Problem 8-20A (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 …….
$0.08 U
Less portion attributable to labor inefficiency:
Labor efficiency variance ……………………………..
0.36 U
Variable overhead efficiency variance ……………..
0.10 U
0.46 U
Portion due to other variances ………………………
$0.38 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 $0.38 rather than unfavorable by $0.08.
4. Although the excess of actual cost over standard cost is only $0.08 per
unit, the details of the variances are significant. The materials price
Problem 8-21A (45 minutes)
1.
Standard
Quantity or
Hours
Standard Price
or Rate
Standard
Cost
Alpha6:
Direct materials—X442 ……
1.8 kilos
$3.50 per kilo
$ 6.30
Direct materials—Y661 ……
2.0 liters
$1.40 per liter
2.80
Direct labor—Sintering …….
0.20 hours
$19.80 per hour
3.96
Direct labor—Finishing …….
0.80 hours
$19.20 per hour
15.36
Total …………………………..
$28.42
Zeta7:
Direct materials—X442 ……
3.0 kilos
$3.50 per kilo
$10.50
Direct materials—Y661 ……
4.5 liters
$1.40 per liter
6.30
Direct labor—Sintering …….
0.35 hours
$19.80 per hour
6.93
Direct labor—Finishing …….
0.90 hours
$19.20 per hour
17.28
Total …………………………..
$41.01
Problem 8-21A (continued)
2. The computations to follow will require the standard quantities allowed
for the actual output for each material.
Standard Quantity Allowed
Material X442:
Production of Alpha6 (1.8 kilos per unit × 1,500 units) ……
2,700 kilos
Production of Zeta7 (3.0 kilos per unit × 2,000 units) ……..
6,000 kilos
Total ……………………………………………………………………
8,700 kilos
Material Y661:
Production of Alpha6 (2.0 liters per unit × 1,500 units) …..
3,000 liters
Production of Zeta7 (4.5 liters per unit × 2,000 units) …….
9,000 liters
Total ……………………………………………………………………
12,000 liters
Direct Materials Variances—Material X442:
Materials quantity variance = SP (AQ – SQ)
= $3.50 per kilo (8,500 kilos – 8,700 kilos)
= $700 F
Materials price variance = AQ (AP – SP)
= 14,500 kilos ($3.60 per kilo* – $3.50 per kilo)
= $1,450 U
*$52,200 ÷ 14,500 kilos = $3.60 per kilo
Direct Materials Variances—Material Y661:
Materials quantity variance = SP (AQ – SQ)
= $1.40 per liter (13,000 liters – 12,000 liters)
= $1,400 U
Materials price variance = AQ (AP – SP)
= 15,500 liters ($1.35 per liter* – $1.40 per liter)
= $775 F
*$20,925 ÷ 15,500 liters = $1.35 per liter
Problem 8-21A (continued)
3. The computations to follow will require the standard quantities allowed
for the actual output for direct labor in each department.
Standard Hours Allowed
Sintering:
Production of Alpha6 (0.20 hours per unit × 1,500 units) ..
300 hours
Production of Zeta7 (0.35 hours per unit × 2,000 units) ….
700 hours
Total ……………………………………………………………………
1,000 hours
Finishing:
Production of Alpha6 (0.80 hours per unit × 1,500 units) ..
1,200 hours
Production of Zeta7 (0.90 hours per unit × 2,000 units) ….
1,800 hours
Total ……………………………………………………………………
3,000 hours
Problem 8-22A (45 minutes)
1. The standard quantity of plates allowed for tests performed during the
month would be:
Blood tests ……………………………..
1,800
Smears ………………………………….
2,400
Total ……………………………………..
4,200
Plates per test …………………………
× 2
Standard quantity allowed ………….
8,400
The variance analysis for plates would be:
Actual Quantity of
Input, at Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
12,000 plates ×
$2.50 per plate
8,400 plates ×
$2.50 per plate
$28,200
= $30,000
= $21,000
Price Variance =
$1,800 F
10,500 plates ×
$2.50 per plate =
$26,250
Quantity Variance =
$5,250 U
Problem 8-22A (continued)
2. a. The standard hours allowed for tests performed during the month
would be:
Blood tests: 0.3 hour per test × 1,800 tests ……….
540
hours
Smears: 0.15 hour per test × 2,400 tests …………..
360
hours
Total standard hours allowed …………………………..
900
hours
Problem 8-22A (continued)
b. The policy probably should not be continued. Although the hospital is
3. The variable overhead variances follow:
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
1,150 hours ×
$6.00 per hour
900 hours ×
$6.00 per hour
$7,820
= $6,900
= $5,400
Rate Variance =
$920 U
Efficiency Variance =
$1,500 U
Spending Variance = $2,420 U
Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR – SR)
1,150 hours ($6.80 per hour* – $6.00 per hour) = $920 U
*$7,820 ÷ 1,150 hours = $6.80 per hour
Variable overhead efficiency variance = SR (AH – SH)
$6.00 per hour (1,150 hours – 900 hours) = $1,500 U
Yes, the two variances are closely related. Both are computed by
comparing actual labor time to the standard hours allowed for the
output of the period. Thus, if the labor efficiency variance is favorable
(or unfavorable), then the variable overhead efficiency variance will also
be favorable (or unfavorable).
