Chapter 10 Managerial Accounting

Chapter 10 Standard Costs and Variances Solutions to Questions

© The McGraw-Hill Companies, Inc., 2012. All rights reserve. !ol"tions Man"al, Chapter 10

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%$ 10-1 A &"antit' stanar inicates how m"ch o( an inp"t sho"l )e "se to ma*e a "nit o( o"tp"t. A price stanar stanar inicates how m"ch the inp"t sho"l cost. 10-2 Ieal stanars ass"me per(ection an o not allow (or an' ine+cienc'. Ieal stanars are rarel', i( ever, attaine. ractical stanars can )e attaine )' emplo'ees wor*ing at a reasona)le, tho"gh e+cient pace an allow (or normal )rea*s an wor* interr"ptions. 10-3 ner management )' eception, managers (oc"s their attention on res"lts that eviate (rom epectations. It is ass"me that res"lts that meet epectations o not re&"ire investigation. 10-4 !eparating an overall variance into a price variance an a &"antit' variance provies more in(ormation. Moreover, price an &"antit' variances are "s"all' the responsi)ilities o( i/erent managers. 10-5 The materials materials price variance variance is "s"all' the responsi)ilit' o( the p"rchasing manager. The materials &"antit' an la)or e+cienc' variances are "s"all' the responsi)ilit' o( pro"ction managers an s"pervisors. 10-6 The materials materials price variance variance can can )e comp"te either when materials are p"rchase p"rchase or when the' are place into pro"ction. It is "s"all' )etter to comp"te the variance when materials are p"rchase )eca"se that is when the p"rchasing manager, who has responsi)ilit' (or this variance, has complete his or her wor*. In aition, recogniing the price variance when materials are p"rchase allows the compan' to carr' its raw materials in the inventor' acco"nts at stanar cost, which greatl' simplies )oo**eeping. 10-7 This com)ination o( variances variances ma' inicate that in(erior &"alit' materials were p"rchase at a isco"nte price, )"t the low-&"alit' materials create pro"ction pro)lems.

10-8 I( stanars are "se to n who to )lame (or pro)lems, the' can )ree resentment an "nermine morale. !tanars sho"l not )e "se to n someone to )lame (or pro)lems. pro)lems. 10-9 !everal (actors other than the contract"al rate pai to wor*ers can ca"se a la)or rate variance. or eample, s*ille wor*ers with high ho"rl' rates o( pa' can )e given "ties that re&"ire re&"ire little s*ill an that call (or low ho"rl' rates o( pa', res"lting in an "n(avora)le rate variance. 3r "ns*ille or "ntraine wor*ers can )e assigne to tas*s that sho"l )e lle )' more s*ille wor*ers with higher rates o( pa', res"lting in a (avora)le rate variance. n(avora)le rate variances can also arise (rom overtime wor* at premi"m rates. 10-10 I( poor &"alit' materials create pro"ction pro)lems, a res"lt co"l )e ecessive la)or time an there(ore an "n(avora)le la)or e+cienc' variance. oor &"alit' materials wo"l not orinaril' a/ect the la)or rate variance. 10-11 I( overhea is applie on the )asis o( irect la)or-ho"rs, then the varia)le overhea e+cienc' variance an the irect la)or e+cienc' variance will alwa's )e (avora)le or "n(avora)le together. 4oth variances are comp"te )' comparing the n"m)er o( irect la)or-ho"rs act"all' wor*e to the stanar ho"rs allowe. That is, in each case the (orm"la is5 6+cienc' variance 7 !89AH : !H; 3nl' the

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10-1 A &"antit' stanar inicates how m"ch o( an inp"t sho"l )e "se to ma*e a "nit o( o"tp"t. A price stanar stanar inicates how m"ch the inp"t sho"l cost. 10-2 Ieal stanars ass"me per(ection an o not allow (or an' ine+cienc'. Ieal stanars are rarel', i( ever, attaine. ractical stanars can )e attaine )' emplo'ees wor*ing at a reasona)le, tho"gh e+cient pace an allow (or normal )rea*s an wor* interr"ptions. 10-3 ner management )' eception, managers (oc"s their attention on res"lts that eviate (rom epectations. It is ass"me that res"lts that meet epectations o not re&"ire investigation. 10-4 !eparating an overall variance into a price variance an a &"antit' variance provies more in(ormation. Moreover, price an &"antit' variances are "s"all' the responsi)ilities o( i/erent managers. 10-5 The materials materials price variance variance is "s"all' the responsi)ilit' o( the p"rchasing manager. The materials &"antit' an la)or e+cienc' variances are "s"all' the responsi)ilit' o( pro"ction managers an s"pervisors. 10-6 The materials materials price variance variance can can )e comp"te either when materials are p"rchase p"rchase or when the' are place into pro"ction. It is "s"all' )etter to comp"te the variance when materials are p"rchase )eca"se that is when the p"rchasing manager, who has responsi)ilit' (or this variance, has complete his or her wor*. In aition, recogniing the price variance when materials are p"rchase allows the compan' to carr' its raw materials in the inventor' acco"nts at stanar cost, which greatl' simplies )oo**eeping. 10-7 This com)ination o( variances variances ma' inicate that in(erior &"alit' materials were p"rchase at a isco"nte price, )"t the low-&"alit' materials create pro"ction pro)lems.

10-8 I( stanars are "se to n who to )lame (or pro)lems, the' can )ree resentment an "nermine morale. !tanars sho"l not )e "se to n someone to )lame (or pro)lems. pro)lems. 10-9 !everal (actors other than the contract"al rate pai to wor*ers can ca"se a la)or rate variance. or eample, s*ille wor*ers with high ho"rl' rates o( pa' can )e given "ties that re&"ire re&"ire little s*ill an that call (or low ho"rl' rates o( pa', res"lting in an "n(avora)le rate variance. 3r "ns*ille or "ntraine wor*ers can )e assigne to tas*s that sho"l )e lle )' more s*ille wor*ers with higher rates o( pa', res"lting in a (avora)le rate variance. n(avora)le rate variances can also arise (rom overtime wor* at premi"m rates. 10-10 I( poor &"alit' materials create pro"ction pro)lems, a res"lt co"l )e ecessive la)or time an there(ore an "n(avora)le la)or e+cienc' variance. oor &"alit' materials wo"l not orinaril' a/ect the la)or rate variance. 10-11 I( overhea is applie on the )asis o( irect la)or-ho"rs, then the varia)le overhea e+cienc' variance an the irect la)or e+cienc' variance will alwa's )e (avora)le or "n(avora)le together. 4oth variances are comp"te )' comparing the n"m)er o( irect la)or-ho"rs act"all' wor*e to the stanar ho"rs allowe. That is, in each case the (orm"la is5 6+cienc' variance 7 !89AH : !H; 3nl' the

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variances is (or ever' wor*station to pro"ce at capacit'. However, the o"tp"t o( the entire s'stem is limite )' the capacit' o( the )ottlenec*. I( wor*stations )e(ore the )ottlenec* in the pro"ction process pro"ce at capacit', the )ottlenec* will )e "na)le to process all o(

the wor* in process. In general, i( ever' wor*station is attempting to pro"ce at capacit', then wor* in process inventor' will )"il "p in (ront o( the wor*stations with the least capacit'.


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Eercise 10-1 920 min"tes; 1. ?"m)er o( chopping )loc*s........................... #,000 ?"m)er o( )oar (eet per chopping )loc*..... @ 2. !tanar )oar (eet allowe......................... 10,000 !tanar cost per )oar (oot........................ @ B1.$0 Total stanar cost........................................ B1$,000 Act"al cost inc"rre...................................... B1$,%00 !tanar cost a)ove..................................... 1$,000 !pening variance"n(avora)le................... B %00 2. !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !;

10,000 )oar (eet @ B1.$0 per )oar (oot 7 B1$,000

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; 11,000 )oar (eet @ B1.$0 per )oar (oot 7 B1>,$00

Act"al D"antit' o( Inp"t, at Act"al rice 9AD @ A;

B1$,%00

Materials &"antit' variance 7 B1,$00 

Materials price variance 7 B1,100  !pening variance 7 B%00 

Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B1.$0 per )oar (oot 911,000 )oar (eet : 10,000 )oar (eet; 7 B1,$00  Materials price variance 7 AD 9A : !; 7 11,000 )oar (eet 9B1.%0 per )oar (ootE : B1.$0 per )oar (oot; 7 B1,100  EB1$,%00 F 11,000 )oar (eet 7 B1.%0 per )oar (oot.

