CHAPTER 10 Standard Costing and Variance Analysis
P 10-69
1. MPV = (AP – SP)AQ
= ($1.55 – $1.50)44,250 = $2,213* U
* Rounded to the nearest dollar.
MUV = (AQ – SQ*)SP
= (44,250 – 45,000)$1.50 = $1,125 F
The overall materials variance is $1,088 U ($2,213 U – $1,125 F); therefore, the
company should not buy this quality of materials, but should go back to
the prior quality.
*
SQ = 90,000 × 0.50 = 45,000
3. LRV = (AR × AH) – (SR × AH)
= Actual Labor Cost – (SR × AH)
= $132,000 – ($10 × 13,200) = $0
LEV = (SR × AH) – (SR × SH**)
= ($10 × 13,200) – ($10 × 13,500) = $3,000 F
**
SH = 90,000 × 0.15 = 13,500
The overall labor variance is $3,000 F ($0 + $3,000 F). If this pattern is the one
expected to persist, then the new layout should be continued. It will save
$156,000 per year ($3,000 × 52 weeks).
P 10-70
2. LRV = (AR × AH) – (SR × AH)
= Actual Labor Cost – (SR × AH)
= $315,000 – ($15 × 22,500) = $22,500 F
LEV = (SR × AH) – (SR × SH**)
= ($15 × 22,500) – ($15 × 18,750) = $56,250 U
**
SH = 15,000 × 1.25 = 18,750
CHAPTER 10: Standard Costing and Variance Analysis
P 10-70 (Concluded)
3. The basic advantages offered by a standard costing system include its
use in planning, control, and decision making. A standard costing system
helps in budgeting since the unit standard costs can be multiplied by the
predicted level of production to obtain total costs. Standard costs are
used in control to evaluate performance. A comparison of actual costs to
P 10-71
1. MPV = (AP – SP)AQ
= ($4.70 – $5.00)260,000 = $78,000 F
MUV = (AQ – SQ*)SP
= (320,000 – 300,000)$5 = $100,000 U
The materials usage variance is viewed as the most controllable because
prices for materials are often market-driven and thus not controllable.
Responsibility for the variance in this case likely would be assigned to
Purchasing. The lower-quality materials (assumed, based on the lower
price paid) are probably the cause of the extra usage.
*
SQ = 50,000 × 6.00 = 300,000
CHAPTER 10 Standard Costing and Variance Analysis
P 10-71 (Concluded)
Production is usually responsible for labor efficiency. In this case, efficiency may
3. Three variances are potentially affected by material quality:
MPV…………………………………
…
$ 78,000 F
MUV…………………………………
…
100,000 U
LEV…………………………………… 24,000 U
Net effect………………………… $ 46,000 U
If the variance outcomes are largely attributable to the lower-quality materials,
then the company should discontinue using this material.
4.
Debit Credit
Materials 1,300,000
MPV 78,000
Accounts Payable 1,222,000
Work in Process 1,500,000
MUV 100,000
Materials 1,600,000
Journal
Date Account & Explanation
CHAPTER 10: Standard Costing and Variance Analysis
P 10-72
1. Standard Fixed Overhead Rate = $2,160,000/(120,000 units × 5 DLH)
= $3.60 per DLH
2. Fixed: 118,600 × 5 × $3.60 = $2,134,800
V
ariable: 118,600 × 5 × $2.40 = $1,423,200
Total FOH Variance = $2,150,400 – $2,134,800
= $15,600 U
Total VOH Variance = $1,422,800 – $1,423,200
= $400 F
4.
V
ariable overhead analysis:
$1,680 F
Efficiency
$1,422,800
Actual VOH
$1,280 U
Budgeted VOH
$2.40 × 592,300 hours
$1,421,520
Applied VOH
$1,423,200
Spending
CHAPTER 10 Standard Costing and Variance Analysis
P 10-73
1. Variable overhead variances:
2. Fixed overhead variances:
$20,000 F
Spending
in the short run).
