Chapter 10
Standard Costs and Variances
Solutions to Questions
10-1 A quantity standard indicates how much
of an input should be used to make a unit of
price variance and a quantity variance provides
10-3 The materials price variance is usually
the responsibility of the purchasing manager.
10-4 The materials price variance can be
computed either when materials are purchased
10-5 This combination of variances may
indicate that inferior quality materials were
blame for problems, they can breed resentment
contractual rate paid to workers can cause a
labor rate variance. For example, skilled workers
with high hourly rates of pay can be given duties
more skilled workers with higher rates of pay,
10-8 If poor quality materials create
production problems, a result could be excessive
10-9 If overhead is applied on the basis of
direct labor-hours, then the variable overhead
10-10 If labor is a fixed cost and standards are
tight, then the only way to generate favorable
before the bottleneck in the production process
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
2 Managerial Accounting, 15th Edition
inventory will build up in front of the
workstations with the least capacity.
The Foundational 15
1. The raw materials cost included in the planning budget is $1,000,000
(= 125,000 pounds × $8.00 per pound = $1,000,000).
2, 3, and 4.
The raw materials cost included in the flexible budget (SQ × SP =
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
= 160,000 pounds ($7.50 per pound – $8.00 per pound)
= $80,000 F
The Foundational 15 (continued)
5. and 6.
The materials price variance ($85,000 F) and the materials quantity
variance ($80,000 U) can be computed as follows:
Actual Quantity
of Input,
at Actual Price
(AQ × AP)
Actual Quantity
of Input,
at Standard Price
(AQ × SP)
Standard Quantity
Allowed for Actual
Output,
at Standard Price
(SQ × SP)
170,000 pounds ×
$7.50 per pound
= $1,275,000
170,000 pounds ×
$8.00 per pound
= $1,360,000
150,000 pounds* ×
$8.00 per pound
= $1,200,000
Materials price variance
= $85,000 F
160,000 pounds ×
$8.00 per pound
= $1,280,000
Materials quantity
variance = $80,000 U
*30,000 units × 5 pounds per unit = 150,000 units
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
= 170,000 pounds ($7.50 per pound – $8.00 per pound)
= $85,000 F
The Foundational 15 (continued)
7. The direct labor cost included in the planning budget is $700,000 (=
50,000 hours × $14.00 per hour = $700,000).
8, 9, 10, and 11.
The direct labor cost included in the flexible budget (SH × SR = $840,000),
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
= 55,000 hours ($15.00 per hour – $14.00 per hour)
= $55,000 U
The Foundational 15 (continued)
12. The variable manufacturing overhead cost included in the planning
budget is $250,000 (= 50,000 hours × $5.00 per hour = $250,000).
13, 14, and 15.
The variable overhead cost included in the flexible budget (SH × SR =
** $280,500 ÷ 55,000 hours = $5.10 per hour
Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR* – SR)
= 55,000 hours ($5.10 per hour – $5.00 per hour)
Exercise 10-2 (20 minutes)
1.
Number of meals prepared ……………….
4,000
Standard direct labor-hours per meal ….
× 0.25
Total direct labor-hours allowed …………
1,000
Standard direct labor cost per hour …….
× $9.75
Total standard direct labor cost ………….
$9,750
Actual cost incurred …………………………
$9,600
Total standard direct labor cost (above)
9,750
Total direct labor variance ………………..
$ 150
Favorable
2.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
960 hours ×
$10.00 per hour
960 hours ×
$9.75 per hour
1,000 hours ×
$9.75 per hour
= $9,600
= $9,360
= $9,750
Rate Variance,
$240 U
Efficiency Variance,
$390 F
Spending Variance,
$150 F
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH(AR – SR)
= 960 hours ($10.00 per hour – $9.75 per hour)
= $240 U
Labor efficiency variance = SR(AH – SH)
= $9.75 per hour (960 hours – 1,000 hours)
= $390 F
Exercise 10-4 (30 minutes)
1.
Number of units manufactured ………………………..
20,000
Standard labor time per unit
(18 minutes ÷ 60 minutes per hour) ………………
× 0.3
Total standard hours of labor time allowed …………
6,000
Standard direct labor rate per hour …………………..
× $12
Total standard direct labor cost ……………………….
$72,000
Actual direct labor cost …………………………..……..
$73,600
Standard direct labor cost ………………………………
72,000
Total variance—unfavorable …………………………...
$ 1,600
2.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours Allowed
for Output, at the
Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
5,750 hours ×
$12.00 per hour
6,000 hours* ×
$12.00 per hour
$73,600
= $69,000
= $72,000
Rate Variance,
$4,600 U
Efficiency Variance,
$3,000 F
Spending Variance,
$1,600 U
*20,000 units × 0.3 hours per unit = 6,000 hours
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
5,750 hours ($12.80 per hour* – $12.00 per hour) = $4,600 U
*$73,600 ÷ 5,750 hours = $12.80 per hour
Labor efficiency variance = SR (AH – SH)
$12.00 per hour (5,750 hours – 6,000 hours) = $3,000 F