Eercise 10-2 920 min"tes; 1. ?"m)er o( meals prepare............... ,000 !tanar irect la)or-ho"rs per meal............................................... @ 0.20 Total irect la)or-ho"rs allowe......... 1,200 !tanar irect la)or cost per ho"r...@ B>.0 Total stanar irect la)or cost.........B11,#00 Act"al cost inc"rre..........................B11,00 Total stanar irect la)or cost 9a)ove;........................................... 11,#00 !pening variance............................ B

n(avora)l 100 e

2. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,200 ho"rs @ B>.0 per ho"r 7 B11,#00

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,10 ho"rs @ B>.0 per ho"r 7 B10,>2

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; 1,10 ho"rs @ B10.00 per ho"r 7 B11,00

a)or e+cienc' a)or rate variance variance 7 B#%  7 B%  !pening variance 7 B100  Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !89AH : !H; 7 B>.0 per ho"r 91,10 ho"rs : 1,200 ho"rs; 7 B#%  a)or rate variance 7 AH9A8 : !8; 7 1,10 ho"rs 9B10.00 per ho"r : B>.0 per ho"r; 7 B% 

Eercise 10-3 920 min"tes; 1. ?"m)er o( items shippe.......................... 1#0,000 !tanar irect la)or-ho"rs per item........ @ 0.0# Total irect la)or-ho"rs allowe................. ,00 !tanar varia)le overhea cost per ho"r @ B2.$0 Total stanar varia)le overhea cost....... B1,$0 Act"al varia)le overhea cost inc"rre..... B1,>0 Total stanar varia)le overhea cost 1,$0 9a)ove;................................................... !pening variance....................................

B 2%0

n(avora)l e

2. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; ,00 ho"rs @ B2.$0 per ho"r 7 B1,$0

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; ,$00 ho"rs @ B2.$0 per ho"r 7 B1,2#0

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; ,$00 ho"rs @ B2.% per ho"rE 7 B1,>0

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B0  7 B2>0  !pening variance 7 B2%0  EB1,>0 F ,$00 ho"rs 7 B2.% per ho"r Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !89AH : !H; 7 B2.$0 per ho"r 9,$00 ho"rs : ,00 ho"rs; 7 B0  aria)le overhea rate variance 7 AH9A8 : !8; 7 ,$00 ho"rs 9B2.% per ho"r : B2.$0 per ho"r; 7 B2>0 

Eercise 10-4 9J0 min"tes; 1. ?"m)er o( "nits man"(act"re..................... 20,000 !tanar la)or time per "nit 9 min"tes F 0 min"tes per ho"r;............ @ 0.10 Total stanar ho"rs o( la)or time allowe.... 2,000 !tanar irect la)or rate per ho"r............... @ B2#.00 Total stanar irect la)or cost..................... B#$,000 Act"al irect la)or cost................................. B#>,J00 !tanar irect la)or cost............................. #$,000 !pening variance"n(avora)le................... B 1,J00 2. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 2,000 ho"rsE @ B2#.00 per ho"r 7 B#$,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 2,12 ho"rs @ B2#.00 per ho"r 7 B1,000

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8;

B#>,J00

a)or e+cienc' a)or rate variance variance 7 BJ,000  7 B1,%00  !pening variance 7 B1,J00  E20,000 "nits @ 0.10 ho"r per "nit 7 2,000 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B2#.00 per ho"r 92,12 ho"rs : 2,000 ho"rs; 7 BJ,000  a)or rate variance 7 AH 9A8 : !8; 7 2,12 ho"rs 9B2J.20 per ho"rE : B2#.00 per ho"r; 7 B1,%00  EB#>,J00 F 2,12 ho"rs 7 B2J.20 per ho"r

Eercise 10-4 9contin"e; J. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 2,000 ho"rs @ B1.00 per ho"r 7 BJ2,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 2,12 ho"rs @ B1.00 per ho"r 7 BJ#,000


BJ>,100

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B2,000  7 B,100  !pening variance 7 B%,100  Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7B1.00 per ho"r 92,12 ho"rs : 2,000 ho"rs; 7 B2,000  aria)le overhea rate variance 7 AH 9A8 : !8; 7 2,12 ho"rs 9B1$.#0 per ho"rE : B1.00 per ho"r; 7 B,100  EBJ>,100 F 2,12 ho"rs 7 B1$.#0 per ho"r

Eercise 10-5 920 min"tes; 1. I( the total la)or spening spening variance variance is BJJ0 "n(avora) "n(avora)le, le, an i( the la)or rate variance is B10 (avora)le, then the la)or e+cienc' variance m"st )e B#$0 "n(avora)le, )eca"se the la)or rate an la)or e+cienc' variances ta*en together e&"al the total la)or spening variance. Lnowing that the la)or e+cienc' variance is B#$0 "n(avora)le, one approach to the sol"tion wo"l )e5 a)or e+cienc' variance 7 !8 9AH : !H; B12 per ho"r 9AH : 210 ho"rsE; 7 B#$0  B12 per ho"r @ AH : B2,20 7 B#$0EE B12 per ho"r @ AH 7 BJ,000 AH 7 20 ho"rs E 1$ )atches )atches @ 1.2 ho"rs ho"rs per )atch )atch 7 210 ho"rs EE hen "se with the (orm"la, (orm"la, "n(avora)le "n(avora)le variances are are positive an (avora)le variances are negative. 2. Lnowing that that 20 ho"rs o( o( la)or time time were "se "ring "ring the wee*, the act"al rate o( pa' per ho"r can )e comp"te as (ollows5 a)or rate variance 7 AH 9A8 : !8; 20 ho"rs 9A8 : B12 per ho"r; 7 B10  20 ho"rs @ A8 : BJ,000 7 -B10E 20 ho"rs @ A8 7 B2,$0 A8 7 B11.#0 per ho"r E hen "se with the (orm"la, (orm"la, "n(avora)le "n(avora)le variances are are positive an (avora)le variances are negative.

Eercise 10-5 9contin"e; An alternative approach wo"l )e to wor* (rom *nown to "n*nown ata in the col"mnar moel (or variance anal'sis5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 210 ho"rsN @ B12.00 per ho"rE 7 B2,20

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 20 ho"rs @ B12.00 per ho"rE 7 BJ,000

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; 20 ho"rs @ B11.#0 per ho"r 7 B2,$0

a)or e+cienc' a)or rate variance variance 7 B#$0  7 B10 E !pening variance 7 BJJ0 E N

1$ )atches @ 1.2 ho"rs per )atch 7 210 ho"rs EGiven

Eercise 10-6 920 min"tes; 1. !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 1$,000 o"ncesE @ B2.0 per o"nce 7 B#,000

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; 20,000 o"nces @ B2.0 per o"nce 7 B0,000

Act"al D"antit' o( Inp"t, at Act"al rice 9AD @ A; 20,000 o"nces @ B2.#0 per o"nce 7 B#$,000

Materials &"antit' variance 7 B,000 

Materials price variance 7 B2,000  !pening variance 7 BJ,000 

E2,00 "nits @ %.2 o"nces per "nit 7 1$,000 o"nces Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B2.0 per o"nce 920,000 o"nces : 1$,000 o"nces; 7 B,000  Materials price variance 7 AD 9A : !; 7 20,000 o"nces 9B2.#0 per o"nce : B2.0 per o"nce; 7 B2,000 

Eercise 10-6 9contin"e; 2. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,000 ho"rsE @ B10.00 per ho"r 7 B10,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; >00 ho"rs @ B10.00 per ho"r 7 B>,000


B10,$00

a)or e+cienc' a)or rate variance variance 7 B1,000  7 B1,$00  !pening variance 7 B$00  E2,00 "nits @ 0.# ho"r per "nit 7 1,000 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B10 per ho"r 9>00 ho"rs : 1,000 ho"rs; 7 1,000  a)or rate variance 7 AH 9A8 : !8; 7 >00 ho"rs 9B12 per ho"rE : B10 per ho"r; 7 B1,$00  E10,$00 F >00 ho"rs 7 B12 per ho"r

Eercise 10-7 91 min"tes; ?otice in the sol"tion )elow that the materials price variance is comp"te on the entire amo"nt o( materials p"rchase, whereas the materials &"antit' variance is comp"te onl' on the amo"nt o( materials "se in pro"ction. !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 1#,#00 o"ncesE @ B2.0 per o"nce 7 BJ,000

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !;


1,000 o"nces @ B2.0 per o"nce 7 B#0,000

20,000 o"nces @ B2.#0 per o"nce 7 B#$,000

Materials &"antit' variance 7 B#,000  20,000 o"nces @ B2.0 per o"nce 7 B0,000 Materials price variance 7 B2,000  E2,000 )ottles  @ %.2 o"nces per )ottle 7 1#,#00 o"nces Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B2.0 per o"nce 91,000 o"nces : 1#,#00 o"nces; 7 B#,000  Materials price variance 7 AD 9A : !; 7 20,000 o"nces 9B2.#0 per o"nce : B2.0 per o"nce; 7 B2,000 

Eercise 10-8 9J0 min"tes; 1. a. Notice in the solution below that the materials price variance is computed on the entire amount of materials purchased, whereas the materials quantity variance is computed only on the amount of materials used in production.

!tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; #0,000 ioesE @ B0.J0 per ioe 7 B12,000



0,000 ioes @ B0.J0 per ioe 7 B1,000

%0,000 ioes @ B0.2$ per ioe 7 B1>,00

Materials &"antit' variance 7 BJ,000  %0,000 ioes @ B0.J0 per ioe 7 B21,000 Materials price variance 7 B1,#00  E,000 to's @ $ ioes per to' 7 #0,000 ioes Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B0.J0 per ioe 90,000 ioes : #0,000 ioes; 7 BJ,000  Materials price variance 7 AD 9A : !; 7 %0,000 ioes 9B0.2$ per ioe : B0.J0 per ioe; 7 B1,#00 

Eercise 10-8 9contin"e; b.