Problem 8-23A (30 minutes)
1. The flexible budget is shown below:
FAB Corporation
Flexible Budget
For the Month Ended March 31
Flexible
Budget
Machine-hours (q) ……………………………….
26,000
Utilities ($20,600 + $0.10q) …………………..
$ 23,200
Maintenance ($40,000 + $1.60q) ……………
81,600
Supplies ($0.30q) ………………………………..
7,800
Indirect labor ($130,000 + $0.70q) …………
148,200
Depreciation ($70,000) …………………………
70,000
Total …………………………………………………
$330,800
Problem 8-23A (continued)
2. The spending variances are computed below:
FAB Corporation
Spending Variances
For the Month Ended March 31
Actual
Results
Flexible
Budget
Spending
Variances
Machine-hours (q) ……………………..
26,000
26,000
Utilities ($20,600 + $0.10q) …………
$ 24,200
$ 23,200
$1,000
U
Maintenance ($40,000 + $1.60q) ….
78,100
81,600
3,500
F
Supplies ($0.30q) ………………………
8,400
7,800
600
U
Indirect labor ($130,000 + $0.70q) .
149,600
148,200
1,400
U
Depreciation ($70,000) ……………….
71,500
70,000
1,500
U
Total ……………………………………….
$331,800
$330,800
$1,000
U
Problem 8-24A (45 minutes)
This problem is more difficult than it looks. Allow ample time for discussion.
1.
Actual Quantity of
Input, at Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
12,000 yards ×
$4.00 per yard*
11,200 yards** ×
$4.00 per yard*
$45,600
= $48,000
= $44,800
Price Variance =
$2,400 F
Quantity Variance =
$3,200 U
Spending Variance = $800 U
*
$22.40 ÷ 5.6 yards = $4.00 per yard
**
2,000 sets × 5.6 yards per set = 11,200 yards
Problem 8-24A (continued)
2. Many students will miss parts 2 and 3 because they will try to use
product
costs as if they were
hourly
costs. Pay particular attention to
the computation of the standard direct labor time per unit and the
Problem 8-24A (continued)
3.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of
Input, at the
Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
2,800 hours ×
$2.40 per hour*
3,000 hours ×
$2.40 per hour*
$7,000
= $6,720
= $7,200
Rate Variance =
$280 U
Efficiency Variance =
$480 F
Spending Variance = $200 F
*$3.60 standard cost per set ÷ 1.5 standard hours per set
= $2.40 standard rate per hour
Problem 8-25A (45 minutes)
1. a. Materials quantity variance = SP (AQ – SQ)
$5.00 per foot (AQ – 9,600 feet*) = $4,500 U
$5.00 per foot × AQ – $48,000 = $4,500**
$5.00 per foot × AQ = $52,500
AQ = 10,500 feet
*
$3,200 units × 3 foot per unit = 9,600 feet
**
When used with the formula, unfavorable variances are
positive and favorable variances are negative.
Therefore, $55,650 ÷ 10,500 feet = $5.30 per foot
b. Materials price variance = AQ (AP – SP)
10,500 feet ($5.30 per foot – $5.00 per foot) = $3,150 U
The total variance for materials is:
Materials price variance ………………
$3,150
U
Materials quantity variance ………….
4,500
U
Total variance …………………………..
$7,650
U
Alternative approach to parts (a) and (b):
Actual Quantity of
Input, at Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
10,500 feet ×
$5.30 per foot
10,500 feet ×
$5.00 per foot*
9,600 feet** ×
$5.00 per foot*
= $55,650*
= $52,500
= $48,000
Price Variance =
$3,150 U
Quantity Variance =
$4,500 U*
Spending Variance = $7,650 U
*
Given
**
3,200 units × 3 foot per unit = 9,600 feet
Problem 8-25A (continued)
2. a. Labor rate variance = AH (AR – SR)
4,900 hours ($7.50 per hour* – SR) = $2,450 F**
$36,750 – 4,900 hours × SR = –$2,450***
© The McGraw-Hill Companies, Inc., 2016. All rights reserved.
Solutions Manual, Chapter 8 55
It is difficult to imagine how Tom Kemper could ethically agree to go along
with reporting the favorable $21,000 variance for industrial engineering on
the final report, even if the bill were not actually received by the end of the
year. It would be misleading to exclude part of the final cost of the
contract. Collaborating in this attempt to mislead corporate headquarters
violates the credibility standard in the Statement of Ethical Professional
Practice promulgated by the Institute of Management Accountants. The
credibility standard requires that management accountants “disclose all
relevant information that could reasonably be expected to influence an
intended user‘s understanding of the reports, analyses, or
recommendations.” Failing to disclose the entire amount owed on the
It is important to note that the problem may be a consequence of
inappropriate use of performance reports by corporate headquarters. If the
performance report is being used as a way of “beating up” managers,
corporate headquarters may be creating a climate in which managers such
as the general manager at the Wichita plant will feel like they must always
Analytical Thinking (60 minutes)
1.
