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Problem 8-18B (45 minutes)
1. a.
Standard Quantity Allowed
for Actual Output,
at Standard Price
(SQ × SP)
Actual Quantity
of Input,
at Standard Price
(AQ × SP)
Actual Quantity
of Input,
at Actual Price
(AQ × AP)
28,000 pounds* ×
$2.50 per pound =
$70,000
27,800 pounds ×
$2.50 per pound =
$69,500
33,000 pounds ×
$2.95 per pound =
$97,350
Materials quantity
variance = $500 F
33,000 pounds ×
$2.50 per pound
= $82,500
Materials price variance
= 14,850 U
*8,000 ingots × 3.5 pounds per ingot = 28,000 pounds
Alternatively, the variances can be computed using the formulas:
Materials quantity variance = SP (AQ – SQ)
= $2.50 per pound (28,000 pounds – 27,800 pounds)
= $500 F
Materials price variance = AQ (AP – SP)
= 33,000 pounds ($2.95 per pound – $2.50 per pound)
= $14,850 U
Problem 8-18B (continued)
1. b.
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)
3,200 hours* ×
$6.50 per hour
= $20,800
3,800 hours ×
$6.50 per hour
= $24,700
3,800 hours ×
$6.20 per hour
= $23,560
Labor efficiency variance
= $3,900 U
Labor rate variance
= $1,140 F
Spending variance = $2,760 U
*8,000 ingots × 0.4 hour per ingot = 3,200 hours
Alternatively, the variances can be computed using the formulas:
Labor efficiency variance = SR (AH – SH)
= $6.50 per hour (3,200 hours – 3,800 hours)
= $3,900 U
Labor rate variance = AH (AR – SR)
= 3,800 hours ($6.20 per hour – $6.50 per hour)
= $1,140 F
Problem 8-18B (continued)
1. c.
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)
1,600 hours* ×
$2.00 per hour
= $3,200
1,900 hours ×
$2.00 per hour
= $3,800
$4,560
Variable overhead
efficiency variance
= $600 U
Variable overhead
rate variance
= $760 U
Spending variance = $1,360 U
*8,000 ingots × 0.2 hours per ingot = 1,600 hours
Alternatively, the variances can be computed using the formulas:
Variable overhead efficiency variance = SR (AH – SH)
= $2.00 per hour (1,900 hours – 1,600 hours)
= $600 U
Variable overhead rate variance = AH (AR – SR)
= 1,900 hours ($2.40 per hour* – $2.00 per hour)
= $760 U
*$4,560 ÷ 1,900 hours = $2.40 per hour
Problem 8-18B (continued)
2. Summary of variances:
Material quantity variance ......................
$ 500
F
Material price variance ..........................
14,850
U
Labor efficiency variance .......................
3,900
U
Labor rate variance ...............................
1,140
F
Variable overhead efficiency variance .....
600
U
Variable overhead rate variance .............
760
U
Net variance .........................................
$18,470
U
Budgeted cost of goods sold at $11.75 per ingot ..
$ 94,000
Add the net unfavorable variance (as above) .......
18,470
Actual cost of goods sold ....................................
$112,470
Budgeted net operating income ..........................
$11,000
Deduct the net unfavorable variance added to
cost of goods sold for the month .....................
18,470
Net operating loss .............................................
$(7,470)
3. The two most significant variances are the materials price variance and
the labor efficiency variance. Possible causes of the variances include:
Materials price variance:
Outdated standards, uneconomical
quantity purchased, higher quality
materials, high-cost method of transport.
Labor efficiency variance:
Poorly trained workers, poor quality
materials, faulty equipment, work
interruptions, inaccurate standards,
insufficient demand.
Problem 8-19B (30 minutes)
1.
Streeterville Pizza
Revenue and Spending Variances
For the Month Ended October 31
Flexible
Budget
Actual
Results
Revenue
and
Spending
Variances
Pizzas (q1) ......................................
2,100
2,100
Deliveries (q2) ................................
190
190
Revenue ($13.00q1) ........................
$27,300
$27,840
$540
F
Expenses:
Pizza ingredients ($5.00q1) ...........
10,500
10,550
50
U
Kitchen staff ($5,800) ..................
5,800
5,740
60
F
Utilities ($520 + $0.10q1) .............
730
855
125
U
Delivery person ($2.90q2) .............
551
551
0
Delivery vehicle ($680 + $2.10q2) .
1,079
1,233
154
U
Equipment depreciation ($387) .....
387
387
0
Rent ($1,730) ..............................
1,730
1,730
0
Miscellaneous ($730 + $0.01q1) ....
751
743
8
F
Total expenses ...............................
21,528
21,789
261
U
Net operating income .....................
$ 5,772
$ 6,051
$279
F
Problem 8-19B (continued)
2. The revenue variance of $540 F indicates that the average price per
pizza was higher than expected. Perhaps customers ordered more
toppings on their pizzas than expected. The pizza ingredients variance
Problem 8-20B (45 minutes)
1. a.
