Chapter 11 Standard Costs and Variances
(10-15 min.) E11-39B
Journal Entry
DATE
ACCOUNTS
POST.
REF.
DEBIT
CREDIT
Raw Materials Inventory (1,060,000 x $1.30)
1,378,000
Direct Materials Price Variance
159,000
Accounts Payable (1,060,000 x $1.15)
1,219,000
Work in Process Inventory (160,000 x 6 x $1.30)
1,248,000
Direct Materials Efficiency Variance
130,000
Raw Materials Inventory (1,060,000 x $1.30)
1,378,000
Work in Process Inventory (160,000 x .028 hrs. x $14.00)
62,720
Direct Labor Rate Variance
4,200
Direct Labor Efficiency Variance
3,920
Wages Payable (4,200 x $15.00)
63,000
Chapter 11 Standard Costs and Variances
(10-15 min.) E11-42B
Req. 1
Variable overhead allocated (162,000 x .25 x $0.55)
$22,275
Fixed overhead allocated (162,000 x .25 x $16.60)
$675,300
Req. 2
Standard hours allowed (SHA)
= 162,0000 cases x .25 DLH = 40,500 DLH
Variable MOH rate variance (a)
= AH x (AR – SR) = 42,000 x (1.05 – $0.55) = $21,000 U
Variable MOH efficiency variance (b)
= SR x (AH – SH) = $0.55 x (42,000 – 40,500) = $825 U
Fixed overhead budget variance (a)
= Actual FOH – Budgeted FOH = $644,000 – $634,000 = $10,000 U
Fixed overhead volume variance (b)
= Budgeted FOH – Standard FOH Allocated
= $634,000 – 672,300
= $38,300 F
(10-15 min.) E11-43B
Req. 1
Standard price per unit
$ 5.00
Actual price per unit
$ 5.20
Difference
$0.20
Multiply by: Actual quantity purchased
30,230
DM price variance
$6,046 U
Actual direct materials used in production (pounds)
29,830
Standard direct materials allowed, in pounds
28,500
Difference between actual and standard quantity
1,330
Multiply by: Standard direct materials cost per pound
$ 5.00
DM quantity variance
$ 6,650 U
Req. 2
The total variance cannot be calculated due to the purchased quantity being different from the used quantity.
Req. 3
The direct materials price variance is the responsibility of the purchasing manager. The materials quantity variance is
the responsibility of the production manager.
Req. 4
The unfavorable price variance shows that more was paid for the raw material than was budgeted. The unfavorable
quantity variance shows that more of the raw material was used in production than was budgeted.
Chapter 11 Standard Costs and Variances
(10-15 min.) E11-46B
Req. 1
Journal
DATE
ACCOUNTS
POST.
REF.
DEBIT
CREDIT
Raw Materials Inventory (30,230 x $5.00)
151,150
Direct Materials Price Variance
6,046
Accounts Payable (30,230 x $5.20)
157,196
To record the purchase of raw materials.
Work in Process Inventory ($5.00 x 28,500)
142,500
Direct Materials Efficiency Variance
6,650
Raw Materials Inventory ($5.00 x 29,830)
149,150
To record the use of raw materials.
Work in Process Inventory ($13.00 x 3,800)
49,400
DL Efficiency Variance
9,880
DL Rate Variance
4,560
Wages Payable ($12.00x 4,560)
54,720
To record the use of direct labor
Direct materials:
Standard quantity allowed for
actual outputs
=
(15 lb. / pot) × 1,900 pots
=
28,500 lbs.
Direct labor:
Standard quantity allowed for
actual outputs
=
(2.0 hrs) × 1,900 pots
=
3,800 hrs.
Req. 2
Journal
DATE
ACCOUNTS
POST.
REF.
DEBIT
CREDIT
Variable manufacturing overhead
28,272
Fixed manufacturing overhead
23,400
Various accounts
51,672
To record actual overhead costs incurred.
Work in Process Inventory
49,400
Variable manufacturing overhead ($6.00 x 3,800)
22,800
Fixed manufacturing overhead ($7.00 x 3800)
26,600
To allocate manufacturing overhead.
Managerial Accounting 4e Solutions Manual
(continued) E11-46B
Req. 3
Journal
DATE
ACCOUNTS
POST.
REF.
DEBIT
CREDIT
Finished Goods Inventory
241,300
Work in Process Inventory (142,500 + 49,400 + 49,400)
241,300
To record completion of 1,900 pots:
Cost of Goods Sold
241,300
Finished Goods Inventory
241,300
To record sale of 1,900 pots.
