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E25-2 Compute standard materials costs
Hank Itzek manufactures and sells homemade wine, and he wants to develop a standard cost per gallon.
The following are required for production of a 50-gallon batch.
3,000 ounces of grape concentrate at $0.06 per ounce
54 pounds of granulated sugar at $0.30 per pound
60 lemons at $0.60 each
50 yeast tablets at $0.25 each
50 nutrient tablets at $0.20 each
2,600 ounces of water at $0.005 per ounce
Hank estimates that 4% of the grape concentrate is wasted, 10% of the sugar is lost, and 25%
of the lemons cannot be used.
Instructions
Compute the standard cost of the ingredients for one gallon of wine. (Carry computations to
two decimal places.)
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
Amount per Standard Standard Standard Standard Cost
gallon Waste Usage Price per Gallon
Grape concentrate Value oz. 4% ? $0.06 ?
Sugar Value lb. 10% ? 0.30 ?
Lemons Value lemons 25% ? 0.60 ?
Yeast Value tablet 0% ? 0.25 ?
Nutrient Value tablet 0% ? 0.20 ?
Water Value oz. 0% ? 0.005 ?
Standard cost for one gallon of wine
After you have completed the requirements of E25-2, consider this additional question.
1. Assume the standard waste for grape concentrate, sugar and lemons changed to 5%, 8% and 20% respectively.
How will these changes impact the standard cost of one gallon of wine?
Ingredient
E25-2 Solution
Amount per Standard Standard Standard Standard Cost
gallon Waste Usage Price per Gallon
Grape concentrate 60 oz. 4% 62.5 $0.06 $3.75
Sugar (54 ÷ 50) 1.08 lb. 10% 1.2 0.30 0.36
Ingredient
E25-2 Solution to additional question
1. Assume the standard waste for grape concentrate, sugar and lemons changed to 5%, 8% and 20% respectively.
How will these changes impact the standard cost of one gallon of wine?
Amount per Standard Standard Standard Standard Cost
gallon Waste Usage Price per Gallon
Grape concentrate 60 oz. 5% 63.16 $0.06 $3.79
Sugar (54 ÷ 50) 1.08 lb. 8% 1.17 0.30 0.35
Ingredient
E25-5 Compute materials price and quantity variance
The standard cost of Product B manufactured by Pharrell Company includes three units of direct materials at
$5.00 per unit. During June, 29,000 units of direct materials are purchased at a cost of $4.70 per unit, and
29,000 units of direct materials are used to produce 9,400 units of Product B.
Instructions
(a) Compute the total materials variance and the price and quantity variances.
(b) Repeat (a), assuming the purchase price is $5.15 and the quantity purchased and used is 28,000 units
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a)
Total Materials Variance:
(AQ XAP ) minus ( SQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
(b)
Total Materials Variance:
(AQ XAP ) minus ( SQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
After you have completed the requirements of E25-5, consider this additional question.
1. Assume in part (a) that the purchase price of direct materials changed to $4.80 and the quantity purchased
and used also changed to 30,000 units. Recalculate total materials variance and price and quantity variances.
E25-5 Solution
(a) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP )
( 29,000 X $4.70 ) minus ( 28,200 X $5.00 )
= $136,300 minus $141,000 = $4,700 F
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
( 29,000 X $5.00 ) minus ( 28,200 X $5.00 )
= $145,000 minus $141,000 = $4,000 U
(b) Total Materials Variance:
E25-5 Solution to additional question
1. Assume in part (a) that the purchase price of direct materials changed to $4.80 and the quantity purchased
and used also changed to 30,000 units. Recalculate total materials variance and price and quantity variances.
(a) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP )
(30,000 X$4.80 ) minus ( 28,200 X $5.00 )
=$144,000 minus $141,000 = $3,000 U
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
E25-7 Compute materials and labor variances
Levine Inc. which produces a single product, has prepared the following standard cost sheet
for one unit of the product.
Direct materials (8 pounds at $2.50 per pound) $20
Direct labor (3 hours at $12 per hour)
$36
During the month of April, the company manufactures 230 units and incurs the following
actual costs.