Direct labor variances:

!tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; J,000 ho"rsE @ B1#.00 per ho"r 7 B#2,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; J,200 ho"rs @ B1#.00 per ho"r 7 B##,$00


B#$,000

a)or e+cienc' a)or rate variance variance 7 B2,$00  7 BJ,200  !pening variance 7 B,000  E,000 to's @ 0. ho"rs per to' 7 J,000 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B1#.00 per ho"r 9J,200 ho"rs :J,000 ho"rs; 7 B2,$00  a)or rate variance 7 AH 9A8 : !8; 7 J,200 ho"rs 9B1.00E per ho"r : B1#.00 per ho"r; 7 BJ,200  EB#$,000 F J,200 ho"rs 7 B1.00 per ho"r

Eercise 10-8 9contin"e; 2. A variance "s"all' has man' possi)le eplanations. In partic"lar, we sho"l alwa's *eep in min that the stanars themselves ma' )e incorrect. !ome o( the other possi)le eplanations (or the variances o)serve at Topper To's appear )elow5 Materials Price VarianceO!ince this variance is (avora)le, the act"al price pai per "nit (or the material was less than the stanar price. This co"l occ"r (or a variet' o( reasons incl"ing the p"rchase o( a lower grae material at a isco"nt, )"'ing in an "n"s"all' large &"antit' to ta*e avantage o( &"antit' isco"nts, a change in the mar*et price o( the material, an partic"larl' sharp )argaining )' the p"rchasing epartment. Materials Quantity VarianceO!ince this variance is "n(avora)le, more materials were "se to pro"ce the act"al o"tp"t than were calle (or )' the stanar. This co"l also occ"r (or a variet' o( reasons. !ome o( the possi)ilities incl"e poorl' traine or s"pervise wor*ers, improperl' aP"ste machines, an e(ective materials. Labor Rate VarianceO!ince this variance is "n(avora)le, the act"al average wage rate was higher than the stanar wage rate. !ome o( the possi)le eplanations incl"e an increase in wages that has not )een reQecte in the stanars, "nanticipate overtime, an a shi(t towar more highl' pai wor*ers. Labor Efciency VarianceO!ince this variance is "n(avora)le, the act"al n"m)er o( la)or ho"rs was greater than the stanar la)or ho"rs allowe (or the act"al o"tp"t. As with the other variances, this variance co"l have )een ca"se )' an' o( a n"m)er o( (actors. !ome o( the possi)le eplanations incl"e poor s"pervision, poorl' traine wor*ers, low-&"alit' materials re&"iring more la)or time to process, an machine )rea*owns. In aition, i( the irect la)or (orce is essentiall' e, an "n(avora)le la)or e+cienc' variance co"l )e ca"se )' a re"ction in o"tp"t "e to ecrease eman (or the compan'Rs pro"cts.

!ro"le# 10-9 9# min"tes; 1. a. !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 20,000 po"nsE @ B2.0 per po"n 7 B0,000



1>,$00 po"ns @ B2.0 per po"n 7 B#>,00

2,000 po"ns @ B2.> per po"n 7 B%J,%0

Materials &"antit' variance 7 B00  2,000 po"ns @ B2.0 per po"n 7 B2,00 Materials price variance 7 B11,20  E,000 ingots @ #.0 po"ns per ingot 7 20,000 po"ns Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B2.0 per po"n 91>,$00 po"ns : 20,000 po"ns; 7 B00  Materials price variance 7 AD 9A : !; 7 2,000 po"ns 9B2.> per po"n : B2.0 per po"n; 7 B11,20 

!ro"le# 10-9 9contin"e; 1. ). !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; J,000 ho"rsE @ B>.00 per ho"r 7 B2%,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; J,00 ho"rs @ B>.00 per ho"r 7 BJ2,#00

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; J,00 ho"rs @ B$.%0 per ho"r 7 BJ1,J20

a)or e+cienc' a)or rate variance variance 7 B,#00  7 B1,0$0  !pening variance 7 B#,J20  E,000 ingots @ 0. ho"r per ingot 7 J,000 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B>.00 per ho"r 9J,00 ho"rs : J,000 ho"rs; 7 B,#00  a)or rate variance 7 AH 9A8 : !8; 7 J,00 ho"rs 9B$.%0 per ho"r : B>.00 per ho"r; 7 B1,0$0 

!ro"le# 10-9 9contin"e; 1. c. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,00 ho"rsE @ B2.00 per ho"r 7 BJ,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,$00 ho"rs @ B2.00 per ho"r 7 BJ,00


B#,J20

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B00  7 B%20  !pening variance 7 B1,J20  E,000 ingots @ 0.J ho"rs per ingot 7 1,00 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B2.00 per ho"r 91,$00 ho"rs : 1,00 ho"rs; 7 B00  aria)le overhea rate variance 7 AH 9A8 : !8; 7 1,$00 ho"rs 9B2.#0 per ho"rE : B2.00 per ho"r; 7 B%20  EB#,J20 F 1,$00 ho"rs 7 B2.#0 per ho"r

!ro"le# 10-9 9contin"e; 2. !"mmar' o( variances5 Material &"antit' variance............... B 00  Material price variance.................... 11,20  a)or e+cienc' variance................. ,#00  a)or rate variance.......................... 1,0$0  aria)le overhea e+cienc' variance........................................ 00  aria)le overhea rate variance...... %20  ?et variance.................................... B1,J>0  The net "n(avora)le variance o( B1,J>0 (or the month ca"se the plantRs varia)le cost o( goos sol to increase (rom the )"gete level o( B$0,000 to B>,J>05 4"gete cost o( goos sol at B1 per ingot.......................................................... B$0,000 A the net "n(avora)le variance 9as a)ove;....................................................... 1,J>0 Act"al cost o( goos sol............................. B>,J>0 This B1,J>0 net "n(avora)le variance also acco"nts (or the i/erence )etween the )"gete net operating income an the act"al net loss (or the month. B1,00 0

4"gete net operating income.................. Se"ct the net "n(avora)le variance ae to cost o( goos sol (or the month........... 1,J>0 ?et operating loss....................................... B91,J>0; J. The two most signicant variances are the materials price variance an the la)or e+cienc' variance. ossi)le ca"ses o( the variances incl"e5 Materials price variance5

3"tate stanars, "neconomical &"antit' p"rchase, higher &"alit' materials, high-cost metho o( transport.

a)or e+cienc'

oorl' traine wor*ers, poor &"alit'

variance5

materials, (a"lt' e&"ipment, wor* interr"ptions, inacc"rate stanars, ins"+cient eman.

!ro"le# 10-10 9# min"tes; 1. The stanar &"antit' o( plates allowe (or tests per(orme "ring the month wo"l )e5 !mears.............................. 4loo tests........................ Total.................................. lates per test................... !tanar &"antit' allowe.

2,%00 >00 J,00 @ J 10,$00

The variance anal'sis (or plates wo"l )e5 !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 10,$00 plates @ B2.0 per plate 7 B2%,000



1#,000 plates @ B2.0 per plate 7 BJ,000

BJ$,#00

Materials &"antit' variance 7 B$,000  1,000 plates @ B2.0 per plate 7 B#0,000 Materials price variance 7 B1,00  Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B2.0 per plate 91#,000 plates : 10,$00 plates; 7 B$,000  s Materials price variance 7 AD 9A : !; 7 1,000 plates 9B2.#0 per plateE : B2.0 per plate; 7 B1,00  EBJ$,#00 F 1,000 plates 7 B2.#0 per plate.

!ro"le# 10-10 9contin"e; ?ote that all o( the price variance is "e to the hospitalRs # &"antit' isco"nt. Also note that the B$,000 &"antit' variance (or the month is e&"al to nearl' J0 o( the stanar cost allowe (or plates. This variance ma' )e the res"lt o( "sing too man' assistants in the la). 2.

a.

The standard hours allowed for tests performed during the month would be:

!mears5 0.J ho"r per test @ 2,%00 tests.................................................. $10 4loo tests5 0. ho"r per test @ >00 tests.................................................. #0 Total stanar ho"rs allowe............... 1,J0 The variance analysis of labor would be:

!tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,J0 ho"rs @ B12 per ho"r 7 B1,200

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,$00 ho"rs @ B12 per ho"r 7 B21,00


B1$,#0

a)or e+cienc' a)or rate variance variance 7 B,#00  7 BJ,10  !pening variance 7 B2,20  Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B12 per ho"r 91,$00 ho"rs : 1,J0 ho"rs; 7 B,#00  a)or rate variance 7 AH 9A8 : !8; 7 1,$00 ho"rs 9B10.2 per ho"rE : B12.00 per ho"r; 7 BJ,10  EB1$,#0 F 1,$00 ho"rs 7 B10.2 per ho"r

!ro"le# 10-10 9contin"e; 2. b. The policy probably should not be continued. lthough the hospital is saving !1."# per hour by employing more assistants relative to the number of senior technicians than other hospitals, this savings is more than offset by other factors. Too much time is being ta$en in performing lab tests, as indicated by the large unfavorable labor efficiency variance. nd, it seems li$ely that most %or all& of the hospital's unfavorable quantity variance for plates is traceable to inadequate supervision of assistants in the lab.

