1. Standard costs are essentially budgeted amounts on a per-unit basis. Unit standards serve as
inputs in building budgets.
2. Unit standards are used to build flexible budgets. Unit standards for variable costs are the
variable cost component of a flexible budgeting formula.
5. Standard costing systems are adopted because they tend to improve planning and control
and facilitate product costing.
6. By identifying standards and assessing deviations from the standards, managers can locate
areas where change or corrective behavior is needed.
7.
A
ctual costing assigns actual manufacturing costs to products. Normal costing assigns actual
prime costs and budgeted overhead costs to products. Standard costing assigns budgeted
manufacturing costs to products.
8.
A
standard cost sheet presents the standard quantity and price for each input and uses this
information to calculate the unit standard cost.
A
11. Control limits indicate how large a variance must be before it is judged to be material and the
process is out of control. Control limits are usually set by judgment although statistical
approaches are occasionally used.
12. MP
V
is often computed at the point of purchase rather than issuance because it provides control
information sooner.
13. Disagree. A materials usage variance can be caused by factors beyond the control of the
production manager, e.g., purchase of a lower (or higher) quality of material than normal.
10
STANDARD COSTING AND VARIANCE
ANALYSIS
DISCUSSION QUESTIONS
CHAPTER 10 Standard Costing and Variance Analysis
15. Some possible causes of an unfavorable labor efficiency variance are inefficient labor, machine
downtime, and poor-quality materials.
18. Part of a variable overhead spending variance can be caused by inefficient use of overhead
resources.
19.
A
gree. This variance, assuming that variable overhead costs increase as labor usage increases,
is caused by the efficiency or inefficiency of labor usage.
20. The variable overhead efficiency variance values the difference between the actual hours and
the hours allowed using the standard variable overhead rate, while the labor efficiency variance
values the difference using the standard labor rate.
22. If the actual volume is different from the expected, then the company has either lost or earned
contribution margin. The volume variance signals this outcome, and if the variance is large,
then the loss or gain is large since the volume variance understates the effect.
23. The spending variance. This variance is computed by comparing actual expenditures with
budgeted expenditures. The volume variance simply tells whether the actual volume is different
from the expected volume.
A
CHAPTER 10: Standard Costing and Variance Analysis
10-1. e
10-2. e
10-7. d
10-8. b
10-9. c
10-10. e
10-13. e
10-14. a
10-15. b
10-16. e
10-17. d
MULTIPLE-CHOICE QUESTIONS
CHAPTER 10 Standard Costing and Variance Analysis
BE 10-21
1. Oats allowed: = Unit Quantity Standard × Actual Output
= 16 × 960,000
= 15,360,000 ounces
BE 10-22
Upper control
limit
The variances that exceed the upper limit of $66,000 should be investigated.
The graph clearly signals some type of process instability.
BE 10-23
Actual Costs Budgeted Costs Total Variance
$187,500 $169,200
(AQ × AP) – (SQ × SP)SQ × SPAQ × AP
1,875,000 × $0.10 $187,500 – $169,200450,000 × 4.7 × $0.08
$18,300 U
65,000
70,000
CHAPTER 10: Standard Costing and Variance Analysis
BE 10-24
MPV = (AP – SP)AQ
= ($0.10 – $0.08)1,875,000 oz. = $37,500 U
MUV = (AQ – SQ*)SP
= (1,875,000 – 2,115,000)$0.08 = $19,200 F
BE 10-25
BE 10-26
LRV = (AR – SR)AH
= ($15.00 – $13.50)25,200 = $37,800 U
(AH × AR) – (SH × SR)
Budgeted Costs
$378,000
25,200 hrs. × $15.00 $378,000 – $364,500
$13,500 U
900,000 × 0.03 × $13.50
$364,500
Total Variance
AH × AR
SH × SR
Actual Costs
CHAPTER 10 Standard Costing and Variance Analysis
BE 10-27
1. SH for actual production =Actual units × SH per unit
= $15,000 × 4
= 60,000 hours
3. Actual variable overhead…………………………
…
$222,816
Applied variable overhead………………………… 225,000
Total variable overhead variance………………… $ (2,184) F
BE 10-28
1. Columnar approach:
$10,500 F
Efficiency
2.
