Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 11 Standard Costs and Variances
Problems (Group B)
DM
2.0 yards
X
$8.5 per yard
$17
Req. 2
$35,802 / 4,590 = $7.80 per yard
Req. 3
Standard price per unit
$ 8.50
Actual price per unit
$ 7.80
Difference
$ 0.70
Multiply by: Actual quantity purchased
4,590
Direct Material price variance
$ 3,213 F
Actual quantity used
3,990
Standard quantity allowed
3,400
Difference
590
Multiply by: Standard price
$ 8.50
Direct Materials quantity variance
$ 5,015 U
Req. 4
DL
1.5 yards
X
$12 per yard
$18
Req. 5
$29,904 / 2,670 = $11.20 per yard
Req. 6
Actual rate
$11.20
Standard rate
$12.00
Difference
$0.80
Multiply by: Actual direct labor hours
2,670
DL rate variance
$ 2,136 F
Actual hours
2,670
Standard hours allowed
2,550
Difference
120
Multiply by: Standard rate
$12.00
DL efficiency variance
$ 1,440 U
Managerial Accounting 4e Solutions Manual
(continued) P11-53B
Req. 7
The favorable DM price variance and unfavorable DM quantity variance may have been caused by purchasing inferior
(15-30 min.) P11-54B
Req. 1
Input
Quantity Standard
Price Standard
Standard Cost of
Input
Direct materials
19 yards
x
$13 per yard
=
$247
Direct labor
4 hrs.
x
$11 per hr
=
$44
Variable MOH
4 hrs.
x
$5 per hr
=
$20
Fixed MOH
4 hrs.
x
$10 per hr
=
$40
Standard cost
$351
Standard price per unit
$ 13.00
Actual price per unit
$ 12.60
Difference
$ 0.40
Multiply by: Actual quantity purchased
43,470
DM price variance
$ 17,388 F
Actual quantity used
38,800
Standard quantity allowed
39,900
Difference
1,100
Multiply by: Standard direct materials cost per yard
$ 13.00
DM quantity variance
$ 14,300 F
Chapter 11 Standard Costs and Variances
(continued) P11-54B
Actual DL rate per hour
$11.20
Standard DL rate per hour
$11.00
Difference
$0.20
Multiply by: Actual DL hours
8,270
DL rate variance
$ 1,654 F
Actual DL hours
8,270
Standard DL hours allowed
8,400
Difference
130
Multiply by: Standard DL rate per hour
$11.00
DL efficiency variance
$ 1,430 F
Variable MOH rate variance:
=AH x (AR – SR) = 8,270 x ($5.40 - $5.00)
$ 3,308 U
Variable MOH efficiency variance:
=SR x (AH – SH) = $5.00 x (8,270 – 8,400)
$ 650 F
Fixed overhead budget variance:
Actual fixed MOH – Budgeted fixed MOH = $86,800 - $81,800
$ 5,000 U
Fixed overhead volume variance:
Budgeted fixed MOH – Std. fixed MOH allocated to production (SHA
x Std. fixed MOH rate) = $81,800 - $84,000
$ 2,200 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.
A favorable DL rate variance shows that the wage paid was less 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.
Managerial Accounting 4e Solutions Manual
(15-30 min.) P11-55B
Req. 1
Input
Quantity Standard
Price Standard
Standard Cost of
Input
Direct materials
60 lbs
x
$5 per lb
=
$300
Direct labor
2 hrs.
x
$13 per hr
=
$26
Variable MOH
2 hrs.
x
$7 per hr
=
$14
Fixed MOH
2 hrs.
x
$5 per hr
=
$10
Standard cost
$350
Standard price per unit
$ 5.00
Actual price per unit
$ 4.90
Difference
$ 0.10
Multiply by: Actual quantity purchased
4,260
DM price variance
$ 426 F
Actual quantity used
4,200
Standard quantity allowed
3,600
Difference between actual and standard quantity
600
Multiply by: Standard price
$ 5.00
DM quantity variance
$ 3,000 U
Actual DL rate
$13.80
Standard DL rate
$13.00
Difference
$0.80
Multiply by: Actual hours
150
DL rate variance
$ 120 U
Actual hours
150
Standard hours allowed
120
Difference between actual and standard direct labor hours
30
Multiply by: Standard DL rate
$ 13.00
DL efficiency variance
$ 390 U
Variable MOH rate variance:
=AH x (AR – SR) = 150 x ($7.50 - $7.00)
$ 75 U
Variable MOH efficiency variance:
=SR x (AH – SH) = $7.00 x (150 – 120)
$ 210 U
Fixed overhead budget variance:
Actual fixed MOH – Budgeted fixed MOH = $1,550 - $1,250
$ 300 U
Fixed overhead volume variance:
Budgeted fixed MOH – Std. fixed MOH allocated to production (SHA
x Std. fixed MOH rate) = $1,250 - $600
$ 650 U
Chapter 11 Standard Costs and Variances
(continued) P11-55B
Req. 3
(15-30 min.) P11-56B
Req. 1
Standard direct labor rate per hour
-
Favorable labor rate
variance
=
Actual direct labor rate per
hour
$8.00
-
0.30
=
$7.70
Coral’s Music
Schedule to Compute Actual Direct Labor Hours
Actual
Flexible Budget for
Actual Output
Flexible
Budget
Variance
Direct labor hours
5,500
5,340
Cost per hour
$ 7.70
$ 8.00
Total direct labor cost
$42,350
$42,720
Flexible budget variance
$ 370 F
Req. 2
Price variance
=
Actual price
−
Standard price
×
Actual quantity
per input unit
per input unit
of input
Direct labor
=
($7.70 per hour − $8.00 per hour)
×
5,500 hours
price variance
=
$1,650 F
Efficiency
=
Actual quantity
−
Standard quantity
×
Standard price
variance
of input
of input
per input unit
Direct labor
=
(5,500 hours − 5,340 hours)
×
$8.00 per hour
efficiency variance
=
$1,280 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 this
was a reasonable tradeoff.
