Chapter 10—Standard Costing: A Managerial Control Tool Tool TRUE/FALSE
1. Managers develop quantity standards standards when they decide what amount of input should be used per unit of output. ANS: T TS: 1 !"#: !ifficulty: $asy %. Managers develop price standards standards when they they determine what amount should be paid for the quantity quantity of input to be used. ANS: T TS: 1 !"#: !ifficulty: $asy &. The standard cost per unit unit of output output for a particular input is calculated by multiplying the standard input price by the standard input allowed per unit of output produced. ANS: T TS: 1 !"#: !ifficulty: $asy '. "n setting standards( historical historical e)perience should should be used with with caution caution because it can perpetuate operating inefficiencies. ANS: T TS: 1 !"#: !ifficulty: $asy *. $ngineerin $ngineering g studies studies are often too rigorou rigorouss and may not be achievabl achievablee by operating operating personne personnel. l. ANS: T TS: 1 !"#: !ifficulty: $asy +. "deal standa standards rds can be achieved achieved under under efficien efficientt operating operating conditi conditions. ons. ANS: # No. ,urrently attainable standards standards can be achieved under under efficient operating operating conditions. conditions. "deal standards demand ma)imum efficiency and can be achieved only if everything operates perfectly. -. "deal standards can be achieved achieved only if everything operates perfectly( perfectly( meaning that they do not allow for any machine breadowns( slac( etc. ANS: T TS: 1 !"#: !ifficulty: $asy /. ,urrently attainable attainable standards standards offer offer the most behavioral behavioral benefits benefits because higher performance performance levels levels are attained through challenging( yet achievable( standards. ANS: T TS: 1 !"#: !ifficulty: $asy 0. ,urrently ,urrently attainabl attainablee standards standards can be achieved achieved under efficient efficient operating operating conditio conditions. ns. ANS: T TS: 1 !"#: !ifficulty: $asy 1. 2ne reason reason for adopting adopting a standard standard cost system system is to mae product product costing costing easier easier.. ANS: # TS: 1 !"#: !ifficulty: $asy 11. The benefits of operational operational control under a standard standard cost system can e)tend to all manufacturing manufacturing environments. ANS: # No. Manufacturing environments environments that focus on continuous continuous improvement improvement and 3"T purchasing purchasing and manufacturing do not reali4e the benefits of operational control in a standard cost system. 1%. Standard costs costs are developed for direct materials( direct direct labor( labor( and and variable overhead only. only. ANS: # No. Standard costs are assigned assigned for direct materials( direct direct labor( and variable and fi)ed overhead. overhead. 1&. The standard quantity of of materials allowed can be calculated by multiplying multiplying the unit labor labor standard by the actual output. ANS: # The standard quantity of materials allowed can be calculated by multiplying the unit quantity standard by the actual output. output. 1'. To compute the standard direct direct labor hours hours allowed( allowed( multiply the unit labor standard standard by the the actual output. ANS: T TS: 1 !"#: !ifficulty: $asy
1*. The quantity of each input input that should be used to produce one unit of output is documented on on the standard cost sheet. ANS: T TS: 1 !"#: !ifficulty: $asy 1+. The standard cost sheet provides the the input standards needed needed to compute compute the total total amount of inputs allowed for the actual output( an essential component in computing efficiency variances. ANS: T TS: 1 !"#: !ifficulty: $asy 1-. The standard unit cost is developed developed before the the standard costs for direct materials( materials( direct labor( labor( and overhead can be set. ANS: # TS: 1 !"#: !ifficulty: $asy 1/. The unit standard quantity quantity of inputs is vital to the computation computation of total total amount of inputs allowed for for the actual output and efficiency variances. ANS: T TS: 1 !"#: !ifficulty: $asy 10. The total budget variance variance is the the difference between the actual cost of the input input and its planned cost. ANS: T TS: 1 !"#: !ifficulty: $asy %. The actual quantity of of input at the standard standard price less than the standard quantity of of input at the standard price equals the usage variance. variance. ANS: T TS: 1 !"#: !ifficulty: $asy %1. The actual quantity of of input at the actual actual price less less the actual quantity quantity of input input at the standard price is the price variance. ANS: T TS: 1 !"#: !ifficulty: $asy %%. An unfavorable usage variance variance would occur when the actual usage of inputs inputs is greater than the standard usage. ANS: T TS: 1 !"#: !ifficulty: $asy %&. An unfavorable unfavorable price variance occurs occurs when whenever ever the actual prices prices are greater than the standard standard prices. ANS: T TS: 1 !"#: !ifficulty: $asy %'. An acceptable acceptable range range is established in order order to determine if whether whether variances variances are significant. The acceptable range is the standard( plus or minus an allowable deviation. ANS: T TS: 1 !"#: !ifficulty: $asy %*. The sum of of the price and usage variances will will add up to the the total materials materials variance only if the materials purchased is equal to the materials used. ANS: T TS: 1 !"#: !ifficulty: $asy %+. The materials price variance is computed using the actual quantity quantity of materials materials used( and the materials usage variance is computed using the actual quantity of materials purchased. ANS: # No. The materials price variance is computed using using the actual quantity quantity of materials purch purchased ased ( and the materials usage variance is computed using the actual quantity of materials used . %-. #or better control( the the materials price variance variance is computed using using actual actual quantity quantity of materials purchased. ANS: T Since it is better to have information on variances earlier rather than later( the materials price variance uses the actual quantity of materials purchased rather than the actual quantity of materials used. %/. The sum of of the labor labor rate and labor efficiency efficiency variances will always always add up to the total labor labor variance. ANS: T TS: 1 !"#: !ifficulty: $asy %0. 5ai4e 5ai4en n costing provides provides fi)ed standards standards which which reflect continuou continuouss improvement improvement efforts. efforts. ANS: #
Thus( ai4en costing differs from traditional standard costing in that the standard changes frequently( frequently( reflecting continuous improvement efforts. &. A ai4en standard standard reflects the reali4ed improvements for the past past periods and a search for more more improvements for the future. ANS: T Setting this new level as a minimum standard for future performance locs in the reali4ed improvements and initiates simultaneously the maintenance cycle and a search for additional improvement opportunities &1. #avorable #avorable varianc variances es are credits credits and unfavor unfavorable able varianc variances es are debits. debits. ANS: T TS: 1 !"#: !ifficulty: $asy MATCHI! Match each item with the the correct statement statement below. below. a. 6u 6uan anti tity ty St Stan anda dard rdss b. "deal Standards c. r riice St Stan and dar ard ds d. St Stan anda dard rd ,os ,ostt She Sheet et e. 7p 7ppe perr ,on ,ontr trol ol 8i 8imi mitt f. ,u ,urr rren ently tly Att Attai aina nabl blee Standa Standard rdss g. 5a 5ai4 i4en en St Stan anda dard rdss
1. %. &. '. *. +.
