Accounting Chapter 13 Homework Alternatively, the overall process yield of 89.5% may be computed by dividing the total number of tables manufactured in April that met inspection

429

P13–4, Concluded

c. Direct Labor Cost Variance

Time variance:

Direct Labor Time Variance = (Actual Direct Labor Hours – Standard Direct Labor

Hours) × Standard Rate per Hour

= (2,160 hrs.* – 2,400 hrs.**) × $18.00 per hr.

= $(4,320) Favorable Variance

*60 employees × 36 hrs. = 2,160 hrs.

**12,000 units × (12 min. per unit ÷ 60 min. per hr.) = 2,400 hrs.

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P13–5

a. Direct Materials Cost Variances

Price variance:

Direct Materials Price Variance = (Actual Price – Standard Price) × Actual Quantity

= ($6.17 per lb. – $6.25 per lb.) × 83,800 lbs.

= $(6,704) Favorable Variance

Total direct materials cost variance:

Direct Materials Cost Variance = Direct Materials Price Variance + Direct

Materials Quantity Variance

= $(6,704) Favorable + $(7,500) Favorable

= $(14,204) Favorable Variance

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P13–5, Concluded

Total direct labor cost variance:

Direct Labor Cost Variance = Direct Labor Rate Variance + Direct Labor Time

Variance

= $890 + $9,360

= $10,250 Unfavorable Variance

Also computed as:

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P13–6

2. Actual hours provided (2 × 40 hrs.) ………………………… 80

Standard hours required for the actual results ……….. (88)*

Labor time difference ……………………………………………. (8)

Standard labor rate ……………………………………………….. × $18.00

Direct labor time variance—favorable …………………….. $ (144.00)

* hr. per lines 800

lines 70,400 = 88 hrs.

$160 unfavorable rate variance].

4. Actual hours provided (3 × 40 hrs.) ………………………… 120

Standard hours required for the actual results ……….. (88)

Labor time difference ……………………………………………. 32

Standard labor rate ……………………………………………….. × $18.00

Direct labor time variance—unfavorable ………………… $ 576.00

6. The labor rate and time variances fail to consider the number of errors in the

report from typist fatigue. A report that has many errors will require significant

time for correction at a later date. In addition, report errors can cause doctors

to draw incorrect conclusions from the test analyses. Thus, managers should

consider not only the efficiency of doing the work but also the quality of the

work.

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METRIC-BASED ANALYSIS

MBA 13–1

1. Cutting Process:

Process Yield = Tables Passing Inspection

Tables Entering Process = (1,000 – 60)

1,000 = 940

1,000 = 94.0%

3. Laminating/Painting Process

Process Yield = Tables Passing Inspection

Tables Entering Process = (925 – 25)

925 = 900

925 = 97.3%

5. Overall Process Yield

Overall Process Yield = 94.0% × 98.4% × 97.3% × 99.4% = 89.5%

Alternatively, the overall process yield of 89.5% may be computed by dividing

the total number of tables manufactured in April that met inspection of 895 by

the number of tables that started the manufacturing process in April of 1,000.

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MBA 13–2

1.

Process Yield

Year 3 (4 ÷ 144) ……………………………….. 2.8%

Year 2 (5 ÷ 144) ……………………………….. 3.5%

Year 1 (9 ÷ 149) ……………………………….. 6.0%

2.

3.

Process Yield

Jimmie Johnson (83 ÷ 615) ……………… 13.5%

Terry Labonte (12 ÷ 368) ………………….. 3.3%

Jeff Gordon (93 ÷ 797) …………………….. 11.7%

4.

Process Yield

5. In terms of number of wins, Year 1 had the highest yield of 6.0%, and Years 3

and 2 were comparable with 2.8% and 3.5% yields. In terms of “top ten

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MBA 13–3

1. Hilton improved its occupancy rate from 75.0% in Year 1 to 75.5% in Year 2.

This is a favorable change.

