigating.
After looking at the time records, Jeff pointed out that it was unusual that every employee in the production area recorded exactly eight hours each day in direct labor. Did they not take breaks? Was no one ever five minutes late getting back from lunch? What about cleanup time between jobs or at the end of the day?
Drew began to observe the production laborers and noticed several disturbing items. One employee was routinely late for work, but his time card always showed him clocked in on time. Another employee took 10 to 15minute breaks every hour, averaging about 1 hours each day, but still reported eight hours of direct labor each day. Yet another employee often took an extra 30 minutes for lunch, but his time card showed him clocked in on time. No one in the production area ever reported any “down time” when they were not working on a specific job, even though they all took breaks and completed other tasks such as doing cleanup and attending department meetings.
Requirements
1. How might the observed behaviors cause an unfavorable direct labor efficiency variance?
2. How might an employee’s time card show the employee on the job and working when the team member was not present?
3. Why would the employees’ activities be considered fraudulent?
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