81. Refer to Figure 10-9. What is James’ materials price variance assuming that materials purchased
equals materials used?
a.
$750,000 F
b.
$700,000 F
c.
$700,000 U
d.
$750,00 U
82. Refer to Figure 10-9. What is James’ materials usage variance?
a.
$250,000 F
b.
$300,000 F
c.
$300,000 U
d.
$250,000 U
83. Refer to Figure 10-9. What is James’ labor rate variance?
a.
$190,625 F
b.
$250,000 F
c.
$250,000 U
d.
$193,750 U
84. Refer to Figure 10-9. What is James’ labor efficiency variance?
a.
$800,000 U
b.
$850,000 F
c.
$800,000 F
d.
$850,000 U
85. Refer to Figure 10-9. What is the entry to record the purchase of materials?
a.
Materials 3,500,000
Materials Price Variance 750,000
Accounts Payable 4,250,000
b.
Materials 4,200,000
Materials Price Variance 750,000
Accounts Payable 4,950,000
c.
Materials 4,200,000
Materials Price Variance 700,000
Accounts Payable 3,500,000
d.
Materials 3,500,000
Materials Price Variance 700,000
Accounts Payable 4,200,000
86. Refer to Figure 10-9. What is the entry to record the issuance and usage of materials?
a.
Work in Process 4,500,000
Materials Usage Variance 300,000
Materials 4,800,000
b.
Work in Process 4,200,000
Materials Usage Variance 300,000
Materials 4,500,000
c.
Work in Process 4,200,000
Materials Usage Variance 300,000
Materials 3,900,000
d.
Work in Process 4,500,000
Materials Usage Variance 300,000
Materials 4,200,000
87. Refer to Figure 10-9. What is the entry to close the variances of labor and materials?
a.
Materials Price Variance 700,000
Materials Usage Variance 300,000
Labor Efficiency Variance 800,000
Cost of Goods Sold 1,800,000
Cost of Goods Sold 250,000
Labor Rate Variance 250,000
b.
Materials Price Variance 750,000
Materials Usage Variance 250,000
Labor Efficiency Variance 850,000
Cost of Goods Sold 1,850,000
Cost of Goods Sold 300,000
Labor Rate Variance 300,000
c.
Cost of Goods Sold 1,800,000
Materials Price Variance 700,000
Materials Usage Variance 300,000
Labor Efficiency Variance 800,000
Labor Rate Variance 250,000
Cost of Goods Sold 250,000
d.
Cost of Goods Sold 1,850,000
Materials Price Variance 750,000
Materials Usage Variance 250,000
Labor Efficiency Variance 850,000
Labor Rate Variance 300,000
Cost of Goods Sold 300,000
PROBLEM
1. Top Notch Music Inc. produces car stereos. During the year Top Notch Music produced 7,000 stereos.
Materials and labor standards for producing these units are as follows:
Direct materials (1 electronic component kit @ $185)
185
Direct materials (2 plastic casing @ $45)
90
Direct labor (8 hours @ $15)
120
Required:
A. Compute the standards hours allowed for a volume of 7,000 stereos and the planned
cost.
B. Compute the standard number of kits and casings allowed for a value of 7,000 units
and the planned cost for each direct material.
C. Compute the total budget variances for materials and labor assuming that actual
number of electronic kits purchased and used were 7,300 at a price of $179 and actual
plastic casings purchased were 14,400 at a price of $43. Actual labor was 57,200 hours
at $15.75 per hour.
Materials (electronic component kits)
U
Materials (plastic casings)
F
2. Leeds Company uses the following rule to determine whether labor efficiency variances should be
investigated:
A labor efficiency variance will be investigated when the variance is greater than either $100 or 10%
of the standard labor cost.
During September, the company used 500 direct labor hours at a rate of $15 per hour. Its standard rate
is 475 direct labor hours at a rate of $14.50 per hour.
A.
Determine the company’s labor efficiency variance and whether it is favorable or
unfavorable.
B.
Should the variance be investigated?
3. Acme Brick Company uses the following rule to determine whether materials usage variances should
be investigated:
A materials usage variance will be investigated when the variance is greater than either $5,000 or 10%
of the standard cost.
During June, the company purchased and used 9,500 pounds of concrete for $5 per pound. It was able
to make 20,000 bricks. Its standard quantity of materials allowed is 0.45 pound of concrete per brick at
a standard price of $6 per pound.
A.
Determine Acme’s material usage variance and whether it is favorable or unfavorable.
B.
