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CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–5B (FIN MAN); Prob. 7–5B (MAN)
1. Actual hours provided (3 × 40 hrs.)……………………………………………
…
120
Standard hours required for the original plan*………………………………
…
117
2. Actual hours provided (3 × 40 hrs.)……………………………………………
…
120
Standard hours required for the actual results*……………………………… 127
Labor time difference……………………………………………………………… (7)
3. Actual labor rate……………………………………………………………………
…
$30
Standard labor rate………………………………………………………………… 23
4. Actual hours provided (4 × 40 hrs.)……………………………………………
…
160
5. The bonus is the better approach by $80. The direct labor cost variance for
paying the bonus was $679 unfavorable which is the sum of the time variance
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
22-56
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Part A
Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost
At the high point: At the low point:
$740 = ($0.20 × 1,200 units) + Fixed Cost $600 = ($0.20 × 500 units) + Fixed Cost
Fixed Cost = $500 Fixed Cost = $500
2. Selling price…………………………………………………………
…
$100.00
Less variable costs per case:
Direct materials…………………………………………………
…
$17.00
Direct labor………………………………………………………
…
7.20
3. Total fixed costs:
Utilities [see part (1)]…………………………………………………………
…
$ 500
4.
COMPREHENSIVE PROBLEM 5
Variable Cost per Unit1. = Difference in Total Cost
Difference in Production
=Variable Cost per Unit = $0.20 per case
$740 – $600
1,200 cases – 500 cases
Break-Even Sales (units) =
Fixed Costs
Unit Contribution Margin
22-57
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
Part B
5.
Cases
Expected cases to be sold 1,500
Plus desired ending inventory 175
6.
Cream Natural
Base Oils Bottles Total
(ozs.) (ozs.) (bottles)
Units required for production 137,500 41,250 16,500
Plus desired ending inventory 1,000 360 240
Less estimated beginning inventory (250) (290) (600)
7.
Mixing Filling Total
Hours required for production of:
Hand and body lotion 458 115
For the Month Ended August 31, 2016
Production Budget
GENUINE SPICE INC.
Direct Labor Budget
For the Month Ended August 31, 2016
GENUINE SPICE INC.
Direct Materials Purchases Budget
For the Month Ended August 31, 2016
GENUINE SPICE INC.
231
21
22-58
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
8.
Fixed1Variable2Total
Factory overhead:
Utilities $ 500 $275 $ 775
9.
Sales1$150,000
Finished goods inventory, August 1 $12,000
Direct materials inventory, August 12$ 392
Direct materials purchases [from part (6)] 23,231
Less direct materials inventory, August 313248
Cost of direct materials for production $23,375
For the Month Ended August 31, 2016
GENUINE SPICE INC.
GENUINE SPICE INC.
Factory Overhead Budget
For the Month Ended August 31, 2016
Budgeted Income Statement
22-59
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
Part C
10. Direct Materials Price Variance:
Actual price………………………
…
$ 0.016 $ 0.32 $ 0.42
Standard price……………………
…
0.020 0.30 0.50
Difference…………………………
…
$ (0.004) $ 0.02 $ (0.08)
*Actual quantity:
Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.
Base
Cream Natural
BottlesOils
22-60
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
Direct Materials Quantity Variance:
Actual quantity1………………………
…
153,000 ozs. 46,500 ozs. 18,750 btls.
Standard
q
uantit
y
2……………………
…
150,000 45,000 18,000
Difference………………………………
…
3,000 ozs. 1,500 ozs. 750 btls.
Note: All the direct materials quantity variances were unfavorable, indicating
some material losses, scrap, and quality rejections. All the quantity variances
1Actual quantity:
Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.
Natural oils: 1,500 cases × 31 ozs. = 46,500 ozs.
BottlesOilsBase
Cream Natural
22-61
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
11. Direct Labor Rate Variance:
Actual rate………………………………………………
…
$18.20 $ 14.00
Standard rate……………………………………………
…
18.00 14.40
The Mixing Department has an unfavorable direct labor rate variance from
using a higher classification of labor. The higher labor classification costs an
Direct Labor Time Variance:
Actual time (hours)1……………………………………
…
487.5 140
Standard time
(
hours
)
2………………………………… 500 125
1Actual time:
Mixing: (1,500 units × 19.50 min.) ÷ 60 min. = 487.5 hrs.
