44) Madzinga’s Draperies manufactures curtains. A certain window requires the following:
Direct materials standard 10 square yards at $5 per yard
Direct manufacturing labor standard 5 hours at $10
During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric
costing $68,600. Direct labor totaled 7,600 hours for $79,800.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.
45) Wilson’s Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka
requires the following:
Direct materials standard 2 square yards at $13.50 per yard
Direct manufacturing labor standard 1.5 hours at $20.00 per hour
During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric costing
$39,375. Direct labor totaled 2,100 hours for $45,150.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.
46) The following data for the Prender Company pertain to the production of 800 urns during August.
Direct Materials (all materials purchased were used):
Standard cost: $4.80 per pound of urn.
Total actual cost: $4,480.
Standard cost allowed for units produced was $4,800.
Materials efficiency variance was $96 unfavorable.
Direct Manufacturing Labor:
Standard cost is 2 urns per hour at $19.20 per hour.
Actual cost per hour was $19.60.
Labor efficiency variance was $288 favorable.
Required:
a. What is standard direct material amount per urn?
b. What is the direct material price variance?
c. What is the total actual cost of direct manufacturing labor?
d. What is the labor price variance for direct manufacturing labor?
47) The following data for the Panoid Garden Supplies Company pertains to the production of 2,000
garden spades during March. The spade consists of a wooden handle and a metal forged tool that comes
in contact with the ground.
Direct Materials (all materials purchased were used):
Standard cost: $1.00 per handle and $3.00 per metal tool.
Total actual cost: $9,000.
Materials flexible-budget efficiency variance was $500 unfavorable.
Direct Manufacturing Labor:
Standard cost is 5 garden spades per hour at $20.00 per hour.
Actual cost per hour was $21.00.
Labor efficiency variance was $500 favorable.
Required:
a. What is the standard direct material amount per garden spade?
b. What is the standard cost allowed for all units produced?
c. What is the total direct materials flexible-budget variance?
d. What is the direct material flexible-budget price variance?
e. What is the total actual cost of direct manufacturing labor?
f. What is the labor price variance for direct manufacturing labor?
48) The following data for the telephone company pertain to the production of 450 rolls of telephone wire
during June. Selected items are omitted because the costing records were lost in a windstorm.
Direct Materials (All materials purchased were used.)
Standard cost per roll: a pounds at $4.00 per pound.
Total actual cost: b pounds costing $9,600.
Standard cost allowed for units produced was $9,000.
Materials price variance: c .
Materials efficiency variance was $80 unfavorable.
Direct Manufacturing Labor
Standard cost is 3 hours per roll at $8.00 per hour.
Actual cost per hour was $8.25.
Total actual cost: d .
Labor price variance: e .
Labor efficiency variance was $400 unfavorable.
Required:
Compute the missing elements in the report represented by the lettered items.
46
49) Littrell Company produces chairs and has determined the following direct cost categories and
budgeted amounts:
Standard Inputs Standard Cost
Category for 1 output per input
Direct Materials 1.00 $7.50
Direct Labor 0.30 9.00
Direct Marketing 0.50 3.00
Actual performance for the company is shown below:
Actual output: (in units) 4,000
Direct Materials:
Materials costs $30,225
Input purchased and used 3,900
Actual price per input $7.75
Direct Manufacturing Labor:
Labor costs $11,470
Labor-hours of input 1,240
Actual price per hour $9.25
Direct Marketing Labor:
Labor costs $5,880
Labor-hours of input 2,100
Actual price per hour $2.80
Required:
a. What is the combined total of the flexible-budget variances?
b. What is the price variance of the direct materials?
c. What is the price variance of the direct manufacturing labor and the direct marketing labor,
respectively?
d. What is the efficiency variance for direct materials?
e. What are the efficiency variances for direct manufacturing labor and direct marketing labor,
respectively?
50) Give at least three good reasons why a favorable price variance for direct materials might be reported.
51) Give at least three good reasons why an unfavorable efficiency variance for direct manufacturing
labor might be reported.
Objective 7.6
1) A purchasing manager’s performance is best evaluated using the ________.
A) direct materials price variance
B) direct materials flexible-budget variance
C) direct manufacturing labor flexible-budget variance
D) affect the manager’s action has on total costs for the entire company
2) Which of the following is a reason for a favorable material price variance?
