• Revenue for Harley-Davidson was $4.2 billion in 2009.
• In 2009, the Company shipped 223,023 Harley-Davidson motorcycles worldwide, compared to 303,479 in
2008.
• Harley-Davidson consistently makes Fortune magazine’s annual “100 Best Companies to Work For” list.
• Every year, about one-half of all new Harley-Davidson® motorcycles are sold to existing Harley® owners.
• One of the company’s strongest assets is H.O.G.®, the Harley Owners Group®, which has over one million
members around the globe.
• Harley-Davidson offers more than 5,500 different Genuine Motor Accessories
• These questions are designed to check students’ understanding of new terms, concepts, and procedures
presented in the chapter.
2. They do not change on a per unit basis as the level of activity changes.
4. Method that determines the fixed and variable components of a semivariable cost.
6. Financial plan based on levels of activity.
8. Shows budgeted costs for several levels of activity, dividing costs between fixed and variable portions.
10. Anticipated costs of making a product under efficient but obtainable work conditions.
12. Human resources.
14. Whether company paid more or less than expected for materials.
16. Production manager.
Note to instructor : These questions are designed to check students’ understanding of new terms, concepts, and
procedures presented in the chapter.
Discussion Questions
CHAPTER 29
CONTROLLING MANUFACTURING COSTS: STANDARD COSTS
Chapter Opener: Thinking Critically
Manufacturing firms like Harley-Davidson often create flexible budgets, accounting for variable levels of
production activity and the associated fixed and variable costs.
Fast Facts
Managerial Implications: Thinking Critically
17. The possible causes of materials variances are: prices of materials rise higher than budgeted; more materials
18. The possible causes of labor variances are: actual hours worked were more or less than hours budgeted;
19. The possible causes of overhead variances are: fixed overhead costs such as wages, insurance, or taxes are
EXERCISE 29.1
Quarter Direct Labor Hours Utilities Cost
3rd–highest quarter 15,000 $3,500
EXERCISE 29.2
95% 100% 105%
Total Budgeted Direct Labor Hours 14,250 15,000 15,750
EXERCISE 29.3
Standard cost per unit of product:
Materials (2 × $10) $20
Percent of Budgeted Hours
EXERCISE 29.4
Standard Cost Actual Cost
Materials:
Standard: 20,000 gallons @ $1.00 $20,000
Actual: 20,200 gallons @ $1.05 $21,210
Labor:
EXERCISE 29.5
Standard cost of materials
Actual cost of materials $20,000
EXERCISE 29.6
Quantity variance for materials:
EXERCISE 29.7
Price variance for materials:
(Standard price í Actual price) × actual useage
Cost Element
EXERCISE 29.8
Standard cost for labor (2,500 hrs × $16.00) $40,000
EXERCISE 29.9
Quantity variance for labor:
(Standard hours í Actual hours) × Standard rate
EXERCISE 29.10
Rate variance for labor:
(Standard rate í Actual rate) × Actual hours
EXERCISE 29.11
Total overhead variance
Standard overhead (50% of direct labor) $20,000
PROBLEM 29.1A
1. Month Direct Labor Hours Indirect Labor Costs
May (high) 2,900 $8,000
February (low) 1,300 $6,000
Differences 1,600 $2,000
Fixed costs $4,375
2. Variable costs ($1.25 × 2,300 hours) = $2,875
Fixed costs 4,375
Difference in costs = Variable rate per direct labor hour
Difference in hours
PROBLEM 29.2A
1.
Number of direct hours 2250hrs 2500hrs 2750hrs
Percent of expected capacity 9 0 % 1 0 0 % 1 1 0 %
Variable costs
Indirect labor ($1.00/hour) 225000 250000 275000
Total manufacturing costs 871250 922500 973750
2.
Indirect labor [$1,800 + ($1.00 × 1,900)] 3 7 0 0 00 3 6 5 0 00 5 0 00
Payroll taxes [$100 + ($0.25 × 1,900)] 5 7 5 00 3 7 5 00 2 0 0 00
Flexible Budget for Manufacturing Overhead
Month of May 2013
Bibee Products, Inc.
Bibee Products, Inc.
ACTUAL
BUDGET
FOR
1,900
HOURS OVER UNDER
Manufacturing Overhead Budget Performance Report
Month of May 2013
PROBLEM 29.3A
1
.
Starter
Standard: 7,000 gal @ $0.40 (Note 1) 280000
Actual: 7,050 gal @ $0.38 267900
Quantity variance: 50 gal @ $0.40 (2 0 00)
Activator
Standard: 500 gal @ $12.00 600000
Actual: 490 gal @ $12.20 597800
2
.
Starter
Analyze: Only the starter liquid was purchased at less than the standard price.
$2,800.00 $2,679.00 $121.00
Standard Actual Variance
Analysis of Materials Variance
For Month of June 2013
Cal Chemical Company
COST ELEMENTS
COSTS VARIANCES
STANDARD ACTUAL QUANTITY PRICE
PROBLEM 29.4A
1.