J. The varia)le overhea variances (ollow5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,J0 ho"rs @ B.00 per ho"r 7 B$,100

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,$00 ho"rs @ B.00 per ho"r 7 B10,$00


B11,%00

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B2,%00  7 B>00  !pening variance 7 BJ,00  Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B per ho"r 91,$00 ho"rs : 1,J0 ho"rs; 7 B2,%00  aria)le overhea rate variance 7 AH 9A8 : !8; 7 1,$00 ho"rs 9B.0 per ho"rE : B.00 per ho"r; 7 B>00  EB11,%00 F 1,$00 ho"rs 7 B.0 per ho"r Ues, the two variances are relate. 4oth are comp"te )' comparing act"al la)or time to the stanar ho"rs allowe (or the o"tp"t o( the perio. Th"s, i( there is an "n(avora)le la)or e+cienc' variance, there will also )e an "n(avora)le varia)le overhea e+cienc' variance.

!ro"le# 10-11 9# min"tes; 1. a. (n the solution below, the materials price variance is computed on the entire amount of materials purchased, whereas the materials quantity variance is computed only on the amount of materials used in production:

!tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; #,00 po"nsE @ B.00 per po"n 7 B2%,000



,000 po"ns @ B.00 per po"n 7 BJ,000

B#,000

Materials &"antit' variance 7 B>,000  $,000 po"ns @ B.00 per po"n 7 B#$,000 Materials price variance 7 B2,000  EJ,000 "nits @ 1. po"ns per "nit 7 #,00 po"ns Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B per po"n 9,000 po"ns : #,00 po"ns; 7 B>,000  Materials price variance 7 AD 9A : !; 7 $,000 po"ns 9B.% per po"nE : B.00 per po"n; 7 B2,000  EB#,000 F $,000 po"ns 7 B.% per po"n b. No, the contract should probably not be signed. lthough the new supplier is offering the material at only !#."# per pound, the large materials quantity variance indicates a problem using these materials is production. The company still has 2,))) pounds of unused material in the warehouse* if these materials do as poorly in production as the +,))) pounds already used, the total quantity variance on the ,))) pounds of materials purchased will be very large.

!ro"le# 10-11 9contin"e; 2. a. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,$00 ho"rsE @ B12.00 per ho"r 7 B21,00

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,00 ho"rsEE @ B12.00 per ho"r 7 B1>,200

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; 1,00 ho"rsEE @ B12.0 per ho"r 7 B20,000

a)or e+cienc' a)or rate variance variance 7 B2,#00  7 B$00  !pening variance 7 B1,00  E J,000 "nits @ 0. ho"rs per "nit 7 1,$00 ho"rs EE 10 wor*ers @ 10 ho"rs per wor*er 7 1,00 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B12.00 per ho"r 91,00 ho"rs : 1,$00 ho"rs; 7 B2,#00  a)or rate variance 7 AH 9A8 : !8; 7 1,00 ho"rs 9B12.0 per ho"r : B12.00 per ho"r; 7 B$00  b. -es, the new labor mi should probably be continued. lthough it increases the average hourly labor cost from !12.)) to !12.#), resulting in an !)) unfavorable labor rate variance, this is more than offset by greater efficiency of labor ti me. Notice that the labor efficiency variance is !2,/)) favorable. Thus, the new labor mi reduces overall labor costs.

!ro"le# 10-11 9contin"e; J. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,$00 ho"rs @ B2.0 per ho"r 7 B#,00

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,00 ho"rs @ B2.0 per ho"r 7 B#,000


BJ,00

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B00  7 B#00  !pening variance 7 B>00  Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B2.0 per ho"r 91,00 ho"rs : 1,$00 ho"rs; 7 B00  aria)le overhea rate variance 7 AH 9A8 : !8; 7 1,00 ho"rs 9B2.2 per ho"rE : B2.0 per ho"r; 7 B#00  EBJ,00 F 1,00 ho"rs 7 B2.2 per ho"r 4oth the la)or e+cienc' variance an the varia)le overhea e+cienc' variance are comp"te )' comparing act"al la)orho"rs to stanar la)or-ho"rs. Th"s, i( the la)or e+cienc' variance is (avora)le, then the varia)le overhea e+cienc' variance will )e (avora)le as well.

!ro"le# 10-12 9# min"tes; 1.

a.

!tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 21,00 (eetE @ BJ.00 per (oot 7 B#,$00

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; 21,000 (eetEE @ BJ.00 per (oot 7 BJ,000

Act"al D"antit' o( Inp"t, at Act"al rice 9AD @ A; 21,000 (eetEE @ BJ.20 per (oot 7 B%,200

Materials &"antit' variance 7 B1,$00 

Materials price variance 7 B#,200  !pening variance 7 B2,#00 

E 12,000 "nits @ 1.$0 (eet per "nit 7 21,00 (eet EE 12,000 "nits @ 1.% (eet per "nit 7 21,000 (eet Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 BJ.00 per (oot 921,000 (eet : 21,00 (eet; 7 B1,$00  Materials price variance 7 AD 9A : !; 7 21,000 (eet 9BJ.20 per (oot : BJ.00 per (oot; 7 B#,200 

!ro"le# 10-12 9contin"e; 1. ). !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 10,$00 ho"rsE @ B1$.00 per ho"r 7 B1>#,#00

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 11,#00 ho"rsEE @ B1$.00 per ho"r 7 B20,200

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; 11,#00 ho"rsEE @ B1%.#0 per ho"r 7 B1>$,J0

a)or e+cienc' a)or rate variance variance 7 B10,$00  7 B,$#0  !pening variance 7 BJ,>0  E 12,000 "nits @ 0.>0 ho"rs per "nit 7 10,$00 ho"rs 12,000 "nits @ 0.> ho"rs per "nit 7 11,#00 EE ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B1$.00 per ho"r 911,#00 ho"rs : 10,$00 ho"rs; 7 B10,$00  a)or rate variance 7 AH 9A8 : !8; 7 11,#00 ho"rs 9B1%.#0 per ho"r : B1$.00 per ho"r; 7 B,$#0 

!ro"le# 10-12 9contin"e; 1. c. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 10,$00 ho"rsE @ B.00 per ho"r 7 B#,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 11,#00 ho"rsEE @ B.00 per ho"r 7 B%,000

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; 11,#00 ho"rsEE @ B#.0 per ho"r 7 B2,##0

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 BJ,000  7 B#,0  !pening variance 7 B1,0  E 12,000 "nits @ 0.>0 ho"rs per "nit 7 10,$00 ho"rs 12,000 "nits @ 0.> ho"rs per "nit 7 11,#00 EE ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B.00 per ho"r 911,#00 ho"rs : 10,$00 ho"rs; 7 BJ,000  aria)le overhea rate variance 7 AH 9A8 : !8; 7 11,#00 ho"rs 9B#.0 per ho"r : B.00 per ho"r; 7 B#,0  2. Materials5 D"antit' variance 9B1,$00 F 12,000 "nits;....................................................... rice variance 9B#,200 F 12,000 "nits;. . . a)or5 6+cienc' variance 9B10,$00 F 12,000 "nits;.......................................................

B0.1  0.J  0.>0 

B0.20 

8ate variance 9B,$#0 F 12,000 "nits;.... aria)le overhea5 6+cienc' variance 9BJ,000 F 12,000 "nits;....................................................... 8ate variance 9B#,0 F 12,000 "nits;.... 6cess o( act"al over stanar cost per "nit

0.% 0.JJ   0.2  0.J$ 0.1J   B0.#0 

!ro"le# 10-12 9contin"e; J. 4oth the la)or e+cienc' an varia)le overhea e+cienc' variances are a/ecte )' ine+cient "se o( la)or time. 6cess o( act"al over stanar cost per "nit ess portion attri)"ta)le to la)or ine+cienc'5 a)or e+cienc' variance............................ aria)le overhea e+cienc' variance......... ortion "e to other variances....................

B0.#0 

0.>0  0.2 

1.1  B0.% 

In s"m, ha it not )een (or the apparent ine+cient "se o( la)or time, the total variance in "nit cost (or the month wo"l have )een (avora)le )' B0.% rather than "n(avora)le )' B0.#0. #. Altho"gh the ecess o( act"al cost over stanar cost is onl' B0.#0 per "nit, the total amo"nt o( B#,$00 97 B0.#0 per "nit @ 12,000 "nits; is s")stantial. Moreover, the etails o( the variances are signicant. The materials price variance is B#,200 , the la)or e+cienc' variance is B10,$00 , the la)or rate variance is B,$#0 , the varia)le overhea e+cienc' variance is BJ,000 , an the varia)le rate variance is B#,0 . Ta*en together, the two variances that reQect apparent ine+cient "se o( the la)or time total B1J,$00 . 6ach o( these variances ma' warrant ("rther investigation.

