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Chapter 10 - Standard Costing and Analysis of Direct Costs
10-1
CHAPTER 10
Standard Costing and Analysis of Direct Costs
ANSWERS TO REVIEW QUESTIONS
10-1 Any control system has three basic parts: a predetermined or standard performance
level, a measure of actual performance, and a comparison between standard and
10-3 One method of setting standards is the analysis of historical data. Historical cost
data provide an indicator of future costs. The methods for analyzing cost behavior
10-4 A perfection (or ideal) standard is the cost expected under perfect or ideal operating
conditions. A practical (or attainable) standard is the cost expected under normal
10-6 The standard quantity of material is the amount required to be included in the
10-7 An unfavorable direct-material price variance means that a higher price was paid for
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-2
10-9 An unfavorable direct-material quantity variance means that a larger amount of
10-11 The direct-material purchase price variance is based on the quantity purchased (PQ).
Deviations between the actual and standard price, which are highlighted by the
10-12 An unfavorable direct-labor rate variance means that a higher labor rate was paid
than was anticipated when the standard was set. One possible cause is that labor
10-13 In some cases, the manager in the best position to influence the direct-labor rate
10-14 The interpretation of an unfavorable direct-labor efficiency variance is that more
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-3
10-16 The issue of quantity purchased versus quantity used does not arise in the context
10-17 Several factors that managers often consider when determining the significance of a
10-18 Several ways in which standard-costing should be adapted in today’s manufacturing
environment are as follows:
(a) Reduced importance of labor standards and variances: As direct labor occupies
10-4
10-19 Under a standard-costing system, standard costs are used for product-costing
purposes as well as for control purposes. The costs entered into Work-in-Process
10-20 Advantages of a standard-costing system include the following:
(a) Standard costs provide a basis for sensible cost comparisons. Standard costs
enable the managerial accountant to compute the standard allowed cost, given
10-5
10-21 Seven criticisms of standard costing in an advanced manufacturing setting are the
following:
(a) Variances are too aggregate and too late to be useful.
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-6
SOLUTIONS TO EXERCISES
EXERCISE 10-22 (15 MINUTES)
Direct-material price variance
=
AQ(AP – SP)
Direct-material purchase price variance
=
PQ(AP – SP)
†SQ = 4,000 pounds = 2,000 units 2 pounds per unit
Direct-labor rate variance
=
AH(AR – SR)
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-7
EXERCISE 10-23 (30 MINUTES)
DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES
ACTUAL MATERIAL COST
PROJ. MATERIAL COST
STANDARD MATERIAL COST
Actual
Quantity
Actual
Price
Actual
Quantity
Standard
Price
Standard
Quantity
Standard
Price
4,300
$7.40
4,300
$7.20
4,000
$7.20
10-8
EXERCISE 10-23 (CONTINUED)
DIRECT-MATERIAL PURCHASE PRICE VARIANCES
ACTUAL MATERIAL COST
OF PURCHASES
PROJ. MATERIAL COST
OF PURCHASES
Actual
Quantity
Actual
Price
Actual
Quantity
Standard
Price
6,500
$7.40
6,500
$7.20
DIRECT-LABOR RATE AND EFFICIENCY VARIANCES
ACTUAL LABOR COST
PROJ. LABOR COST
STANDARD LABOR COST
Actual
Hours
Actual
Rate
Actual
Hours
Standard
Rate
Standard
Hours
Standard
Rate
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-9
EXERCISE 10-24 (10 MINUTES)
Standard quantity:
Hardwood in finished product .............................................
7
board feet
Allowance for normal scrap ................................................
