1303
Problem 21-3B (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used:
22,800 hours (given)
Standard hours:
15,000 units x 1.5 hrs./unit = 22,500 hours
Actual rate:
$12.30/hr. (given)
Standard rate:
$12.00/hr. (given)
Direct labor cost variances
Actual units at actual cost [22,800 hrs. @ $12.30] …………………………..
$280,440
Standard units at standard cost [22,500 hrs. @ $12.00] …………………………..
Direct Labor Rate and Efficiency Variances
Actual Costs
AH x AR
AH x SR
Standard Costs
SH x SR
Alternate solution format
Rate variance
=
AH x (AR – SR)
=
22,800 hours x ($12.30 – $12.00) per hour
=
22,800 x $0.30 per hour
=
$ 6,840 U
=
=
300 hours x $12.00 per hour
=
$ 3,600 U
Rate variance ………………….
Efficiency variance ………….
Total …………………………..
1304
Problem 21-3B (Concluded)
Part 5
SUNCOAST COMPANY
Overhead Variance Report
For Month Ended December 31
Flexible
Actual
Controllable Variance
Budget
Results
Variances*
Variable overhead costs
90,000
82,260
7,740
F
22,500
23,100
U
U
Fixed overhead costs
Depreciation—Building ………………………
24,000
24,000
0
Depreciation—Machinery ……………………
72,000
75,000
3,000
U
18,000
16,500
1,500
F
U
Volume Variance
Expected production level ……………………………………………….
75% of capacity
75% of capacity
Volume variance ……………………………………………………………..
1305
Problem 21-4B (50 minutes)
Part 1 Direct Materials Variances
Direct materials cost variances
Actual units at actual cost [1,000,000 lbs. @ $4.25] …………………………..
Standard units at standard cost [1,050,000 lbs. @ $4.00] …………………………..
4,200,000
Direct material cost variance ……………………………………………………….
$ 50,000 U
Direct Materials Price and Quantity Variances
Actual Cost
AQ x AP
AQ x SP
Standard Cost
SQ x SP
Part 2 Direct Labor Variances
Direct labor cost variances
Actual units at actual cost [250,000 hrs. @ $7.75] …………………………..
$1,937,500
Standard units at standard cost [252,000 hrs. @ $8.00] …………………………..
2,016,000
Direct labor cost variance ……………………………………………………….
$ 78,500 F
Direct Labor Rate and Efficiency Variances
1306
Problem 21-4B (Continued)
Part 3 Overhead Variances
Overhead controllable variance
Actual overhead incurred [$1,960,000 + $1,200,000] …………….
$3,160,000
Budgeted overhead ……………………………………………………….
Fixed overhead volume variance
Budgeted fixed overhead cost [at 80% capacity] …………………
$2,016,000
Fixed overhead cost applied [252,000 hrs. @ $7] …………………
1307
Problem 21-5BA (15 minutes)
(a) Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
$1,200,000
$1,250,000
(Efficiency variance)
(b) Fixed Overhead Spending and Volume Variances
Actual Overhead
Budgeted Overhead
Applied Overhead
252,000 x $7
$1,960,000
$2,016,000
(c) Controllable variance
Variable overhead spending variance ……………………………..
$ 50,000 F
Variable overhead efficiency variance ……………………………..
Fixed overhead spending variance ………………………………….
1308
Problem 21-6BA (45 minutes)
Part 1
June 30*
Work in Process Inventory …………………………..
130,000
Direct Materials Quantity Variance …………………………..
5,000
123,500
June 30
Work in Process Inventory …………………………..
67,500
Direct Labor Rate Variance …………………………..
500
June 30
Work in Process Inventory …………………………..
230,000
Controllable Variance ……………………………………………………..
8,000
Volume Variance ……………………………………………………….
12,000
250,000
* Alternatively, some companies compute and record the price variance
when materials are purchased. This would yield two separate entries:
(1) Purchase of materials
Raw Materials Inventory…………………………..
125,000
Direct Materials Price Variance …………………………..
Accounts Payable ……………………………………………………….
(2) Issuance of materials into production
Work in Process Inventory …………………………..
130,000
Direct Materials Quantity Variance …………………………..
Raw Materials Inventory …………………………..
1309
Problem 21-6BA (Concluded)
Part 2
Under management by exception, the manager would first identify the largest
variances, attempt to uncover their causes, and then implement actions aimed
at correcting them. The smaller variances would be tackled after the major
problems were dealt with, if at all.