Filling: (1,500 units × 5.60 min.) ÷ 60 min. = 140 hrs.
2Standard time:
Mixing: (1,500 units × 20.00 min.) ÷ 60 min. = 500 hrs.
Mixing Filling
Department Department
Filling
DepartmentDepartment
Mixing
22-62
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
12. Factory Overhead Controllable Variance:
Actual variable overhead……………………………………………………
…
$305
13. Factory Overhead Volume Variance:
Normal volume (cases)………………………………………………………
…
1,600
Actual volume (cases)………………………………………………………
…
1,500
22-63
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Concluded)
Actual costs 19,765.00 Applied costs 18,543.75
($19,460 + $305) [1,500 × ($12.1625 + $0.20)]
Balance (underapplied) 1,221.25
$5 U $1,216.25 U
Controllable Volume
Variance Variance
14. The production volume of 1,375 cases determined in part (5) was planned at the
beginning of August. The variances compare the actual cost and the standard
$1,221.25 U
Cost Variance
Total Factory Overhead
Alternative Computation of Overhead Variances
Factory Overhead
22-64
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–1 (FIN MAN); CP 7–1 (MAN)
The use of ideal standards is a legitimate concern for Henry. 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 Henry is arguing for practical
CP 22–2 (FIN MAN); CP 7–2 (MAN)
Although the Tungston Company performance measurement system uses both
financial and nonfinancial measures, there may still be some serious performance
CASES & PROJECTS
22-65
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–3 (FIN MAN); CP 7–3 (MAN)
This is a case where there is strong evidence that the poor performance that is
(1) the materials price variance is very favorable; (2) the Fabrication Department’s
labor time variance is also very favorable. A possible explanation is that the
Purchasing Department found a low-price supplier. The low price translated into a
favorable variance. Unfortunately, it appears the company is “getting what it paid
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–4 (FIN MAN); CP 7–4 (MAN)
The plant manager is placing pressure on the controller because the controllable
variance is very unfavorable. The claim is that these costs are not really variable at
all. This is a very difficult claim to accept. This is a small company, so it purchases
its power from the outside. The power and light bill is variable to the amount of
22-67
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–5 (FIN MAN); CP 7–5 (MAN)
Use this activity to compare performance measures from different groups and their
selected cities.
The following are examples of performance measures from Worcester,
Massachusetts:
ECONOMIC DEVELOPMENT
Indicator Outcome Type Measured As
Growth of commercial and Performance Change in total assessed value
residential tax base over time
PUBLIC SAFETY
Indicator Outcome Type Measured As
Level of crime Performance Crime rate and clearance rate by type
of crime
Police community relations Performance Responses to annual citizen survey
questions, performance of personnel
All measured both citywide and by neighborhood
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–5 (FIN MAN); CP 7–5 (MAN) (Continued)
IMPROVED MUNICIPAL SERVICES
Indicator Outcome Type Measured As
Cleanliness of streets Performance Responses to questions on the annual
citizen survey, objective resident ratings
waste collection
Library usage Performance Circulation per capita
Citizen involvement (citywide Performance % of eligible voters registered;
and by neighborhood) % of registered voters voting
EDUCATION
Indicator Outcome Type Measured As
Student and school achievement Performance MCAS test scores
Graduation rate Performance Percent graduating
Dropout rate Performance Percent dropouts
Employer satisfaction with Performance Employer survey
graduates
22-69
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–5 (FIN MAN); CP 7–5 (MAN) (Concluded)
IMPROVED YOUTH SERVICES
Indicator Outcome Type Measured As
Presence of “at risk youth” Performance Responses to questions from the Youth
Risk Behavior Survey (includes
questions on drug and alcohol use
and violent behavior) by high school
Extent of juvenile crime Performance Juvenile crime rate, citywide and by