Standard cost for March production:
Materials ……………………………………………………………..
$16,800
Direct labor ………………………………………………………….
10,500
Variable manufacturing overhead ………………………………
4,200
Total standard cost (a) ……………………………………………
$31,500
Number of backpacks produced (b) …………………………..
1,000
Standard cost of a single backpack (a) ÷ (b) ………………
$31.50
2.
Standard cost of a single backpack (above) …………………
$31.50
Deduct difference between standard and actual cost …….
0.15
Actual cost per backpack …………………………………………
$31.35
3.
Total standard cost of materials allowed during March
(a) …………………………………………………………………
$16,800
Number of backpacks produced during March (b) ……….
1,000
Standard materials cost per backpack (a) ÷ (b) ………….
$16.80
Standard materials cost per backpack $16.80 per backpack
=
Standard materials cost per yard $6.00 per yard
= 2.8 yards per backpack
4.
Standard cost of material used …………
$16,800
Actual cost of material used …………….
15,000
Total variance ……………………………….
$ 1,800
F
The price and quantity variances together equal the total variance. If
Price variance ……………………………….
$ 3,000
F
Quantity variance ………………………….
1,200
U
Total variance …………………………..…..
$ 1,800
F
Analytical Thinking (continued)
Alternative Solution:
Actual Quantity
of Input, at
Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
3,000 yards ×
$5.00 per yard
3,000 yards ×
$6.00 per yard*
2,800 yards** ×
$6.00 per yard*
= $15,000*
= $18,000
= $16,800*
Price Variance =
$3,000 F
Quantity Variance =
$1,200 U*
Spending Variance = $1,800 F
*
Given.
**
1,000 units × 2.8 yards per unit = 2,800 yards
5. The first step in computing the standard direct labor rate is to determine
the standard direct labor–hours allowed for the month’s production. The
standard direct labor-hours can be computed by working with the
variable manufacturing overhead costs, because they are based on
Standard variable manufacturing overhead cost for March (a) .
Standard direct labor-hours for March (a) ÷ (b) …………………
= $7.50 per DLH
Analytical Thinking (continued)
6. Before the labor variances can be computed, it is necessary to compute
the actual direct labor cost for the month:
Actual cost per backpack produced (part 2) ……..
$ 31.35
Number of backpacks produced ……………………..
× 1,000
Total actual cost of production ……………………….
$31,350
Less: Actual cost of materials ………………………..
$15,000
Actual cost of variable manufacturing
overhead ………………………………………..
3,600
18,600
Actual cost of direct labor …………………………….
$12,750
Analytical Thinking (continued)
7.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
1,500 hours* ×
$3.00 per hour*
$3,600*
= $4,500
$4,200*
Rate Variance =
$900 F
Efficiency Variance =
$300 U
Spending Variance = $600 F
*Given.
8.
Standard
Quantity or
Hours
Standard
Price or
Rate
Standard
Cost
Direct materials ……………
2.8 yards1
$6 per yard
$16.80
Direct labor …………………
1.4 hours2
$7.50 per hour3
10.50
Variable manufacturing
overhead ………………….
1.4 hours
$3 per hour
4.20
Total standard cost ……….
$31.50
Case (75 minutes)
1. The cost formulas for The Little Theatre appear below, where q1 is the
number of productions and q2 is the number of performances:
o Actors’ and directors’ wages: $2,000q2. Variable with respect to the
number of performances. $2,000 = $216,000 ÷ 108.
o Stagehands’ wages: $300q2. Variable with respect to the number of
productions. $2,000 = $12,000 ÷ 6.
o Administrative expenses: $32,400 + $1,080q1 +$40q2.
o $32,400 = 0.75 × $43,200
o $1,080 = (0.15 × $43,200) ÷ 6
o $40 = (0.10 × $43,200) ÷ 108
The Little Theatre
Flexible Budget
For the Year Ended December 31
Actual number of productions (q1) ……………………………..
7
Actual number of performances (q2) …………………………..
168
Actors’ and directors’ wages ($2,000q2) ………………………
$336,000
Stagehands’ wages ($300q2) …………………………………….
50,400
Ticket booth personnel and ushers’ wages ($150q2) ………
25,200
Scenery, costumes, and props ($18,000q1) ………………….
126,000
Theater hall rent ($500q2) ………………………………………..
84,000
Printed programs ($250q2) ……………………………………….
42,000
Publicity ($2,000q1) ………………………………………………..
14,000
Administrative expenses ($32,400 + $1,080q1 +$40q2)…..
46,680
Total expense ………………………………………………………..
$724,280