1409
Problem 23-3B (Continued)
Part 3 Direct Materials Variances
Preliminary computations
Actual material used:
69,000 lbs. (given)
Standard quantity of materials:
15,000 units x 4.5 lb./unit = 67,500 lb.
Direct Materials Price and Quantity Variances
Standard Costs
SQ x SP
$405,000
(Total materials variance)
$ 6,900 U
$9,000 U
Alternate solution format
Price variance
=
AQ x (AP – SP)
=
69,000 lb. x ($6.10 – $6.00) per lb.
=
69,000 lb. x ($0.10) per lb.
=
$ 6,900 U
Quantity variance
=
(AQ – SQ) x SP
=
(69,000 – 67,500) lb. x $6.00 per lb.
=
1,500 lb. x $6.00 per lb.
=
$ 9,000 U
Price variance …………………
Quantity variance ……………
Total variance …………………
Actual price:
$6.10/lb. (given)
Standard price:
$6.00/lb. (given)
Actual units at actual cost [69,000 lbs. @ $6.10] ……………………..
Standard units at standard cost [67,500 lbs. @ $6.00] …………….
1410
Problem 23-3B (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used:
22,800 hours (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
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
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 ………………….
Efficiency variance ………….
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)
1411
Problem 23-3B (Concluded)
Part 5
SUNCOAST COMPANY
Overhead Variance Report
For Month Ended December 31
Volume Variance
Expected production level ……………………………………………….
75% of capacity
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
22,500
23,100
U
U
F
Fixed overhead costs
24,000
24,000
72,000
75,000
3,000
U
F
U
75% of capacity
Volume variance ……………………………………………………………..
1412
Problem 23-4B (50 minutes)
Part 1 Direct Materials Variances
Direct materials cost variances
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
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
Standard Cost
1413
Problem 23-4B (Continued)
Part 3 Overhead Variances
Overhead controllable variance
Actual overhead incurred [$1,960,000 + $1,200,000] …………….
$3,160,000
Budgeted overhead ……………………………………………………….
Budgeted fixed overhead cost [at 80% capacity] …………………
$2,016,000
Fixed overhead cost applied [252,000 hrs. @ $7] …………………
1414
Problem 23-5BA (15 minutes)
(a) Variable Overhead Spending and Efficiency Variances
Applied Overhead
SH x SVR
252,000 x $5
(c) Controllable variance
$1,200,000
$1,250,000
$1,960,000
$2,016,000
Problem 23-6BA (45 minutes)
Part 1
June 30*
Work in Process Inventory …………………………..
130,000
favorable price variances.
June 30
Work in Process Inventory …………………………..
67,500
June 30
Work in Process Inventory …………………………..
230,000
Volume Variance ……………………………………………………….
12,000
* 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 ……………………………………………………….
123,500
(2) Issuance of materials into production
Work in Process Inventory …………………………..
130,000
Direct Materials Quantity Variance …………………………..
Raw Materials Inventory …………………………..
125,000
1416
Problem 23-6BA (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
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.
1417
SERIAL PROBLEM — SP 23
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
Supporting computations
Total budgeted desk sales ………………………………………………….
$180,000
Total units budgeted ……………………………………………………….
144
Flexible budget units ……………………………………………………….
150
Total units budgeted ……………………………………………………….
Flexible budget units ……………………………………………………….
Total units budgeted ……………………………………………………….
144
Flexible budget units ……………………………………………………….
150
Variable expenses …………………………..
U
1418
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 ………………………
$20,000
Total budgeted variable expenses* …………………………..
Total actual expenses ……………………………………………………….
Actual fixed expenses ……………………………………………………….
1419
Reporting in Action — BTN 23-1
1. For foreign subsidiaries that do not use the U.S. dollar as their functional
currency, Apple reports the annual adjustment (“translation gains and
2. a. The assets and liabilities of foreign subsidiaries (e.g. cash) are
translated at exchange rates in effect at the balance sheet date.
Comparative Analysis — BTN 23-2
1. Apple and Google sales figures for the most recent 3 years—data
available from Appendix A—are shown below ($ millions):
Two Years
Prior
One Year
Prior
Current
Year
One
Year
Ahead
Two
Years
Ahead
Apple
$170,190
$182,795
$233,715
_______
_______
2. Predictions will vary among students. Generally, predictions should
reflect both the trend in the company’s sales data and current industry
1420
Ethics Challenge — BTN 23-3
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.
Communicating in Practice — BTN 23-4
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Variance
Cost of Goods Sold
Gross Margin
Part 1.
Favorable
Decrease
Increase
Part 2.
Part 3. A favorable (unfavorable) variance means that actual costs are
lower (higher) than the budgeted or expected amounts. It also
Production manager …………..
Supplier …………………………..
Identify reasonable price of inputs.
Purchasing manager ………….
Identify reasonable price of inputs.
1421
Taking It to the Net — BTN 23-5
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
should analyze the costs associated with achieving the benchmark figure.
Teamwork in Action — BTN 23-6
Answers will vary depending on the two industries selected. Two examples
are identified and briefly described below:
i. Overnight delivery services: 10 a.m. delivery, late-day drop-off, pick-up
1422
Entrepreneurial Decision — BTN 23-7
To: Amber Wason and Jeff Stefanis, Co-founders
Riide
Re: Management Accounting Quote Interpretations
Quote 1: “Variances are not explanations”
The author of this quote is emphasizing that variances are only a starting
1423
Hitting The Road — BTN 23-8
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
Global Decision — BTN 23-9
1. Samsung’s sales figures for the most recent 2 years — data available from
its website — are shown below (₩ millions)
Sales
One Year
Prior
Current
Year
One Year
Ahead
Two Years
Ahead
2. Predictions will vary among students. Generally, predictions should reflect
both the trend in the company’s sales data and current industry and