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Exercise 8B-2 (45 minutes)
1. a.
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)
10,000 yards ×
$13.80 per yard
10,000 yards ×
$14.00 per yard
7,500 yards* ×
$14.00 per yard
= $138,000
= $140,000
= $105,000
Price Variance =
$2,000 F
8,000 yards × $14.00 per yard
= $112,000
Quantity Variance =
$7,000 U
*3,000 units × 2.5 yards per unit = 7,500 yards
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
10,000 yards ($13.80 per yard – $14.00 per yard) = $2,000 F
Materials quantity variance = SP (AQ – SQ)
$14.00 per yard (8,000 yards – 7,500 yards) = $7,000 U
Exercise 8B-2 (continued)
b. The journal entries would be:
Raw Materials
(10,000 yards × 14.00 per yard) ..................
140,000
Materials Price Variance
(10,000 yards × $0.20 per yard F) ......
2,000
Accounts Payable
(10,000 yards × $13.80 per yard) .......
138,000
Work in Process
(7,500 yards × $14.00 per yard) ..................
105,000
Materials Quantity Variance
(500 yards U × $14.00 per yard) .................
7,000
Raw Materials
(8,000 yards × $14.00 per yard) .........
112,000
2. a.
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)
5,000 hours ×
$8.00 per hour
4,800 hours* ×
$8.00 per hour
$43,000
= $40,000
= $38,400
Rate Variance =
$3,000 U
Efficiency Variance =
$1,600 U
Spending Variance = $4,600 U
*3,000 units × 1.6 hours per unit = 4,800 hours
Exercise 8B-2 (continued)
Alternative Solution:
Labor rate variance = AH (AR – SR)
5,000 hours ($8.60 per hour* – $8.00 per hour) = $3,000 U
Problem 8B-3A (60 minutes)
1. a.
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)
32,000 feet ×
$4.80 per foot
32,000 feet ×
$5.00 per foot
29,600 feet* ×
$5.00 per foot
= $153,600
= $160,000
= $148,000
Price Variance =
$6,400 F
Quantity Variance =
$12,000 U
Spending Variance = $5,600 U
Problem 8B-3A (continued)
2. a.
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)
6,400 hours* ×
$8.00 per hour
6,400 hours ×
$7.50 per hour
7,200 hours** ×
$7.50 per hour
= $51,200
= $48,000
= $54,000
Rate Variance =
$3,200 U
Efficiency Variance =
$6,000 F
Spending Variance = $2,800 F
*
8,000 footballs × 0.8 hours per football = 6,400 hours
**
8,000 footballs × 0.9 hours per football = 7,200 hours
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
6,400 hours ($8.00 per hour – $7.50 per hour) = $3,200 U
Labor efficiency variance = SR (AH – SH)
$7.50 per hour (6,400 hours – 7,200 hours) = $6,000 F
b.
Work in Process (7,200 hours × $7.50 per hour) .
54,000
Labor Rate Variance
(6,400 hours × $0.50 per hour U) ....................
3,200
Labor Efficiency Variance
(800 hours F × $7.50 per hour) .............
6,000
Wages Payable
(6,400 hours × $8.00 per hour) ..............
51,200
Problem 8B-3A (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)
6,400 hours ×
$2.75 per hour
6,400 hours ×
$2.50 per hour
7,200 hours ×
$2.50 per hour
= $17,600
= $16,000
= $18,000
Rate Variance =
$1,600 U
Efficiency Variance =
$2,000 F
Spending Variance = $400 F
Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR – SR)
6,400 hours ($2.75 per hour – $2.50 per hour) = $1,600 U
Variable overhead efficiency variance = SR (AH – SH)
$2.50 per hour (6,400 hours – 7,200 hours) = $2,000 F
4. No. He is not correct in his statement. The company has a large,
unfavorable materials quantity variance that should be investigated.
Problem 8B-3A (continued)
5. The variances have many possible causes. Some of the more likely
causes include the following:
Materials variances:
Favorable price variance: Good price, inferior quality materials, unusual
Problem 8B-4A (75 minutes)
1. a. Before the variances can be computed, we must first compute the
standard and actual quantities of material per hockey stick. The
computations are:
Direct materials added to work in process (a) ..
$115,200
Standard direct materials cost per foot (b) ......
$3.00
Standard quantity of direct materials (a) ÷ (b)
38,400
feet
Standard quantity of direct materials (a) .........
38,400
feet
Number of sticks produced (b)........................
8,000
Standard quantity per stick (a) ÷ (b) ..............
4.8
feet
Actual quantity of direct materials used per stick last year:
4.8 feet + 0.2 feet = 5.0 feet.
With these figures, the variances can be computed as follows:
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)
60,000 feet ×
$3.00 per foot
38,400 feet ×
$3.00 per foot
$174,000
= $180,000
= $115,200
Price Variance =
$6,000 F
40,000 feet* × $3.00 per foot
= $120,000
Quantity Variance =
$4,800 U
*8,000 units × 5.0 feet per unit = 40,000 feet
Problem 8B-4A (continued)
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
60,000 feet ($2.90 per foot* – $3.00 per foot) = $6,000 F
Problem 8B-4A (continued)
2. a. Before the variances can be computed, we must first determine the
actual direct labor hours worked for last year. This can be done
through the variable overhead efficiency variance, as follows:
Variable overhead efficiency variance = SR (AH – SH)
$1.30 per hour × (AH – 16,000 hours*) = $650 U
Problem 8B-4A (continued)
Given these figures, the variances are:
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)
16,500 hours ×
$5.00 per hour
16,000 hours ×
$5.00 per hour
$79,200
= $82,500
= $80,000
Rate Variance =
$3,300 F
Efficiency Variance =
$2,500 U
Spending Variance = $800 F
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
16,500 hours ($4.80 per hour* – $5.00 per hour) = $3,300 F
*79,200 ÷ 16,500 hours = $4.80 per hour
Labor efficiency variance = SR (AH – SH)
$5.00 per hour (16,500 hours – 16,000 hours) = $2,500 U
b.
Work in Process
(16,000 hours × $5.00 per hour) .....................
80,000
Labor Efficiency Variance
(500 hours U × $5.00 per hour) ......................
2,500
Labor Rate Variance
(16,500 hours × $0.20 per hour F) .............
3,300
Wages Payable
(16,500 hours × $4.80 per hour) ................
79,200
Problem 8B-4A (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)
16,500 hours ×
$1.30 per hour
16,000 hours ×
$1.30 per hour
$19,800
= $21,450
= $20,800
Rate Variance =
$1,650 F
Efficiency Variance =
$650 U
Spending Variance = $1,000 F
Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR – SR)
16,500 hours ($1.20 per hour* – $1.30 per hour) = $1,650 F
*$19,800 ÷ 16,500 hours = $1.20 per hour
Variable overhead efficiency variance = SR (AH – SH)
$1.30 per hour (16,500 hours – 16,000 hours) = $650 U
Problem 8B-4A (continued)
4.
For materials:
Favorable price variance: Decrease in outside purchase price; fortunate
buy; inferior quality materials; unusual discounts due to quantity
purchased; less costly method of freight; inaccurate standards.
5.
Standard
Quantity or
Hours
Standard Price
or Rate
Standard
Cost
Direct materials ............
4.8 feet
$3.00 per foot
$14.40
Direct labor ..................
2.0 hours
$5.00 per hour
10.00
Variable overhead .........
2.0 hours
$1.30 per hour
2.60
Total standard cost .......
$27.00
