Exercise 8B-2 (45 minutes)
1. a.
Actual Quantity
of Input, at
Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
Exercise 8B-2 (continued)
b. The journal entries would be:
Raw Materials
(10,000 yards × 14.00 per yard) ………………
140,000
Work in Process
2. a.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of
Input, at the
Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
Exercise 8B-2 (continued)
Alternative Solution:
b. The journal entry would be:
Work in Process
3. The entries are: entry (a), purchase of materials; entry (b), issue of
materials to production; and entry (c), incurrence of direct labor cost.
Raw Materials
Work in Process
Problem 8B-3A (60 minutes)
1. a.
Actual Quantity of
Input, at Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output, at
Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
$5.00 per foot
$5.00 per foot
= $148,000
b.
Raw Materials (32,000 feet × $5.00 per foot) ..
160,000
Materials Price Variance
(32,000 feet × $0.20 per foot F) ………
6,400
Raw Materials
Accounts Payable
Problem 8B-3A (continued)
2. a.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of
Input, at the
Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
= $51,200
= $48,000
= $54,000
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
6,400 hours ($8.00 per hour – $7.50 per hour) = $3,200 U
b.
Work in Process (7,200 hours × $7.50 per hour) .
54,000
Labor Rate Variance
Problem 8B-3A (continued)
3.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of
Input, at the
Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
4. No. He is not correct in his statement. The company has a large,
unfavorable materials quantity variance that should be investigated.
Problem 8B-3A (continued)
5. The variances have many possible causes. Some of the more likely
causes include the following:
Materials variances:
Favorable price variance: Good price, inferior quality materials, unusual
Labor variances:
Unfavorable rate variance: Use of highly skilled workers, change in pay
scale, overtime, outdated or inaccurate standards.
Problem 8B-4A (75 minutes)
1. a. Before the variances can be computed, we must first compute the
standard and actual quantities of material per hockey stick. The
computations are:
4.8 feet + 0.2 feet = 5.0 feet.
With these figures, the variances can be computed as follows:
Actual Quantity
of Input, at
Actual Price
Actual Quantity of
Input, at Standard Price
Standard Quantity
Allowed for Output, at
Standard Price
Problem 8B-4A (continued)
Alternatively, the variances can be computed using the formulas:
b.
Raw Materials (60,000 feet × $3.00 per foot) …..
180,000
Work in Process (38,400 feet × $3.00 per foot) ..
115,200
Materials Price Variance
Problem 8B-4A (continued)
2. a. Before the variances can be computed, we must first determine the
actual direct labor hours worked for last year. This can be done
through the variable overhead efficiency variance, as follows:
We must also compute the standard rate per direct labor hour. The
computation is:
Problem 8B-4A (continued)
Given these figures, the variances are:
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
Alternatively, the variances can be computed using the formulas:
b.
Work in Process
(16,000 hours × $5.00 per hour) …………………
80,000
Problem 8B-4A (continued)
3.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
Problem 8B-4A (continued)
4.
For materials:
Favorable price variance: Decrease in outside purchase price; fortunate
buy; inferior quality materials; unusual discounts due to quantity
purchased; less costly method of freight; inaccurate standards.
Unfavorable quantity variance: Inferior quality materials; carelessness;
poorly adjusted machines; unskilled workers; inaccurate standards.
For labor:
5.
Standard
Quantity or
Hours
Standard Price
or Rate
Standard
Cost
Direct materials …………
4.8 feet
$3.00 per foot
$14.40
Direct labor ………………