1.5
board feet
10-10
EXERCISE 10-25 (15 MINUTES)
1. Calculation of variances:
Direct-material price variance
=
AQ(AP – SP)
=
210,000($.62 – $.60)
Direct-labor efficiency variance
=
SR(AH – SH)
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-11
EXERCISE 10-26 (30 MINUTES)
DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES
ACTUAL MATERIAL COST
PROJ. MATERIAL COST
STANDARD MATERIAL COST
Actual
Quantity
Actual
Price
Actual
Quantity
Standard
Price
Standard
Quantity
Standard
Price
210,000
$.62
210,000
$.60
200,000
$.60
DIRECT-MATERIAL PURCHASE PRICE VARIANCE
ACTUAL MATERIAL COST
PROJ. MATERIAL COST
Actual
Quantity
Actual
Price
Actual
Quantity
Standard
Price
240,000
$.62
240,000
$.60
10-12
EXERCISE 10-26 (CONTINUED)
DIRECT-LABOR RATE AND EFFICIENCY VARIANCES
ACTUAL LABOR COST
STANDARD LABOR COST
Actual
Hours
Actual
Rate
Actual
Hours
Standard
Rate
Standard
Hours
Standard
Rate
13,000
$12.20
13,000
$12.00
12,500
$12.00
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-13
EXERCISE 10-27 (30 MINUTES)
Answers will vary widely, depending on the company and the product. Typically, new
EXERCISE 10-28 (5 MINUTES)
Good output
=
(3/4) input = .75 input
10-14
EXERCISE 10-29 (30 MINUTES)
Direct
Material
Direct
Labor
Standard price or rate per unit of input ............................
$16 per lb
$20 per hre
Standard quantity per unit of output ................................
2.75 lbs per unitc
4 hrs per unitg
Explanatory notes:
a.
Direct-mat’l purchase price variance
=
PQ(AP – SP)
$120,000 F
=
PQ($14 – $16)
b.
Direct-material quantity variance
=
SP(AQ – SQ)
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-15
EXERCISE 10-29 (CONTINUED)
e.
AH = 20,000 units 3.5 hrs per unit
=
70,000 hrs
f.
Direct-labor efficiency variance
=
SR(AH – SH)
10-16
EXERCISE 10-30 (25 MINUTES)
1. Statistical control chart with variance data plotted:
Only the variances in May and June would be investigated, since they are the only ones
that exceed 1 standard deviation, $1,900.
Favorable variances
$2,000
$1,000
$1,000
$2,000
•
•
•
•
•
•
10-17
EXERCISE 10-30 (CONTINUED)
2.
Rule of thumb:
Standard cost ...............................................................................................
$38,000
3.
This is a judgment call, and there is no right or wrong answer. It would be reasonable
EXERCISE 10-31 (15 MINUTES)
1. Raw-Material Inventory ...............................................
144,000
2. Work-in-Process Inventory .........................................
120,000
3. Work-in-Process Inventory .........................................
150,000
4. Cost of Goods Sold ....................................................
19,400
Direct-Material Purchase Price Variance .........
4,800
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-18
EXERCISE 10-32 (15 MINUTES)
Raw-Material Inventory
Direct-Material
Purchase Price Variance
Work-in-Process Inventory
Direct-Material
Quantity Variance
Accounts Payable
Direct-Labor
Rate Variance
Wages Payable
Direct-Labor
Efficiency Variance
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-19
SOLUTIONS TO PROBLEMS
PROBLEM 10-33 (25 MINUTES)
1.
Direct-material price variance
=
(AQ
AP) – (AQ
SP)
2.
Direct-material quantity variance
=
(AQ
SP) – (SQ
SP)
3.
Direct-material purchase
price variance
=
(PQ
AP) – (PQ
SP)
4.
Direct-labor rate variance
=
(AH
AR) – (AH
SR)
5.
Direct-labor efficiency variance
=
(AH
SR) – (SH
SR)
Chapter 10 - Standard Costing and Analysis of Direct Costs
10-20
PROBLEM 10-34 (25 MINUTES)
1.
Direct-material price variance
=
(AQ
AP) – (AQ
SP)
2.
Direct-material quantity variance
=
(AQ x SP) – (SQ x SP)
3.
Direct-material purchase price
variance
=
(PQ
AP) – (PQ
SP)
4.
Direct-labor rate variance
=
(AH
AR) – (AH
SR)
5.
Direct-labor efficiency variance
=
SR(AH – SH)