A) the purchasing manager bargaining effectively with suppliers
B) the purchasing manager giving orders for small quantity to reduce storage cost
C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of
material
D) the personnel manager hiring underskilled workers
3) Efficiency is ________.
A) the degree to which a predetermined objective or target is met
B) the difference between an actual input quantity and a budgeted input quantity
C) the continuous process of comparing a firm’s performance levels against the best levels of performance
in competing companies
D) the relative amount of inputs used to achieve a given output level
4) Which of the following is true of variance?
A) Managers should interpret a favorable variance as “good news” or assume it means their subordinates
performed well.
B) A variance within an acceptable range is considered to be an “in-control occurrence” and calls for no
investigation or action by managers.
C) The purchasing manager secured a discount for buying in bulk with fewer purchase orders which
results in unfavorable material price variance.
D) Managers’ performance must be evaluated solely on single variance.
5) The degree to which a predetermined objective or target is met is known as ________.
A) efficiency
B) variance
C) effectiveness
D) benchmarking
6) If manufacturing machines are breaking down more than expected, this will contribute to a(n)
________.
A) favorable direct manufacturing labor price variance
B) unfavorable direct manufacturing labor price variance
C) favorable direct manufacturing labor efficiency variance
D) unfavorable direct manufacturing labor efficiency variance
7) Which of the following statements is true about analyzing a single variance?
A) It should be overemphasized to take proper decision.
B) It should be evaluated in isolation from other variances.
C) It can lead to different other variances.
D) It should be used for quality evaluation.
8) Variance analysis should be used ________.
A) to understand why variances arise and to improve future performance
B) as the sole source of information for performance evaluation
C) to punish employees that do not meet standards
D) to set the standards which are very easy to achieve to encourage employees to focus on meeting
standards
9) Variances should be investigated ________.
A) when they are kept below a certain amount
B) when there is a small variance for critical items such as product defects
C) even though the cost of investigation exceeds the benefit
D) when there is an in-control occurrence
10) Cost reductions can be the result of ________.
A) price increments
B) congestion due to scheduling a large number of rush orders
C) producing products faster and more efficiently
D) inappropriate assignment of labor or machines to specific jobs
11) Nonfinancial performance measures ________.
A) are usually used in combination with financial measures for control purposes
B) are used to evaluate overall cost efficiency
C) allow managers to make informed tradeoffs
D) are often the sole basis of a manager’s performance evaluations
12) Which of the following is an example of nonfinancial performance measure?
A) percentage of products started and completed without requiring any rework
B) direct manufacturing labor efficiency variance
C) direct materials price variance
D) quantity discounts obtained on order of large quantity
13) A company has a policy “investigate all variances exceeding $3,000 or 15% of the budgeted cost,
whichever is lower.” There is a variance of $2,000 in repair and maintenance costs of $12,000. What does
the company do in the given situation?
A) It should be ignored as it is less than $3,000.
B) It deserves more attention as it is more than 15% of total repair cost.
C) It should be considered an in-control occurrence.
D) It should be investigated as all variances are equally important.
14) Which of the following is an example of financial performance measure?
A) number of square yards of cloth used to produce 1,000 jackets
B) direct manufacturing labor efficiency variance
C) the percentage of jackets started and completed without requiring any rework
D) quality of direct material
15) Effectiveness is ________.
A) the relative amount of inputs used to achieve a given output level
B) the continuous process of comparing a firm’s performance levels against the best levels of performance
in competing companies
C) the degree to which a predetermined objective or target is met
D) is a practice whereby managers focus more closely on areas that are not operating as expected and
less closely on areas that are
16) A favorable variance can be automatically interpreted as “good news.”
17) Managers must not interpret variances in isolation of each other.
18) If variance analysis is used for performance evaluation, managers are encouraged to meet targets
using creativity and resourcefulness.
19) When using variance analysis for performance evaluation, managers often focus on effectiveness and
efficiency as two of the common attributes used in comparing expected results with actual results.
20) For critical items such as product defects, a small variance may prompt investigation.
21) A variance within an acceptable range is considered to be an “in-control occurrence” and calls for no
investigation or action by managers.
22) In variance analysis, if any single performance measure is underemphasized, managers will tend to
make decisions that will cause the particular performance measure to look good.
23) Efficiency is the relative amount of inputs used to achieve a given output level.
24) A percentage of products started and completed without requiring any rework is an example of
nonfinancial performance measure.
25) It is best to rely totally on financial performance measures rather than using a combination of financial
and nonfinancial performance measures.