Framing
Standard: 50,000 sq. ft. @ $0.25 1250000
Actual: 49,650 sq. ft. @ $0.255 1266075
2.
Cutting department
Standard: 5,000 hours @ $14.00 7000000
Actual: 4,980 hours @ $14.05 6996900
Evad Manufacturing Company
Analysis of Labor Variances
For Month of March 2013
COST ELEMENTS
COSTS
Evad Manufacturing Company
Analysis of Materials Variances
For Month of March 2013
COST ELEMENTS
COSTS VARIANCES
VARIANCES
QUANTITY
QUANTITY
STANDARD PRICE
PRICE
ACTUAL
ACTUALSTANDARD
PROBLEM 29.1B
1. Month Direct Labor Hours Utility Costs
May (high) 4,700 $4,375
January (low) 3,200 3,250
Differences 1,500 $1,125
2. Variable cost ($0.75 × $3,500) = $2,625
Difference in costs = Variable rate per direct labor hour
Difference in hours
1.
Number of direct hours 32400hrs 36000hrs 39600hrs
Percent of expected capacity 9 0 % 1 0 0 % 1 1 0 %
Variable costs
Indirect labor ($0.75/hour) 2430000 2700000 2970000
Payroll taxes ($0.25/hour) 810000 900000 990000
2.
Indirect labor [$20,000 + ($0.75 × 35,000)] 4625000 4595000 30000
Payroll taxes [$1,500 + ($0.25 × 35,000)] 1025000 1020000 5000
OVER UNDER
BUDGET FOR
35,000 HOURS
1,900 HOURS ACTUAL
Atlanta Manufacturing Company
Flexible Budget for Manufacturing Overhead
Year Ended December 31, 2013
Atlanta Manufacturing Company
Flexible Budget for Manufacturing Overhead
Year Ended December 31, 2013
PROBLEM 29.3B
1.
Plastic Base
Standard: 22,000 lbs @ $0.65 (Note 1) 1430000
Actual: 22,100 lbs @ $0.64 1414400
Tint
Standard: 1,000 lbs @ $0.22 2 2 0 00
Hardener
Standard: 2,000 lbs @ $0.65 130000
Actual: 2,050 lbs @ $0.66 135300
Note 1: 2,500 pounds are needed for each batch. If 25,000 pounds are to be produced, 10 batches must be
manufactured. Total production cost standards must be prepared for 10 batches.
2.
Plastic Base
Synthetic Manufacturing Co.
Analysis of Materials Variance
For Month of July 2013
COST ELEMENTS
COSTS VARIANCES
ACTUAL PRICESTANDARD QUANTITY
$14,300.00 $14,144.00 $156.00
Standard Actual
Variance
PROBLEM 29.4B
1.
Raw Material
Standard: 25,000 sections @ $2.00 50 0 0 0 00
Actual: 25,650 sections @ $2.04 52 3 2 6 00
2.
Cutting department
Standard: 500 hours @ $14.00 700000
Accessory department
Standard: 1,250 hours @ $12.00 15 0 0 0 00
Actual: 1,280 hours @ $12.20 15 6 1 6 00
Leather Products Company
Analysis of Labor Variances
For Month of January 2013
COST ELEMENTS
COSTS VARIANCES
STANDARD ACTUAL QUANTITY PRICE
Leather Products Company
Analysis of Materials Variance
For Month of January 2013
COST ELEMENTS
COSTS VARIANCES
STANDARD ACTUAL QUANTITY PRICE
CRITICAL THINKING PROBLEM 29.1
1. Standard materials cost ($1.15 × 5,000) $5,750
2. Unfavorable materials quantity variance $115.00
Standard cost per gallon $1.15
3. Total favorable materials variance $38.00
4. Unfavorable labor rate variance $1,050.00
Actual hours worked 1,050
5. Actual labor rate $19.00
6. Actual labor cost $19,950.00
Standard labor cost 18,000.00
CRITICAL THINKING PROBLEM 29.2
Standard labor rate $15.00
The equation that expressed the computation of the total labor variance is
Putting this into an equation gives the following:
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
1. The distinction helps managers identify known cash needs from variable needs.
3. Can result from difference in quality and/or difference in volume purchased.
5. Shared between personnel department and factory line supervisors.
Ethical Dilemma:
Financial Statement Analysis:
Teamwork:
Shelly’s actions are questionable and are very close to unethical. It could be argued that her actions are not
unethical since she received no benefit from the lower labor rate. The only change would be the difference
between the planned and actual net income. Variances are made to indicate possible problems. Shelly’s actions
have flagged the issue she wanted to bring forth to upper management.
The materials should be wax, coloring, labels, and a box. The labor should be a worker that pours the wax and one
Part A True-False
1. FALSE
3. TRUE
5. FALSE
7. FALSE
9. TRUE
11. FALSE
13. FALSE
15. FALSE
17. FALSE
Part B Completion
2. $325,000
4. $240,000
6. $100,000
SOLUTIONS TO PRACTICE TEST