Actual Standard CostStandardVarianceCostper TonCostDirect labor€ 38,100€0.544€ 36,992€1,108 USugar beets64,8290.95364,80425 UVariable overhead28,2110.40027,2001,011UFixed overhead45,2270.69647,3282,101 FTotal€176,367€2.593€176,324€ 43 USenior management was not surprised at the small variances for labor and sugar beets.The processing plant has good operating controls and there had been no surprises in thesugar beet market or in the labor market. Its initial forecasts proved to be good.Management was delighted to see the favorable total overhead variance (€1,090F =€1,011A + €2,101F). Although variable overhead was over budget, fixed overhead wasbelow budget and more than offset the over-budget variable overhead. No majorchange had taken place in the plant's production technology to explain this shift (suchas increased automation). Therefore, senior management was prepared to attribute thefavorable total overhead variance to better internal control by the plant manager.a. What do you think is the reason for the overhead variances?b. Is it appropriate to base next year's standards on last year's costs? AIP 11.5 Overhead Variances LO 2, 6, AppendixEuropa Sugar processes sugar beets into granulated sugar that is sold to foodcompanies. It uses a standard cost system to aid in the control of costs and forperformance evaluation. To compute the standards for next year, the actual expenseincurred by expense category is divided by the number of tons of sugar beets processedto arrive at a standard cost per ton. These per-ton standards then are increased by theexpected amount of inflation forecast for that expense category. This year, EuropaSugar processed 6.3 million tons of beets. The calculation of next year's standard costsis as follows:Europa SugarStandard Costs for Next Year(thousands of euros)Cost perTonThis Year'sInflation Standard CostCostAdjusmentper TonDirect labor€ 33,000€0.5244.0%€0.544Sugar beets58,0000.9213.50.953Variable overhead24,0000.3815.00.400Fixed overhead43,0000.6832.00.696Total€158,000€2.509€2.593Next year, actual production is 6.8 million tons. At the end of next year, the followingreport is prepared:Europa SugarActual Results compared to StandardNext Year(thousands of euros)

Name: Actual Standard CostStandardVarianceCostper TonCostDirect labor€ 38,1
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Description: Actual Standard CostStandardVarianceCostper TonCostDirect labor€ 38,100€0.544€ 36,992€1,108 USugar beets64,8290.95364,80425 UVariable overhead28,2110.40027,2001,011UFixed overhead45,2270.69647,3282,101 FTotal€176,367€2.593€176,324€ 43 USenior manage

Overhead Costs : These expenses are incurred by the company and are shown in the income statement,…

Business

Accounting

Actual Standard Cost Standard Variance Cost per Ton Cost Direct labor € 38,100 €0.544 € 36,992 €1,108 U Sugar beets 64,829 0.953 64,804 25 U Variable overhead 28,211 0.400 27,200 1,011 U Fixed overhead 45,227 0.696 47,328 2,101 F Total €176,367 €2.593 €176,324 € 43 U Senior management was not surprised at the small variances for labor and sugar beets. The processing plant has good operating controls and there had been no surprises in the sugar beet market or in the labor market. Its initial forecasts proved to be good. Management was delighted to see the favorable total overhead variance (€1,090F €1,011A + €2,101F). Although variable overhead was over budget, fixed overhead was below budget and more than offset the over-budget variable overhead. No major change had taken place in the plant's production technology to explain this shift (such as increased automation). Therefore, senior management was prepared to attribute the favorable total overhead variance to better internal control by the plant manager. a. What do b. Is it appropriate to base next vear's standards on last vear's costs? you think is the reason for the overhead variances?

Actual Standard Cost Standard Variance Cost per Ton Cost Direct labor € 38,100 €0.544 € 36,992 €1,108 U Sugar beets 64,829 0.953 64,804 25 U Variable overhead 28,211 0.400 27,200 1,011 U Fixed overhead 45,227 0.696 47,328 2,101 F Total €176,367 €2.593 €176,324 € 43 U Senior management was not surprised at the small variances for labor and sugar beets. The processing plant has good operating controls and there had been no surprises in the sugar beet market or in the labor market. Its initial forecasts proved to be good. Management was delighted to see the favorable total overhead variance (€1,090F €1,011A + €2,101F). Although variable overhead was over budget, fixed overhead was below budget and more than offset the over-budget variable overhead. No major change had taken place in the plant's production technology to explain this shift (such as increased automation). Therefore, senior management was prepared to attribute the favorable total overhead variance to better internal control by the plant manager. a. What do b. Is it appropriate to base next vear's standards on last vear's costs? you think is the reason for the overhead variances?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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