Standards of perfect Standards perfection ion that that require require absolute absolute efficien efficiency cy.. " Standards Stand ards that are rigorous rigorous but achievabl achievablee and reflect reasonabl reasonablee efficiency efficiency.. F These reflect reflect the the amount that that should should be paid for for the quantity quantity of input input to be used. used. C These reflect reflect the the amount of of input that that should should be used per per unit of output output.. A A tool tool used to provide provide the productio production n data needed needed to calculate calculate the standard standard unit unit cost. cost. # This is the standard plus the allowable deviation deviation when when determining whether variances variances are significant. significant. E -. This reflects reflects the planned improvement improvement that that is set( which will help reduce nonvalue9added nonvalue9added costs. costs. ! Match the variance with its correct correct calculation. a. Actual 6uantity × Actual rice b. Actual ;ours × Actual
/. Ac Actu tual al ,o ,ost sts9 s9 A 0. >u >udg dget eted ed ,o ,ost sts9 s9 F 1.. To 1 Total tal Mater Material ialss ?a ?aria rianc nce9 e9 C 11.. Mat 11 Materi erials als ric ricee ?a ?aria riance nce99 E 1%.. Mat 1% Materi erials als 7sa 7sage ge ?a ?aria riance nce99 H 1&.. 8ab 1& 8abor or
ANS: pricing decision standard price '. @@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@ @@@@@@ can provide an initial guideline guideline for setting standards( standards( but should be be used with with caution because they can perpetuate e)isting inefficiencies. inefficiencies. ANS:: ;is ANS ;isto toric rical al e)peri e)perienc ences es *. Standards are set by using historical historical e)periences( e)periences( @@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@( @@@@( and input from operating personnel( mareting( and accounting. accounting. ANS:: eng ANS engine ineeri ering ng stud studies ies +. @@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@ demands demands ma)imum efficiency and can be achieved achieved only if everything everything operates operates perfectly.. perfectly ANS: AN S: "d "dea eall stand standar ards ds -. "n a @@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@( @@( costs are assigned to products products using quantity and price standards standards for all three manufacturing costs: direct materials( direct labor( and overhead. ANS:: sta ANS standa ndard rd costi costing ng system system /. The @@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@ provides the the products products data needed to calculate the standard standard unit cost. ANS:: sta ANS standa ndard rd cost cost she sheet et 0. The @@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@@@ @@ can be be used to compute the total amount amount of inputs inputs allowed for the actual output. ANS:: uni ANS unitt quantity quantity stan standar dards ds 1. @@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@ is calculated by multiplying the unit labor standard by the actual actual output. output. ANS:: Sta ANS Standa ndard rd hours hours allo allowed wed 11. The @@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@ is the difference difference between between the actual actual cost of the input input and its planned planned cost. ANS:: tot ANS total al budge budgett varia variance nce 1%. @@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@ is the difference difference between the actual and standard unit price of an input input multiplied by the number of inputs used. ANS: rice variance rate variance 1&. @@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@ occur occur whenever actual prices prices or actual usage usage of inputs are greater than standard standard prices or standard usage. usage. ANS:: 7nf ANS 7nfavo avorab rable le varia variance ncess 1'. The @@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@ @@ measures the difference difference between between the actual costs costs of materials and their their budgeted costs for actual actual level of activity. activity. ANS:: tot ANS total al varian variance ce for materi materials als 1*. The @@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@ @@ measures the difference difference between between what should have been paid for raw materials and what was actually paid. ANS:: mat ANS materi erials als price price varia variance nce 1+. The @@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@@ @@@ measures the difference difference between the direct direct materials actually used and the direct materials that should have been used for the actual output. ANS:: mat ANS materi erials als usage usage varia variance nce 1-. The @@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@ computes the difference difference between between what was paid to direct direct laborers and what what should have been paid. ANS:: lab ANS labor or rat ratee vari varianc ancee 1/. The @@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@ @ measures the difference difference between between the labor hours hours that were actually actually used and the labor hours that should have been used. ANS:: lab ANS labor or effici efficiency ency varia variance nce
10. @@@@@@@@@@@@@@ focuses on the continuous reduction of the manufacturing costs of e)isting products and processes. ANS: 5ai4en costing %. A @@@@@@@@@@@@@@ is the difference between the sales price needed to capture a predetermined maret share and the desired per9unit profit. ANS: target cost MULTI%LE CH$ICE 1. Standards based on the amount of input that should be used per unit of output are called a. quantity standards. b. price standards. c. ideal standards. d. currently attainable standards. e. ai4en standards.
ANS: A
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%. rice standards are based on a. the amount of input that should be used per unit of output. b. the amount that should be paid for the total quantity of input to be used. c. the amount that should be paid per unit of output. d. the amount that should be paid per unit of input purchased. e. None of these. ANS: > rice standards are based on the pricing decision( which is the amount that should be paid for the quantity of input to be used. &. The sources of quantitative standards include a. historical e)perience. b. engineering studies. c. input from operating personnel. d. historical e)perience( engineering studies( and input from operating personnel. e. None of these. ANS: !
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'. hich of the following is true regarding historical e)perience in standard settingB a. "t provides very rigorous guidelines. b. 2perating personnel may not be able to achieve operating standards based on historical e)perience. c. "t should be used with caution because it can perpetuate inefficiencies. d. Standards based on historical e)perience are better than standards based on engineering studies. e. None of these. ANS: , ;istorical e)perience should be used with caution because processes are often operating inefficiently. 7sing standards based on past e)perience can perpetuate the inefficiencies. *. hich of the following is not true regarding engineering studiesB a. They can determine the most efficient way to operate. b. They are often achievable by operating personnel. c. They provide very rigorous guidelines. d. All of these statements are true. e. More than two of these statements are true. ANS: > $ngineering studies are typically so rigorous they are often not achievable by operating personnel. +. "n setting price standards for materials and labor( a. the purchasing department must consider discounts( freight( and quality. b. personnel must consider payroll ta)es( fringe benefits( and qualifications. c. it is the Coint responsibility of operations( purchasing( personnel( and accounting. d. All of these.
e. None of these. ANS: !
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!ifficulty: Moderate
-. "deal standards a. do not allow for machine breadowns( slac( or lac of sill even momentarily=. b. demand ma)imum efficiency. c. can be achieved only if everything operates perfectly. d. All of these. e. None of these. ANS: !
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/. hich of the following is true regarding currently attainable standardsB a. They can be achieved under efficient operating conditions. b. Allowance is made for normal breadowns( interruptions( etc. c. They are challenging but achievable. d. They tend to achieve higher performance levels from personnel. e. All of these. ANS: $ TS: 1 !"#: !ifficulty: Moderate 0. Standard cost systems are adopted a. to improve planning and control. b. to facilitate product costing. c. to improve planning and control( and to facilitate product costing. d. to enhance the operational control of firms that emphasi4e continuous improvement. e. for all of these reasons. ANS: , The benefits of operational control in a standard cost s ystem may not e)tend to the manufacturing environments that emphasi4e continuous improvement and Cust9in9time purchasing and manufacturing. 1. Standard cost systems can enhance operational control through the use of a. efficiency variances which indicate the need for corrective action. b. price variances which indicate the need for better spending control. c. standard costs which indicate the desired cost of a unit of input. d. actual costs which indicate the price received for units sold. e. All of these. ANS: A
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11. hich of the following is true regarding standard cost systems in manufacturing environments that emphasi4e continuous improvement and Cust9in9time manufacturing and purchasingB a. The standard cost system enhances the operational control. b. The materials price variance may encourage the purchasing department to buy in smaller quantities to reduce inventories. c. ?ariances can be computed and presented in reports to higher9level managers. d. The operational level will benefit from the detailed computation of variances. e. None of these. ANS: , Although the benefits of operational control ma y not e)tend to these manufacturing environments( variances can still be computed and presented in reports to higher9level managers so they can monitor the financial dimension. 1%. "n a standard cost system( costs are assigned to all of the following( except for a. direct materials. b. direct labor. c. variable overhead. d. fi)ed overhead. e. none of these. ANS: $
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1&. The standard cost system differs from the actual cost system in the assignment of a. direct materials. b. direct labor.
c. overhead. d. all of the manufacturing inputs. e. none of the manufacturing inputs. ANS: !
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1'. hich of the following is not true regarding normal costing systemsB a. A normal costing system predetermines overhead costs. b. A normal costing system assigns direct materials and direct labor to products using a predetermined rate. c. "n a normal costing system overhead is assigned using a budgeted rate and actual activity. d. A normal costing system has less capacity for control than a standard costing system. e. All of these statements are true. ANS: > A normal costing system assigns direct materials and direct labor to products using actual costs. 1*. hich of the following is not an advantage of standard costing over normal costing and actual costingB a. A greater capacity for control. b. Ability to easily distinguish the #"#2 and weighted average methods of accounting for beginning inventory costs. c. ,omputing a unit cost for each equivalent unit cost category is not necessary. d. roviding for readily available unit cost information. e. All of these are advantages of standard costing. ANS: > There is no need to distinguish between the #"#2 and weighted average methods of accounting for beginning inventory costs. 1+. The production data needed to calculate the standard unit cost as well as the underlying details for the standard cost per unit are provided in a. the standard cost sheet. b. the standard production budget. c. the balance sheet. d. the standard wor9in9process account. e. None of these. ANS: A
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1-. Standard hours allowed are computed using the equation a. unit labor standard × actual output. b. unit labor standard × standard output. c. unit labor standard × actual input. d. unit labor standard × standard input. e. not shown here. ANS: A
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1/. The standard quantity of materials allowed is computed by the equation a. unit quantity standard × standard output. b. unit quantity standard × actual input. c. unit quantity standard × standard input. d. unit quantity standard × actual output. e. not shown here. ANS: !
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10. An accountant would refer to a cost sheet to perform which of the following actionsB a. ,alculate standard cost per unit. b. ,alculate efficiency variances. c. ,alculate the total amount of inputs allowed for the actual output. d. All of these. ANS: !
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Fig&re 10'1( #lying ;igh ,ompany manufactures model airplanes. !uring the month( it manufactured 1( airplanes. $ach one used an average of +.* direct labor hours and an average of 1.* sheets of aluminum. "t normally manufactures -(* airplanes. Materials and labor standards for maing the airplanes are:
!irect Materials 1 sheet of aluminum D E1.= !irect Materials other accessories D E/.-*= !irect 8abor + hours D E-.=
E1. /.-* '%.
%.
