Exercise 16-44 Comprehensive Cost Variance Analysis (LO 16-5, 6) NSF Lube is a f
ID: 2523075 • Letter: E
Question
Exercise 16-44 Comprehensive Cost Variance Analysis (LO 16-5, 6)
NSF Lube is a fast-growing chain of oil-change stores. The following data are available for last year’s services:
NSF Lube performed 474,700 oil changes last year. It had budgeted 432,200 oil changes, averaging 15 minutes each.
Standard variable labor and support costs per oil change were as follows:
Fixed overhead costs:
Annual budget $1,036,200
Fixed overhead is applied at the rate of $2.50 per oil change.
Actual oil change costs:
Required:
a. Prepare a cost variance analysis for each variable cost for last year. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)
b. Prepare a fixed overhead cost variance analysis. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect.)
Direct oil specialist services: 15 minutes at $24 per hour $ 6.00 Variable support staff and overhead: 7.0 minutes at $18 per hour 2.1Explanation / Answer
Cost variance analysis for each variable cost for NSB Lube. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)
Variances are calculated for major responsibility centers, holding all other things constant. After variances are computed, managers investigate the causes of these variances and take corrective action, if necessary.
Cost Variance analysis of costs is performed by comparing actual costs and budgeted costs. With full data and details, the variance may be split into two parts for example price variance and quantity variance. In production departments, variance analysis may be completed with the differenct components, for example i.e. direct materials, direct labor, and factory overhead.
The total cost variance is equal to the difference between actual costs and budgeted costs.
If actual costs are higher than budgeted costs, the there is an unfavorable variance. If actual costs are less than budgeted costs, such variance is favorable.
All variances, whether favorable or unfavorable, must be investigated.
Total cost variance calculation = Actual costs - Budgeted costs
The total cost variance calculated and split into price variance and quantity variance.
Total cost variance = Price variance + Quantity variance
Direct materials $2776995.00
Direct labor $911424.00
Variable overhead $432200.00
Variances are calculated for major responsibility centers, holding all other things constant. After variances are computed, managers investigate the causes of these variances and take corrective action, if necessary.
Compute the cost variance for each variable
Direct materials:
Actual Costs (AP × AQ)
Actual Inputs at Standard Price (SP × AQ)
Flexible Budget (Standard Inputs Allowed for Good Output) (SP × SQ) = = $736,000
Price variance
Efficiency variance
Direct labor:
Actual Costs
Actual Inputs at Standard Price
Flexible Budget (Standard Inputs Allowed for Good Output)
Price variance
Efficiency variance
Variable overhead
Actual Costs
Actual Inputs at Standard Price
Flexible Budget (Standard Inputs Allowed for Good Output
Price variance
Efficiency variance U
NSF Lube is a fast-growing chain of oil-change stores. The following data are available for last year’s services:
NSF Lube performed 474,700 oil changes last year. It had budgeted 432,200 oil changes, averaging 15 minutes each.
Standard variable labor and support costs per oil change were as follows:
NSF Lube is a fast-growing chain of oil-change stores. The following data are available for last year’s services. The following information is available for the last operating period.
NSF Lube performed 474,700 oil changes last year. It had budgeted 432,200 oil changes, averaging 15 minutes each.
Direct oil specialist services: $2776995
Variable production overhead:$ 911424
• Fixed production overhead costs:
Monthly budget $ 1215000.00
The fixed overhead volume variance is the difference between the amount of fixed overhead actually applied to produced goods based on production volume, and the amount that was budgeted to be applied to produced goods. This variance is reviewed as part of the period-end cost accounting.
For example, a company budgets of $25,000 of fixed overhead costs to produced goods at the rate of $50 per unit produced, with the expectation that 500 units will be produced. However, the actual number of units is 800, so a total of $40,000 of fixed overhead costs are allocated. This creates a fixed overhead volume variance of $5,000.The fixed overhead costs that are a part of this variance are usually comprised of only those fixed costs incurred in the production process. Examples of fixed overhead costs are:
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