Should the variance be investigated?
4. Westminster Company has the following information concerning its direct materials:
Direct Materials:
Standard Quantity
100,000
Actual Quantity
80,000
Standard Price
$3
Actual Price
$4
A.
Determine the materials price variance and whether it is favorable or unfavorable.
B.
Determine the materials usage variance and whether it is favorable or unfavorable.
C.
Westminster has set control limits stating that actual costs should be investigated if
they fall outside the acceptable range of the standard materials cost ±10%.
i.
What is the standard materials cost?
ii.
What are the upper and lower control limits?
iii.
What is the actual materials cost?
iv.
Should the actual materials cost be investigated?
= (AP − SP)AQ
= ($4 − $3)80,000
= $80,000 U
= (AQ − SQ)SP
= (80,000 − 100,000)$3
= $60,000 F
The standard materials cost = 100,000 $3 = $300,000.
The upper control limit = $300,000 + ($300,000 10%) = $330,000.
The lower control limit = $300,000 − ($300,000 10%) = $270,000.
The actual materials cost = $80,000 $4 = $320,000.
iv.
No, $320,000 falls between $270,000 and $330,000.
5. PURE Inc. produces flavored waters, sold in gallons. Recently the company adopted the following
materials standard for one gallon of its raspberry flavored water:
Direct materials (90 oz. @ $0.08)
$ 7.20
During the first month of operations the company experienced the following results:
A. Gallon units produced: 80,000
B. Ounces of materials purchased and used: 7,320,000 ounces at $0.07
C. No beginning or ending inventories of raw materials
Required:
A. Compute the materials price variance indicating if it is favorable or unfavorable.
B. Compute the materials usage variance indicating if it is favorable or unfavorable.
6. McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit standard
costs for direct materials and direct labor:
Direct materials (100 lbs. @ $1.00 per lb.)
$100.00
Direct labor (0.5 hours at $24 per hour)
12.00
Total standard prime cost per 100 lb. bag
$112.00
The following activities were recorded for October:
•
1,000 bags were manufactured.
•
95,000 lbs. of materials costing $76,000 were purchased.
•
102,500 lbs. of materials were used.
•
$12,000 was paid for 475 hours of direct labor.
There were no beginning or ending work-in-process inventories.
Required:
A.
Compute the direct materials variances.
B.
Compute the direct labor variances.
C.
Give possible reasons for the occurrence of each of the preceding variances.
[$76,000 − (95,000 $1.00)] = $19,000 F
Material usage variance
[102,500 − 1,000(100)] $1.00 = $2,500 U
B.
Labor rate variance
[$12,000 − (475 hrs. $24)] = $600 U
Labor efficiency variance
7. DuRoss Company produces coats. The company uses a standard costing system and has set the
following standards for materials and labor:
Fabric (8 yards @ $6)
$48
Direct labor (2 hours @ $18)
$36
Total prime cost
$84
During the year DuRoss produced 55,000 coats. Actual fabric purchased was 460,000 yards at $5.75
per yard. There were no beginning or ending inventories of fabric. Actual direct labor was 120,000
hours at $19.25 per hour.
Required:
A. Compute the cost of leather and direct labor that should be incurred for the production of 55,000
coats.
B. Compute the total budget variances for materials and labor.
C. Compute the materials price variance.
D. Compute the materials usage variance.
E. Compute the labor rate variance.
F. Compute the labor efficiency variance.
Materials = $48 x 55,000 = $2,640,000
Labor = $36 x 55,000 = $1,980,000
8. Moving Baby Company produces baby strollers. During the year 90,000 strollers were produced.
The actual labor used was 225,000 hours at $12.75 per hour. Moving Baby has the following labor
standards: 2 hours at $13.00 per hour.
Required:
A. Compute the labor rate variance, indicating if it is favorable or unfavorable.
B. Compute the labor efficiency variance, indicating if it is favorable or unfavorable.
LRV = (AR – SR) x AH
($12.75 – $13.00) x 225,000 = $56,250 F
LEV = (AH – SH) x SR
(225,000 – 180,000) x $13.00 = $585,000 U
9. Starling Manufacturing has developed the following standards for one of its products.
MPV = (AP – SP) x AQ
($5.75 – $6) x 460,000 = $115,000 F
MUV = (AQ – SQ) x SP
(460,000 – 440,000) x $6 = $120,000 U
LRV = (AR -SR) x AH
(19.25 – 18.00) x 120,000 = $150,000 U
LEV = (AH – SH) x SR
(120,000 – 110,000) x $18 = $180,000 U
Materials: 5 yards $6 per yard
$30
Direct labor: 2 hours $8 per hour
16
The company records materials price variances at the time of purchase.