%1. S6 F 7nit quantity standard × Actual output. S6 F 1( × 1 F 1( sheets. %%. ?ariances indicate a. that actual performance is not going according to plan. b. the cause of the variance. c. who is responsible for the variance. d. when the variance should be investigated. e. none of these. ANS: A
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%&. The difference between the actual cost of the input and its planned cost is a. the total budget variance. b. the usage variance. c. the price variance. d. the efficiency variance. e. the budget variance. ANS: A
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%'. hich of the following is true concerning the materials price varianceB a. "t is the difference between the actual and standard unit price of an input multiplied by the number of inputs used. b. "t is the difference between the actual and standard unit price of an output multiplied by the number of inputs used. c. "t is the difference between the actual and standard unit price of an input multiplied by the number of inputs purchased. d. "t is the difference between the actual and standard unit price of an output multiplied by the number of inputs purchased. e. None of these. ANS: ,
TS: 1
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!ifficulty: Moderate
%*. The usage variance is the difference between the actual and standard quantity of inputs a. multiplied by the standard unit price of the input. b. budgeted multiplied by the standard unit price of the input.
c. multiplied by the actual unit price of the input. d. purchased multiplied by the actual unit price of the input. e. None of these. ANS: A
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%+. hich of the following is true regarding variancesB a. 7nfavorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage. b. #avorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage. c. 7nfavorable variances are always credits. d. #avorable variances are always debits. e. None of these. ANS: A
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%-. All of the following are true regarding variance investigation except a. the investigation should be undertaen only if the anticipated benefits are greater than the e)pected costs. b. managers must consider whether a variance will recur. c. it is difficult to assess the costs and benefits of variance analysis on a case9by9case basis. d. variances are not investigated unless they are large enough to be of a concern. e. every variance is investigated. ANS: $ 2nly material variances are investigated. %/. hich of the following is not true concerning control limitsB a. ,ontrol limits are the top and bottom measures of the allowable range. b. The upper control limit is the standard plus the allowable deviation. c. The lower control limit is the standard minus the allowable deviation. d. "n current practice( control limits are set obCectively using standard formulas. e. ?ariances that fall outside the control limits are investigated. ANS: ! "n current practice( control limits are set subCectively( using past e)perience( Cudgment( and intuition. %0. Acme ,ompanyGs standard cost is E*(. The allowable deviation is ±1H. "ts actual costs for three months are 3anuary #ebruary March
E*%( E**( E*-*(
The upper and lower control limits are( respectively( a. E**( and E'*( b. E*( and E'*( c. E**( and E*( d. E*-*( and E*%( ANS: A The upper control limit is E**( E*( I E*( × 1H==. The lower control limit is E'*( E*( − E*( × 1H==. Fig&re 10')( ;ighland ,ompanyGs standard cost is E%*(. The allowable deviation is si) months are
3anuary #ebruary March April May 3une
E%&*( %%( %'*( %+*( %-( %/(
±1H.
"ts actual costs for
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&&. hich of the following is not true concerning direct materials variancesB a. The sum of the price and usage variances will add up to the total materials variance only if the materials purchased is equal to the materials used. b. The materials price variance uses the actual quantity of materials purchased rather than the actual quantity of materials used. c. The materials price variance always uses the actual quantity of materials used rather than the actual quantity of materials purchased. d. The materials usage variance uses the actual quantity of materials used. e. Separate materials variances can be computed for each type of material used. ANS: , Typically( the quantity of material purchased is used to determine the materials price variance. &'. The materials price variance is computed using the equation a. Actual rice × Actual 6uantity= − Standard rice × Standard 6uantity=. b. Standard rice × Actual 6uantity= − Actual rice × Actual 6uantity=. c. Standard rice × Standard 6uantity= − Actual rice × Actual 6uantity=. d. Actual rice × Actual 6uantity= − Standard rice × Actual 6uantity=. e. None of these. ANS: !
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!ifficulty: Moderate
&*. The materials usage variance is calculated by the equation a. Standard rice × Actual 6uantity= − Standard rice × Standard 6uantity=. b. Standard rice × Standard 6uantity= + Standard rice × Actual 6uantity=. c. Actual rice × Actual 6uantity= − Standard rice × Actual 6uantity=. d. Actual rice × Standard 6uantity= + Actual 6uantity × Standard rice=. e. None of these. ANS: A
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&+. hich of the following is not true regarding the use of materials variance informationB a. The purchasing agent has the responsibility for controlling the materials price variance. b. The production manager is generally responsible for materials usage. c. The production manager is concerned with minimi4ing scrap( waste( and rewor. d. The purchasing department is responsible for acquiring quality materials. e. All of these are true. ANS: $
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!ifficulty: Moderate
&-. !uring the month of March( >aerGs $)press purchased 1( pounds of flour at E1 per pound. At the end of March( >aerGs $)press found that it had an unfavorable materials price variance of E*. The standard cost per pound must be a. E1.0* b. E1. c. E1.* d. E.0* ANS: ! M? E* S
F A − S=A6 F E1 − S=1( F E.0*
&/. !uring the month of March( >aerGs $)press purchased 1( pounds of flour at E1 per pound. At the end of March( >aerGs $)press found that it had a favorable materials price variance of E*. The standard cost per pound must be a. E.0* b. E1. c. E1.* d. E1.0* ANS: , M? −E* S
F A − S=A6 F E1 − S=1( F E1.*
2r 1( × E1.= I * F E1(* E1(*J1( F E1.* &0. !uring 3une( ,isco ,ompany produced 1%( chainsaw blades. The standard quantity of material allowed per unit was 1.* pounds of steel per blade at a standard cost of E/ per pound. ,isco determined that it had a favorable materials usage variance of E1( for 3une. ,alculate the actual quantity of materials ,isco used. a. 1-(/-* pounds b. 1%(1%* pounds c. 11(/-* pounds d. 1/(1%* pounds ANS: A 1%( blades × 1.* pounds F 1/( pounds of steel M7? −E1( A6
F A6 − S6=S F A6 − 1/(=E/ F 1-(/-* pounds
2r 1%( blades × 1.* pounds × E/ F E1''( − E1( F E1'&(JE/ F 1-(/-* pounds '. !uring 3une( ,isco ,ompany produced 1%( chainsaw blades. The standard quantity of material allowed per unit was 1.* pounds of steel per blade at a standard cost of E/ per pound. The actual cost was E- per pound. The actual pounds of steel that ,isco purchased were 10(* pounds. All materials purchased were used. ,alculate ,iscoGs materials usage variance. a. E1(* 7 b. E1%( # c. E1%( 7 d. E1(* # ANS: , 1%( blades × 1.* pounds F 1/( pounds of steel M7?
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F A6 − S6=S F 10(* − 1/(=E/ F E1%( 7 !"#:
!ifficulty: $asy
2>3: 82: 19'
NAT: >7S<2K: Analytic STA: A",A: #N9Measurement L "MA: erformance Measurement L A,>S: A,9%-9Managerial Accounting #eaturesJ,osts 5$: >loomGs: Application N2T: & min. '1. erfect >uilders maes all sorts of moldings. "ts standard quantity of material allowed is 1 foot of wood per 1 foot of molding at a standard price of E%. per foot. !uring August( it purchased *( feet of wood at a cost of E1.0 per foot( which produced only '00( feet of molding. ,alculate the materials price variance and the materials usage variance( respectively. a. E*( # and E%( 7 b. E'0(0 7 and E%( # c. E*( # and E1(0 7 d. E'0(0 # and E1(0 7 ANS: A M?
M7?
F A − S=A6 F E1.0 − E%.=*( F E*( # F A6 − S6=S F '00( − *(=E%. F E%( 7
'%. Mover ,ompany has developed the following standards for one of its products: !irect materials: !irect labor:
-.* pounds × E/ per pound % hours × E1% per hour
The following activity occurred during March: Materials purchased: Materials used: 7nits produced: !irect labor:
*( pounds costing E'%(* &(+ pounds * units 1(1* hours at E11./Jhour
The company records materials price variances at the time of purchase. The variable standard cost per unit for materials and labor is a. E0/. b. E/'. c. E-'. d. E&/. ANS: > !irect materials -.* pounds × E/= !irect labor % hours × E1%=
E+ %' E/'
'&.
E1/. E1+.* &(1 lbs. %(0* lbs. &( lbs. 1( units
ANS: A %(0* − &(= × E1/ F E0 # ''. !uring August( 1( units were produced. The standard quantity of material allowed per unit was 1 pounds at a standard cost of E& per pound. "f there was an unfavorable usage variance of E1/(-* for August( the actual quantity of materials used must be a. 1+(%* pounds. b. 0&(-* pounds. c. &1(/-* pounds. d. %&('&/ pounds. ANS: A 1( × 1 × E& F E&( E&( I E1/(-* F E&1/(-* E&1/(-*JE& F 1+(%* pounds '*. !uring September( '( units were produced. The standard quantity of material allowed per unit was * pounds at a standard cost of E%.* per pound. "f there was a favorable usage variance of E%*( for September( the actual quantity of materials used must have been a. %1( pounds. b. 10( pounds. c. 1*( pounds. d. 0*( pounds. ANS: > '( × * × E%.* F E*( E*( − E%*( F E'-*( E'-*(JE%.* F 10( pounds '+.
