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14. Rhodes Corporation manufactures a product with the following standard costs:
Direct materials (20 yards @ $1.85 per yard)
$37.00
Direct labor (4 hours @ $12.00 per hour)
48.00
Standards are based on normal monthly production involving 2,000 direct labor hours (500 units of
output).
The following information pertains to July:
Direct materials purchased (16,000 yards @ $1.80 per yard)
$28,800
Direct materials used (9,400 yards)
Direct labor (1,880 hours @ $12.20 per hour)
22,936
Actual production in July: 460 units
Required:
A.
Compute the following variances for the month of July, indicating whether each
variance is favorable or unfavorable:
1.
Materials purchase price variance
2.
Materials usage variance
3.
Labor rate variance
4.
Labor efficiency variance
B.
Give potential reasons for each of the variances. Be sure to consider inter-relationships
among variances.
15. Dog's Best Friend manufactures dog food. During the month, it manufactured 3,000 bags of kibble,
using 0.25 hour of direct labor per bag at a rate of $9.00 per hour. The materials and labor standards
for manufacturing the bags of kibble are:
Direct materials (1 pound of beef @ $1.00 per pound)
$1.00
Direct materials (1 bag @ $0.25)
0.25
Direct labor (0.30 hour @ $9.00)
2.70
The company actually used 3,300 pounds of beef at a price of $1.10 per pound. It also purchased 3,000
bags at a price of $0.15 per bag.
A.
Determine the total materials price variance and whether it is favorable or unfavorable.
B.
Determine the materials usage variance for beef 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.
16. Mersey Company produced 1,000 trash cans during March using 450 direct labor hours and purchased
and used 3,100 pounds of rubber. Its materials and labor standards are:
Direct materials (3 pounds of rubber @ $0.50)
$1.50
Direct labor (0.5 hours @ $16.00)
3.00
Its materials price variance was a favorable $620 and its labor rate variance was an unfavorable $900.
A.
Calculate the actual price per unit.
B.
Calculate the actual labor rate.
C.
Determine the materials usage variance and whether it is favorable or unfavorable.
D.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
17. Pontefract Company produced 2,500 widgets during November using 4,000 units of materials at a cost
of $5.00 each. It also used 5,000 direct labor hours at a rate of $7.00. Its direct materials standard is 2
units per widget. Its direct labor standard is 2.5 hours per widget.
Its materials price variance was a favorable $8,000 and its labor rate variance was an unfavorable
$1,000.
A.
Calculate the standard materials price per unit.
B.
Calculate the standard labor rate.
C.
Determine the materials usage variance and whether it is favorable or unfavorable.
D.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
18. Just Right Inc. produces jeans. The following standards have been established:
Direct materials (4 yards of denim @ $1.20)
$4.80
Direct labor (1.5 hours @ $9)
$13.50
Standard prime cost
$18.30
During the year 25,000 pairs of jeans were produced. 150,000 yards of denim were purchased and
used at $1.23 per yard. Actual direct labor hours were 36,800 at $9.25 per hour.
Required:
A. Compute the materials variances and indicate if they are favorable or
unfavorable.
B. Compute the labor variances and indicate if they are favorable or unfavorable.
C. Prepare the journal entries for the following:
Purchase of raw materials
Issuance of raw materials
Addition of labor to Work in Process
Closing of variances to Cost of Goods Sold
19. During April, Rain Gear Unlimited produced 5,500 umbrellas from nylon that costs $0.45 per yard,
which is $0.05 cheaper than the standard cost. It also used 3,000 direct labor hours at a rate of $6.50.
Its direct materials standard is 1 yard per umbrella. Its direct labor standard is 0.5 hour per umbrella.
Its materials usage variance was a favorable $500 and its labor rate variance was a favorable $900.
A.
Calculate the actual quantity of materials.
B.
Calculate the standard labor rate.
C.
Determine the materials price variance and whether it is favorable or unfavorable.
D.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
E.
Record the entries for the materials purchase, the issuance and usage of materials, and
the labor variances.
F.
Provide the closing entries.
20. Eider Company has the following information:
Direct Materials:
Direct Labor:
Standard Quantity
100,000
Standard Hours
1,000
Actual Quantity
99,500
Actual Hours
1,050
Standard Price
$5
Standard Rate
$12
Actual Price
$4
Actual Rate
$13
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.
E.
Provide the journal entries to record the purchase of materials, the issuance and usage
of materials, and direct labor variances.
