88. [Appendix A] Briefly discuss how standard cost variances can be disposed of and why one might choose
one approach over another.
89. [Appendix A] Garcia and Company has just finished closing the books for the year and has the following
variances for its manufacturing operation:
Overhead has been applied to the product using direct labor hours; 25 percent of the standard–allowed direct
labor hours relate to work in process; 20 percent to finished goods, and the balance to cost of goods sold.
During the year 100,000 units of material were purchased; its disposition during the year follows:
Required: Prorate the variances above and prepare the appropriate journal entry.
90. Comprehensive – Chapter 16 & 17
Maxym Yattselev, the managerial accountant has been asked by the Keepit Cool Ceiling Fan Company
president to prepare an analysis of the effectiveness of the new management team. They manufacture paper fans.
2005 standards
Budget
Direct materials – 4 parts @ $2 per part
Direct labor – one half hour (0.5) @ $10 per hour
Variable overhead 2 machine hours @ $3 per hour
Fixed overhead $900,000
Estimated production 100,000
Actual results 2005
Direct materials 585,000 parts at a total cost of $ 1,462,500 were purchased and used
Direct labor 51,000 hours at a cost of $561,000
Variable overhead 240,000 machine hours at a cost of $840,000
Fixed overhead $870,000
Actual production 130,000 fans
Required:
(1) Compute the direct material and direct labor budget variances
(2) Compute the variable and fixed overhead variances
91. [Appendix B] Briefly describe how a standard-cost just–in-time system works.
92. Tillery Company’s production V.P. has a problem. Because of the pattern he has detected in the direct and
indirect labor variances, he has been investigating the situation. The investigation has turned up a
misclassification of direct and indirect labor hours that appears to be deliberate. When going back and correctly
reclassifying the hours, significant unfavorable labor efficiency variances have appeared. To get around this,
some hours were called indirect labor which would make the labor efficiency variance have an unfavorable
variance but at a lower figure. Further investigation showed that the department manager also was the
timekeeper because the company could not afford a separate timekeeper.
Required: What actions might be taken to correct this problem?
93. Reed Company uses a standard costing system for its main product. The controller has prepared the
performance reports for the month and is not satisfied with the performance shown by Mr. Catesof the book
division. This dissatisfaction is conveyed to Mr. Cates at a meeting. His performance report, in very
summarized form, is shown below:
*includes direct material and direct labor.
Mr. Cates is upset with the report as shown and wonders if there isn’t a better way to present the information.
Required:
(1) Discuss a better way of presenting a performance report. In the process of the discussion point out
weaknesses in the report as shown.
(2) What kind of behavioral implications would the controller‘s remarks have on Mr.Cates?
94. Cucto Company uses machine hours to allocate its fixed overhead costs. Mr. Salezar, the production
manager has been told that his fixed overhead variances for the past month were as follows:
Fixed overhead budget variance: $ 2,000 F
Fixed overhead volume variance: $20,000 U
The production V.P. has asked Mr. Salezar to account for his underutilization of capacity for the month.
Required: Explain the meaning of the two variances and Mr. Salezar‘s responsibility for them.
95. Ms. Garcia, the controller for Romine Inc. is not satisfied with the information coming from manufacturing
with regard to the overhead variances. She noted that variable overhead is being applied using a measure that
has no relation to any of the components in the variable overhead budget. She has gone to the production
manager for some information about how the activity measure should be set.
Required: Describe how activity measures should be set and what is happening in the light of changes in the
manufacturing environment.
96. Alexky Company uses labor hours to allocate its variable overhead costs. Mr. Alul, the production manager
has been told that his direct labor and variable overhead variances for the past month were as follows:
97. Gimmel Co. sells two types of briefcases—standard and specialty. The budget is based on a combination of
last year’s information as well as forecasted industry sales and the company’s market share. The following
information is provided for June:
Required:
1) Prepare a static budget and flexible budget for the company for June.
2) What is the revenue sales-volume variance?
98. (Appendix C) Moody Company manufactures two products, A and B. During September, the following
occurred:
Required:
(1) Calculate the total revenue sales-mix variance.
(2) Calculate the total revenue sales-quantity variance.
(3) Calculate the total revenue sales-volume variance.
99. Smallville Inc. sells Superman jerseys. Last year they budgeted sales of 20,000 jerseys and sold 15,000
despite reducing the selling price from $50 to $45.
Required: Compute the revenue sales-price and revenue sales-volume variances and use them to reconcile the
difference between budgeted and actual revenue.