!ro"le# 10-13 9# min"tes; 1.

a.

0aterials price variance   %3 4 53&

,000 po"ns 9B2.% per po"nE : !; 7 B1,00 EE B1,00 : ,000 po"ns @ ! 7 B1,00EEE ,000 po"ns @ ! 7 B1$,000 ! 7 BJ.00 per po"n EB1,00 F ,000 po"ns 7 B2.% per po"n EEB1,200  V W 7 BJ00 X B1,200  : B1,00  7 BJ00  EEEhen "se with the (orm"la, "n(avora)le variances are positive an (avora)le variances are negative. b.

0aterials quantity variance  53 % 4 5&

BJ.00 per po"n 9,000 po"ns : !D; 7 B1,200  B1$,000 : BJ.00 per po"n @ !D 7 B1,200E BJ.00 per po"n @ !D 7 B1,$00 !D 7 ,00 po"ns Ehen "se with the (orm"la, "n(avora)le variances are positive an (avora)le variances are negative. Alternative approach to parts 9a; an 9);5 !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; ,00 po"ns @ BJ.00 per po"n 7 B1,$00

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; ,000 po"nsE @ BJ.00 per po"n 7 B1$,000

Materials &"antit' variance 7 B1,200 E


B1,00E

Materials price variance 7 B1,00  !pening variance 7 BJ00 E

EGiven. c.

#,+)) pounds 6 1,/)) units  / pounds per unit.

!ro"le# 10-13 9contin"e; 2.

a.

7abor efficiency variance  58 %9 4 59&

B>.00 per ho"r 9AH : J,00 ho"rsE; 7 B#,00  B>.00 per ho"r @ AH : BJ1,00 7 :B#,00EE B>.00 per ho"r @ AH 7 B2%,000 AH 7 J,000 ho"rs E1,#00 "nits @ 2. ho"rs per "nit 7 J,00 ho"rs EEhen "se with the (orm"la, "n(avora)le variances are positive an (avora)le variances are negative. b.

7abor rate variance  9 %8 4 58&

J,000 ho"rs 9B>.0 per ho"rE : B>.00 per ho"r; 7 B1,00  Alternative approach to parts 9a; an 9);5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; J,00 ho"rsEEE @ B>.00 per ho"rEE 7 BJ1,00

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; J,000 ho"rs @ B>.00 per ho"rEE 7 B2%,000

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; J,000 ho"rs @ B>.0 per ho"rE 7 B2$,00E

a)or e+cienc' a)or rate variance variance 7 B#,00 E 7 B1,00  !pening variance 7 BJ,000  E B2$,00 total la)or cost F J,000 ho"rs 7 B>.0 per ho"r EE Given EEE 1,#00 "nits @ 2. ho"rs per "nit 7 J,00 ho"rs

!ro"le# 10-14 90 min"tes; 1. Total stanar cost (or "nits pro"ce "ring A"g"st5 00 *its @ B#2 per *it................................................ ess stanar cost o( la)or an overhea5 Sirect la)or................................................................. aria)le man"(act"ring overhea............................... !tanar cost o( materials "se "ring A"g"st............ 2. !tanar cost o( materials "se "ring A"g"st 9a;....... ?"m)er o( "nits pro"ce 9);...................................... !tanar materials cost per *it 9a; F 9);......................

B21,000 9$,000; 91,00; B11,#00 B11,#00 00 B22.$0

!tanar materials cost per *it B22.$0 per *it 7 7J.$ 'ars per *it !tanar materials cost per 'ar BG per 'ar J. !ince there were no )eginning or ening inventories o( materials, all o( the materials that were p"rchase "ring the perio were "se in pro"ction. There(ore, the s"m o( the price an &"antit' variances e&"als the spening variance, which is the i/erence )etween the act"al cost an stanar cost o( materials "se in pro"ction. Act"al cost o( material "se........ B10,000 !tanar cost o( material "se.. . 11,#00 !pening variance...................... B 1,#00  As isc"sse a)ove, in this case the price an &"antit' variances together e&"al the spening variance. I( the &"antit' variance is B00 , then the price variance m"st )e B2,0005 Materials price variance.............. B 2,000  Materials &"antit' variance......... 00  !pening variance...................... B 1,#00 

!ro"le# 10-14 9contin"e; Alternativel', the variances can )e comp"te "sing the (orm"las5 !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 1,>00 'arsEE @ B per 'arE 7 B11,#00

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; 2,000 'ars @ B per 'arE 7 B12,000

Act"al D"antit' o( Inp"t, at Act"al rice 9AD @ A; 2,000 'ars @ B per 'ar 7 B10,000E

Materials &"antit' variance 7 B00 E

Materials price variance 7 B2,000  !pening variance 7 B1,#00 

EGiven. 00 *its @ J.$ 'ars per *it 7 1,>00 EE 'ars #. The rst step in comp"ting the stanar irect la)or rate is to etermine the stanar irect la)or-ho"rs allowe (or the monthRs pro"ction. The stanar irect la)or-ho"rs can )e comp"te )' wor*ing with the varia)le man"(act"ring overhea cost g"res )eca"se the' are )ase on irect la)orho"rs wor*e5 !tanar man"(act"ring varia)le overhea cost (or A"g"st 9a;........................................................... B1,00 !tanar man"(act"ring varia)le overhea rate per irect la)or-ho"r 9);............................................ B2 !tanar irect la)or-ho"rs (or the month 9a; F 9);....................................................................... $00

Total stanar la)or cost (or the month B$,000 7 Total stanar irect la)or-ho"rs (or the month $00 SHs 7 B10 per SH

!ro"le# 10-14 9contin"e; . 4e(ore the la)or variances can )e comp"te, the act"al irect la)or cost (or the month m"st )e comp"te5 Act"al cost per *it pro"ce 9B#2.00 V B0.1#;......................................................... B #2.1# ?"m)er o( *its pro"ce............................... @ 00 Total act"al cost o( pro"ction...................... B21,0%0 ess5 Act"al cost o( materials........................ B10,000 Act"al cost o( man"(act"ring varia)le overhea............................................ 1,20 11,20 Act"al cost o( irect la)or............................. B >,#0 ith this in(ormation, the variances can )e comp"te5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8;

B$,000E

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; >00 ho"rsE @ B10 per ho"r 7 B>,000


B>,#0

a)or e+cienc' a)or rate variance variance 7 B1,000  7 B#0  !pening variance 7 B1,#0  EGiven.

!ro"le# 10-14 9contin"e; . !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8;

B1,00E

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; >00 ho"rsE @ B2 per ho"rE 7 B1,$00


B1,20E

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B200  7 B1$0  !pening variance 7 B20  EGiven. %.

Sirect materials............ Sirect la)or................... aria)le man"(act"ring overhea.................... Total stanar cost per *it............................... 1

!tanar D"antit' or !tanar Ho"rs per !tanar Cost per Lit rice or 8ate Lit 1 J.$ 'ars B  per 'ar B22.$0 1. ho"rs2 B10 per ho"rJ 1.00 1. ho"rs

B 2 per ho"r

J.20 B#2.00

rom part 2. $00 ho"rs 9(rom part #; F 00 *its 7 1. ho"rs per *it. J rom part #. 2

!ro"le# 10-15 9# min"tes; This is a ver' i+c"lt pro)lem that is harer than it loo*s. 4e s"re 'o"r st"ents have )een thoro"ghl'
Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; ,000 'ars @ B.0 per 'arE 7 BJ>,000


BJ,000

Materials &"antit' variance 7 B2,00 

Materials price variance 7 BJ,000  !pening variance 7 B#00 

EB1$.20 F 2.$ 'ars 7 B.0 per 'ar. EE2,000 "nits @ 2.$ 'ars per "nit 7 ,00 'ars Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B.0 per 'ar 9,000 'ars : ,00 'ars; 7 B2,00  Materials price variance 7 AD 9A : !; 7 ,000 'ars 9B.00 per 'arE : B.0 per 'ar; 7 BJ,000  EBJ,000 F ,000 'ars 7 B.00 per 'ar

!ro"le# 10-15 9contin"e; 2. Man' st"ents st"ents will miss miss parts parts 2 an J )eca"se )eca"se the' will tr' to "se product "se product costs costs as i( the' were hourly costs. costs. a' partic"lar attention to the comp"tation o( the stanar irect la)or time per "nit an an  the stanar irect la)or rate per ho"r. ho"r. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; $00 ho"rsEE @ B> per ho"rE 7 B%,200

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; %0 ho"rs @ B> per ho"rE 7 B,$#0


