CHAPTER 25
Standard Costs and Balanced Scorecard
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
1. Describe standard costs.
1, 2, 3, 4, 5, 6,
7, 8
1, 2, 3
1
1, 2, 3, 4, 17
2. Determine direct materials
variances.
9, 10
4, 5
2
5, 7, 8, 9, 13,
14
1A, 2A, 3A,
4A, 5A, 6A
3. Determine direct labor and
total manufacturing
overhead variances.
11, 12
6
3
4, 6, 10, 11,
12
1A, 2A, 3A,
4A, 5A, 6A
4. Prepare variance reports
and balanced scorecards.
13, 14, 15, 16,
17, 18
7
4
10, 14, 15, 16,
17, 18, 19
2A, 3A, 5A,
6A
*5. Identify the features of a
standard cost accounting
system.
19
8, 9
20, 21, 22
6A
*6. Compute overhead
controllable and volume
variances.
20, 21, 22, 23
10, 11
23, 24, 25
7A, 8A, 9A,
10A
ASSIGNMENT CHARACTERISTICS TABLE
Description
Difficulty
Level
Time
Allotted (min.)
Compute variances.
Simple
20–30
Compute variances, and prepare income statement.
Simple
30–40
Compute and identify significant variances.
Moderate
20–30
Answer questions about variances.
Complex
30–0
Compute variances, prepare an income statement, and
explain unfavorable variances.
Moderate
30–40
Journalize and post standard cost entries, and prepare
income statement.
Moderate
40–50
Compute overhead controllable and volume variances.
Simple
10–15
Compute overhead controllable and volume variances.
Simple
10–15
Compute overhead controllable and volume variances.
Moderate
10–15
Compute overhead controllable and volume variances.
Moderate
10–15
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Describe standard costs.
Q25-3
Q25-8
Q25-1 Q25-7
Q25-2
Q25-4
Q25-5
Q25-6
BE25-1 E25-2
BE25-2 E25-3
BE25-3 E25-4
DI25-1 E25-17
E25-1
2. Determine direct
materials variances.
Q25-10
Q25-9
BE25-4
BE25-5
DI25-2
E25-5
E25-7
E25-9
E25-13
E25-14
P25-1A
P25-2A
P25-5A
P25-6A
E25-8
E25-19
P25-3A
P25-4A
3. Determine direct labor and
total manufacturing overhead
variances.
Q25-11
Q25-12
BE25-6
DI25-3
E25-4
E25-6
E25-10
E25-11
E25-12
E25-19
P25-1A
P25-2A
P25-5A
P25-6A
E25-11
E25-12
E25-21
P25-3A
P25-4A
4. Prepare variance reports and
balanced scorecard.
Q25-13
Q25-14
Q25-15
Q25-16
Q25-17
Q25-18
DI25-4
E25-19
BE25-7 P25-6A
E25-10
E25-14
E25-15
E25-16
E25-17
P25-2A
P25-5A
P25-3A
*5. Identify the features of a
standard cost accounting
system.
Q25-19
BE25-8
BE25-9
E25-20
E25-22
P25–6A
E25-21
*6. Compute overhead
controllable and
volume variances.
Q25-20
Q25-21
Q25-22
Q25-23
BE25-10
BE25-11
E25-23
E25-24
E25-25
P25-7A
P25-8A
P25-9A
P25-10A
E25-22
E25-23
E25-24
Broadening Your Perspective
BYP25-4
BYP25-6
BYP25-2
BYP25-1
BYP25-3
BYP25-5
BYP25-7
BYP25-8
BYP25-9
ANSWERS TO QUESTIONS
1. (a) This is incorrect. Standard costs are predetermined unit costs.
(b) Agree. Examples of governmental regulations that establish standards for a business are
the Fair Labor Standards Act, the Equal Employment Opportunity Act, and a multitude of
environmental laws.
2. (a) Standards and budgets are similar in that both are predetermined costs and both contribute
significantly to management planning and control. The two terms differ in that a standard is
a unit amount and a budget is a total amount.
3. In addition to facilitating management planning, standard costs offer the following advantages to
an organization:
(1) They promote greater economy by making employees more “cost–conscious.”
4. The management accountant provides input to the setting of standards through the accumulation
of historical cost data and knowledge of the behavior of costs in response to changes in activity
levels. Management has the responsibility for setting the standards.
5. Ideal standards represent optimum levels of performance under perfect operating conditions. Normal
standards represent efficient levels of performance that are attainable under expected operating
conditions.
Questions Chapter 25 (Continued)
10. (a) (1) actual price. (2) standard price.
13. Variances should be reported to appropriate levels of management as soon as possible. The principle
of “management by exception” may be used with variance reports.
14. The purchasing department would be responsible for an unfavorable materials price variance
when it paid more than the standard price for the materials. The purchasing department would
also be responsible for an unfavorable materials quantity variance if it purchased materials of
inferior quality which caused an excess use of materials.
