C15.28.
(continued)
b.
material price and direct labor rate variances might best be reported monthly. Unless
Raw material usage and direct labor efficiency should be reported in physical
C15.29.
a.
The purchasing manager is probably taking advantage of some large-volume quantity
discounts offered by suppliers of lower-grade raw materials input items. More items
are being purchased than are needed for current period production. Because raw
material inventory quantities are increasing at a rapid rate, the carrying cost to
b.
Generally, it is appropriate to isolate variances as soon as possible so that immediate
feedback can be provided to the manager responsible for controlling the cost.
However, efforts must be made to harmonize the purchasing activities with production
needs. The purchasing manager should be encouraged to find the most favorable price
for materials that meet appropriate quality standards (as established by top
C15.30.
a.
Raw material usage, and direct labor and variable overhead efficiency variances are, in
the aggregate, about 15% of the total standard cost of goods manufactured. This
indicates that the standards are not a very effective tool for controlling raw material,
direct labor, and variable overhead costs.
C15.31.
a.
This is the raw materials purchase price variance and it will be recorded in the income
statement as it is incurred.
b.
When actual cost is the same as standard cost.
year, the balance of overapplied or underapplied overhead will be closed to cost of
C15.32.
a.
CAM-I is a not-for-profit, cooperative membership organization established in 1972
to support research and development in areas of strategic importance to industries.
CAM-I is global, collaborative research organization. It is driven by industry, and
focused on advancing management and technical practices.
CAM-I’s international sponsors represent a broad range of industries
and government agencies. These organizations come together in the pre-competitive,
cooperative research environment of CAM-I to define, understand and solve critical
C15.32.
(continued)
CAM-I has multiple complementary focus areas: They include Cost Management,
Performance Management, and Process Based Management. The CMS focus area is
the authoritative international body on organizational cost and resource management
1. Participative Research – by working together the participants understand the
journey – the best practice path.
2. Targeted Intellectual Efforts – each program targets results and produces
implementable deliverables by our sponsors.
Human Networks – Develop and continue to share, challenge ideas, and learn long
beyond the end date of the specific result.
b.
The purpose of this writing assignment is to have the student assess big-picture
information from the CAM-I Quarterly Report. The Project Work in Progress will
help students better understand the scope and purpose of the organization.
the most useful CAM-I membership program. The important learning outcome here
is to have the student try to assess membership benefits with membership costs and
be able to articulate the result of that comparison, from their perspective.
d.
Again, students should be logically creative with their choices of two publications
from the CAM-I body of knowledge that they perceive will help them with their
new responsibilities. The library is plentiful and includes many good choices.
Instructor’s Manual / Solutions Manual
TAKE-HOME QUIZ: CHAPTER 15 NAME______________________
1. You have been employed as a customer relations representative for a firm. Your firm
encourages the employees of customers to visit your firm’s plant to see how products are
made. One of your responsibilities is to take customer-employee visitors to lunch. The
budget allowance for these lunches is $6 per visitor. When the budget for November was
prepared, it was estimated that 60 customer-employees would visit your plant that month.
Early in December, the following information appeared in the performance report for your
department:
Budget
Actual
Variance
Variance %
Customer lunches
$360
$430
$70 U
19.4% U
Your records indicate that during November you actually took 72 visitors to lunch.
a. Explain how the budget amount was determined.
b. Evaluate the above performance report.
c. Prepare a more appropriate performance report.
2. The following income statement was prepared to provide a basis for evaluating the
performance of three territories in the Midwest Division of a company.
Total
Chicago
Kansas City
St. Louis
Division
Territory
Territory
Territory
Sales………………………
$452,000
$203,000
$122,000
$127,000
Cost Goods Sold …………
(203,400)
(94,400)
(52,500)
(56,500)
Gross Profit ………………
$248,600
$108,600
$ 69,500
$ 70,500
Operating Expenses………
(213,200)
(110,500)
(61,700)
(41,000)
$ 35,400
$ 7,800
$ 29,500
Chapter 15 Cost Control
TAKE-HOME QUIZ: CHAPTER 15 (continued)
3. The direct material and direct labor standards for one case of Springbreak Tonic are:
Direct Materials (5 quarts @ $8 per quart) ……………………
$40
Direct Labor (2 hours @ $12 per hour) ………………………..
24
During the week ended March 7, the following activity took place:
16,000 quarts of raw materials were purchased for inventory at a cost of $8.10 per quart.
Calculate the total dollar amount of each of the following variances (show your work in
detail):
a. Raw materials purchase price variance.
b. Raw materials usage variance.
c. Direct labor efficiency variance.
d. Direct labor rate variance.
e. If you were the raw materials supervisor, how might you have preferred having the raw
materials usage variance reported?
Instructor’s Manual / Solutions Manual
TAKE-HOME QUIZ KEY: CHAPTER 15
1. a. The budget amount is $6 per visitor * 60 visitors expected.
b. The performance report is faulty because the budget was not flexed.
c.
Budget
Actual
Variance
Variance %
2. The statement appears to have arbitrarily allocated common fixed expenses of the division to
the territories. For this reason, the statement is not very useful. If the statement were recast
3. a.
Raw materials purchase price variance:
(Standard price – Actual price) * Actual quantity purchased
b.
Raw materials usage variance:
(Standard usage – Actual usage) * Standard price
c.
Direct labor efficiency variance:
d.
# Actual rate: $76,860 / 6,300 hours = $12.20 per hour.
Direct labor rate variance:
(Standard rate – Actual rate) * Actual hours
e.
physical units (i.e., 300 quarts favorable).
The raw materials supervisor might prefer to have the usage variance reported in