B%,00

a)or e+cienc' a)or rate variance variance 7 BJ0  B%0  !pening variance 7 B#00  E %$0 stanar ho"rs F 1,>0 ro)es ro)es 7 0.# stanar ho"r per ro)e BJ.0 stanar cost per ro)e F 0.# stanar ho"rs 7 B> stanar rate per ho"r 2,000 ro)es @ 0.# stanar ho"r per ro)e 7 $00 stanar EE ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B> per ho"r 9%0 ho"rs : $00 ho"rs; 7 BJ0  a)or rate variance 7 AH 9A8 : !8; 7 %0 ho"rs 9B10 per ho"rE : B> per ho"r; 7 B%0  EB%,00 F %0 ho"rs 7 B10 per ho"r

!ro"le# 10-15 9contin"e; J. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; $00 ho"rs @ BJ.00 per ho"rE 7 B2,#00

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; %0 ho"rs @ BJ.00 per ho"rE 7 B2,2$0


BJ,$00

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B120  7 B1,20  !pening variance 7 B1,#00  EB1.20 stanar cost per ro)e F 0.# stanar ho"rs 7 BJ.00 stanar rate per ho"r Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 BJ.00 per ho"r 9%0 ho"rs : $00 ho"rs; 7 B120  aria)le overhea rate variance 7 AH 9A8 : !8; 7 %0 ho"rs 9B.00 per ho"rE : BJ.00 per ho"r; 7 B1,20  EBJ,$00 F %0 ho"rs 7 B.00 per ho"r

!ro"le# 10-16 9# min"tes; 1. Standard Quantity Standard Price or Hours or Rate Alpha$5 Sirect materialsYJ#2. Sirect materialsU1. Sirect la)or!intering. . Sirect lla a)orinishing. .

1.$ *ilos 2.0 liters 0.20 ho"rs 0.$0 ho"rs

BJ.0 per *ilo B1.#0 per liter B20.00 per ho"r B1>.00 per ho"r

Total.................. Total......................... ............ ..... Zeta>5 Sirect materialsYJ#2. Sirect materialsU1. Sirect la)or!intering. . Sirect lla a)orinishing. . Total.................. Total......................... ............ .....

Standar d Cost B .J0 2.$0 #.00 1.20 B2$.J0

J.0 *ilos #. liters 0.J ho"rs 0.>0 ho"rs

BJ.0 per *ilo B1.#0 per liter B20.00 per ho"r B1>.00 per ho"r

B10.0 .J0 %.00 1%.10 B#0.>0

!ro"le# 10-16 9contin"e;g) 2. The comp"tations to (ollow will re&"ire the stanar &"antities allowe (or the act"al o"tp"t (or each material. Standard Quantity Allowed Material YJ#25 ro"ction o( Alpha$ 91.$ *ilos per "nit @ 1,00 "nits;....................................................................... ro"ction o( Zeta> 9J.0 *ilos per "nit @ 2,000 "nits;....................................................................... Total......................................................................... Material U15 ro"ction o( Alpha$ 92.0 liters per "nit @ 1,00 "nits;....................................................................... ro"ction o( Zeta> 9#. liters per "nit @ 2,000 "nits;....................................................................... Total.........................................................................

Sirect Materials ariancesMaterial YJ#25 Materials &"antit' variance 7 ! 9AD : !D; 7 BJ.0 per *ilo 9$,00 *ilos : $,%00 *ilos; 7 B%00  Materials price variance 7 AD 9A : !; 7 1#,000 *ilos 9BJ.%0 per *iloE : BJ.0 per *ilo; 7 B2,$00  EB1,$00 F 1#,000 *ilos 7 BJ.%0 per *ilo Sirect Materials ariancesMaterial U15 Materials &"antit' variance 7 ! 9AD : !D; 7 B1.#0 per liter 91J,000 liters : 12,000 liters; 7 B1,#00  Materials price variance 7 AD 9A : !; 7 1,000 liters 9B1.J0 per literE : B1.#0 per liter; 7 B1,00  EB1>,00 F 1,000 liters 7 B1.J0 per liter

2,%00 *ilos ,000 *ilos $,%00 *ilos J,000 liters >,000 liters 12,000 liters

!ro"le# 10-16 9contin"e; J. The comp"tations to (ollow will re&"ire the stanar &"antities allowe (or the act"al o"tp"t (or irect la)or in each epartment. Standard Hours Allowed !intering5 ro"ction o( Alpha$ 90.20 ho"rs per "nit @ 1,00 "nits;....................................................................... ro"ction o( Zeta> 90.J ho"rs per "nit @ 2,000 "nits;....................................................................... Total......................................................................... inishing5 ro"ction o( Alpha$ 90.$0 ho"rs per "nit @ 1,00 "nits;....................................................................... ro"ction o( Zeta> 90.>0 ho"rs per "nit @ 2,000 "nits;....................................................................... Total.........................................................................

Sirect a)or ariances!intering5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B20.00 per ho"r 91,200 ho"rs : 1,000 ho"rs; 7 B#,000  a)or rate variance 7 AH 9A8 : !8; 7 1,200 ho"rs 9B22.0 per ho"rE : B20.00 per ho"r; 7 BJ,000  EB2%,000 F 1,200 ho"rs 7 B22.0 per ho"r Sirect a)or ariancesinishing5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B1>.00 per ho"r 92,$0 ho"rs : J,000 ho"rs; 7 B2,$0  a)or rate variance 7 AH 9A8 : !8; 7 2,$0 ho"rs 9B21.00 per ho"rE : B1>.00 per ho"r; 7 B,%00  EB>,$0 F 2,$0 ho"rs 7 B21.00 per ho"r

J00 ho"rs %00 ho"rs 1,000 ho"rs 1,200 ho"rs 1,$00 ho"rs J,000 ho"rs

Case 10-17 90 min"tes; 1. The n"m)er o( "nits pro"ce can )e comp"te )' "sing the total stanar cost applie (or the perio (or any inp"t  materials, la)or, or varia)le overhea. sing the stanar cost applie (or materials, we have5

Total stanar cost applie BG0$,000 7 71>,000 "nits !tanar cost per "nit BJ2.00 per "nit The same answer can )e o)taine )' "sing an' other cost inp"t. 2. #0,000 metersX see the (ollowing pages (or a etaile anal'sis. J. B1.%1 per meterX see the (ollowing pages (or a etaile anal'sis. #. 20,000 ho"rsX see the (ollowing pages (or a etaile anal'sis. . B1.20 per ho"rX see the (ollowing pages (or a etaile anal'sis. . B1%,000X see the (ollowing pages (or a etaile anal'sis.

Case 10-17 9contin"e; Sirect materials anal'sis5 !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; J$,000 metersE @ B1.00 per meter 7 B0$,000

Act"al D"antit' o( Act"al D"antit' o( Inp"t, Inp"t, at !tanar rice at Act"al rice 9AD @ !; 9AD @ A; #0,000 metersEE @ #0,000 meters @ B1.00 per meter B1.%1 per meterEEE 7 B#0,000 7 B2$,#00

Materials &"antit' variance 7 BJ2,000 

Materials price variance 7 B11,00 

E 1>,000 "nits @ 2.0 meters per "nit 7 J$,000 meters B#0,000 F B1.00 per meter 7 #0,000 EE meters B2$,#00 F #0,000 meters 7 B1.%1 per EEE meter Sirect la)or anal'sis5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1>,000 ho"rsE @ B1.00 per ho"r 7 B2$,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 20,000 ho"rs @ B1.00 per ho"r 7 BJ00,000

a)or e+cienc' variance 7 B1,000 

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; 20,000 ho"rs @ B1.20 per ho"r 7 BJ0#,000

a)or rate variance 7 B#,000 

E 1>,000 "nits @ 1.0 ho"rs per "nit 7 1>,000 ho"rs EE BJ00,000 F B1.00 per ho"r 7 20,000 ho"rs EEE BJ0#,000 F 20,000 ho"rs 7 B1.20 per ho"r

Case 10-17 9contin"e; aria)le overhea anal'sis5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1>,000 ho"rs @ B>.00 per ho"r 7 B1%1,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 20,000 ho"rs @ B>.00 per ho"r 7 B1$0,000

aria)le overhea e+cienc' variance 7 B>,000  E B1$0,000 : B#,000 7 B1%,000


B1%,000E

aria)le overhea rate variance 7 B#,000 

$ppendi 10$ !redeter#ined %&erhead 'ates and %&erhead $nal(sis in a Standard Costin) S(ste# Eercise 10$-1 91 min"tes; 1. The total overhea cost at the enominator level o( activit' m"st )e etermine )e(ore the preetermine overhea rate can )e comp"te. Total e overhea cost per 'ear......................... Total varia)le overhea cost 9BJ.0 per SH @ $0,000 SHs;.......................... Total overhea cost at the enominator level o( activit'................................................................

B00,00 0 2$0,000 B$$0,00 0

reetermine7 3verhea at the enominator level o( activit' overhea rate Senominator level o( activit' 7

B$$0,000 7B11.00 per SH $0,000 SHs

2. !tanar irect la)or-ho"rs allowe (or the act"al o"tp"t 9a;................ $2,000 SHs reetermine overhea rate 9);..... B11.00 per SH 3verhea applie 9a; @ 9);.............. B>02,000

Eercise 10$-2 91 min"tes; 1.

ie overhea ie portion o( the 7 preetermine overhea rate Senominator level o( activit' 7

B#00,000 0,000 SHs

7 B$.00 per SH

2.