The largest variance amounts occur for the materials quantity variance, the
materials price variance, the direct labor efficiency variance, and the volume
After the relatively larger amounts are explained and actions taken, the
manager can seek explanations of the less significant direct labor rate
variance from the personnel department.
1310
SERIAL PROBLEM — SP 21
Serial Problem, Business Solutions (30 minutes)
Business Solutions
Flexible Budget Performance Report
For Quarter Ended June 30
Flexible
Actual
Budget
Results
Variances
Desk sales (150 units) ………………………….
$187,500
$186,000
$1,500
U
Variable expenses …………………………..
U
Chair sales (80 units) …………………………..
40,000
41,200
1,200
F
Supporting computations
Total budgeted desk sales ………………………………………………….
$180,000
Total units budgeted ……………………………………………………….
144
Budgeted selling price ……………………………………………………….
$1,250 per unit
Flexible budget units ……………………………………………………….
150
Flexible budget sales ……………………………………………………….
$187,500
Total budgeted chair sales………………………………………………….
$ 36,000
Total units budgeted ……………………………………………………….
Budgeted selling price ……………………………………………………….
Flexible budget units ……………………………………………………….
Flexible budget sales ……………………………………………………….
$ 40,000
Total units budgeted ……………………………………………………….
144
Budgeted variable expenses per desk …………………………..
Flexible budget units ……………………………………………………….
150
Flexible budget variable expenses for desks ………………………
$112,500
1311
Serial Problem, Business Solutions (concluded)
Total budgeted variable costs for chairs …………………………..
$18,000
Total units budgeted ……………………………………………………….
72
Budgeted variable expenses per chair …………………………..
Flexible budget units ……………………………………………………….
80
Flexible budget variable expenses for chairs ………………………
$20,000
Total budgeted variable expenses* …………………………..
$132,500
Total actual expenses ……………………………………………………….
Actual fixed expenses ……………………………………………………….
*($112,500 + $20,000), from calculation above
Company Analysis — AA 21-1
1. For foreign subsidiaries that do not use the U.S. dollar as their functional
currency, Apple reports the annual adjustment (“translation gains and
2. a. CR. Assets and liabilities of foreign subsidiaries (such as cash) are
translated at exchange rates in effect at the balance sheet date.
Comparative Analysis — AA 21-2
1-3. Apple and Google sales figures for the fiscal years 2016 and 2017—data
from Appendix A—are shown below ($ millions). Estimated sales assume
a 5% sales increase for Apple and a 20% sales increase for Google:
2017
2016
2017 Estimate
4. Based on the answers to part 1, Apple’s estimate is closer to its 2017
actual sales. Apple’s 2017 estimate is $2,813 ($millions) lower than its
1313
Global Analysis — AA 21-3
1. and 2. Samsung’s sales figures for 2016 and 2017 — data available from
Appendix A (₩ millions). Estimated sales assume a 20% sales increase
from 2016.
Sales
2017
2016
2017 Estimate
1314
Ethics Challenge — BTN 21-1
A typical answer might include four individuals selected from the following
specialty areas (answers will vary among students):
Specialty
Information Input and Explanation
Engineer …………………………..
Scientific support for quantity standard.
Production manager …………..
Supplier …………………………..
Identify reasonable price of inputs.
Purchasing manager ………….
Identify reasonable price of inputs.
The ethical challenge for a manager responsible for setting and/or revising
standards is to select the right individuals for the team and to purposely avoid
biases in establishing the standards.
Communicating in Practice — BTN 21-2
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Variance
Cost of Goods Sold
Gross Margin
Part 1.
Favorable
Decrease
Increase
Part 2.
1315
Taking It to the Net — BTN 21-3
1. Benchmarking is a method whereby organizations try to look to other
organizations to identify “best practices” so as to improve and attain
2. Given that a benchmark can be considered as a standard, companies
Teamwork in Action — BTN 21-4
Answers will vary depending on the two industries selected. Two examples
are identified and briefly described below:
1316
Entrepreneurial Decision — BTN 21-5
To: Jen Rubio and Steph Korey, Co-founders
Away
Re: Management Accounting Quote Interpretations
Quote 1: “Variances are not explanations”
The author of this quote is emphasizing that variances are only a starting
Quote 2: “Management’s goal is not to minimize variances.”
The author of this quote understands that the real objective of management is
Hitting The Road — BTN 21-6
1. A typical cheese pizza has three main raw materials: dough, sauce, and
cheese.
2. Observe that the national chain probably follows specific measurement
3. These observations reflect an important issue for pizza businesses and for
smaller, local businesses in particular. Excess raw materials applied to