Chapter 11 Standard Costs and Variances
(continued) P11-57B
Req. 4
Fixed overhead budget variance:
Actual fixed MOH – Budgeted fixed MOH = $57,508 - $63,000
$ 5,492 F
Fixed overhead volume variance:
Budgeted fixed MOH – Std. fixed MOH allocated to production (SHA
x Std. fixed MOH rate) = $63,000 - $61,600
$ 1,400 U
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
management’s decision was wise.
Req. 6
Journal
DATE
ACCOUNTS
POST.
REF.
DEBIT
CREDIT
Raw Materials Inventory (36,400 x $4.15)
151,060
Direct Materials Price Variance
5,460
Accounts Payable (36,400 x $4.30)
156,520
To record the purchase of raw materials.
Work in Process Inventory (42,000 x $4.15)
174,300
Direct Materials Efficiency Variance
23,240
Raw Materials Inventory (36,400 x $4.15)
151,060
To record the use of raw materials.
Work in Process Inventory (28,000 x $9.70)
271,600
Direct Labor Efficiency Variance
2,580
Direct Labor Rate Variance
21,340
Wages Payable (25,800 x $9.80)
252,840
To record incurrence of direct labor.
Managerial Accounting 4e Solutions Manual
Discussion & Analysis
1. Suppose a company is implementing lean accounting throughout the organization. Why might standard costing
NOT be beneficial for that company?
company.
2. What advantages might be experienced by a company if it adopts ideal standards for its direct material
standards and direct labor standards? What advantages are there to using practical standards? As an employee,
which would you prefer and why? Does your answer change if you are the manager in charge of production?
3. Select a product with which you are familiar. Describe what type of standards (direct material and direct labor)
might be in effect for that product wherever it is produced. For each of these standards, discuss how those
4. Service organizations also use standards. Describe what types of standards might be in effect at each of the
following types of organizations:
5. What does the direct materials price variance measure? Who is generally responsible for the direct materials
price variance? Describe two situations that could result in a favorable materials price variance. Describe two
Chapter 11 Standard Costs and Variances
6. What does the direct materials efficiency variance measure? Who is generally responsible for the direct
materials efficiency variance? Describe two situations that could result in a favorable direct materials efficiency
variance. Describe two situations that could result in an unfavorable direct materials efficiency variance.
7. What does the direct labor rate variance measure? Who is generally responsible for the direct labor rate
variance? Describe two situations that could result in a favorable direct labor rate variance. Describe two
8. What does the direct labor efficiency variance measure? Who is generally responsible for the direct labor
efficiency variance? Describe two situations that could result in a favorable labor efficiency variance. Describe
two situations that could result in an unfavorable labor efficiency variance.
9. Describe at least four ways a company could use standard costing and variance analysis.
• Standard costing saves on bookkeeping costs.
10. What are the two manufacturing overhead variances? What does each measure? Who within the organization
would be responsible for each of these variances?
11. Suppose a company that makes and sells spaghetti sauce in plastic jars makes a change to its bottle that allows it
to use significantly less plastic in each bottle. Describe at least four ways this change could help the company
Chapter 11 Standard Costs and Variances
Team Project
(30-60 min.) A11-60
1. Pella will need standards that will enable them to compute:
• Direct materials price and efficiency variances for individual direct materials, including:
– glass
– wood
– different types of hardware, such as door handles, and window cranks
– and so on.
not very helpful for controlling business operations, so Pella may decide not to compute this variance.
• Pella should develop non-financial standards for key factors such as quality (number of defects) and on-time
delivery.
2a. Three alternative approaches to setting standards include:
• Engineering analysis/time-and-motion studies
This approach reveals the minimum amount of direct materials, direct labor, and manufacturing overhead
practice within the company. If the Carroll, Iowa, plant is not the most efficient in the company, then
benchmarks could be adopted from the most efficient of the company’s other plants. External benchmarks
require standards based on the “best practice” of other companies. Pella might be able to obtain benchmark
data from industry trade publications or from consultants. Or Pella might enter into a partnering relationship
with another company such as Anderson Windows or Peachtree Windows, where the partner companies
Managerial Accounting 4e Solutions Manual
these costs be reduced by a specified percentage each quarter (or year). A problem with this approach is that
after some point, further reductions may not be possible. Management must be careful not to make demands
that employees believe are unattainable.
2) Continuous improvement standards, and/or
3) Benchmarking.
Any of these three approaches will provide incentives to reduce costs and increase operating efficiency. Without
more information on the costs of each approach, we cannot definitively recommend a single method.
