Solutions Manual, Chapter 11 41
Problem 11-15 (continued)
2. Summary of variances:
Material price variance ……………………..
$ 3,000
F
Material quantity variance …………………
8,400
U
Labor rate variance ………………………….
11,800
U
Labor efficiency variance…………………..
1,200
F
Variable overhead rate variance ………….
590
U
Variable overhead efficiency variance ….
300
F
Net variance …………………………………..
$16,290
U
Budgeted cost of goods sold at $12 per pool ………
$180,000
Add the net unfavorable variance, as above ……….
16,290
Actual cost of goods sold ……………………………….
$196,290
operating income for the month.
Budgeted net operating income ……………………….
$36,000
Deduct the net unfavorable variance added to cost
of goods sold for the month …………………………
16,290
Net operating income ……………………………………
$19,710
3. The two most significant variances are the materials quantity variance
and the labor rate variance. Possible causes of the variances include:
Materials quantity variance:
Outdated standards, unskilled workers,
poorly adjusted machines,
carelessness, poorly trained workers,
inferior quality materials.
Labor rate variance:
Outdated standards, change in pay
scale, overtime pay.
42 Managerial Accounting for Managers, 4th Edition
Problem 11-16 (60 minutes)
1.
Standard cost for March production:
Materials ……………………………………………………………..
$16,800
Direct labor ………………………………………………………….
10,500
Variable manufacturing overhead ………………………………
4,200
Total standard cost (a) ……………………………………………
$31,500
Number of backpacks produced (b) …………………………..
1,000
Standard cost of a single backpack (a) ÷ (b) ………………
$31.50
2.
Standard cost of a single backpack (above) …………………
$31.50
Deduct difference between standard and actual cost …….
0.15
Actual cost per backpack …………………………………………
$31.35
3.
Total standard cost of materials allowed during March
(a) …………………………………………………………………
$16,800
Number of backpacks produced during March (b) ……….
1,000
Standard materials cost per backpack (a) ÷ (b) ………….
$16.80
Standard materials cost per backpack $16.80 per backpack
=
Standard materials cost per yard $6.00 per yard
= 2.8 yards per backpack
4.
Standard cost of material used …………
$16,800
Actual cost of material used …………….
15,000
Total variance ……………………………….
$ 1,800
F
The price and quantity variances together equal the total variance. If
Price variance ……………………………….
$ 3,000
F
Quantity variance ………………………….
1,200
U
Total variance ……………………………….
$ 1,800
F
Solutions Manual, Chapter 11 43
Problem 11-16 (continued)
Alternative Solution:
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)
3,000 yards ×
$5.00 per yard
3,000 yards ×
$6.00 per yard*
2,800 yards** ×
$6.00 per yard*
= $15,000*
= $18,000
= $16,800*
Price Variance,
$3,000 F
Quantity Variance,
$1,200 U*
Spending Variance,
$1,800 F
*
Given.
**
1,000 units × 2.8 yards per unit = 2,800 yards
5. The first step in computing the standard direct labor rate is to determine
the standard direct labor-hours allowed for the month’s production. The
direct labor-hours worked:
Standard variable manufacturing overhead cost for March (a) .
$4,200
Standard variable manufacturing overhead rate per direct
labor-hour (b) ………………………………………………………….
$3.00
Standard direct labor-hours for March (a) ÷ (b) …………………
1,400
Total standard direct labor cost for March $10,500
=
Total standard direct labor-hours for March 1,400 DLHs
= $7.50 per DLH
44 Managerial Accounting for Managers, 4th Edition
Problem 11-16 (continued)
6. Before the labor variances can be computed, it is necessary to compute
the actual direct labor cost for the month:
Actual cost per backpack produced (part 2) ……..
$ 31.35
Number of backpacks produced ……………………..
× 1,000
Total actual cost of production ……………………….
$31,350
Less: Actual cost of materials ………………………..
$15,000
Actual cost of variable manufacturing
overhead ………………………………………..
3,600
18,600
Actual cost of direct labor …………………………….
$12,750
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)
1,500 hours* ×
$7.50 per hour
$12,750
= $11,250
$10,500*
Rate Variance,
$1,500 U
Efficiency Variance,
$750 U
Spending Variance,
$2,250 U
*Given.
Solutions Manual, Chapter 11 45
Problem 11-16 (continued)
7.
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)
1,500 hours* ×
$3.00 per hour*
$3,600*
= $4,500
$4,200*
Rate Variance,
$900 F
Efficiency Variance,
$300 U
Spending Variance,
$600 F
*Given.
8.
Standard
Quantity or
Hours
Standard
Price or
Rate
Standard
Cost
Direct materials ……………
2.8 yards1
$6 per yard
$16.80
Direct labor …………………
1.4 hours2
$7.50 per hour3
10.50
Variable manufacturing
overhead ………………….
1.4 hours
$3 per hour
4.20
Total standard cost ……….
$31.50
1From part 3.
21,400 standard hours (from part 5) ÷ 1,000 backpacks = 1.4
hours per backpack.
3From part 5.
46 Managerial Accounting for Managers, 4th Edition
Case 11–17 (60 minutes)
1. The number of units produced can be computed by using the total
standard cost applied for the period for
any
input—direct materials,
direct labor, or variable manufacturing overhead. Using the standard
cost applied for direct materials, we have:
Total standard cost applied for the period $405,000
=
Standard cost per unit $18 per unit
= 22,500 units
The same answer can be obtained by using direct labor or variable
manufacturing overhead.
6.
Standard variable overhead cost applied
$54,000
Add: Overhead efficiency variance ………
4,200
U
(see below)
Deduct: Overhead rate variance …………
1,300
F
Actual variable overhead cost incurred …
$56,900
Solutions Manual, Chapter 11 47
Case 11-17 (continued)
Direct materials analysis:
Actual Quantity of
Inputs, at Actual
Price
Actual Quantity
of Inputs, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
138,000 pounds
× $2.95 per pound***
138,000 pounds**
× $3 per pound
135,000 pounds*
× $3 per pound
= $407,100
= $414,000
= $405,000
Price Variance,
$6,900 F
Quantity Variance,
$9,000 U
Spending Variance,
$2,100 U
*
22,500 units × 6 pounds per unit = 135,000 pounds
**
$414,000 ÷ $3 per pound = 138,000 pounds
***
$407,100 ÷ 138,000 pounds = $2.95 per pound
Direct labor analysis:
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)
19,400 DLHs ×
$15.75 per DLH***
19,400 DLHs** ×
$15 per DLH
18,000 DLHs* ×
$15 per DLH
= $305,550
= $291,000
= $270,000
Rate Variance,
$14,550 U
Efficiency Variance,
$21,000 U
Spending Variance,
$35,550 U
*
22,500 units × 0.8 DLHs per unit = 18,000 DLHs
**
$291,000 ÷ $15 per DLH = 19,400 DLHs
***
$305,550 ÷ 19,400 DLHs = $15.75 per DLH
48 Managerial Accounting for Managers, 4th Edition
Case 11-17 (continued)
Variable overhead analysis:
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)
$56,900**
19,400 DLHs ×
$3 per DLH
18,000 DLHs ×
$3 per DLH
= $58,200
= $54,000
Rate Variance,
$1,300 F
Efficiency Variance,
$4,200 U*
*
Computed using 19,400 actual DLHs at the $3 per DLH standard rate.
**
$58,200 – $1,300 = $56,900.
Appendix 11A
Predetermined Overhead Rates and Overhead
Analysis in a Standard Costing System
© The McGraw-Hill Companies, Inc., 2017. All rights reserved.
50 Managerial Accounting for Managers, 4th Edition