4"get 7 Act"al e - 4"gete e variance overhea cost overhea cost 7 BJ>#,000 - B#00,000 7 BG,000  ie portion o( Iol"me 7 the preetermine @ Senominator - !tanar ho"rs variance ho"rs allowe overhea rate

9

7 B$.00 per SH 90,000 SHs - #$,000 SHs; 7 B1G,000 

;

Eercise 10$-3 910 min"tes; Compan' Y5

This compan' has an "n(avora)le vol"me variance )eca"se the stanar irect la)or-ho"rs allowe (or the act"al o"tp"t are less than the enominator activit'.

Compan' U5

This compan' has an "n(avora)le vol"me variance )eca"se the stanar irect la)or-ho"rs allowe (or the act"al o"tp"t are less than the enominator activit'.

Compan' Z5

This compan' has a (avora)le vol"me variance )eca"se the stanar irect la)or-ho"rs allowe (or the act"al o"tp"t are greater than the enominator activit'.

Eercise 10$-4 91 min"tes; 1. Act"al e overhea inc"rre................... B%>,000 A (avora)le )"get variance................... 1,000 4"gete e overhea cost..................... B$0,000

4"gete e overhea cost B$0,000 7 7B# per MH Senominator ho"rs 20,000 MHs 2. >,00 "nits @ 2 MHs per "nit 7 1>,000 MHs J.

ie ortion o( Iol"me 7the reetermine Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

;

7 B# per MH 920,000 MHs - 1>,000 MHs; 7 #,000 

Alternative sol"tions to parts 1-J5 ie 3verhea Applie to or* in rocess 1>,000 MHs ) @ B# per MHc 7 B%,000

4"gete ie 3verhea

Act"al ie 3verhea

B$0,000a

B%>,000E

ol"me variance 7 B#,000 

4"get variance 7 B1,000 E

EGiven a B%>,000 V B1,000 7 B$0,000 ) >,00 "nits @ 2 MHs per "nit 7 1>,000 MHs c B$0,000 F 20,000 enominator MHs 7 B# per MH

Eercise 10$-5 91 min"tes; 1.

Total overhea at the reetermine 7 enominator activit' overhea rate Senominator activit' 7

B1.G0 per SH @ 2#,000 per SH V B$#,000 2#,000 SHs

7

B122,#00 2#,000 SHs

7 B.10 per SH

aria)le element5 9B1.0 per SH @ 2#,000 SH; F 2#,000 SHs 7 BJ$,#00 F 2#,000 SHs 7 B1.0 per SH ie element5 B$#,000 F 2#,000 SHs 7 BJ.0 per SH 2. Sirect materials, 2 po"ns @ B#.20 per po"n........... B $.#0 Sirect la)or, J SHsE @ B12.0 per SH.................... J%.$0 aria)le man"(act"ring overhea, J SHs @ B1.0 per SH................................................................... #.$0 ie man"(act"ring overhea, J SHs @ BJ.0 per SH......................................................................... 10.0 Total stanar cost per "nit........................................ B1.0 E2#,000 SHs F $,000 "nits 7 J SHs per "nit

Eercise 10$-6 920 min"tes; 1.

reetermine 7 B1.0 per MH @ $,000 MHs V B2#,$00 overhea rate $,000 MHs 7

BJJ,200 $,000 MHs

7 B#.1 per MH Iaria)le portion o( B1.0 per MH @ $,000 MHs the preetermine 7 $,000 MHs overhea rate 7

B$,#00 $,000 MHs

7 B1.0 per MH ie portion o( B2#,$00 the preetermine 7 $,000 MHs overhea rate 7 BJ.10 per MH

2. The stanar ho"rs per "nit o( pro"ct are5 $,000 MHs F J,200 "nits 7 2. MHs per "nit The stanar ho"rs allowe (or the act"al pro"ction wo"l )e5 J,00 "nits @ 2. MHs per "nit 7 $,%0 MHs J. aria)le overhea variances5 aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8; 7 9B>,$0; : 9$,00 MHs @ B1.0 per MH; 7 9B>,$0; : 9B$,>2; 7 B>J  aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B1.0 per MH 9$,00 MHs : $,%0 MHs; 7 B22.0 

Eercise 10$-6 9contin"e; ie overhea )"get an vol"me variances5 ie 3verhea Applie to or* in rocess $,%0 stanar MHs @ BJ.10 per MH 7 B2%,12



B2#,$00E

B2,100

ol"me variance 4"get variance 7 B2,J2  7 BJ00  Total ariance 7 B2,02  E$,000 enominator MHs @ BJ.10 per MH 7 B2#,$00. Alternative approach to the )"get variance5

4"get 7 Act"al ie - 4"gete ie Iariance 3verhea Cost 3verhea Cost 7 B2,100 - B2#,$00 7 BJ00  Alternative approach to the vol"me variance5 ie ortion o( Iol"me 7the reetermine Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

7 BJ.10 per MH 9$,000 MHs - $,%0 MHs; 7 B2,J2 

;

Eercise 10$-7 91 min"tes; 1. 10,000 "nits @ 0.$ SH per "nit 7 $,000 SHs. 2. an J. ie 3verhea Applie to or* in rocess $,000 stanar SHs @ B.00 per SHE 7 B#$,000



B#,000

B#,00E

ol"me variance 7 BJ,000 E

4"get variance 7 B00 

EGiven. #.

ie cost element o( the 74"gete e overhea cost preetermine overhea rate Senominator activit' 7

B#,000 Senominator activit'

7BG.00 per SH

There(ore, the enominator activit' was B#,000 F B.00 per SH 7 %,00 SHs.

!ro"le# 10$-8 9# min"tes; 1. Sirect materials price an &"antit' variances5 Materials &"antit' variance 7 ! 9AD : !D; 7 BJ.0 per 'ar 9%$,000 'ars : $0,000 'arsE; 7 B%,000  Materials price variance 7 AD 9A : !; 7 %$,000 'ars 9BJ.% per 'ar : BJ.0 per 'ar; 7 B1>,00  E20,000 "nits @ # 'ars per "nit 7 $0,000 'ars 2. Sirect la)or rate an e+cienc' variances5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B12.00 per SH 9J2,00 SHs : J0,000 SHsE; 7 BJ0,000  a)or rate variance 7 AH 9A8 : !8; 7 J2,00 SHs 9B11.$0 per SH : B12.00 per SH; 7 B,00  E20,000 "nits @ 1. SHs per "nit 7 J0,000 SHs J. a. aria)le man"(act"ring overhea spening an e+cienc' variances5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; J0,000 SHs @ B2 per SH 7 B0,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; J2,00 SHs @ B2 per SH 7 B,000

aria)le overhea e+cienc' variance 7 B,000 


B$,20

aria)le overhea rate variance 7 BJ,20 

!ro"le# 10$-8 9contin"e; Alternative sol"tion5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B2.00 per SH 9J2,00 SHs : J0,000 SHs; 7 B,000  aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8; 7 9B$,20; : 9J2,00 SHs @ B2.00 per SH; 7 BJ,20  ;.

b.

ie 3verhea Applie to or* in rocess J0,000 SHs @ B per SH 7 B1$0,000



B10,000

B1#$,000

ol"me variance 7 BJ0,000 

4"get variance 7 B2,000 

Alternative sol"tion5

ie ortion o( Iol"me 7the reetermine Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

7BG.00 per SH 9 2,000 SHs : J0,000 SHs; 7 BJ0,000  4"get 7 Act"al ie - lei)le 4"get ie Iariance 3verhea Cost 3verhea Cost 7B1#$,000 : B10,000 7B2,000 

;

!ro"le# 10$-8 9contin"e; #. The total o( the variances wo"l )e5 Sirect materials variances5 D"antit' variance................................... B %,000  rice variance......................................... 1>,00  Sirect la)or variances5 6+cienc' variance.................................. J0,000  8ate variance.......................................... ,00  aria)le man"(act"ring overhea variances5 6+cienc' variance.................................. ,000  8ate variance.......................................... J,20  ie man"(act"ring overhea variances5 ol"me variance..................................... J0,000  4"get variance...................................... 2,000  Total o( variances...................................... B12,20  ?otice that the total o( the variances agrees with the B12,20 "n(avora)le variance mentione )' the vice presient. It appears that not ever'one sho"l )e given a )on"s (or goo cost control. The materials price variance an the la)or e+cienc' variance are %.1 an $.J, respectivel', o( the stanar cost allowe an th"s wo"l warrant investigation. In aition, the varia)le overhea spening variance is .0 o( the stanar cost allowe. The reason the compan'Rs large "n(avora)le variances 9(or materials price an la)or e+cienc'; o not show "p more clearl' is that the' are o/set )' the compan'Rs (avora)le vol"me variance (or the 'ear. This (avora)le vol"me variance is the res"lt o( the compan' operating at an activit' level that is well a)ove the enominator activit' level "se to set preetermine overhea rates. 9The compan' operate at an activit' level o( J0,000 stanar SHsX the enominator activit' level set at the )eginning o( the 'ear was 2,000 SHs.; As a res"lt o( the large (avora)le vol"me variance, the "n(avora)le price an e+cienc' variances have )een conceale in a small
inventories.