$800,000
$556,000
Actual VOH Budgeted VOH
$6 × 1.6 hrs. ×
60,000 units
$576,000
Applied VOH
$6 × 1.6 hrs. ×
50,000 units
$480,000
$860,000
$40,000 U
Spending
$820,000
Actual VOH Budgeted VOH
$10 × 82,000 hrs.
Applied VOH
$10 × 80,000 hrs.
V
olume
$20,000 U
Efficiency
$96,000 U
V
V
CHAPTER 10: Standard Costing and Variance Analysis
P 10-74
1. Standard Fixed Overhead Rate = $1,286,400/(120,000 units × 4 DLH)
= $2.68 per direct labor hou
r
2. Fixed: 119,000 × 4 × $2.68 =
V
ariable: 119,000 × 4 × $1.85 =
Total FOH Variance = $1,300,000 – $1,275,680
= $24,320 Underapplied
Total VOH Variance = $927,010 – $880,600
= $46,410 Underapplied
3. Fixed overhead analysis:
4.
V
ariable overhead analysis:
$22,015 U
Efficiency
The variable overhead spending variance is the difference between the actual
variable overhead costs and the budgeted costs for the actual hours used. It is
Spending
$880,600
Actual FOH
$1,300,000
Budgeted FOH
$1,286,400
hours
Budgeted VOH
$1.85 × 487,900
$902,615
Applied FOH
$1,275,680
Actual VOH
$927,010
$24,395 U
$1,275,680
Applied VOH
$1.85 × 476,000
$880,600
hours
r
CHAPTER 10 Standard Costing and Variance Analysis
P 10-75
1. The budgeted overhead costs are broken down into fixed and variable costs by
the high-low method:
Standard VOH Rate =
2. Budgeted Fixed Overhead = Y2 – VX2
= $540,000 – $12(30,000)
=
A
3. To find the VOH spending variance, we need to find the actual hours. To find AH,
we first need to find the standard hours, SH:
Fixed OH Volume Variance = Budgeted Fixed Overhead –
(Fixed Overhead Rate × SH)
$20,000 = $180,000 – ($6.00 × SH)
$160,000 = $6.00 × SH
SH = 26,667* hours
* Rounded
Next, the actual hours need to be found:
OH Efficiency Variance = (AH – SH)SVOR
$
(
18,000
)
= (AH – 26,667) × $12
(
1,500
)
=
A
H – 26,667
AH = 25,167 hours
V
A
4. 26,667 hours/100,000 units = 0.26667 hour per unit
Change in Cost
Change in Activity
$180,000
CHAPTER 10: Standard Costing and Variance Analysis
P 10-76
1.
A
ctual
Costs Costs*
Direct materials……………………
…
$ 775,000 $ 750,000 $25,000 U
Direct labor…………………………
…
590,000 600,000 10,000 F
V
…
2. a. FOH variances:
Spending Variance =
A
ctual FOH – Budgeted FOH
= $180,000 – $165,000
= $15,000 U
V
olume Variance = Budgeted FOH – (FOH Rate × SH)
= $165,000 – ($2.50 × 60,000)
= $15,000 U
b.
V
OH variances:
V
ariable OH Rate = $300,000/60,000 hours
= $5.00 per hou
r
Spending Variance =
A
ctual VOH – (SVOR × AH)
= $310,000 – ($5.00 × 63,000)
= $5,000 F
Budgeted
V
ariance
Shumaker Company
Performance Report
CHAPTER 10 Standard Costing and Variance Analysis
Case 10-77
1. By using a standard costing system, Crunchy Chips can increase control
of its manufacturing inputs. By developing price and quantity standards
for each input, management can compute price and usage variances for
each input. Since a standard costing system provides more information,
2. The engineering standards are ideal standards. The president’s concern
is probably reflecting doubt that the labor standards can be achieved. If
pressure is applied to workers to achieve perfection standards, the
outcome is likely to be unsatisfactory. Workers may become frustrated
CASES
CHAPTER 10: Standard Costing and Variance Analysis
Case 10-77 (Concluded)
3. Standard cost sheet (for one box of chips):
Direct materials:
Potatoes (15.9375* lbs. @ $0.238)…………………………….…… $3.7931
Price per pound = $0.245 less scrap value; scrap per box = 15 bags × (17.0 oz. –
16.3 oz.) = 10.5 oz. Scrap value/oz. = $0.16/16 oz. = $0.01 per oz. Scrap savings
per box is $0.01 × 10.5 oz. = $0.105, and the savings per pound of potato is
$0.105/15.9375 pounds = $0.007. Thus, the standard price per pound of potato
is $0.245 – $0.007 = $0.238.