Ma) ,ompany has developed the following standards for one of its products. !irect materials: !irect labor: ?ariable overhead:
1* pounds × E1+ per pound ' hours × E%' per hour ' hours × E1' per hour
The following activity occurred during the month of 2ctober: Materials purchased: Materials used: 7nits produced: !irect labor:
1( pounds costing E1-( -(% pounds * units %(& hours at E%&.+Jhour
The company records materials price variances at the time of purchase. The direct materials price variance is a. E*( #. b. E*( 7. c. E1( 7. d. E1( #. ANS: , E1-( − 1( × E1+= F E1( 7 '-. All of the following are true except a. A favorable labor efficiency variance could result from using higher quality materials that result in fewer inspections. b. A favorable labor rate variance could result from lower wage worers quitting. c. A favorable materials price variance could result from purchasing identical materials from another supplier at a lower price. d. An unfavorable materials usage variance could result from not efficiently utili4ing raw materials( thus causing waste. e. An unfavorable labor efficiency variance can be caused by machine downtime( and poor quality materials. ANS: >
TS: 1
!"#:
!ifficulty: Moderate
Fig&re 10'*( >ortello ,orporation produces high9quality leather boots. The company has a standard cost system and has set the following standards for materials and labor:
8eather 1% strips D E%= !irect labor 1 hours D E1%= Total prime cost
E%' E1% E&+
!uring the year >ortello produced 1%* boots. Actual leather purchased was 1(- strips( at E1+ per strip. There were no beginning or ending inventories of leather. Actual direct labor was 1(* hours at E1* per hour. '/. Materials 8abor
Actual ,ost E%-(% %%(*
>udgeted ,ostO E&( 1*(
?ariance %(/ # -(* 7
1(- ) E1+=P 1(* ) E1*= O>udgeted Materials: S6 ) S<= ) A6 F E%' ) 1%* F E&( O>udgeted 8abor: S; ) S<= ) A6 F E1% ) 1%* F E1*( *1.
8abor: S; ) S<= ) A6 F E1% ) 1%* F E1*( Fig&re 10'+( Seaside ,ompany produces picture frames. !uring the year 10( picture frames were produced. Materials and labor standards for producing the picture frames are as follows:
!irect materials % pieces of wood D E%.%*= !irect labor % hours D E1=
E'.* E%.
Seaside purchased and used '( pieces of wood at E%. each and its actual labor hours were &+( hours at a wage rate of E1.*.
*%. 8
originally budgeted and the labor hours that should have been used. e. The labor rate variance measures the difference between the labor hours that were actually used and the labor hours that were originally budgeted. ANS: >
TS: 1
!"#:
!ifficulty: $asy
*-. The labor rate variance is computed by a. Actual
TS: 1
!"#:
!ifficulty: Moderate
*/. The labor efficiency variance is calculated by the equation a. Standard ;ours × Actual ;ours= − Actual ;ours × Standard
TS: 1
!"#:
!ifficulty: Moderate
*0. hich of the following is not true regarding the use of labor variance informationB a. The actual wage rate is almost always different from the standard rate. b. 7ne)pected overtime can cause variation in the labor rate. c. An average wage rate is chosen as the labor rate standard. d. The production manager controls the use of labor. e. The actual wage rate is used in determining the labor rate variance. ANS: A Typically( the actual wage rate is equal to the standard rate. +. 5ai4en costing involves a. changing the standards frequently. b. changing management. c. outsourcing processes. d. maCor ad campaigns. ANS: A Thus( ai4en costing differs from traditional standard costing in that the standard changes frequently( reflecting continuous improvement efforts. +1. hich of the following is not true about 5ai4en StandardsB a. 5ai4en standards are the standards used for continuous improvement. b. 5ai4en standards are a currently attainable standard that reflects planned improvement. c. 5ai4en standards are constantly changing. d. 5ai4en standards are the standards used in traditional costing systems. ANS: !
TS: 1
!"#:
!ifficulty: Moderate
+%. ,laire ,ompany uses a standard costing system. The following information pertains to direct labor costs for #ebruary: Standard direct labor rate per hour Actual direct labor rate per hour 8abor rate variance Actual output Standard hours allowed for actual production hat is the total labor budget variance for ,laire ,ompanyB a. E1/( # b. E1%( # c. E1/( 7 d. E1%( 7
E1*. E1&.* E1/( # 1( units 1( hours
ANS: ! E1/(JE1*. − E1&.*= F 1%( actual hours 1%( × E1&.*= − 1( × E1*= F E1%( 7 +&. ,laire ,ompany uses a standard costing system. The following information pertains to direct labor costs for #ebruary: Standard direct labor rate per hour Actual direct labor rate per hour 8abor rate variance Actual output Standard hours allowed for actual production
E1*. E1&.* E1/( # 1( units 1( hours
;ow many actual labor hours were wored during #ebruary for ,laire ,ompanyB a. 1( hours b. %( hours c. 1(% hours d. 1%( hours ANS: ! E1/(JE1*. − E1&.*= F 1%( hours +'. "f the actual labor rate e)ceeds the standard labor rate and the actual labor hours e)ceed the number of hours allowed( the labor rate variance and labor efficiency variance will be
a. b. c. d.
La,or Rate arian.e #avorable #avorable 7nfavorable 7nfavorable
ANS: !
La,or E--i.ien. arian.e #avorable 7nfavorable #avorable 7nfavorable
TS: 1
!"#:
!ifficulty: Moderate
+*. !uring 3anuary( -( direct labor hours were wored at a standard cost of E% per hour. "f the direct labor rate variance for 3anuary was E1-(* favorable( the actual cost per direct labor hour must be a. E1-.*. b. E%.. c. E%%.*. d. E%*.. ANS: A -( × E% F E1'( E1'( − E1-(* F E1%%(* E1%%(*J-( F E1-.* ++. !uring 2ctober( 1( direct labor hours were wored at a standard cost of E1 per hour. "f the direct labor rate variance for 2ctober was E'( unfavorable( the actual cost per direct labor hour must be a. E1.'. b. E1.. c. E0.+. d. E0.%. ANS: A 1( × E1 F E1( E1( I E'( F E1'( E1'(J1( F E1.' +-. >ender ,orporation produced 1 units of roduct AA. The total standard and actual costs for materials and direct labor for the 1 units of roduct AA are as follows: Materials: Standard: Actual:
% pounds at E&. per pound %% pounds at E%./* per pound
Standard E+
Actual E+%-
!irect labor: Standard: Actual:
' hours at E1*. per hour &+/ hours at E1+.* per hour
+( +(-%
hat is the labor efficiency variance for >ender ,orporationB a. E'/ 7 b. E**% # c. E**% 7 d. E'/ # ANS: ! &+/ − '= × E1* F E'/ # Fig&re 10'( ;igh #liers ,ompany produces model airplanes. !uring the month of November( it produced %( planes. The actual labor hours were - hours per plane. "ts standard labor hours are 1 hours per plane. The standard labor rate is E11 per hour. At the end of November( ;igh #liers found that it had a favorable labor rate variance of E1(*.
+/. 8$?F A; 9 S;=S< 1'( 9 %(= ) E11 8$? F E++( # Total variance F E++( I 1(* F E-+(* Fig&re 10'2( $)treme >uilders constructs houses. The standard labor rate is E%* per hour and the standard number of hours is 1*( hours per home. !uring the year( it constructed 1% homes using 1/( labor hours per home and a rate of E%/ per hour.
-. uildersG labor rate variance. a. E*'( 7 b. E*'( # c. E+'/( 7 d. E+'/( # ANS: , 8
c. E1(/( 7 d. E0( # ANS: > 8$? F A; 9 S;=S< %1+( 9 1/(= ) E%* E0( 7 -%. Assume that S6 F Standard 6uantity( S F Standard rice( A6 F Actual 6uantity( and A F Actual rice. The correct entry along with the equation to record the issuance and usage of materials( assuming a favorable materials usage variance( is as follows a. Work in Process SQ × SP (AQ − SQ)SP
Materials Usage Variance Materials
b. Work in Process Materials Usage Variance
SQ ×
SP
AQ ×
SP
SP
(AQ − SQ)SP
Materials
c. Work in Process
AQ ×
AP (AQ − SQ)SP
Materials Usage Variance Materials
d. Work in Process Materials Usage Variance
AQ ×
AQ ×
AQ ×
SP
AQ ×
SP
AP
(AQ − SQ)SP
Materials
e. None of these. ANS: A 2nly standard quantities and standard prices are used to assign costs to or in rocess. -&. hich of the following is true regarding the disposition of materials and labor variancesB a. The variances for materials and labor are closed directly to ,ost of Koods Sold regardless of materiality. b. "f the materials price variance is material( it is prorated among Materials "nventory( Materials 7sage ?ariance( or in rocess( and #inished Koods. c. The materials usage variance and the labor variances( if material( are prorated among or in rocess( #inished Koods( and ,ost of Koods Sold. d. The materials usage variance and the labor variances are always prorated among or in rocess( #inished Koods( and ,ost of Koods Sold. e. The materials usage variance and the labor variances are always closed to ,ost of Koods Sold. ANS: , The variances for materials and labor are closed directly to ,ost of Koods Sold only if immaterial. "f the materials price variance is material( it is prorated among Materials "nventory( Materials 7sage ?ariance( or in rocess( #inished Koods( and ,ost of Koods Sold. -'. !uring September( a small roofing company purchased * bundles of a certain type of shingle at a price of E&* per bundle( E* less than the standard price. "ts standard quantity of this type of shingle is ** bundles. hat is the Cournal entry to record the purchase of materialsB 20,000 a. Materials b. c. d.