V
ariable Overhead Spending Variance = Actual VOH – (SVOR x AH)
= $222,816 – ($3.75 × 57,200)
= $(8,316) U
V
V
V
$225,000
60,000 × $3.75
3. SH × SVOR2. AH × SVOR
57,200 × $3.75
$8,316 U
Spending
$214,500
1. Actual VOH
$222,816
Chapter 10 Standard Costing and Variance Analysis
BE 10-29
Overhead Cost
A
ctual
A
t Standard
Cost Item Formula Hours Hours
Inspection………………………
…
$2.20 $134,640 $(11,340) F $132,000 $2,640 U
Actual
Cost
$123,300
Spending
V
ariance
Budget for
Efficiency
V
ariance
Budget for
…
CHAPTER 10 Standard Costing and Variance Analysis
BE 10-30
1. Standard Hours for Actual Units = SH per Unit × Actual Units Produced
= 4 × 15,000
= 60,000
BE 10-31
1. Columnar approach:
$20,000 F
Volume
2. Fixed Overhead Spending Variance =
A
ctual FOH – BFOH
= 5,000 U
$305,000 $300,000 $320,000
$5,000 U
Spending
1. Actual FOH 2. BFOH 3. SH × SFOR
64,000 × $5.00
CHAPTER 10: Standard Costing and Variance Analysis
BE 10-32
1. Cocoa Beans Allowed = Unit Quantity Standard × Actual Output
= 400 × 480,000
= 192,000,000 beans
BE 10-33
The variances that exceed the upper limit of $45,000 should be investigated.
The graph clearly signals some type of process instability.
BE 10-34
BRIEF EXERCISES: SET B
Actual Costs Budgeted Costs Total Variance
$45,000
$50,000
$55,000
ControlChart
CHAPTER 10 Standard Costing and Variance Analysis
BE 10-35
MPV = (AP – SP)AQ
= ($0.042 – $0.045)110,000 oz. = $330 F
MUV = (AQ – SQ*)SP
= (110,000 – 108,000)$0.045 = $90 U
BE 10-36
BE 10-37
LRV = (AR – SR)AH
= ($15.00 – $14.50)14,000 = $7,000 U
LEV = (AH – SH*)SR
= (14,000 – 15,000)$14.50 = $14,500 F
Actual Costs Budgeted Costs
Total Variance
AH × AR SH × SR (AH × AR) – (SH × SR)
14,000 hrs. × $15.00 500,000 × 0.03 × $14.50 $210,000 – $217,500
$210,000 $217,500 $7,500 F
CHAPTER 10: Standard Costing and Variance Analysis
BE 10-38
1. SH for actual production =Actual units × SH per unit
= 20,000 × 3
= 60,000 hours
BE 10-39
1. Columnar approach:
$3,760 F
Efficiency
2.
V
ariable Overhead Spending Variance = Actual VOH – (SVOR × AH)
= $335,750 – ($4.70 × 69,200)
= $(10,510) U
3.
V
ariable Overhead Efficiency Variance = (AH – SH)SVOR
= (69,200 – 70,000)$4.70
= $3,760 F
V
V
3. SH × SVOR
70,000 × $4.70
$329,000
1. Actual VOH
$335,750
$10,510 U
Spending
2. AH × SVOR
69,200 × $4.70
$325,240
Chapter 10 Standard Costing and Variance Analysis
BE 10-40
Cost
A
ctual
A
ctual
A
t Standard Efficiency
Formula Cost Hours Hours
V
ariance
Inspection…………………………
…
$2.00 $162,000 $154,000 $ 8,000 U $150,000 $ 4,000 U
Overhead Spending
Budget for Budget for
Cost Item
V
ariance
…
CHAPTER 10: Standard Costing and Variance Analysis
BE 10-41
1. Standard Hours for Actual Units = SH per Unit × Actual Units Produced
= 6 × 20,000
= 120,000
BE 10-42
1. Columnar approach:
$75,000 F $75,000 U
Spending Volume
2. Fixed Overhead Spending Variance
A
ctual FOH – BFOH
$75,000 F
1. Actual FOH
$425,000 $500,000
2. BFOH 3. SH × SFOR
42,500 × $10.00
$425,000
CHAPTER 10 Standard Costing and Variance Analysis
E 10-43
1. SH = 5 × 15,000 = 75,000 hours
2. SQ = 1 × 15,000 = 15,000 kits
SQ = 1 × 15,000 = 15,000 cabinets
E 10-44
1. Cases needing investigation:
Week 2: Exceeds the 10% rule.
Week 4: Exceeds the $12,000 rule and the 10% rule.
Week 5: Exceeds the 10% rule.
