Chapter 11
Standard Costs and Variance Analysis
QUESTIONS
1. Actual costs are compared with standard costs to evaluate performance. If an
2. Standard costs can be developed as follows:
Material price Price lists provided by suppliers
3. Ideal standards are based on a “perfect” environment and do not include an
4. Managers trying to achieve favorable material price variances may buy inferior
5. A favorable material price variance may occur if lower quality material is
purchased. Similarly, a favorable labor rate variance may occur if workers having
6. Management should investigate all significant variances because even a favorable
8. Only those variances that are deemed exceptional (material in amount) should be
9. Management by exception means that special attention is paid to those
EXERCISES
E1. [LO 3]
Unless the Cutting Department reduces production to 600 units per hour, excess
E2. [LO 3]
If the production process is improved, the standard hours for the quantity produced
E3. [LO 1]
Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
= (AQU – SQ) SP
Standard quantity = 50 2.5 = 125
E4. [LO 1]
Labor Rate Variance
= (AR – SR) AH
Labor Efficiency Variance
= (AH – SH) SR
E5. [LO 2, 3]
Stanton Supply Company
Actual Units Produced (56,000)
Utilities
95,000
112,000
(17,000)
Maintenance
170,000
168,000
2,000
Total variable overhead
733,500
728,000
5,500
U
Fixed Overhead
Supervisor salaries
127,000
126,000
1,000
Depreciation
145,000
150,000
(5,000)
Other fixed overhead
26,700
25,000
1,700
U
Total fixed overhead
298,700
301,000
(2,300)
Total Overhead costs
$1,032,200
$1,029,000
$3,200
U
Variable Overhead
Actual
Flex Budget*
Variance
Indirect material
$468,500
$448,000
$20,500
U
Jiambalvo Managerial Accounting
11-4
E6. [LO 1]
Material Price Variance
Material Quantity Variance
= (AQU – SQ) SP
E7. [LO 1]
Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
= (AQU – SQ) SP
E8. [LO 1]
Labor Rate Variance
= (AR – SR) AH
Labor Efficiency Variance
= (AH – SH) SR
E9. [LO 1]
Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
= (AQU – SQ) SP
Labor Rate Variance
= (AR – SR) AH
Labor Efficiency Variance
= (AH – SH) SR
E10. [LO 2]
Controllable Overhead Variance
E11. [LO 1, 3]
Labor Rate Variance
= (AR – SR) AH
Controllable Overhead Variance
= Actual overhead – Flex. budget level of overhead for actual production
Overhead Volume Variance
= Flexible budget level of overhead for actual prod – Overhead applied to
E12. [LO 1, 2, 3]
Actual production cost equals standard cost plus the unfavorable variance
($5,200 x 800) + $351,900 = $4,511,900.
Material quantity variance
unfavorable
0.75%
Labor rate variance
(4,600)
favorable
Controllable overhead variance
4,000
unfavorable
0.09%
Overhead volume variance
300,000
unfavorable
6.65%
Percent of Actual
Variance
Amount
Production Cost
Material price variance
$8,900
unfavorable
0.20%
E13. [LO 1]
Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
Journal Entries
Raw Material Inventory ($22 × 57,000) 1,254,000
E14. [LO 1]
Labor Rate Variance
Labor Efficiency Variance
Journal Entry
Jiambalvo Managerial Accounting
11-8
E15. [LO 2]
Manufacturing Overhead 575,000
Various accounts 575,000
E16. [LO 1, 2]
Cost of Goods Sold 11,120
E17. [LO 1, 2]
Finished Goods $117,000 19%
Work in Process Inventory 54,000 9%
P1. [LO 1, 3]
a. Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
= (AQU – SQ) SP
b. The amount paid per pound was 2% higher than the standard price ($15.00
P2. [LO 1]
a.
Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
b. The material price variance is favorable. This could have been caused by
P3. [LO 1]
a.
October
November
December
Standard labor hours required per dog
1
1
1
Standard rate (labor rate per hour)
15
15
15
Actual cost of labor
Actual labor hours worked
hours)
Actual number of dogs groomed
Labor Rate Variance
(AR – SR) AH
Labor Efficiency Variance
(AH – SH) SR
P4. [LO 1]
a. Labor Rate Variance
= (AR – SR) AH
b.
Sales price
Jiambalvo Managerial Accounting
11–12
c.
Sales (150 Web site x $750)
$ 112,500
P5. [LO 1, 2]
a. Standard Cost per unit:
Material (1.20 gallon $6) $ 7.20
b. Material Price Variance
= (AP – SP) AQP
Labor Rate Variance
= (AR – SR) AH
Labor Efficiency Variance
= (AH – SH) SR
Controllable Overhead Variance
Variable direct labor cost (given)
Actual contribution margin
$ 70,500
Actual contribution margin per Web site
Chapter 11 Standard Costs and Variance Analysis
11–13
Overhead Volume Variance
= Flexible budget level of overhead for actual production – Overhead
c. Possible Causes of Variances
P6. [LO 1, 2]
a. Standard Cost per unit:
Material (0.75 liters $2.50) $ 1.88
b. Material Price Variance
Jiambalvo Managerial Accounting
11–14
Labor Rate Variance
= (AR – SR) AH
Labor Efficiency Variance
Controllable Overhead Variance
= Actual overhead – Flexible budget level of overhead for actual production
c. Possible Causes of Variances
Unfavorable Material Price Variance: Market prices of materials were higher
than expected. Or, possibly, the company increased the quality of materials
and paid a higher price (but standards were not revised).
Unfavorable Material Quantity Variance: More material was used because of
unskilled labor, mishandling, accidents or processing defects.
P7. [LO 1, 2]
a. Standard overhead rate per unit
b. Material Price Variance
= (AP – SP) AQP
Material Quantity Variance
= (AQU – SQ) SP
Labor Rate Variance
= (AR – SR) AH
Labor Efficiency Variance
= (AH – SH) SR
Controllable Overhead Variance
= Actual overhead – Flexible budget level of overhead for actual
Overhead Volume Variance
= Flexible budget level of overhead for actual production – Overhead