Materials Price Variance Accounts Payable Materials Materials Price Variance Accounts Payable Materials Materials Price Variance Accounts Payable Materials Materials Price Variance Accounts Payable
2,500 1,500 20,000 2,500 22,500 1,500 2,500 15,000 20,000
ANS: A Materials F S × A6 F E' × * F E%( M? F A − S=A6 F E&* − E'=* F E%(* #
2,50 1,250
-*. !uring 3une( ,isco ,ompany produced 1*( chainsaw blades. The standard quantity of material allowed per unit was 1.* pounds of steel per blade at a standard cost of E* per pound. The actual purchase price was E+.%* per pound. ,isco determined that it had a favorable materials usage variance of E%(* for 3une. hat is the Cournal entry to record the issuance and usage of materialsB 112,500 a. Work in Process b. c. d.
Materials Usage Variance Materials Work in Process Materials Usage Variance Materials Work in Process Materials Usage Variance Materials Work in Process Materials Usage Variance Materials
ANS: A 1*( blades M7? −E%(* A6
2,500 110,000 110,000 2,500 112,000 112,500 2,500 115,000 1!0,"25 2,500 1#$,125
× 1.*
pounds F %%(* pounds of steel F A6 − S6=S F A6 − %%(*=E* F %%( pounds
2r( 1*( blades × 1.* pounds × E* F E11%(* − E%(* F E11(JE* F %%( pounds or in rocess F S6 × S F %%(* × E* F E11%(* Materials F A6 × S F %%( × E* F E11(
Fig&re 10'3( !uring April( a small roofing company purchased - bundles of a certain type of shingle at a price of E&* per bundle( E/ more than the standard price. "ts standard quantity of this type of shingle is -%* bundles.
-+.
Materials Usage Variance "5 Materials Work in Process 1%,55 Materials Usage Variance Materials Work in Process 2!,500 Materials Usage Variance $5 Materials Work in Process 25,#5 Materials Usage Variance Materials
1%,55 "5 1$,%00
25,#5 $5 2!,500
ANS: > or in rocess F S6 × S F -%* × %- F E10(*-* M7? F A6 − S6=S F - − -%*=%- F E+-* # Materials F A6 × S F - × E%- F E1/(0 --.
Materials Price Variance Accounts Payable Materials Materials Price Variance Accounts Payable Materials Materials Price Variance Accounts Payable Materials Materials Price Variance Accounts Payable
5,$00 25,#5 2!,500 5,"00 1$,%00 1$,%00 5,"00 2!,500 25,#5 5,$00 1%,55
ANS: , Accounts ayable F A × A6 F E&* × - F E%'(* M? F A − S=A6 F E/=- F E*(+ 7 Materials F A6 × S F - × E%- F E1/(0 Fig&re 10'4( The erfect Tool ,ompany South America !ivision= produced /( saw blades during the year. "t too 1.* hours of labor per blade at a rate of E/.* per hour. ;owever( its standard labor rate is E/.. "ts labor efficiency variance was an unfavorable E'(.
-/.
b.
c.
d.
'abor ate Variance 'abor **iciency Variance Accrue Payroll Work &n Process 'abor ate Variance 'abor **iciency Variance Accrue Payroll Work &n Process 'abor ate Variance 'abor **iciency Variance Accrue Payroll Work &n Process 'abor ate Variance 'abor **iciency Variance Accrue Payroll
"0,000 !0+000 1,020,000 %"0,000 5,500 !0,000 1,05,500 %20,000 "0,000 !0,000 %!0,000 %"0,000 5,500
ANS: A F A< 9 S<=A; E/.* 9 E/= ) 1%( E+( 7 Accrued ayroll F /( ) 1.*= ) E/.* F 1(%( or in rocess F S; ) S< F 11*( ) E/ F E0%( 8$? F A; 9 S;= ) S< E'( F 1%( 9 S;= ) E/ 11*( hours Fig&re 10'5(
!0,000 %,500
3ames ,ompany manufactures t9shirts. !uring the year( it manufactured %*( t9shirts( using % hours of direct labor at a rate of E/.* per hour. The materials and labor standards for manufacturing the t9 shirts are: !irect materials + yards of fabric D E& per yard= !irect labor %.' hours D E/. per hour=
E1/ 1-
"t too 3ames 1('( yards at E%.* per yard to mae the %*( t9shirts. /1. M? F A 9 S= ) A6 E%.* 9 E&.= ) 1('( E-( # /%. F A6 9 S6=S 1('( 9 1(*(= ) E& E&( # S6 F 1(*( F %*( ) + /&.
a. Materials &(*( Materials rice ?ariance -*( Accounts ayable '(%*( b. Materials '(%( Materials rice ?ariance -*( Accounts ayable '(0*( c. Materials '(%( Materials rice ?ariance -( Accounts ayable &(*( d. Materials &(*( Materials rice ?ariance -( Accounts ayable '(%( ANS: , Materials F S ) A6 F E& ) 1('( F E'(%( Accounts ayable F 1('( ) E%.* F E&(*( Material rice ?ariance F E%.* 9 E&.= ) 1('( F E-( # /+.
Materials Usage Variance Materials Work in Process Materials Usage Variance Materials Work in Process Materials Usage Variance Materials Work in Process Materials Usage Variance Materials
#00,000 !,$00,000 !,200,000 #00,000 !,500,000 !,200,000 #00,000 #,%00,000 !,500,000 #00,000 !,200,000
ANS: ! Materials F S ) A6 F E& ) 1('( F E'(%( or in rocess F S6 ) S F %*( ) += ) E& F E'(*( Material 7sage ?ariance F 1('( 9 %*( ) +==E& F E&( # /-.
b.
c.
d.
Materials Usage Variance 'abor **iciency Variance -ost o* .oos Sol
#00,000 $00,000
-ost o* .oos Sol 'abor ate Variance Materials Price Variance Materials Usage Variance 'abor **iciency Variance -ost o* .oos Sol
250,000
-ost o* .oos Sol 'abor ate Variance -ost o* .oos Sol Materials Price Variance Materials Usage Variance 'abor **iciency Variance
#00,000
'abor ate Variance -ost o* .oos Sol -ost o* .oos Sol Materials Price Variance Materials Usage Variance 'abor **iciency Variance 'abor ate Variance -ost o* .oos Sol
1,$00,000
250,000 50,000 250,000 $50,000 1,$50,000
#00,000 1,$00,000 00,000 #00,000 $00,000 250,000 250,000 1,$50,000 50,000 250,000 $50,000 #00,000 #00,000
ANS: A 8abor $fficiency ?ariance F A; 9 S;=S< F *( 9 +(=E/ F E/( #
Material 7sage ?ariance F A6 9 S6=S F 1('( 9 1(*(=E& F E&( # Material rice ?ariance F A 9 S=A6 F E%.* 9 E&.=1('(F E-( # 8
%R$"LEM
1. Top Notch Music "nc. produces car stereos. !uring the year Top Notch Music produced -( stereos. Materials and labor standards for producing these units are as follows: !irect materials 1 electronic component it D E1/*= 1/* !irect materials % plastic casing D E'*= 0 !irect labor / hours D E1*= 1% Re6&ired: A. ,ompute the standards hours allowed for a volume of -( stereos and the planned cost. >. ,ompute the standard number of its and casings allowed for a value of -( units and the planned cost for each direct material. ,. ,ompute the total budget variances for materials and labor assuming that actual number of electronic its purchased and used were -(& at a price of E1-0 and actual plastic casings purchased were 1'(' at a price of E'&. Actual labor was *-(% hours at E1*.-* per hour.
ANS: A. S; F / hours ) -( F *+( , F E1* ) *+( F E/'( >. S6 F 1 ) -( F -( electronic its S6 F % ) -( F 1'( plastic casings , F -( ) E1/* F E1(%0*( electronic its , F 1'( ) E'* F E+&( plastic casings ,. Materials electronic component its= Materials plastic casings= 8abor
Actual ,ost >udgeted ,ost ?ariance 1(&+(- 1(%0*( 11(- 7 +10(% +&( 1(/=# 0(0 /'( +(07
%. 8eeds ,ompany uses the following rule to determine whether labor efficiency variances should be investigated: A labor efficiency variance will be investigated when the variance is greater than either E1 or 1H of the standard labor cost. !uring September( the company used * direct labor hours at a rate of E1* per hour. "ts standard rate is '-* direct labor hours at a rate of E1'.* per hour. A. !etermine the companyGs labor efficiency variance and whether it is favorable or unfavorable. >. Should the variance be investigatedB ANS:
A.