15. The four perspectives of the balanced scorecard are: financial, customer, internal process, and
learning and growth. The financial perspective employs financial measures of performance used
by most firms. The customer perspective evaluates the company from the viewpoint of those
people who buy its product in terms of price, quality, product innovation, customer service, and other
Questions Chapter 25 (Continued)
*19. (a) A standard cost accounting system is a double-entry system of accounting in which
standard costs are used in making entries and standard cost variances are formally
recognized in the accounts.
(b) The variance account will have: (1) a debit balance when the materials price variance is
unfavorable and (2) a credit balance when the labor quantity variance is favorable.
*20. Overhead controllable variance = actual overhead costs ($248,000) – overhead budgeted. Overhead
budgeted is based on standard hours allowed as follows: variable costs (27,000 X $5 = $135,000) +
fixed costs (28,000 X $4 = $112,000) = total overhead budgeted ($247,000). Thus, the controllable
variance is $1,000 unfavorable.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 25-1
(a) Standards are stated as a per unit amount. Thus, the standards are
materials $2.80 ($1,400,000 ÷ 500,000) and labor $3.40 ($1,700,000 ÷
500,000).
BRIEF EXERCISE 25-2
(a) Standard direct materials price per gallon = $2.60 ($2.30 + $.20 + $.10).
(b) Standard direct materials quantity per gallon = 4 pounds (3.6 + .4).
(c) Standard materials cost per gallon = $10.40 ($2.60 X 4).
BRIEF EXERCISE 25-3
BRIEF EXERCISE 25-6
The formula is:
Actual
Overhead
BRIEF EXERCISE 25-7
1.
financial ………………………………..
(c)
return on assets
*BRIEF EXERCISE 25-8
(a) Raw Materials Inventory ……………………………………… 12,000
*BRIEF EXERCISE 25-9
(a) Factory Labor …………………………………………………….. 24,900
Labor Price Variance ……………………………………. 1,500
*BRIEF EXERCISE 25–10
The formula is:
Overhead
Overhead
*BRIEF EXERCISE 25–11
The formula is:
Fixed
Overhead
Rate
X
(Normal Capacity Hours – Standard Hours Allowed)
=
Overhead
Volume
Variance
(25,000 – 20,600)
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 25-1
Manufacturing Cost
Elements
Standard Quantity
X
Standard Price
=
Standard
Direct materials
Direct labor
0.2 hours
Total
DO IT! 25-2
The variances are:
Total materials variance = (29,000 X $6.30) – (32,000* X $6.00) = $9,300 favorable
DO IT! 25-3
The variances are:
Total labor variance = (4,000 X $14.30) – (3,800* X $14.00) = $4,000 unfavorable
Labor price variance = (4,000 X $14.30) – (4,000 X $14.00) = $1,200 unfavorable
DO IT! 25-4
Sales revenue $82,700
Cost of goods sold (at standard) 51,600
Standard gross profit 31,100
SOLUTIONS TO EXERCISES
EXERCISE 25-1
(a) Direct materials: (2,000 X 3) X $5 = $30,000
Direct labor: (2,000 X 1/2) X $16 = $16,000
Overhead: $16,000 X 70% = $11,200
EXERCISE 25-2
Ingredient
Amount
Per
Gallon
Standard
Waste
Standard
Usage
Standard
Price
Standard
Cost Per
Gallon
Grape concentrate
Sugar (54 ÷ 50)
60* oz.
1.08 lb.
4%
10%
(a)
(b)
62.5 oz.
1.20 lb.