Accounts Receivable (1,900 x $450)
855,000
Sales Revenue
855,000
To record sales revenue for 1,900 pots.
Variable MOH rate variance
912
Variable MOH efficiency variance
4,560
Variable manufacturing overhead
5,472
To close variable MOH
Fixed MOH budget variance
3,200
Fixed MOH volume variance
200
Fixed manufacturing overhead
3,000
To close fixed MOH
(10-15 min.) E11-47B
Sales revenue
$ 855,000
Cost of goods sold at standard cost
$241,300
Manufacturing cost variances:
Material price variance
$6,046 U
Materials quantity variance
$6,650 U
Labor rate variance
$4,560 F
Labor efficiency variance
$9,880 U
Variable MOH rate variance
$912 U
Variable MOH efficiency variance
$4,560 U
Fixed overhead budget variance
$200 F
Fixed overhead volume variance
$3,000 F
$ 20,288 U
COGS
$ 261,588
Gross profit
$ 593,412
Marketing and administrative expenses
$ 81,000
Operating income (loss)
$ 512,412
Chapter 11 Standard Costs and Variances
Problems (Group A)
(15 min.) P11-48A
Req. 1
DM
6 yards
X
$9.00 per yard
$54
Standard price per unit
$ 9.00
Actual price per unit
$ 8.10
Difference
$ 0.90
Multiply by: Actual quantity purchased
15,750
Direct Material price variance
$ 14,175 F
Actual rate
$ 18.30
Standard rate
$ 19.00
Difference:
$0.70
Multiply by: Actual direct labor hours
1,370
DL rate variance
$959 F
Actual hours
1,370
Standard hours allowed
1,250
Difference
120
Multiply by: Standard rate
$ 19.00
DL efficiency variance
$ 2,280 U
Req. 7
The favorable DM price variance and unfavorable DM quantity variance may have been caused by purchasing inferior
Actual direct materials used in production (yards)
15,250
Standard quantity allowed, in yards
15,000
Difference
250
Multiply by: Standard cost per yard
$ 9.00
Direct Material quantity variance
$ 2,250 U
Managerial Accounting 4e Solutions Manual
(continued) P11-48A
(15-20 min.) P11-49A
Req. 1
Input
Quantity Standard
Price Standard
Standard Cost of
Input
Direct materials
22 yard
x
$13 per yard
=
$286
Direct labor
5 hrs.
x
$15 per hr
=
$75
Variable MOH
5 hrs.
x
$8 per hour
=
$40
Fixed MOH
5 hrs.
x
$6 per hour
=
$30
Standard cost
$431
Standard price per unit
$ 13.00
Actual price per unit
$ 12.90
Difference
$ 0.10
Multiply by: Actual quantity purchased
51,260
DM price variance
$ 5,126 F
Actual direct materials used
47,500
Standard quantity allowed
48,400
Difference
900
Multiply by: Standard direct materials cost per yard
$ 13.00
DM quantity variance
$ 11,700 F
Standard DL rate per hour
$ 15.00
Actual DL rate per hour
$ 15.50
Difference
$0.50
Multiply by: Actual direct labor hours
10,850
DL rate variance
$5,425 U
Actual direct labor hours
10,850
Standard direct labor hours allowed
11,000
Difference
150
Multiply by: Standard direct labor rate per hour
$ 15.00
DL efficiency variance
$ 2,250 F
Chapter 11 Standard Costs and Variances
(continued) P11-49A
Variable MOH rate variance:
=AH x (AR – SR) = 10,850 x ($8.60 – $8.00)
$ 6,510 U
Variable MOH efficiency variance:
=SR x (AH – SH) = $8 x (10,850 – 11,000)
$ 1,200 F
Fixed overhead budget variance:
Actual fixed MOH – Budgeted fixed MOH ($67,500 – $63,500)
$ 4,000 U
Fixed overhead volume variance:
Budgeted fixed MOH – Std. fixed MOH allocated to production (SHA
x Std. fixed MOH rate) ($63,500 – $66,000)
$ 2,500 F
Req. 3
The favorable DM price variance shows that less was paid for the raw material than was budgeted. The favorable DM
quantity variance shows that less of the raw material was used in production than was budgeted.
An unfavorable DL rate variance shows that the wage paid was higher than the wage budgeted. The favorable DL
efficiency variance shows that less labor was used than was budgeted.
