Causes of Standard Cost Variances (Comprehensive)

Following are ten unrelated situations that would ordinarily be expected to affect one or more standard cost variances:

For each of these situations, indicate by letter which of the following standard cost variances would be affected. More than one variance will be affected in some cases.

a. Materials price variance.

b. Materials quantity variance.

c. Labor rate variance.

d. Labor efficiency variance.

e. Variable overhead spending variance.

f. Variable overhead efficiency variance.

g. Fixed overhead budget variance.

Using the drop-down menu next to each situation, select the most appropriate answer based on the above variances.

1. A salaried production supervisor is given a raise, but no adjustment is made in the labor cost standards.Answer

2. The materials purchasing manager gets a special reduced price on raw materials by purchasing a train carload. A warehouse had to be rented to accommodate the unusually large amount of raw materials. The rental fee was charged to Rent Expense, a fixed overhead item.Answer

3. An unusually hot August caused the company to use 30,000 kilowatts more electricity than provided for in the variable overhead standardsAnswer

4. The local electric utility company raised the charge per kilowatt-hour. No adjustment was made in the variable overhead standards.Answer

5. The plant manager traded in his leased company car for a new one in July, increasing the monthly lease payment by $85.Answer

6. A machine malfunction on the assembly line (caused by using cheap and inferior raw materials) resulted in decreased output by the machine operator and higher than normal machine repair costs. Repairs are treated as variable overhead costs.Answer

7. The production maintenance supervisor decreased routine maintenance checks, resulting in lower maintenance costs and lower machine production output per hour. Maintenance costs are treated as fixed costs.Answer

8. An announcement that vacation benefits had been increased resulted in improved employee morale. Consequently, raw material pilferage and waste declined and production efficiency increased.

9. The plant manager reclassified her secretary to administrative assistant and gave him an increase in salary.

10. A union contract agreement calling for an immediate 4 percent increase in production worker wage was signed. No changes were made in the standards.