8$?
>.
Standard 8abor ,ost F '-* × E1'.* F E+(//-.* × 1H F E+//.-*. The unfavorable 8$? of E&+%.* is greater than the E1 rule but not the 1H rule. ;ence( the variance should be investigated.
F A; − S;=S< F * − '-*=E1'.* F E&+%.* 7
&. Acme >ric ,ompany uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated when the variance is greater than either E*( or 1H of the standard cost. !uring 3une( the company purchased and used 0(* pounds of concrete for E* per pound. "t was able to mae %( brics. "ts standard quantity of materials allowed is .'* pound of concrete per bric at a standard price of E+ per pound. A. >.
!etermine AcmeGs material usage variance and whether it is favorable or unfavorable. Should the variance be investigatedB
ANS: A. M7?
>.
F A6 − S6=S F 0(* − 0(=E+ F E&( 7
Standard Materials ,ost F 0( × E+ F E*'( × 1H F E*('. The unfavorable M7? of E&( is not greater than the E*( rule or greater than 1H of the standard cost. ;ence( the variance should not be investigated.
'. estminster ,ompany has the following information concerning its direct materials: !irect Materials: Standard 6uantity 1( Actual 6uantity /( Standard rice E& Actual rice E' A. >. ,.
!etermine the materials price variance and whether it is favorable or unfavorable. !etermine the materials usage variance and whether it is favorable or unfavorable. estminster has set control limits stating that actual costs should be investigated if they fall outside the acceptable range of the standard materials cost R1H. i. hat is the standard materials costB ii. hat are the upper and lower control limitsB iii. hat is the actual materials costB iv. Should the actual materials cost be investigatedB
ANS: A. M?
>.
M7?
,.
i. ii. iii. iv.
F A − S=A6 F E' − E&=/( F E/( 7 F A6 − S6=S F /( − 1(=E& F E+( # The standard materials cost F 1( × E& F E&(. The upper control limit F E&( I E&( × 1H= F E&&(. The lower control limit F E&( − E&( × 1H= F E%-(. The actual materials cost F E/( × E' F E&%(. No( E&%( falls between E%-( and E&&(.
*. 7<$ "nc. produces flavored waters( sold in gallons. . 2unces of materials purchased and used: -(&%( ounces at E.,. No beginning or ending inventories of raw materials Re6&ired: A. ,ompute the materials price variance indicating if it is favorable or unfavorable. >. ,ompute the materials usage variance indicating if it is favorable or unfavorable.
ANS: A. M? F A 9 S= ) A6 E.- 9 E./= ) -(&%( F E-&(% # >. M7? F A6 9 S6= ) S -(&%( 9 -(%(= ) E./ F E0(+ 7 +. Mc!aniel ,ompany manufactures 19pound bags of fertili4er that have the following unit standard costs for direct materials and direct labor: !irect materials 1 lbs. D E1. per lb.= E1. !irect labor .* hours at E%' per hour= 1%. Total standard prime cost per 1 lb. bag E11%. The following activities were recorded for 2ctober: 1( bags were manufactured. • 0*( lbs. of materials costing E-+( were purchased. • • 1%(* lbs. of materials were used. E1%( was paid for '-* hours of direct labor. • There were no beginning or ending wor9in9process inventories. Re6&ired: A. ,ompute the direct materials variances. >. ,ompute the direct labor variances. ,. Kive possible reasons for the occurrence of each of the preceding variances.
ANS: A. Material price variance: E-+( − 0*( × E1.= F E10( # Material usage variance 1%(* − 1(1= × E1. F E%(* 7 >.
8abor rate variance E1%( − '-* hrs. × E%'= F E+ 7 8abor efficiency variance '-* − *=E%' F E+ #
,.
All of the material price variances could be caused by out9of9date or inappropriate standards. 2ther potential reasons could be that the firm could be purchasing in larger quantities larger quantity discounts=( purchasing lower grade materials( or that the supplier could be forced to offer a lower price due to the economics of their product. Material usage variance: 8ow9quality materialsP lower silled worersP less efficient machinesP low e mployee morale.
8abor rate variance: ;igher silled worersP longer tenured worers with higher wages. 8abor efficiency variance: The firm could be using a more e)perienced wor force than desired. -. !u
E/'
!uring the year !u. ,ompute the total budget variances for materials and labor. ,. ,ompute the materials price variance. !. ,ompute the materials usage variance. $. ,ompute the labor rate variance. #. ,ompute the labor efficiency variance.
ANS: A. Materials F E'/ ) **( F E%(+'( 8abor F E&+ ) **( F E1(0/( >. Materials 8abor
Actual ,ost >udgeted ,ost E%(+'*( E%(+'( E%(&1( E1(0/(
?ariance E*( 7 E&&( 7
,. M? F A 9 S= ) A6 E*.-* 9 E+= ) '+( F E11*( # !. M7? F A6 9 S6= ) S '+( 9 ''(= ) E+ F E1%( 7 $. 8aby ,ompany produces baby strollers. !uring the year 0( strollers were produced. The actual labor used was %%*( hours at E1%.-* per hour. Moving >aby has the following labor standards: % hours at E1&. per hour. Re6&ired: A. ,ompute the labor rate variance( indicating if it is favorable or unfavorable.
>. ,ompute the labor efficiency variance( indicating if it is favorable or unfavorable. ANS: A. 8. 8$? F A; 9 S;= ) S< %%*( 9 1/(= ) E1&. F E*/*( 7 0. Starling Manufacturing has developed the following standards for one of its products. E& Materials: * yards × E+ per yard 1+ !irect labor: % hours × E/ per hour The company records materials price variances at the time of purchase. The following activity occurred during !ecember: Materials purchased: *(% yards costing E%0(0 Materials used: '(-* yards 7nits produced: 1( units !irect labor: %(1 hours costing E1-(/* Re6&ired: A. ,alculate >. ,alculate ,. ,alculate !. ,alculate
ANS: A. >. ,. !.
E1(& # E1(* # E1(* 7 E/ 7
the direct materials price variance. the direct materials usage variance. the direct labor rate variance. the direct labor efficiency variance.
E%0(0 − *(% × E+= E+ × '(-* − *(= E1-(/* − %(1 × E/= E/ × %(1 − %(=
1. $astminster ,ompany has the following information: !irect Materials: !irect 8abor: Standard 6uantity 1( Standard ;ours Actual 6uantity 1%( Actual ;ours Standard rice E1' Standard . ,. !.
!etermine the materials price variance and whether it is favorable or unfavorable. !etermine the materials usage variance and whether it is favorable or unfavorable. !etermine the labor rate variance and whether it is favorable or unfavorable. !etermine the labor efficiency variance and whether it is favorable or unfavorable.
ANS: A. M?
F A − S=A6 F E1% − E1'=1%( F E%'( #
>.
M7?
F A6 − S6=S F 1%( − 1(=E1' F E%/( 7
,.
8
F A< − S<=A; F E11 − E1=1(/-* F E1(/-* 7
!.
8$?
F A; − S;=S< F 1(/-* − %(=E1
%( 1(/-* E1 E11
F E1(%* # 11. ,rawford ,orporation has the following information: !irect Materials: !irect 8abor: Standard 6uantity 1(* Standard ;ours Actual 6uantity 1(' Actual ;ours Standard rice E% Standard . ,. !.
* *%* E1' E1'
!etermine the materials price variance and whether it is favorable or unfavorable. !etermine the materials usage variance and whether it is favorable or unfavorable. !etermine the labor rate variance and whether it is favorable or unfavorable. !etermine the labor efficiency variance and whether it is favorable or unfavorable.
ANS: A. M?
F A − S=A6 F E1-.* − E%=1(' F E&(* #
>.
M7?
F A6 − S6=S F 1(' − 1(*=E% F E%( #
,.
8
F A< − S<=A; F E1' − E1'=*%* F E
!.
8$?
F A; − S;=S< F *%* − *=E1' F E&* 7
1%. Allison ,ompany adopted a standard cost system several years ago. The standard costs for the prime costs of its single product follow: Material: 1 ilograms D E'.* per ilogram E'*. 8abor: + hours D E/.* per hour E*1. The following operating data were taen from the records for November: 1. 7nits completed: *(/ units %. >udgeted output: +( units &. Materials purchased: +( ilograms '. Total actual labor costs: E&+(+ *. Actual hours of labor: &+(* hours +. Material usage variance: E%(%* 7 -. Total material variance: E'* 7 ,ompute the following: A. 8abor rate variance >. 8abor efficiency variance ,. Actual ilograms of material used in the production process !. Actual cost paid per ilogram of material ANS: A.
8abor
Standard ,ost
Actual ,ost
E/.*Jhr.
E/.'Jhr.