Direct labor:**
Potato inspection (0.006 hr. @ $15.20)………………………
…
$0.0912
Chip inspection (0.0225 hr. @ $10.30)………………………
…
0.2318
…
V
Cost per box………………………………………………………….
.
$
12.0029
Cost per bag $12.0029/15 bags…………………………………… $ 0.8002
**
Number of boxes per year = 8,800,000/15 = 586,667
Hours/box:
Potato inspection:
Chip inspection:
Frying monitor:
Boxing:
577104.33
Machine operators:
***
$1,135,216/($0.9837 × 586,667) = 1.9671 (Fixed OH rate based on labor dollars.)
6,300 × 1.1/586,667 = 0.0118
3,200 × 1.1/586,667 = 0.0060
12,000 × 1.1/586,667 = 0.0225
6,300 × 1.1/586,667 = 0.0118
16,600 × 1.1/586,667 = 0.0311
CHAPTER 10 Standard Costing and Variance Analysis
Case 10-78
1. Pat’s decision was wrong and not in the best interests of the company.
His concern for his bonus and promotion was apparently more important
than his company’s reputation for a quality product. Unfortunately, his
2. The use of standards to evaluate performance and assess rewards
apparently was influential in Pat’s decision. He clearly had a desire to
receive his annual bonus and wanted to present an impressive
performance profile so that he could secure a position at division
3. Purchasing agents have ethical responsibilities similar to accountants.
Integrity is a universally desirable characteristic. Pat and other purchasing
agents should refrain from engaging in any activity that would prejudice
4. Answers will vary.
Case 10-79
2. Athens plant:
Budgeted FOH
The spending variance is almost certainly caused by supervisor salaries
(e.g., an unexpected midyear increase due to union pressures). It is unlikely
that the lease payments or depreciation would be greater than budgeted.
Changing the terms on a 10-year lease in the first year would be unusual (unless
there is some sort of special clause permitting increased payments for something
like unexpected inflation). Also, the depreciation should be on target (unless
more equipment was purchased or the depreciation budget was set before the
price of the equipment was known with certainty).
Volume
Actual FOH
$2,500,000 $2,400,000
$0
Applied FOH
$2,400,000
$4 × 600,000 hours
$100,000 U
Spending
CHAPTER 10 Standard Costing and Variance Analysis
Case 10-79 (Concluded)
3. It appears that the 120,000-hour unused capacity (60,000 subassemblies)
is permanent for the Little Rock plant. This plant has 10 supervisors, each
making $50,000. Supervision is a step-cost driven by the number of
would be reduced by 20% (2 lines shut down out of 10). There is no
way to directly reduce the lease payments for the building. Perhaps the
company could use the space to establish production lines for a different
product. Or perhaps the space could be subleased. Another possibility is
to keep the supervisors and equipment and try to fill the unused capacity
with special orders for the subassembly below the regular selling
price from a market not normally served. If the selling price is sufficient to
cover the variable costs and cover at least the salaries and depreciation
for the two lines, then the special order option may be a possibility. This
4. For each plant, the standard fixed overhead rate is $4 per direct labo
r
hour. Since each subassembly should use 2 hours, the fixed overhead
cost per unit is $8, regardless of where they are produced. Should they
differ? Some may argue that the rate for the Little Rock plant needs to be
recalculated. For example, one possibility is to use expected actual
capacity, instead of practical capacity. In this case, the Little Rock plant
would have a fixed overhead rate of $2,400,000/480,000 hours = $5 per
hour and a cost per subassembly of $10. The question is: Should the
subassemblies be charged for the cost of the unused capacity? ABC