F.
Provide the closing entries for the immaterial variances.
21. The Cat's Meow manufactures gourmet cat food. During the month, it manufactured 5,000 cans of
tuna, using 0.10 hour of direct labor per can at a rate of $8.00 per hour. The materials and labor
standards for manufacturing the cans of tuna are as follows:
Direct materials (1 pound of tuna @ $0.50 per pound)
$0.50
Direct materials (1 can @ $0.35)
0.35
Direct labor (0.20 hour @ $7.00)
1.40
The company actually used 4,900 pounds of tuna at a price of $0.65 per pound. It also purchased 5,000
cans at a price of $0.45 per can.
A.
Determine the total materials price variance and whether it is favorable or unfavorable.
B.
Determine the materials usage variance for tuna 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.
E.
Make all necessary journal entries to record the purchase of materials, the issuance and
usage of materials, and the direct labor variances.
F.
Provide the closing entries.
22. Grandma's Attic Company produces soft pillows made from goose down. The company uses a
standard cost system and has set the following standards for materials and labor for each pillow:
Feathers from 5 large white geese (5 geese @ $5)
$25
Fabric to make pillow cases (3 yards @ $2)
6
Direct labor (5 hours @ $8)
40
Total prime cost
$71
During the month, the company produced 1,000 goose down pillows. Actual geese purchased were
5,100, at $4 per goose. Actual fabric purchased was 2,900 yards at $2.10 per yard. There were no
beginning or ending inventories of geese or fabric. Actual direct labor was 5,200 hours at $7.75 per
hour.
A.
Determine the total materials price variance and whether it is favorable or unfavorable.
B.
Determine the total 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.
E.
Make all necessary journal entries to record the purchase of materials, the issuance and
usage of materials, and the direct labor variances.
F.
Provide the closing entries.
23. Stratford Company inspects every steam iron it manufactures for safety issues. The standard labor cost
is $12 per hour. The maintenance standard at the beginning of the first quarter is 20 minutes per iron.
Stratford is implementing a new production process that will aid in reducing any potential electrical
defects in the irons. This will decrease the inspection time to 15 minutes per iron. After the end of the
first quarter, the new process had reduced the inspection time per iron from 20 minutes to 14 minutes.
A.
Identify the kaizen and maintenance labor standards in place at the beginning of the
first quarter. Express the standards in both physical and financial terms.
B.
Calculate the expected cost reduction and actual cost reduction.
24. Wiltshire Limited produces woolen blankets and clothing. During Year 1, Wiltshire produced 10,000
items of blankets and clothing using 4,250 bundles of wool at a price of $10 per bundle.
Standard bundles of wool
4,000
Standard price
$20 per bundle
The difference between the actual quantity of materials and the standard quantity of materials is due to
waste. At the end of Year 1, Wiltshire developed a new process that would cut down on the waste by
60%. By the end of Year 2, the company had actually cut down its waste by 50%.
A.
Identify the kaizen and materials standards in place at the beginning of Year 2. Express
the standards in both physical and financial terms.
B.
Calculate the expected cost reduction.
C.
Calculate the actual cost reduction.
25. Overland Automotive Company is considering on manufacturing a new brand of car. Given the current
product and process designs, the cost data are:
Direct materials costs (per car)
$10,000
Direct labor costs (per car)
$ 3,000
Overhead costs (per car)
$ 4,000
The company expects the selling price to be $20,000 and has set a target profit of $5,000.
A supplier told Overland that it could purchase a couple of similar components under a different brand
name at a lower price. This would result in cost savings of $2,000 per car. Furthermore, the company
found that it could redesign its manufacturing process to cut down on both inspection labor and worker
labor, which would result in cost savings of $1,000 per car.
A.
Calculate Overland's target cost.
B.
Calculate the total costs per car after Overland redesigns its processes and schedules to
buy cost-saving components.
C.
Should Overland manufacture the car? Calculate the expected profit after the cost
savings are taken into account.
26. Anderson Company has the following information concerning its direct labor:
Direct Labor:
Standard Hours
6,500
Actual Hours
6,350
Standard Rate
$15
Actual Rate
$18
A.
Determine the labor rate variance and whether it is favorable or unfavorable.
B.
Determine the labor efficiency variance and whether it is favorable or unfavorable.
C.
Provide the journal entry for the labor variances.
NOT: 5 min.
ESSAY
You decide
1. Explain the three potential sources of quantitative standards.
