Frekko Company collected the following information:

Standard costs per unit:  
    Variable overhead 4 machine hours @ $6 per machine hour
    Fixed overhead 4 machine hours @ $10 per machine hour
   
Actual output 20,000 units
Denominator (normal capacity) output 21,000 units
Actual machine hours 79,000 machine hours
Actual variable overhead cost $540,000
Actual fixed overhead cost $810,000

  Using the two variance method, what is the budget variance?

a. $70,000 (U)
b. $30,000 (U)
c. $30,000 (F)
d. $70,000 (F)

ANS:  B

SUPPORTING CALCULATIONS:

($540,000 + $810,000) – [($24 ´ 20,000) + ($40 ´ 21,000)] = $30,000 (U)

Using the three variance method, what is the budget variance?

a. $36,000 (U)
b. $30,000 (U)
c. $36,000 (F)
d. $30,000 (F)

ANS:  A

SUPPORTING CALCULATIONS:

($540,000 + $810,000) – [($6 ´ 79,000) + ($40 ´ 21,000)] = $36,000 (U)

Using the three variance method, what is the efficiency variance?

a. $6,000 (U)
b. $6,000 (F)
c. $24,000 (F)
d. $24,000 (U)

ANS:  B

SUPPORTING CALCULATIONS:

[($6 ´ 79,000) + (21,000 ´ $40)] – [($6 ´ 80,000) + (21,000 ´ $40)] = $6,000 (F)

Using the two variance method, what is the total variance?

a. $30,000 (U)
b. $30,000 (F)
c. $70,000 (F)
d. $70,000 (U)

ANS:  D

SUPPORTING CALCULATIONS:

($540,000 + 810,000) – [($24 ´ 20,000) + ($40 ´ 20,000)] = $70,000 (U)

   73.   Using the two variance method, what is the volume variance?

a. $6,000 (F)
b. $40,000 (F)
c. $6,000 (U)
d. $40,000 (U)

ANS:  D

SUPPORTING CALCULATIONS:

[($6 ´ 80,000) + (21,000 ´ 40)] – [($24 ´ 20,000) + ($40 ´ 20,000)]= $40,000 (U)

PTS:   1                    OBJ:   9-4

A mix variance is:

a. Created whenever the actual mix of inputs differs from the standard mix
b. The difference in the standard cost of the actual mix of inputs used and the standard cost of the mix of input that should have been used
c. Both ‘a’ and ‘b’ are correct
d. None of the above are correct

ANS:    C

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