E 10-45
1. Materials:
Labor:
2. Actual Cost* Budgeted Cost
Materials…………… $1,035,000 $1,104,000
Labor………………
…
$977,500 $828,000
*
$3.60 × 287,500 = $1,035,000; $12.50 × 78,200 = $977,500
EXERCISES
V
ariance
$69,000 F
$149,500 U
$9 × 92,000 = $828,000
$12 × 92,000 = $1,104,000
CHAPTER 10: Standard Costing and Variance Analysis
E 10-46
1. MPV = (AP – SP)AQ
= ($3.60 – $4.00)287,500 strips = $115,000 F
MUV = (AQ – SQ*)SP
= (287,500 – 276,000)$4.00 = $46,000 U
2. The suggestion of the purchasing manager is premature. A favorable
materials price can produce an effect on both materials usage and labo
r
variances. For example, if the quality of the materials is much lower, more
waste and more rework can take place which may more than offset the
favorable materials price variance.
E 10-47
1. LRV = (AR – SR)AH
= ($12.50 – $12.00)78,200 = $39,100 U
LEV = (AH – SH*)SR
= (78,200 – 69,000)$12.00 = $110,400 U
2. The feedback from the production manager pinpoints the cause of the
variances. The favorable materials variance is apparently due to the
purchase of a much lower quality of leather strips which are causing the
unfavorable materials usage, labor rate, and labor efficiency variances.
The corrective action needed is to return to suppliers that provide the
CHAPTER 10 Standard Costing and Variance Analysis
E 10-48
1. MPV = (AP – SP)AQ
= ($0.045 – $0.05)2,650,000 = $13,250 F
3. MUV = (AQ – SQ)SP
$4,000 = [2,000,000 – 128(Quantity Produced)] × $0.05
80,000 = 2,000,000 – 128(Quantity Produced)
128(Quantity Produced) = 1,920,000
Quantity Produced = 15,000 gallons
E 10-49
1. LRV = (AR – SR)AH
= ($9.50 – $10.00)360,000 = $180,000 F
CHAPTER 10: Standard Costing and Variance Analysis
E 10-50
1. MPV = (AP – SP)AQ
= ($3.95 – $4.00)2,060,000
= $103,000 F
MUV = (AQ – SQ*)SP
= (2,100,000 – 2,000,000)$4.00
2. LRV = (AR – SR)AH
= ($14.85 – $15.00)825,000
= $123,750 F
LEV = (AH – SH**)S
R
= (825,000 – 800,000)$15.00
= $375,000 U
E 10-51
1. Tom purchased the large quantity to obtain a lower price so that the price
standard could be met. In all likelihood, given the reaction of Jackie Iverson,
encouraging the use of quantity discounts was not an objective of setting price
standards. Usually, material price standards are to encourage the purchasing
agent to search for sources that will supply the quantity and quality of material
desired at the lowest price.
2. It sounds like the price standard may be out of date. Revising the price standard
and implementing a policy concerning quantity purchases would likely prevent
this behavior from reoccurring.
CHAPTER 10 Standard Costing and Variance Analysis
E 10-52
Materials:
E 10-53
Debit Credit
1. Materials 75,525
MPV 12,525
Accounts Payable 63,000
2. Work in Process 68,400
MUV 7,125
Materials 75,525
$7,125 U$12,525 F
Price Usage
Journal
Date Account & Explanation
$63,000 $75,525 $68,400
SP × SQ*
$0.95 × 79,500 $0.95 × 72,000
AP × AQ SP × AQ
CHAPTER 10: Standard Costing and Variance Analysis
E 10-54
1. MPV = (AP – SP)AQ
= ($8.35 – $8.25)38,000 = $3,800 U
MUV = (AQ – SQ*)SP
= (37,500 – 38,400)$8.25 = $7,425 F
2.
Debit Credit
Materials 313,500
MPV 3,800
Accounts Payable 317,300
E 10-55
1. LRV = (AR* – SR)AH
= ($9.80 – $9.65)25,040 = $3,756 U
LEV = (AH – SH**)S
R
= (25,040 – 25,600)$9.65 = $5,404 F
2.
Debit Credit
Work in Process 247,040
LRV 3,756
LEV 5,404
Accrued Payroll 245,392
Date Account & Explanation
Journal
Journal
Date Account & Explanation
CHAPTER 10 Standard Costing and Variance Analysis
E 10-56
1. Standard direct labor
hrs required:
= 38,600 × 0.80
= 30,880 direct labor hours
E 10-57
1. Standard Fixed
Overhead Rate (SFOR)
= $400,000/32,000 DLH
= $12.50
=
Actual Deliveries × Standard Direct Labor Hours
=Budgeted Fixed Overhead
Practical Capacity