!ifference
Actual 6uantity or ;ours
?ariance
E.1 fav.=
&+(* hrs.
E&(+* fav.=
E&+(+ labor costJ&+(* hours wored F E/.' per hour >.
Standard 6uantity
Actual 6uantity
Standard
8abor $fficiency ?ariance
or ;ours
or ;ours
!ifference
,ost
?ariance
&'(/ hrs.
&+(* hrs.
1(- hrs. unfav.=
E/.*Jhr.
E1'('* unfav.=
*(/ units produced × + hrs allowed F &'(/ ,.
Materials 7sage ?ariance
Standard 6uantity of 5g.
Actual 6uantity of 5g.
!ifference
*/( g.
unnown g.
* g.U unfav.=
Standard ,ost E'.*Jg.
?ariance E%(%* unfav.=
*(/ units × 1 g. per unit U woring bac: E%(%*JE'.* F * g. The actual g. would be */(* */( I *= The unfavorable variance is added to standard. !.
Materials rice ?ariance
Standard ,ost
Actual ,ost
E'.*Jg.
7nnown
!ifference
Actual 6uantity of 5g.
?ariance
E.&UU fav.=
+( g.
E1(/ fav.=
UU E1(/J+( F E.& rounded= oring bac: E'.* − E.& F E'.'- #avorable variance is subtracted from standard= 1&. KardenerGs Maret manufactures hedgers. !uring the year( it manufactured *( hedgers( using '.% hours of direct labor per hedger at a rate of E/. The materials and labor standards for manufacturing the hedgers are: !irect materials 1 units D E%= E% !irect labor ' hours D E-.* per hour= & KardenerGs Maret actually purchased and used *&( units of direct materials at a price of E%.%* per unit. Re6&ired: A. !etermine the materials price variance and whether it is favorable or unfavorable. >. !etermine the materials usage variance and whether it is favorable or unfavorable. ,. !etermine the labor rate variance and whether it is favorable or unfavorable. !. !etermine the labor efficiency variance and whether it is favorable or unfavorable.
ANS: A. M?
F A − S=A6 F E%.%* − E%.=*&( F E1&(%* 7
>.
M7?
F A6 − S6=S F *&( − *(=E% F E+( 7
,.
8
F A< − S<=A; F E/. − E-.*=%1( F E1(* 7
!.
8$?
F A; − S;=S< F %1( − %(=E-.* F E-(* 7
1'.
!irect labor ' hours D E1%. per hour=
'/.
Standards are based on normal monthly production involving %( direct labor hours * units of output=. The following information pertains to 3uly: !irect materials purchased 1+( yards D E1./ per yard= !irect materials used 0(' yards= !irect labor 1(// hours D E1%.% per hour= Actual production in 3uly: '+ units
E%/(/ %%(0&+
Re6&ired: A. ,ompute the following variances for the month of 3uly( indicating whether each variance is favorable or unfavorable:
1. %. &. '. >.
Materials purchase price variance Materials usage variance 8abor rate variance 8abor efficiency variance
Kive potential reasons for each of the variances. >e sure to consider inter9relationships among variances.
ANS: A. Materials purchase price variance F Actual unit price − standard unit price= × actual quantity of materials purchased Materials purchase price variance F E1./ − E1./*= × 1+( F E/ favorable actual price less than standard price= Materials quantity variance F Actual quantity of materials used − standard quantity of materials allowed= × standard unit price Materials quantity variance F 0(' − 0(%= × E1./* F E&- unfavorable actual quantity e)ceeds standard quantity= '+ units × % yards per unit F 0(% 8abor rate variance F Actual rate per hour − standard rate per hour= × Actual hours wored 8abor rate variance F E1%.% − E1%.= × 1(// F E&-+ unfavorable actual rate e)ceeds standard rate=
>.
8abor efficiency variance F Actual hours wored − standard hours allowed= × standard rate 8abor efficiency variance F 1(// − 1(/'= × E1%. F E'/ unfavorable actual hours e)ceed standard hours allowed= '+ units × ' hours per unit F 1(/' The favorable purchase price variance may have occurred because the purchasing manager purchased materials at a lower price that were of lesser quality. The worers encountered production problems as a result of the lesser quality materials which resulted in using more materials and taing more time than anticipated. The supervisor also had to assign more e)perienced worers to this production( which resulted in a higher average wage rate.
1*. !ogGs >est #riend manufactures dog food. !uring the month( it manufactured &( bags of ibble( using .%* hour of direct labor per bag at a rate of E0. per hour. The materials and labor standards for manufacturing the bags of ibble are: !irect materials 1 pound of beef D E1. per pound= E1. !irect materials 1 bag D E.%*= .%* !irect labor .& hour D E0.= %.- The company actually used &(& pounds of beef at a price of E1.1 per pound. "t also purchased &( bags at a price of E.1* per bag. A. !etermine the total materials price variance and whether it is favorable or unfavorable. >. !etermine the materials usage variance for beef and whether it is favorable or
,. !.
unfavorable. !etermine the labor rate variance and whether it is favorable or unfavorable. !etermine the labor efficiency variance and whether it is favorable or unfavorable.
ANS: A. M? for >eef
M? for >ags Total M?
F A − S=A6 F E1.1 − E1.=&(& F E&& 7 F E.1* − E.%*=&( F E& # F E& 7
>.
M7?
F A6 − S6=S F &(& − &(=E1. F E& 7
,.
8
!.
8$?
F A< − S<=A; F E0. − E0.=-* F E Neither favorable nor unfavorable F A; − S;=S< F -* − 0=E0. F E1(&* #
1+. Mersey ,ompany produced 1( trash cans during March using '* direct labor hours and purchased and used &(1 pounds of rubber. "ts materials and labor standards are: !irect materials & pounds of rubber D E.*= E1.* !irect labor .* hours D E1+.= &. "ts materials price variance was a favorable E+% and its labor rate variance was an unfavorable E0. A. ,alculate the actual price per unit. >. ,alculate the actual labor rate. ,. !etermine the materials usage variance and whether it is favorable or unfavorable. !. !etermine the labor efficiency variance and whether it is favorable or unfavorable. ANS: A. M? −E+% A
F A − S=A6 F A − E.*=&(1 F E.& per pound
>.
8
F A< − S<=A; F A< − E1+.='* F E1/. per hour
,.
M7?
!.
8$?
F A6 − S6=S F &(1 − &(=E.* F E* 7 F A; − S;=S< F '* − *=E1+ F E/ #
1-. ontefract ,ompany produced %(* widgets during November using '( units of materials at a cost of E*. each. "t also used *( direct labor hours at a rate of E-.. "ts direct materials standard is % units per widget. "ts direct labor standard is %.* hours per widget. "ts materials price variance was a favorable E/( and its labor rate variance was an unfavorable E1(. A. ,alculate the standard materials price per unit. >. ,alculate the standard labor rate. ,. !etermine the materials usage variance and whether it is favorable or unfavorable. !. !etermine the labor efficiency variance and whether it is favorable or unfavorable. ANS:
A.
M?
F A − S=A6
−E/(
S
F E*. − S='( F E-. per pound
>.
8
F A< − S<=A; F E-. − S<=*( F E+./ per hour
,.
M7?
F A6 − S6=S F '( − *(=E-. F E-( #
!.
8$?
F A; − S;=S< F *( − +(%*=E+./ F E/(* #
1/. 3ust . ,ompute the labor variances and indicate if they are favorable or unfavorable. ,. repare the Cournal entries for the following: urchase of raw materials "ssuance of raw materials Addition of labor to or in rocess ,losing of variances to ,ost of Koods Sold
ANS: A. M? F A 9 S= ) A6 E1.%& 9 E1.%= ) 1*( F E'(* 7 M7? F A6 9 S6= ) S 1*( 9 1(= ) E1.% F E+( 7 >. 8
or in rocess Materials 7sage ?ariance Materials
1/( '(* 1/'(*
1%( +( 1/(
or in rocess 8abor
&&-(* 0(% +(& &'('
,ost of Koods Sold Materials rice ?ariance Materials 7sage ?ariance 8abor
-&(-
8abor $fficiency ?ariance ,ost of Koods Sold
+(&
'(* +( 0(%
+(&
10. !uring April( . ,alculate the standard labor rate. ,. !etermine the materials price variance and whether it is favorable or unfavorable. !. !etermine the labor efficiency variance and whether it is favorable or unfavorable. $. .
F A6 − S6=S F A6 − *(*=E.* F '(*
,.
8
F A< − S<=A; F E+.* − S<=&( F E+./ per hour F A − S=A6 F E.'* − E.*='(* F E%%* #
!.
8$?