The following activity occurred during December:
Materials purchased:
5,200 yards costing $29,900
Materials used:
4,750 yards
Units produced:
1,000 units
Direct labor:
2,100 hours costing $17,850
Required:
A.
Calculate the direct materials price variance.
B.
Calculate the direct materials usage variance.
C.
Calculate the direct labor rate variance.
D.
Calculate the direct labor efficiency variance.
10. Eastminster Company has the following information:
Direct Materials:
Direct Labor:
Standard Quantity
10,000
Standard Hours
2,000
Actual Quantity
12,000
Actual Hours
1,875
Standard Price
$14
Standard Rate
$10
Actual Price
$12
Actual Rate
$11
A.
Determine the materials price variance and whether it is favorable or unfavorable.
B.
Determine the materials usage variance and whether it is favorable or unfavorable.
C.
Determine the labor rate variance and whether it is favorable or unfavorable.
D.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
= (AP − SP)AQ
= ($12 − $14)12,000
= $24,000 F
= (AQ − SQ)SP
= (12,000 − 10,000)$14
= $28,000 U
$1,300 F
$29,900 − (5,200 $6)
$1,500 F
$1,050 U
$17,850 − (2,100 $8)
$800 U
11. Crawford Corporation has the following information:
Direct Materials:
Direct Labor:
Standard Quantity
1,500
Standard Hours
500
Actual Quantity
1,400
Actual Hours
525
Standard Price
$20
Standard Rate
$14
Actual Price
$17.50
Actual Rate
$14
A.
Determine the materials price variance and whether it is favorable or unfavorable.
B.
Determine the materials usage variance and whether it is favorable or unfavorable.
C.
Determine the labor rate variance and whether it is favorable or unfavorable.
D.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
= (AP − SP)AQ
= ($17.50 − $20)1,400
= $3,500 F
= (AQ − SQ)SP
= (1,400 − 1,500)$20
= $2,000 F
= (AR − SR)AH
= ($14 − $14)525
= $0
= (AH − SH)SR
= (525 − 500)$14
= $350 U
12. Allison Company adopted a standard cost system several years ago. The standard costs for the prime
costs of its single product follow:
= (AR − SR)AH
= ($11 − $10)1,875
= $1,875 U
= (AH − SH)SR
= (1,875 − 2,000)$10
Material: 10 kilograms @ $4.50 per kilogram
$45.00
Labor: 6 hours @ $8.50 per hour
$51.00
The following operating data were taken from the records for November:
1.
Units completed:
5,800 units
2.
Budgeted output:
6,000 units
3.
Materials purchased:
60,000 kilograms
4.
Total actual labor costs:
$306,600
5.
Actual hours of labor:
36,500 hours
6.
Material usage variance:
$2,250 U
7.
Total material variance:
$450 U
Compute the following:
A.
Labor rate variance
B.
Labor efficiency variance
C.
Actual kilograms of material used in the production process
D.
Actual cost paid per kilogram of material
Labor
Rate
Variance
* $306,600 labor cost/36,500 hours worked = $8.40 per hour
Labor
Efficiency
Variance
** 5,800 units produced 6 hrs allowed = 34,800
Materials
Usage
Variance
*** 5,800 units 10 kg. per unit
# working back: $2,250/$4.50 = 500 kg.
13. Gardener’s Market manufactures hedgers. During the year, it manufactured 5,000 hedgers, using 4.2
hours of direct labor per hedger at a rate of $8. The materials and labor standards for manufacturing
the hedgers are:
Direct materials (10 units @ $2)
$20
Direct labor (4 hours @ $7.50 per hour)
30
Gardener’s Market actually purchased and used 53,000 units of direct materials at a price of $2.25 per
unit.
Required:
A.
Determine the materials price variance and whether it is favorable or unfavorable.
B.
Determine the materials usage variance and whether it is favorable or unfavorable.
C.
Determine the labor rate variance and whether it is favorable or unfavorable.
D.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
= (AP − SP)AQ
= ($2.25 − $2.00)53,000
= $13,250 U
= (AQ − SQ)SP
= (53,000 − 50,000)$2
= $6,000 U
= (AR − SR)AH
= ($8.00 − $7.50)21,000
= $10,500 U
= (AH − SH)SR
= (21,000 − 20,000)$7.50
= $7,500 U