$.06
.30
$3.75
.36
EXERCISE 25-3
Direct materials
Cost per pound [$5 – (2% X $5) + $0.25] $5.15
Pounds per unit (4.5 + 0.5) X 5 $25.75
EXERCISE 25-4
(a)
Actual service time
1.0 hours
EXERCISE 25-5
(a) Total materials variance:
( AQ X AP )
(29,000 X $4.70)
–
( SQ X SP )
(28,200* X $5.00)
Materials price variance:
( AQ X AP )
(29,000 X $4.70)
$136,300
–
–
( AQ X SP )
(29,000 X $5.00)
$145,000
=
$8,700 F
(29,000 X $5.00)
–
( SQ X SP )
–
( SQ X SP )
Materials price variance:
$144,200
$140,000
=
( AQ X SP )
(28,000 X $5.00)
–
( SQ X SP )
( AQ X AP )
–
( AQ X SP )
EXERCISE 25-6
(a) Total labor variance:
( AH X AR )
(40,600 X $12.15)
$493,290
–
–
( SH X SR )
(40,000* X $12.00)
$480,000
=
$13,290 U
*10,000 X 4
( AH X AR )
–
–
( AH X SR )
=
$6,090 U
( AH X SR )
(40,600 X $12.00)
–
–
( SH X SR )
$480,000
=
$7,200 U
(c) Labor price variance:
( AH X AR )
(40,600 X $12.15)
$493,290
–
–
( AH X SR )
(40,600 X $12.25)
$497,350
=
$4,060 F
( AH X SR )
$497,350
–
–
( SH X SR )
$502,250
=
$4,900 F
EXERCISE 25-7
Total materials variance:
( AQ X AP )
(1,900 X $2.65*)
$5,035
–
–
( SQ X SP )
(1,840** X $2.50)
$4,600
=
$435 U
–
–
=
EXERCISE 25-7 (Continued)
Materials quantity variance:
( AQ X SP )
(1,900 X $2.50)
$4,750
–
–
( SQ X SP )
(1,840 X $2.50)
$4,600
=
$150 U
( AH X AR )
$8,280
=
$160 F
–
EXERCISE 25-7 (Continued)
(Not Required)
Materials Variance Matrix
(1)
(2)
(3)
Actual Quantity
X Actual Price
Actual Quantity
X Standard Price
Standard Quantity
X Standard Price
1,900 X $2.65 = $5,035
1,900 X $2.50 = $4,750
1,840 X $2.50 = $4,600
Labor Variance Matrix
(1)
(2)
(3)
Actual Hours
X Actual Rate
Actual Hours
X Standard Rate
Standard Hours
X Standard Rate
700 X $11.60 = $8,120
700 X $12.00 = $8,400
690 X $12.00 = $8,280
EXERCISE 25-8
(a) Total materials variance:
( AQ X AP )
(1,220 X $128)
$156,160
–
–
( SQ X SP )
(1,200 X $130)
$156,000
=
$160 U
Materials price variance:
( AQ X AP )
(1,220 X $128)
$156,160
–
–
( AQ X SP )
(1,220 X $130)
$158,600
=
$2,440 F
( AH X AR )
–
–
=
$200 U
–
–
=
(b) The unfavorable materials quantity variance may be caused by the
carelessness or inefficiency of production workers. Alternatively, the
excess quantities may be caused by inferior quality materials acquired
by the purchasing department.
EXERCISE 25-9
(a) Number of units = Total standard cost ÷ Standard cost per unit
Number of units = $410,000 ÷ $20.00 (5 lb X $4 per lb) = 20,500
(b) AQ = [(SQ X SP)
±
Quantity variance] ÷ SP
AQ = ($410,000 + $9,000) ÷ $4.00 per lb. = 104,750 pounds
±
±
±
AP = [(17,000 X $10) + $3,840] = $173,840 ÷ 17,000 hr = $10.23/hr.
EXERCISE 25–10
TOBY TOOL & DIE COMPANY
Direct Labor Variance Report
For the Month Ended March 31, 2017
Job
No.
Actual
Hours
Standard
Hours
Quantity
Variance
(a)
Actual
Rate
(1)
Standard
Rate
(2)
Price
Variance
(b)
Explanation
A257
A258
221
450
225
430
$ 80.00
400.00
F
U
$20.00
$21.00
$20.00
$20.00
$ 0
450.00
U
Repeat job
Rush job
EXERCISE 25–11
Total overhead variance:
Actual Overhead
$263,000
–
–
Overhead Applied
$260,000
(52,000 X $5)
=
$3,000 U
EXERCISE 25–12
(a)
Overhead Budget
(at normal capacity)
÷
Direct Labor Hours
(at normal capacity)
=
Predetermined
Overhead Rate
Variable
$250,000
100,000
$2.50
Fixed
600,000
100,000
$6.00
(b)
X
=
(c)
=
$856,000
EXERCISE 25–13
(a)
(AQ X AP)
( $10,200)
–
–
( SQ X SP)
(2,100* X $5)
=
=
Total Materials Variance
$300 F
(AQ X AP)
( $10,200)
–
–
( AQ X SP)
(2,400 X $5)
=
=
Materials Price Variance
$1,800 F
–
–
( SQ X SP)
(2,100* X $5)
=
=
Materials Quantity Variance
$1,500 U
EXERCISE 25–14
(a)
PICARD LANDSCAPING
Variance Report – Purchasing Department
For the Current Month
Project
Actual
Pounds
Purchased
(1)
Actual
Price
(2)
Standard
Price
Price
Variance
(a)
Explanation
Remington
500
$2.40
$2.50
$50 F
Purchased poor–quality seeds
(b)
PICARD LANDSCAPING
Variance Report – Production Department
For the Current Month
Project
Actual
Pounds
Standard
Pounds
Standard
Price
Quantity
Variance
(b)
Explanation
Remington
Chang
500
400
460
410
$2.50
2.50
$100 U
25 F
Purchased poor-quality seeds
Purchased higher-quality seeds