F A; − S;=S< F &( − %(-*=E+./ F E1(- 7
$. Materials Materials rice ?ariance Accounts ayable
%(%*
or in rocess Materials 7sage ?ariance Materials
%(-*
or in rocess 8abor $fficiency ?ariance 8abor
'(* × E.*= %%* %(%*
* %(%* 1/(- 1(-
.* × *(* × E+./= 0 10(*
#. ,ost of Koods Sold 8abor $fficiency ?ariance Materials rice ?ariance Materials 7sage ?ariance
1(- 1(- %%* *
8abor . ,. !. $. #.
0 1(+%*
!irect 8abor: Standard ;ours Actual ;ours Standard
!etermine the materials price variance and whether it is favorable or unfavorable. !etermine the materials usage variance and whether it is favorable or unfavorable. !etermine the labor rate variance and whether it is favorable or unfavorable. !etermine the labor efficiency variance and whether it is favorable or unfavorable. rovide the Cournal entries to record the purchase of materials( the issuance and usage of materials( and direct labor variances. rovide the closing entries for the immaterial variances.
ANS: A. M?
F A − S=A6 F E' − E*=00(* F E00(* #
>.
M7?
F A6 − S6=S F 00(* − 1(=E* F E%(* #
,.
8
F A< − S<=A; F E1& − E1%=1(* F E1(* 7
!.
8$?
F A; − S;=S< F 1(* − 1(=E1% F E+ 7
$.
Materials Materials rice ?ariance Accounts ayable
'0-(*
or in rocess Materials 7sage ?ariance Materials
*(
or in rocess 8abor $fficiency ?ariance 8abor
1( 1(* E1% E1&
00(* &0/(
%(* '0-(* 1%( + 1(* 1&(+*
,ost of Koods Sold 8abor $fficiency ?ariance 8abor
1(+*
Materials 7sage ?ariance ,ost of Koods Sold
%(*
+ 1(*
%(*
Since the materials price variance is material( E00(*= it is prorated among Materials "nventory( Materials 7sage ?ariance( or in rocess( #inished Koods( and ,ost of Koods Sold. %1. The ,atGs Meow manufactures gourmet cat food. !uring the month( it manufactured *( cans of tuna( using .1 hour of direct labor per can at a rate of E/. per hour. The materials and labor standards for manufacturing the cans of tuna are as follows: !irect materials 1 pound of tuna D E.* per pound= E.* !irect materials 1 can D E.&*= .&*
!irect labor .% hour D E-.=
1.'
The company actually used '(0 pounds of tuna at a price of E.+* per pound. "t also purchased *( cans at a price of E.'* per can. A. !etermine the total materials price variance and whether it is favorable or unfavorable. >. !etermine the materials usage variance for tuna and whether it is favorable or unfavorable. ,. !etermine the labor rate variance and whether it is favorable or unfavorable. !. !etermine the labor efficiency variance and whether it is favorable or unfavorable. $. Mae all necessary Cournal entries to record the purchase of materials( the issuance and usage of materials( and the direct labor variances. #. rovide the closing entries. ANS: A. M? for Tuna
M? for ,ans Total M?
F A − S=A6 F E.+* − E.*='(0 F E-&* 7 F E.'* − E.&*=*( F E* 7 F E1(%&* 7
>.
M7?
F A6 − S6=S F '(0 − *(=E.* F E* #
,.
8
F A< − S<=A; F E/. − E-.=* F E* 7
!.
8$?
F A; − S;=S< F * − 1(=E-. F E&(* #
$.
Materials Materials rice ?ariance Accounts ayable
'(% 1(%&*
or in rocess Materials 7sage ?ariance Materials
'(%*
or in rocess 8abor
-( *
,ost of Koods Sold Materials rice ?ariance 8abor
1(-&*
Materials 7sage ?ariance 8abor $fficiency ?ariance ,ost of Koods Sold
* &(*
#.
'(0 × E.*= I *( × E.&*=
*('&* *( × E.*= I *( × E.&*=
* '(%'(0 × E.*= I *( × E.&*=
&(* '(
1(%&* *
&(**
%%. KrandmaGs Attic ,ompany produces soft pillows made from goose down. The company uses a standard cost system and has set the following standards for materials and labor for each pillow: #eathers from * large white geese * geese D E*= E%* #abric to mae pillow cases & yards D E%= + !irect labor * hours D E/= ' Total prime cost E-1
!uring the month( the company produced 1( goose down pillows. Actual geese purchased were *(1( at E' per goose. Actual fabric purchased was %(0 yards at E%.1 per yard. There were no beginning or ending inventories of geese or fabric. Actual direct labor was *(% hours at E-.-* per hour. A. !etermine the total materials price variance and whether it is favorable or unfavorable. >. !etermine the total materials usage variance and whether it is favorable or unfavorable. ,. !etermine the labor rate variance and whether it is favorable or unfavorable. !. !etermine the labor efficiency variance and whether it is favorable or unfavorable. $. Mae all necessary Cournal entries to record the purchase of materials( the issuance and usage of materials( and the direct labor variances. #. rovide the closing entries. ANS: A. M? for Keese
M? for #abric Total M? ?ariance >.
M7? for Keese
M7? for #abric Total M7?
F A − S=A6 F E'. − E*.=*(1 F E*(1 # F E%.1 − E%.=%(0 F E%0 7 F E*(1 − E%0 F E'(/1 # F A6 − S6=S F *(1 − *(=E* F E* 7 F %(0 − &(=E% F E% # F E* 7 − E% # F E& 7
,.
8
F A< − S<=A; F E-.-* − E/.=*(% F E1(& #
!.
8$?
F A; − S;=S< F *(% − *(=E/. F E1(+ 7
$.
#.
Materials Materials rice ?ariance Accounts ayable
&1(&
or in rocess Materials 7sage ?ariance Materials
&1( &
or in rocess 8abor $fficiency ?ariance 8abor
'( 1(+
*(1 × E*.= I %(0 × E%.=
'(/1 %+('0 *( × E*.= I &( × E%.=
&1(&*(1 × E*.= I %(0 × E%.=
1(& '(&
,ost of Koods Sold 1(0 Materials 7sage ?ariance 8abor $fficiency ?ariance
& 1(+
Materials rice ?ariance 8abor
+(11
'(/1 1(&
%&. Stratford ,ompany inspects every steam iron it manufactures for safety issues. The standard labor cost is E1% per hour. The maintenance standard at the beginning of the first quarter is % minutes per iron. Stratford is implementing a new production process that will aid in reducing any potential electrical defects in the irons. This will decrease the inspection time to 1* minutes per iron. After the end of the first quarter( the new process had reduced the inspection time per iron from % minutes to 1' minutes. A. "dentify the ai4en and maintenance labor standards in place at the beginning of the first
>.
quarter. $)press the standards in both physical and financial terms. ,alculate the e)pected cost reduction and actual cost reduction.
ANS: A. Maintenance: hysical standard: % minutes #inancial standard: E'. E1% × %J+ hours= 5ai4en: hysical standard: 1* minutes #inancial standard: E&. E1% × 1*J+ hours= >.
$)pected cost reduction: E'. − E&. F E1. per unit Actual cost reduction: E'. − E1% × 1'J+ hours= F E1.% per unit
%'. iltshire 8imited produces woolen blanets and clothing. !uring ear 1( iltshire produced 1( items of blanets and clothing using '(%* bundles of wool at a price of E1 per bundle. Standard bundles of wool '( Standard price E% per bundle The difference between the actual quantity of materials and the standard quantity of materials is due to waste. At the end of ear 1( iltshire developed a new process that would cut down on the waste by +H. >y the end of ear %( the company had actually cut down its waste by *H. A. "dentify the ai4en and materials standards in place at the beginning of ear %. $)press the standards in both physical and financial terms. >. ,alculate the e)pected cost reduction. ,. ,alculate the actual cost reduction. ANS: A. Materials: hysical standard: #inancial standard:
'( bundles E/*(
E% × '(%*=
5ai4en: hysical standard: #inancial standard:
'(1 bundles E/%(
'(%* − '(%* − '(= × +H= E% × '(1=
>. ,.
$)pected cost reduction: E/*( − E/%( F E&( Actual cost reduction: E/*( − E/%(* F E%(* '(%* − '(%* − '(= × *H= F '(1%* bundles '(1%* × E% F E/%(*
%*. 2verland Automotive ,ompany is considering on manufacturing a new brand of car. Kiven the current product and process designs( the cost data are: !irect materials costs per car= E1( !irect labor costs per car= E &( 2verhead costs per car= E '( The company e)pects the selling price to be E%( and has set a target profit of E*(. A supplier told 2verland that it could purchase a couple of similar components under a different brand name at a lower price. This would result in cost savings of E%( per car. #urthermore( the company found that it could redesign its manufacturing process to cut down on both inspection labor and worer labor( which would result in cost savings of E1( per car. A. ,alculate 2verlandGs target cost. >. ,alculate the total costs per car after 2verland redesigns its processes and schedules to buy cost9saving components. ,. Should 2verland manufacture the carB ,alculate the e)pected profit after the cost savings are taen into account. ANS: A. E%( − E*( F E1*( >. !irect materials costs
E1(
