Topic Focus 4 – Standard Costing
T4-1
Standard Costing
Learning Objectives
control costs.
2. Calculate the fixed overhead volume variance.
Summary of End of Chapter Material
Difficulty: E = Easy, M = Moderate, D = Difficult
Bloom: K = Knowledge, C = Comprehension, AP = Application, AN = Analysis, S = Synthesis, E = Evaluation
AACSB: A = Analytic, C = Communication, E = Ethics
AICPA FN: DM = Decision modeling, RA = Risk Analysis, M = Measurement, R = Reporting, RS = Research, T = Technology
AICPA PC: C = Communication, I = Interaction, L = Leadership, P = Professional demeanor, PM = Project Management,
PS = Problem Solving and Decision Making, T = Technology
IMA: BA = Business applications, BP = Budget Preparation, CM = Cost Management, DA = Decision Analysis,
PM = Performance Measurement, R = Reporting, SP = Strategic Planning
Item
L. O.
Difficulty
Level
Minutes to
Complete
Bloom’s
Taxonomy
AACSB
AICPA
FN
AICPA
PC
IMA
Ethics
Coverage
GUIDED UNIT PREPARATIONS
1
1
E
5-7
K
A
M
PS
CM
2
1
E
2
K
A
M
PS
CM
3
1
E
2
K
A
M
PS
CM
4
2
E
3
K
A
M
PS
CM
EXERCISES
T4-1
1
M
8
AP
A
M
PS
CM
T4-2
1
M
8
AP
A
M
PS
CM
T4-3
1
M
4
AP
A
M
PS
CM
T4-4
1
M
4
AP
A
M
PS
CM
T4-5
1
M
12–15
AP
A
M
PS
CM
T4-6
1
M
12
AP
A
M
PS
CM
T4-7
1, 2
M
15
AP
A
M
PS
CM
T4-8
2
M
12
AP
A
M
PS
CM
PROBLEMS
T4-9
1, 2
M
20–25
AP
A
M
PS
BP
T4–10
2
D
20–25
AP, AN
A
M
PS
BP
T4–11
1, 2
D
25–30
AP
A
M
PS
CM
Topic Focus
4
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Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
T4-2
SOLUTIONS TO GUIDED UNIT PREPARATION
1. In a normal costing system, actual direct labor and actual direct
materials costs are recorded in the inventory accounts. Overhead is
Cost of Goods Sold.
In a standard costing system, all inventory is recorded at standard
accounting period.
2. Unfavorable variances are recorded as debits since they increase
3. Variances are typically disposed of by closing them to cost of goods
sold.
4. A fixed overhead volume variance occurs only when the actual
volume of the application base differs from the budgeted volume
that was used to calculate the predetermined overhead rate.
Topic Focus 4 – Standard Costing
T4-3
SOLUTIONS TO EXERCISES
Exercise T4-1
a. Raw Materials Inventory
(4,000 pounds × $1.60/pound) ………………………………. 6,400
To record the purchase of plastic
b. Work in Process Inventory
Exercise T4-2
a. Raw Materials Inventory
(500,000 feet × $0.23/foot) …………………………………… 115,000
To record the use of wire
T4-4
Exercise T4-3
Work in Process Inventory
(16,000 units × 4 DLH/unit × $10.00/DLH) …………………. 640,000
To record direct labor
Exercise T4-4
Work in Process Inventory
Topic Focus 4 – Standard Costing
T4-5
Exercise T4-5
a. Manufacturing Overhead …………………………………… 40,000
b. Work in Process Inventory ………………………………… 38,250
Variable Overhead Spending Variance
T4-6
Exercise T4-6
a. Manufacturing Overhead …………………………………… 282,000
b. Work in Process Inventory
c. Manufacturing Overhead …………………………………… 12,000
Topic Focus 4 – Standard Costing
Exercise T4-7
a.
Variable overhead spending variance =
Actual VOH – (AQ SP)
=
$6,040,000 – (756,000 DLH $8)
=
$8,000 F
Variable overhead efficiency variance =
SP (AQ – SQ)
=
$8 (756,000 – [76,000 10])
=
$32,000 F
budgeted fixed overhead:
Budgeted fixed overhead =
$9/DLH
75,000 units × 10 DLH/unit
Budgeted fixed overhead =
$9/DLH × 75,000 units × $10 DLH/unit
=
$6,750,000
c.
Fixed overhead spending variance =
Actual FOH – Budgeted FOH
=
$6,758,000 – $6,750,000
=
$8,000 U
Standard (applied) fixed overhead:
=
$6,750,000 – $6,840,000