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)
Actual units at actual cost [22,800 hrs. @ $12.30] …………………………..
$280,440
Standard units at standard cost [22,500 hrs. @ $12.00] …………………………..
22,800 x $12.30
22,800 x $12.00
hours per hr.
hours per hr.
hours per hr.
$280,440
$273,600
$270,000
$6,840 U
(Rate variance)
$3,600 U
(Efficiency variance)
$10,440 U
(Total labor variance)
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
Efficiency variance
=
(AH – SH) x SR
=
(22,800 – 22,500) hours x $12.00 per hour
=
300 hours x $12.00 per hour
=
$ 3,600 U
Rate variance ………………….
$ 6,840 U
Efficiency variance ………….
3,600 U
Total …………………………..
$10,440 U
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
Indirect materials …………………………..
$ 22,500
$ 21,600
$ 900
F
Indirect labor ……………………………………..
90,000
82,260
7,740
F
Power ………………………………………………..
22,500
23,100
600
U
Repairs and maintenance …………………..
45,000
46,800
1,800
U
Total variable costs …………………………..
180,000
173,760
6,240
F
Fixed overhead costs
Depreciation—Building ………………………
24,000
24,000
0
Depreciation—Machinery ……………………
72,000
75,000
3,000
U
Taxes and insurance ………………………….
18,000
16,500
1,500
F
Supervision ……………………………………….
Total fixed costs…………………………………
180,000
181,500
1,500
U
Volume Variance
Expected production level ……………………………………………….
75% of capacity
75% of capacity
Volume variance ……………………………………………………………..
Problem 21-4B (50 minutes)
Actual units at actual cost [1,000,000 lbs. @ $4.25] …………………………..
$4,250,000
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
1,000,000 x $4.25
1,000,000 x $4.00
1,050,000 x $4.00
$4,250,000
$4,000,000
$4,200,000
$250,000 U
(Price variance)
$200,000 F
(Quantity variance)
$50,000 U
(Total materials variance)
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
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 ……………………………………………………….
3,276,000
Controllable overhead cost variance …………………………..
$ 116,000 F
Budgeted fixed overhead cost [at 80% capacity] …………………
$2,016,000
Fixed overhead cost applied [252,000 hrs. @ $7] …………………
1,764,000
Fixed overhead cost variance …………………………………………….
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
250,000 x $5
252,000 x $5
$1,200,000
$1,250,000
$1,260,000
$50,000 F
(Spending variance)
$10,000 F
(Efficiency variance)
$60,000 F
(Total variable overhead variance)
$1,960,000
$2,016,000
$1,764,000
$56,000 F
(Spending variance)
(c) Controllable variance
Variable overhead spending variance ……………………………..
$ 50,000 F
Variable overhead efficiency variance ……………………………..
10,000 F
Fixed overhead spending variance ………………………………….
Problem 21-6BA (45 minutes)
Part 1
June 30*
Work in Process Inventory …………………………..
130,000
Direct Materials Quantity Variance …………………………..
5,000
Direct Materials Price Variance …………………………..
1,500
Raw Materials Inventory …………………………..
123,500
Record direct materials costs, including
the favorable quantity and
favorable price variances.
Work in Process Inventory …………………………..
Direct Labor Efficiency Variance …………………………..
3,000
Factory Wages Payable …………………………..
Work in Process Inventory …………………………..
230,000
Factory Overhead …………………………………………………..
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 …………………………..
1,500
Accounts Payable ……………………………………………………….
123,500
(2) Issuance of materials into production
Work in Process Inventory …………………………..
130,000
Direct Materials Quantity Variance …………………………..
5,000
Raw Materials Inventory …………………………..
125,000
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.
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.
* The unfavorable volume variance indicates that the company produced fewer items
than expected. Managers would need to determine whether this was because of
declining sales, idle time, breakdowns, or other reasons.
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
Chair sales (80 units) …………………………..
Variable expenses …………………………..
40,000
132,500
41,200
132,880
1,200
380
F
U
Contribution margin …………………………..
95,000
94,320
680
U
Fixed expenses ……………………………………
U
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 budgeted variable costs for desks …………………………..
$108,000
Total units budgeted ……………………………………………………….
144
Budgeted variable expenses per desk …………………………..
Flexible budget units ……………………………………………………….
150
Flexible budget variable expenses for desks ………………………
$112,500
Serial Problem, Business Solutions (concluded)
Total budgeted variable costs for chairs …………………………..
Total units budgeted ……………………………………………………….
Budgeted variable expenses per chair …………………………..
Flexible budget units ……………………………………………………….
Flexible budget variable expenses for chairs ………………………
Total budgeted variable expenses* …………………………..
Total actual expenses ……………………………………………………….
$163,880
Actual fixed expenses ……………………………………………………….
31,000
Actual variable expenses ……………………………………………………
$132,880
Company Analysis — AA 21-1
1. For foreign subsidiaries that do not use the U.S. dollar as their functional
currency, Apple reports the annual adjustment (“translation gains and
losses”) as a component of Accumulated Other Comprehensive Income
(AOCI) in the shareholders’ equity section of its consolidated balance
Comparative Analysis — AA 21-2
1-3. Apple and Google sales figures for the fiscal years 2016 and 2017—data
from Appendix A—are shown below ($ millions). Estimated sales assume
a 5% sales increase for Apple and a 20% sales increase for Google:
2017
2016
2017 Estimate
Apple
$229,234
$215,639
$226,421.95
Google
$110,855
$90,272
$108,326.40
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
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 …………..
Actual amount or quantity used in production.
Supplier …………………………..
Identify reasonable price of inputs.
Purchasing manager ………….
Identify reasonable price of inputs.
Market research analyst ……..
Market research to support quantity and price
standards.
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
Taking It to the Net — BTN 21-3
2. Given that a benchmark can be considered as a standard, companies
should analyze the costs associated with achieving the benchmark figure.
Firms can then compare their current cost levels with the benchmark cost
so as to identify the potential for cost savings.
Teamwork in Action — BTN 21-4
Answers will vary depending on the two industries selected. Two examples
are identified and briefly described below:
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
point in controlling production operations. Management must look beyond
the variances to understand why they occurred.
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
rules for each of the three items. In contrast, the local business is usually
less strict in these guidelines, especially for the sauce and cheese
components.
