PERFORMANCE EVALUATION USING VARIANCES
1. Standards are performance goals. Manufacturing companies normally use standard cost for
each of the three following product costs:
a. Direct materials
2. Reporting by the “principle of exceptions” is the reporting of only variances (or
3. The two variances in direct materials cost are:
4. The offsetting variances might have been caused by the purchase of low-priced, inferior
6. No. Even though the assembly workers are covered by union contracts, direct labor cost variances
still might result. For example, direct labor rate variances could be caused by scheduling overtime
7. Standards can be very appropriate in repetitive service operations. Fast-food restaurants can
CHAPTER 23
FROM STANDARD COSTS
DISCUSSION QUESTIONS
23-1
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
DISCUSSION QUESTIONS (Continued)
8. a. The variable factory overhead controllable variance results from incurring a total amount
10. Nonfinancial performance measures provide managers additional measures beyond the dollar
23-2
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
PE 23–1A
a. Direct materials price –$10,800 [($33.25 – $34.00) × 14,400 gal.]
PE 23–1B
a. Direct materials price $2,250 [($3.00 – $2.50) × 4,500 lbs.]
PE 23–2A
a. Direct labor rate $8,850 [($30.50 – $30.00) × 17,700 hrs.]
PE 23–2B
a. Direct labor rate –$1,400 [($16.50 – $17.00) × 2,800 hrs.]
PRACTICE EXERCISES
23-3
PE 23–3A
PE 23–3B
PE 23–4A
PE 23–4B
PE 23–5A
Work in Process (14,000* gal. × $34.00) 476,000
PE 23–5B
Work in Process (5,000* lbs. × $2.50) 12,500
PE 23–6A
Sales (3,500 units × $400) $1,400,000
GIOVANNI COMPANY
Income Statement Through Gross Profit
For the Year Ended December 31, 2014
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CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
PE 23–6B
Sales (1,000 units × $90) $90,000
PE 23–7A
Number of employee errors…………………………………………………………… Input
PE 23–7B
Number of times ingredients are missing…………………………………………
…
Input
…
…
DVORAK COMPANY
Income Statement Through Gross Profit
For the Year Ended December 31, 2014
23-6
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–1
Quantity × Total
650 lbs. ×$ 585
Standard direct materials cost per bar of chocolate:
Ex. 23–2
a. Direct labor………………………………………… $18.00 ×2.0 hrs. $ 36.00
EXERCISES
Ingredient
Cocoa
Price
$0.90 per lb.
23-7
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–3
a.
Standard Cost at
Planned Volume
(600,000 Bottles)
Manufacturing costs:
Direct labor $10,800
b.
Standard Cost at Cost Variance—
Actual Actual Volume (Favorable)
Costs (610,000 Bottles) Unfavorable
Manufacturing costs:
Direct labor $ 9,890 $10,980 $(1,090)
c. Time in a Bottle Company’s actual costs were $2,555 less than budgeted. Favorable
For the Month Ended May 31, 2014
TIME IN A BOTTLE COMPANY
Manufacturing Costs—Budget Performance Report
TIME IN A BOTTLE COMPANY
Manufacturing Cost Budget
For the Month Ended May 31, 2014
23-8
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–4
a. Price variance:
Quantity variance:
Total direct materials cost variance:
b. The direct materials price variance should normally be reported to the
Purchasing Department, which may or may not be able to control this variance.
If materials of the same quality were purchased from another supplier at a price
Direct Materials
Direct Materials
Direct Materials
Direct Materials Price Variance +
23-9
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–5
Price variance:
Quantity variance:
(Actual Quantity – Standard Quantity) × Standard Price
=
Direct Materials
Direct Materials
Quantity Variance
23-10
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–6
Product finished………………………………………………………
…
1,400 units
Standard finished product for direct materials used
(3,000 lbs. ÷ 2 lbs.)…………………………………………………
…
1,500
23-11
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–7
a.
× =
Whole tomatoes……
…
3,360 lbs. $ 0.50 per lb. $1,680
b. Materials
Quantity
– = × = Variance
3,556 lbs. 3,360 lbs. 196 lbs. $ 0.50 per lb. $98 U
Standard
Cost per
Batch
Standard
Quantity
Standard
Price
Batch K-54
Quantity for
Actual Standard
Quantity per
Batch
Quantity
Difference
Standard
Price
23-12
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–8
a. Rate variance:
Time variance:
(Actual Direct Labor Hours – Standard Direct Labor Hours)
× Standard Rate per Hour
(Actual Rate per Hour – Standard Rate per Hour)
Direct Labor
Direct Labor
Time Variance
=
23-13
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–9
a. Rate variance:
Time variance:
Total direct labor cost variance:
b. Debit to Work in Process: $12,800
Direct Labor
Direct Labor
Time Variance
=
Direct Labor
Cost Variance =
Direct Labor Rate Variance + Direct Labor Time Variance
(Actual Rate per Hour – Standard Rate per Hour)
(Actual Direct Labor Hours – Standard Direct Labor Hours)
× Standard Rate per Hour
23-14
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–10
a. (1) Cutting Department
Rate variance:
Total direct labor cost variance:
(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
Direct Labor
Rate Variance =
23-15
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–10 (Concluded)
(2) Sewing Department
Rate variance:
Time variance:
Total direct labor cost variance:
(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
Direct Labor
Rate Variance =
Direct Labor
Cost Variance =
Direct Labor Rate Variance + Direct Labor Time Variance
=
(Actual Direct Labor Hours – Standard Direct Labor Hours)
× Standard Rate per Hour
Direct Labor
Time Variance
23-16
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–11
a. Actual weekly expenditure: 4 people × $15.00 per hour × 40 hrs. per week = $2,400
b. Standard time used for the volume of admissions:
Total
Number of admissions……
…
140 350
c. Actual productive minutes available
(4 employees × 40 hrs. × 60 min.)………………………
…
9,600 minutes
Unscheduled Scheduled
23-17
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–12
a.
b. Actual pieces sorted = 41,220,000
Standard Sorts per Minute ×
Standard Minutes per Hour =
Standard Sorts per Hour
(per employee)
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CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–13
Step 1: Determine the standard direct materials and direct labor per unit.
Standard direct materials quantity per unit:
Direct materials lbs. budgeted for June:
Standard pounds per unit:
Standard direct labor time per unit:
Direct labor hrs. budgeted for June:
Standard direct labor hrs. per unit:
Step 2: Using the standard quantity and time rates in step 1, determine the
standard costs for the actual June production.
Standard direct materials at actual volume:
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CHAPTER 23 Performance Evaluation Using Variances from Standard Costs
Ex. 23–14
Direct labor hours 18,000 20,000 22,000
Variable overhead cost:
LENO MANUFACTURING COMPANY
Factory Overhead Cost Budget—Press Department
For the Month Ended November 30, 2014
23-20