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Chapter 11
Standard Costs and Variances
Solutions to Questions
11-1 A quantity standard indicates how much
11-2 Ideal standards assume perfection and
do not allow for any inefficiency. Ideal standards
normal breaks and work interruptions.
11-3 Under management by exception,
investigation.
variances are usually the responsibilities of
different managers.
variances are usually the responsibility of
production managers and supervisors.
usually better to compute the variance when
materials are purchased because that is when
materials are purchased allows the company to
carry its raw materials in the inventory accounts
at standard cost, which greatly simplifies
11-7 This combination of variances may
11-8 If standards are used to find who to
blame for problems, they can breed resentment
11-9 Several factors other than the
contractual rate paid to workers can cause a
labor rate variance. For example, skilled workers
variance. Or unskilled or untrained workers can
be assigned to tasks that should be filled by
overtime work at premium rates.
11-10 If poor quality materials create
not ordinarily affect the labor rate variance.
11-11 If overhead is applied on the basis of
together. Both variances are computed by
comparing the number of direct labor-hours
Only the “SR” part of the formula, the standard
rate, differs between the two variances.
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512 Managerial Accounting for Managers, 3rd Edition
those limits are considered to be normal. Any
variances falling outside of those limits are
considered abnormal and are investigated.
11-13 If labor is a fixed cost and standards are
tight, then the only way to generate favorable
unable to process all of the work in process. In
general, if every workstation is attempting to
produce at capacity, then work in process
inventory will build up in front of the
workstations with the least capacity.
Exercise 11-4 (continued)
3.
Standard Hours Allowed
for Actual Output,
at Standard Rate
(SH × SR)
Actual Hours of Input,
at Standard Rate
(AH × SR)
Actual Hours of Input,
at Actual Rate
(AH × AR)
2,000 hours ×
$16.00 per hour
= $32,000
2,125 hours ×
$16.00 per hour
= $34,000
$39,100
Variable overhead
efficiency variance
= $2,000 U
Variable overhead
rate variance
= $5,100 U
Spending variance = $7,100 U
Alternatively, the variances can be computed using the formulas:
Variable overhead efficiency variance = SR (AH – SH)
=$16.00 per hour (2,125 hours – 2,000 hours)
= $2,000 U
Variable overhead rate variance = AH (AR – SR)
= 2,125 hours ($18.40 per hour* – $16.00 per hour)
= $5,100 U
*$39,100 ÷ 2,125 hours = $18.40 per hour