4. An important factor affecting revenues is not only the occupancy rate, but

MBA 13–4

1. Stop-N-Stay

Occupancy Rate = Room Nights Occupied

2. Paradise Inn

Occupancy Rate = Room Nights Occupied

Available Room Nights

(10,500× 31 days) = 292,950

325,500 = 90%

3. Stop-N-Stay: $29,992,500 (239,940 room nights occupied × $125)

Paradise Inn: $27,830,250 (292,950 room nights occupied × $95)

4. Paradise Inn’s occupancy rate of 90% is higher than Stop-N-Stay’s occupancy

rate of 86%. However, Stop-N-Stay’s higher average daily room rate of $125 is

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MBA 13–5

1. January: 49,000 patient beds used (24,500 patients × 2.0 nights)

February: 41,400 patient beds used (23,000 patients × 1.8 nights)

March: 55,440 patient beds used (25,200 patients × 2.2 nights)

3. January: 87.8% (49,000 patient beds used ÷ 55,800 available patient beds)

February: 82.1% (41,400 patient beds used ÷ 50,400 available patient beds)

March: 99.4% (55,440 patient beds used ÷ 55,800 available patient beds)

MBA 13–6

1. Year 3: 85.6% (217,712 miles flown ÷ 254,325 available seat miles)

Year 2: 84.6% (213,098 miles flown ÷ 251,867 available seat miles)

Year 1: 84.9% (209,625 miles flown ÷ 246,764 available seat miles)

437

MBA 13–7

1. Year 3: 83.9% (129,041 miles flown ÷ 153,811 available seat miles)

Year 2: 84.0% (124,798 miles flown ÷ 148,522 available seat miles)

Year 1: 83.6% (117,500 miles flown ÷ 140,501 available seat miles)

MBA 13–8

Delta’s average passenger load factor is higher at 85.0% [(84.9% + 84.6% + 85.6%)

÷ 3] compared to Southwest’s average passenger load factor of 83.8% [(83.9% +

438

CASES

Case 13–1

Bud should reject Ellen’s request to charge the convention-related costs against

February’s budget. This is just one example of many attempts to slide expenses

into different budget periods than when actually incurred. This is a common issue

that controllers face. Often, operating managers will attempt to accelerate future

expenditures into low-expenditure months or delay present expenditures into fu-

Case 13–2

1. The hospital’s new budget method is clearly an example of a flexible budget.

The budget changes with changes in underlying activity, such as patient-

2. The advantage of a flexible budget is to accurately plan variable costs of the

hospital with changes in the underlying activity base. Using a static budget

would create actual deviations from budget that would be difficult to interpret.

Managers would not be able to determine if the deviations were the result of

439

Case 13–3

1. The budget information indicates that the actual expenditures by the Opera-

tions Department exceeded what was planned by $20,000 ($435,000 –

2. The bank manager does not know how the actual resources consumed by the

Operations Department compare to what would have been budgeted for the

actual activities performed. In other words, this budget doesn’t say anything

about the actual work of the Operations Department and how much cost that

work consumed. The bank manager doesn’t have a good sense if there is

waste in the department or not. The $20,000 excess expenditure over budget

raises several questions. If the department did twice as much work as

The budget does not indicate why there was more travel and training than

expected. Maybe the department introduced a new computer system, and all

employees needed off-site training in order to use the system. This would

explain the additional spending on travel and training. The training needed to

be done, regardless of the budget.

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Case 13–4

Domino’s could use a master budget to plan operations consistent with the sales

forecast. The sales forecast could be used to develop the production budget for

pizzas. The sales and production budgets would be identical since there would be

no finished goods inventory for cooked pizzas. The sales (production) budget

would be used to develop a direct materials purchases budget. For example, the

The budget process could be used to direct and coordinate all the various restau-

rants. In this way, all the managers would be operating under the same set of as-

441

Case 13–5

1. The amount of actual expenditures was less than budget for the first 10

months of the budget year. As the end of the budget year-end neared, the

manager spent the remaining excess budget and, as a result, went over the

budget for May and June. The amount spent for the year was equal to the to-

tal amount budgeted, because the average difference between the actual and

2. The budget system encourages this type of wasteful behavior. The budget

could be redesigned in a number of ways. The budget could be designed to

flex with underlying activity and adjusted monthly. Thus, the manager would

always have budgeted resources for changes in underlying activity. For ex-

ample, if the number of prisoners in the jail increased, then the budget would

increase proportionately. A manager with the flexible budget would be less

likely to “reserve” the budget during the year, since an activity change would

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Case 13–6

The use of ideal standards is a legitimate concern for Everett. It is likely that such

standards are too tight and do not include the necessary fatigue factors that are

likely in this type of operation. It seems as though Everett is arguing for practical

standards that can be attained if the operation is running well. Maybe some