The Unfavorable variable MOH rate variance tells managers that the actual amount of MOH was greater than the
expected amount given the direct labor hours used. The favorable variable MOH efficiency variance tells managers that
the actual hours used were less than the standard hours allowed.
The unfavorable fixed MOH budget variance tells managers that more fixed overhead costs were incurred than were
budgeted for. The favorable fixed MOH volume variance tells managers that production volume was greater than
anticipated.
Student answers may vary.
Chapter 11 Standard Costs and Variances
(continued) P11-50A
Variable MOH efficiency variance:
=SR x (AH – SH) = $7.00 x (190 – 180)
$ 70 U
Fixed overhead budget variance:
Actual fixed MOH – Budgeted fixed MOH = $1,490 – $1,090
$ 400 U
Fixed overhead volume variance:
Budgeted fixed MOH – Std. fixed MOH allocated to production (SHA
x Std. fixed MOH rate) = $1,090 – $540
$ 550 U
Req. 3
Management has not done a good job controlling material, labor, and overhead costs. Each of these areas incurred an
unfavorable variance during the period.
Req. 4
The following are benefits of a standard costing system:
Standards are often used as the basis for many components in the master budget.
Standard costing systems simplify bookkeeping.
Standards create a benchmark by which to judge actual costs.
The use of practical, or attainable, standards should increase employee motivation.
The company should continue the standard cost system if the benefits outweigh the costs.
Managerial Accounting 4e Solutions Manual
(15-20 min.) P11-51A
Req. 1
Standard direct labor rate per hour
–
Favorable labor rate
variance
=
Actual direct labor rate per
hour
$10.00
–
0.50
=
$9.50
Petra’s Music
Schedule to Compute Actual Direct Labor Hours
Actual
Flexible Budget for
Actual Output
Flexible
Budget
Variance
Direct labor hours
5,860
5,600
Cost per hour
$ 9.50
$ 10.00
Total direct labor cost
$55,670
$56,000
Flexible budget variance
$ 330 F
Req. 2
Price variance
=
Actual price
−
Standard price
×
Actual quantity
per input unit
per input unit
of input
Direct labor
=
($9.50 per hour − $10.00 per hour)
×
5,860 hours
price variance
=
$2,930 F
Efficiency
=
Actual quantity
−
Standard quantity
×
Standard price
variance
of input
of input
per input unit
Direct labor
=
(5,860 hours − 5,600 hours)
×
$10.00 per hour
efficiency variance
=
$2,600 U
The favorable direct labor rate variance combined with the unfavorable direct labor efficiency variance suggests that
the manager may have used lower paid, less efficient workers. However, due to the overall net effect, it appears there
was a reasonable tradeoff.
(15-20 min.) P11-52A
Req. 1
Standard price per unit
$ 3.80
Actual price per unit
$ 3.90
Difference
$ 0.10
Multiply by: Actual quantity purchased
32,400
DM price variance
$ 3,240 U
Chapter 11 Standard Costs and Variances
(continued) P11-52A
Actual direct materials used in production, square foot
32,400
Standard quantity allowed, square foot
40,500
Difference between actual and standard quantity
8,100
Multiply by: Standard direct materials cost per square foot
$ 3.80
DM quantity variance
$ 30,780 F
Req. 2
Actual rate
$9.70
Standard direct labor rate per hour
$9.50
Difference
$0.20
Multiply by: Actual direct labor hours
24,800
DL rate variance
$ 4,960 U
Actual hours
24,800
Standard hours allowed
27,000
Difference between actual and standard direct labor rate
2,200
Multiply by: standard DL rate
$9.50
DL efficiency variance
$ 20,900 F
Req. 3
Variable MOH rate variance:
=AH x (AR – SR) = 24,800 x ($0.70 – $0.58) =
$ 2,976 U
Variable MOH efficiency variance:
=SR x (AH – SH) = $0.58 x (24,800 – 27,000) =
$1,276 F
Req. 4
Fixed overhead budget variance:
Actual fixed MOH – Budgeted fixed MOH = $56,565 – $64,200
$ 7,635 F
Fixed overhead volume variance:
Budgeted fixed MOH – Std. fixed MOH allocated to production (SHA
x Std. fixed MOH rate) = $64,200 – $60,750
$ 3,450 U
Managerial Accounting 4e Solutions Manual
(continued) P11-52A
Req. 5
The favorable quantity, efficiency, and budget variances more than offset the unfavorable price, rate and fixed volume
variances. If the superior materials purchased for the November production decreased materials and labor usage, then