26) The goal of variance analysis is for managers to understand why variances arise, to learn, and to
improve future performance.
27) Possible operational causes of an unfavorable direct materials efficiency variance include poor design
of products or processes.
28) Effectiveness is the degree to which a predetermined objective or target is met.
29) Coffey Company maintains a very large direct materials inventory because of critical demands placed
upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the
standard cost of material Y is $4.00 per gram. During February, 22,000 grams were purchased for $4.10
per gram, while only 20,000 grams were used in production. There was no beginning inventory of
material Y.
Required:
a. Determine the direct materials price variance, assuming that all materials costs are the responsibility
of the materials purchasing manager.
b. Determine the direct materials price variance, assuming that all materials costs are the responsibility
of the production manager.
c. Discuss the issues involved in determining the price variance at the point of purchase versus the
point of consumption.
30) During February the Lungren Manufacturing Company’s costing system reported several variances
that the production manager was surprised to see. Most of the company’s monthly variances are under
$125, even though they may be either favorable or unfavorable. The following information is for the
manufacture of garden gates, its only product:
1. Direct materials price variance, $800 unfavorable.
2. Direct materials efficiency variance, $1,800 favorable.
3. Direct manufacturing labor price variance, $4,000 favorable.
4. Direct manufacturing labor efficiency variance, $600 unfavorable.
Required:
a. Provide the manager with some ideas as to what may have caused the price variances.
b. What may have caused the efficiency variances?
31) Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the
company’s only accountant quit on July 10 and the president is at a loss as to the company’s performance
for the month of June.
Materials Control 300,000
Direct Materials Price Variance 10,000
Accounts Payable Control 290,000
Work-in-Process Control 120,000
Direct Materials Efficiency Variance 8,000
Materials Control 128,000
Work-in-Process Control 850,000
Direct Manufacturing Labor Price Variance 15,000
Direct Manufacturing Labor Efficiency Variance 18,000
Wages Payable Control 847,000
Required:
a. What kind of performance did the company have for June? Explain each variance.
b. Why is Direct Materials given in two entries?
32) Waddell Productions makes separate journal entries for all cost accounting-related activities. It uses a
standard cost system for all manufacturing items. For the month of June, the following activities have
taken place:
Direct Manufacturing Materials Purchased $300,000
Direct Manufacturing Materials Used 250,000
Direct Materials Price Variance 10,000 unfavorable
(at time of purchase)
Direct Materials Efficiency Variance 15,000 favorable
Direct Manufacturing Labor Price Variance 6,000 favorable
Direct Manufacturing Labor Efficiency Variance 4,000 favorable
Direct Manufacturing Labor Payable 170,000
Required:
Record the necessary journal entries to close the accounts for the month.
33) Describe the purpose of variance analysis.
1) The process by which a company’s products or services are measured relative to the best possible levels
of performance is known as ________.
A) efficiency
B) benchmarking
C) a standard costing system
D) variance analysis
2) Benchmarking is a process ________.
A) in which overhead costs are absorbed into units of output, or ‘jobs’
B) in which a firm’s performance levels are compared against the best levels of performance in competing
companies or in companies having similar processes
C) which is based on calculating the breakeven point and analyzing the consequences of changes in
various factors calculating the breakeven point
D) in which the underlying processes of an organization is optimized using a systematic approach to
achieve more efficient goals
3) Which of the following statements is true of benchmarking?
A) It is a systematic approach of optimizing business processes.
B) It fails to help to improve organizational performance as benchmarking data does not provide insight
into why costs or revenues differ across companies.
C) It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences
across companies.
D) It considers four major business aspects such as financial, customer, internal business processes, and
learning and growth.
4) When benchmarking, management accountants are most valuable when they ________.
A) present differences in the benchmarking data to management
B) highlight differences in the benchmarking data to management
C) provide insight into why costs or revenues differ across companies
D) provide complex mathematical analysis
5) Benchmarking is the continuous process of measuring products, services, and activities against the best
possible levels of performance, either inside or outside the organization.
6) Benchmarking measures how well a company and its managers are doing in comparison to other
organizations.
7) It is difficult for firms to find appropriate benchmarks because differences can exist across companies
in their strategies, inventory costing methods, depreciation methods, and so on.
8) When benchmarking it is best when management accountants simply analyze the costs and allow
management to provide the insight as to why the revenues and costs differ between companies.
9) What is benchmarking, and how is it useful to a company?