Direct materials purchased and used (1,900 pounds
$5,035
Direct labor (700 hours) $8,120
Instructions
Compute the total, price, and quantity variances for materials and labor.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP) )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
(b) Total Labor Variance:
(AH XAR ) minus ( SH XSR )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Labor Price variance:
(AH XAR ) minus ( AH XSR )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Labor quantity variance:
(AH XSR ) minus ( SH XSR )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
After you have completed the requirements of E25-7, consider this additional question.
1. Assume that the actual quantity and price paid for direct material and labor changed to the following:
Direct materials purchased and used (2,000 pounds)
Direct labor (720 hours)
Recalculate total variance, price and quantity variances for both direct materials and labor.
E25-7 Solution
(a) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP) )
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
( 1,900 X $2.65 ) minus ( 1,900 X $2.50 )
= $5,035 minus $4,750 = $285 U
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
(b) Total Labor Variance:
(AH XAR ) minus ( SH XSR )
(700 X $11.60 ) minus ( 690 X $12.00 )
= $8,120 minus $8,280 = $160 F
Labor Price variance:
(AH XAR ) minus ( AH XSR )
E25-7 Solution to additional question
1. Assume that the actual quantity and price paid for direct material and labor changed to the following:
Direct materials purchased and used (2,000 pounds)
Direct labor (720 hours)
Recalculate total variance, price and quantity variances for both direct materials and labor.
(a) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP) )
(2,000 X$2.52 ) minus ( 1,840 X $2.50 )
=$5,040 minus $4,600 = $440 U
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
(b) Total Labor Variance:
(AH XAR ) minus ( SH XSR )
(720 X$11.28 ) minus ( 690 X $12.00 )
=$8,120 minus $8,280 = $160 F
Labor Price variance:
(AH XAR ) minus ( AH XSR )
P25-2A Compute variances, and prepare income statement
Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017.
Actual Standard
Raw materials unit cost $2.25 $2.10
Raw materials units used
10,600 10,000
Direct labor payroll $120,960 $120,000
Direct labor hours worked 14,400 15,000
Manufacturing overhead incurred $189,500
Manufacturing overhead applied $189,000
Machine hours expected to be used at normal capacity 42,500
Budgeted fixed overhead for June $55,250
Variable overhead rate per machine hour $3.00
Fixed overhead rate per machine hour $1.30
Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each
direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that
the amount of raw materials purchased equaled the amount used.
Instructions
(a) Compute all of the variances for (1) direct materials and (2) direct labor.
(b) Compute the total overhead variance.
(c) Prepare an income statement for management. (Ignore income taxes.)
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a)(1) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP) )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
(a)(2) Total Labor Variance:
(AH XAR ) minus ( SH XSR )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Labor Price variance:
(AH XAR ) minus ( AH XSR )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
Labor quantity variance:
(AH XSR ) minus ( SH XSR )
( Value X Value ) minus ( Value X Value )
= ? minus ? = Value
(b) Total Overhead Variance:
= Actual minus Overhead
Overhead Applied
Cost and Production Data
= Value minus Value = Value
(c )
Sales revenue Value
Cost of goods sold (at standard) ?
Gross profit (at standard) ?
Variances
Material price Value
Materials quantity Value
Labor price Value
Labor quantity Value
Overhead Value
Total variance - favorable ?
Gross profit (actual) ?
Selling and administrative expenses Value
Net income ?
After you have completed the requirements of P25-2A, consider this additional questions.
1. Assume that the actual price for raw materials changed to $2.30 and actual quantity of raw materials used changed to 11,000 units.
Recompute total materials variance and price and quantity variances for materials.
2. Show the impact of the changes above on the income statement.
AYALA CORPORATION
Income Statement
For the Month Ended June 30, 2017
P25-2A Solution
(a)(1) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP) )
( 10,600 X $2.25 ) minus ( 10,000 X $2.10 )
= $23,850 minus $21,000 = $2,850 U
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
(a)(2) Total Labor Variance:
(AH XAR ) minus ( SH XSR )
( 14,400 X $8.40 ) minus ( 15,000 X $8.00 )
= $120,960 minus $120,000 = $960 U
Labor Price variance:
(AH XAR ) minus ( AH XSR )
(b) Total Overhead Variance:
= Actual minus Overhead
Overhead Applied
(c )
Sales revenue $400,000
AYALA CORPORATION
Income Statement
For the Month Ended June 30, 2017
Variances
Material price $1,590 U
Materials quantity 1,260 U
