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A company uses production labour hours to absorb its fixed production overheads. A strike by its workforce results in a loss of 30% of the period’s budgeted production labour hours.
22. Which of the following variances will occur as a result of the loss in production labour hours?
A.Adverse fixed overhead capacity variance
B.Adverse fixed overhead efficiency variance
C.Adverse direct labour efficiency variance
D.Adverse direct labour rate variance
The correct answer is A.A strike will reduce operating capacity so fewer than budgeted hours will be worked. When an absorption costing system is used this will result in an adverse fixed overhead capacity variance.
if 30 percent hrs were lost on actual labor hrs, wouldn’t it cause an adverse labor variance for A,B and C and not just A?
A company uses marginal costing. Last month the standard contribution on actual sales was $40,000 and the following variances arose:
Sales price variance $1,000 favourable
Sales volume variance $3,500 adverse
Fixed overhead expenditure variance $2,000 adverse
There were no variable cost variances last month.37. What was the actual contribution for last month? (Answer in $)
The correct answer is $41000.
Actual contribution for last month was $41000.
$
Standard contribution on actual sales 40,000
Add: Favourable sales price variance 1,000
Actual contribution 41,000Under marginal costing system, as per study hub, we are to only use only fixed production expenditure variance and not volume variance. So, the answer should be, 40000+1000-2000 = $39000.
Why have they not deducted 2000A from the contribution?
First question:
Having fewer hours available does not affect how efficiently they use those hours or the rate of pay for those hours.
(It will mean they will produce and sell less units than budgeted, but this is dealt with by the sales volume variance.)
Second question:
They are using marginal costing and the contribution is before any fixed overheads.
To calculate the actual contribution during a budget period, we will never deduct the fixed overhead expenditure variance from the standard contribution on actual sales. Is this correct?
The contribution is always the profit before fixed overheads and so the fixed overhead variances are not relevant.
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