Standard Quantity Allowed
for Actual Output,
at Standard Price
(SQ × SP)
Actual Quantity of
Input,
at Standard Price
(AQ × SP)
Actual Quantity of
Input,
at Actual Price
(AQ × AP)
19,800 feet* ×
$3.00 per foot
= $59,400
19,250 feet** ×
$3.00 per foot
= $57,750
19,250 feet** ×
$3.20 per foot
= $61,600
Materials quantity
variance = $1,650 F
Materials price
variance = $3,850 U
Spending variance = $2,200 U
*
11,000 units × 1.80 feet per unit = 19,800 feet
**
11,000 units × 1.75 feet per unit = 19,250 feet
Alternatively, the variances can be computed using the formulas:
Materials quantity variance = SP (AQ – SQ)
= $3.00 per foot (19,250 feet – 19,800 feet)
= $1,650 F
Materials price variance = AQ (AP – SP)
= 19,250 feet ($3.20 per foot – $3.00 per foot)
= $3,850 U
Problem 8-20B (continued)
1. b.
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)
11,000 hours* ×
$16.00 per hour
= $176,000
11,550 hours** ×
$16.00 per hour
= $184,800
11,550 hours** ×
$15.40 per hour
= $177,870
Labor efficiency variance
= $8,800 U
Labor rate variance
= $6,930 F
Spending variance = $1,870 U
*
11,000 units × 1.00 hours per unit = 11,000 hours
**
11,000 units × 1.05 hours per unit = 11,550 hours
Alternatively, the variances can be computed using the formulas:
Labor efficiency variance = SR (AH – SH)
= $16.00 per hour (11,550 hours – 11,000 hours)
= $8,800 U
Labor rate variance = AH (AR – SR)
= 11,550 hours ($15.40 per hour – $16.00 per hour)
= $6,930 F
Problem 8-20B (continued)
1. c.
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)
11,000 hours* ×
$4.00 per hour
= $44,000
11,550 hours** ×
$4.00 per hour
= $46,200
11,550 hours** ×
$3.60 per hour
=$41,580
Variable overhead
efficiency variance
= $2,200 U
Variable overhead
rate variance
= $4,620 F
Spending variance = $2,420 F
*
11,000 units × 1.00 hours per unit = 11,000 hours
**
11,000 units × 1.05 hours per unit = 11,550 hours
Alternatively, the variances can be computed using the formulas:
Variable overhead efficiency variance = SR (AH – SH)
= $4.00 per hour (11,550 hours – 11,000 hours)
= $2,200 U
Variable overhead rate variance = AH (AR – SR)
= 11,550 hours ($3.60 per hour – $4.00 per hour)
= $4,620 F
2.
Materials:
Quantity variance ($1,650 ÷ 11,000 units) ......
$0.15 F
Price variance ($3,850 ÷ 11,000 units) ...........
0.35 U
$0.20 U
Labor:
Efficiency variance ($8,800 ÷ 11,000 units) ....
0.80 U
Rate variance ($6,930 ÷ 11,000 units) ...........
0.63 F
0.17 U
Variable overhead:
Efficiency variance ($2,200 ÷ 11,000 units) ....
0.20 U
Rate variance ($4,620 ÷ 11,000 units) ...........
0.42 F
0.22 F
Excess of actual over standard cost per unit ........
$0.15 U
Problem 8-20B (continued)
3. Both the labor efficiency and variable overhead efficiency variances are
affected by inefficient use of labor time.
Excess of actual over standard cost per unit .......
$0.15 U
Less portion attributable to labor inefficiency:
Labor efficiency variance ...................................
0.80 U
Variable overhead efficiency variance .................
0.20 U
1.00 U
Portion due to other variances ...........................
$0.85 F
In sum, had it not been for the apparent inefficient use of labor time,
the total variance in unit cost for the month would have been favorable
by $0.85 rather than unfavorable by $0.15.
4. Although the excess of actual cost over standard cost is only $0.15 per
unit, the total amount of $1,650 (= $0.15 per unit × 11,000 units) is
substantial. Moreover, the details of the variances are significant. The
Problem 8-21B (45 minutes)
1.
Standard
Quantity or
Hours
Standard Price
or Rate
Standard
Cost
Alpha8:
Direct materials—X342 ......
1.5 kilos
$3.40 per kilo
$ 5.10
Direct materials—Y561 ......
2.3 liters
$1.50 per liter
3.45
Direct labor—Sintering .......
0.20 hours
$18.00 per hour
3.60
Direct labor—Finishing .......
0.75 hours
$17.00 per hour
12.75
Total ................................
$24.90
Zeta9:
Direct materials—X342 ......
2.7 kilos
$3.40 per kilo
$ 9.18
Direct materials—Y561 ......
4.3 liters
$1.50 per liter
6.45
Direct labor—Sintering .......
0.35 hours
$18.00 per hour
6.30
Direct labor—Finishing .......
0.85 hours
$17.00 per hour
14.45
Total ................................
$36.38