!ro"le# 10$-9 90 min"tes; Per Direct LaborHour Variabl e !i"ed #otal

1. an 2.

Senominator o( #0,000 SHs5 B2.0 B$.00

B 2.0 $.00 B10.0

B.#0

B 2.0 .#0 B $.>0

Total preetermine rate............... Senominator o( 0,000 SHs5 B2.0 Total preetermine rate............... J.

Deno$inator Acti%ity& Deno$inator Acti%ity& '()((( DLHs *()((( DLHs Sirect materials, J 'ars @ B.00 per B1.0 B1.0 'ar.......................... 0 !ame............................ 0 Sirect la)or, 2. SHs @ B20.00 per SH..... 0.00 !ame............................ 0.00 aria)le overhea, 2. SHs @ B2.0 per SH.......................... .2 !ame............................ .2 ie overhea, 2. ie overhea, 2. SHs @ B$.00 per SHs @ B.#0 per SH.......................... 20.00 SH............................ 1.00 Total stanar cost per B>1.2 Total stanar cost per B$%.2 "nit...........................  "nit............................ 

#. a. 1$,00 "nits @ 2. SHs per "nit 7 #,20 stanar SHs )

Man"(act"ring 3verhea . Act"al costs

##,0 Applie costs 9#,20 0 stanar SHsE @ B10.0 per SH; 3verapplie overhea

#$,2 J>,12

ESetermine in 9a;.!ro"le# 10$-9 9contin"e; #. c. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; #,20 SHs @ B2.0 per SH 7 B11,2

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; #$,000 SHs @ B2.0 per SH 7 B120,000

aria)le overhea e+cienc' variance 7 B#,J% 


B12#,$00

aria)le overhea rate variance 7 B#,$00 

Alternative sol"tion5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B2.0 per SH 9#$,000 SHs : #,20 SHs; 7 B#,J%  aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8; 7 9B12#,$00; : 9#$,000 SHs @ B2.0 per SH; 7 B#,$00  ie overhea variances5 ie 3verhea Applie to or* in rocess #,20 stanar SHs @ B$.00 per SH 7 BJ%0,000



BJ20,000E

BJ21,%00

ol"me variance 7 B0,000 

4"get variance 7 B1,%00 

E#0,000 enominator SHs @ B$ per SH 7 BJ20,000.

!ro"le# 10$-9 9contin"e; Alternative sol"tion5

4"get 7 Act"al ie - lei)le 4"get ie Iariance 3verhea Cost 3verhea Cost 7 BJ21,%00 : BJ20,000 7 B1,%00  ie ortion o( Iol"me 7 the reetermine @ Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

7 B$.00 per SH 9 #0,000 SHs : #G,20 SHs; 7 B0,000  !"mmar' o( variances5 aria)le overhea e+cienc'. B #,J%  aria)le overhea rate variance............................. #,$00  ie overhea vol"me......... 0,000  ie overhea )"get......... 1,%00  3verapplie overhea.......... BJ>,12 

;

!ro"le# 10$-9 9contin"e; . The maPor isavantage o( "sing normal activit' as the enominator in the preetermine rate is the large vol"me variance that orinaril' res"lts. This occ"rs )eca"se the enominator activit' "se to comp"te the preetermine overhea rate is i/erent (rom the activit' level that is anticipate (or the perio. In the case at han, the compan' has "se the normal activit' o( #0,000 irect la)or-ho"rs to comp"te the preetermine overhea rate, whereas activit' (or the perio was epecte to )e 0,000 SHs. This has res"lte in a large (avora)le vol"me variance that ma' )e i+c"lt (or management to interpret. In aition, the large (avora)le vol"me variance in this case has mas*e the (act that the compan' i not achieve the )"gete level o( activit' (or the perio. The compan' ha planne to wor* 0,000 SHs, )"t manage to wor* onl' #,20 SHs 9at stanar;. This "n(avora)le res"lt is conceale "e to "sing a enominator g"re that is o"t o( step with c"rrent activit'. 3n the other han, )' "sing normal activit' as the enominator "nit costs are sta)le (rom 'ear to 'ear. Th"s, managementRs ecisions are not clo"e )' "nit costs that P"mp "p an own as the activit' level rises an (alls.

!ro"le# 10$-10 9# min"tes; 1.

Total rate5

[J1,00 V [%2,000 7[.% per MH 1$,000 MHs

Iaria)le element5

[J1,00 7[1.% per MH 1$,000 MHs

ie element5

[%2,000 7[#.00 per MH 1$,000 MHs

2. 1,000 stanar MHs @ [.% per MH 7 [>2,000 J. aria)le man"(act"ring overhea variances5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 1,000 MHs @ [1.% per MH 7 [2$,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 1,000 MHs @ [1.% per MH 7 [2,20

aria)le overhea e+cienc' variance 7 [1,%0 


[2,00

aria)le overhea rate variance 7 [20 

Alternative sol"tion5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 [1.% per MH 91,000 MHs : 1,000 MHs; 7 [1,%0  aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8; 7 9[2,00; : 91,000 MHs @ [1.% per MH; 7 [20 

!ro"le# 10$-10 9contin"e; ie overhea variances5 ie 3verhea Applie to or* in rocess 1,000 MHs @ [# per MH 7 [#,000



[%2,000

[%0,000

ol"me variance 7 [$,000 

4"get variance 7 [2,000 

Alternative sol"tion5 ie ortion o( Iol"me 7 the reetermine Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

7 [# per MH 9 1$,000 MHs : 1G,000 MHs; 7 [$,000 

4"get 7 Act"al ie - lei)le 4"get ie Iariance 3verhea Cost 3verhea Cost 7 [%0,000 : [%2,000 7 [2,000  erication o( variances5 aria)le overhea e+cienc' variance.... .. [1,%0  aria)le overhea rate variance............... 20  ie overhea vol"me variance.............. $,000  ie overhea )"get variance............... 2,000  nerapplie overhea............................ [#,00 

;

!ro"le# 10$-10 9contin"e; #. aria)le overhea Variable o%erhead rate %ariance& This variance incl"es )oth price an &"antit' elements. The overhea spening variance reQects i/erences )etween act"al an stanar prices (or varia)le overhea items. It also reQects i/erences )etween the amo"nts o( varia)le overhea inp"ts that were act"all' "se an the amo"nts that sho"l have )een "se (or the act"al o"tp"t o( the perio. 4eca"se the varia)le overhea spening variance is "n(avora)le, either too m"ch was pai (or varia)le overhea items or too man' o( them were "se. Variable o%erhead efciency %ariance& The term
meaning("l variances i( the' are simpl' nette against each other.

!ro"le# 10$-11 9# min"tes; 1.

Total5

B2#0,000 7B$.00 per SH J0,000 SHs

Iaria)le5

BG0,000 7B2.00 per SH J0,000 SHs

ie5

B1$0,000 7BG.00 per SH J0,000 SHs

2. Sirect materials5 # (eet @ BJ.00 per (oot.. .. .. B12.00 Sirect la)or5 1. SHs @ B12.00 per SH...... 1$.00 aria)le overhea5 1. SHs @ B2.00 per SH............................................................ J.00 ie overhea5 1. SHs @ B.00 per SH. . >.00 !tanar cost per "nit.................................. B#2.00 J. a. 22,000 "nits @ 1. SHs per "nit 7 JJ,000 stanar SHs. )

Man"(act"ring 3verhea . Act"al costs

Applie costs 2##,00 9JJ,000 stanar 0 SHs @ B$.00 per SH; 3verapplie overhea

2#,000 20,000

#. aria)le overhea variances5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; JJ,000 SHs @ B2 per SH 7 B,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; J,000 SHs @ B2 per SH 7 B%0,000


BJ,000

aria)le overhea e+cienc' variance 7 B#,000 

aria)le overhea rate variance 7 B%,000 

!ro"le# 10$-11 9contin"e; Alternative sol"tion5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B2.00 per SH 9J,000 SHs : JJ,000 SHs; 7 B#,000  aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8; 7 9BJ,000; : 9J,000 SHs @ B2.00 per SH; 7 B%,000  ie overhea variances5 ie 3verhea Applie to or* in rocess JJ,000 SHs @ B per SH 7 B1>$,000



B1$0,000

B1$1,000

ol"me variance 7 B1$,000 

4"get variance 7 B1,000 

Alternative sol"tion5 ie ortion o( Iol"me 7 the reetermine Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

7 BG per SH 9 J0,000 SHs : JJ,000 SHs; 7 B1$,000 

4"get 7 Act"al ie - lei)le 4"get ie Iariance 3verhea Cost 3verhea Cost 7 B1$1,000 : B1$0,000 7 B1,000 

;

!ro"le# 10$-11 9contin"e; !"mmar' o( variances5 aria)le overhea e+cienc' variance....... . B #,000  aria)le overhea rate variance................. %,000  ie overhea vol"me variance................ 1$,000  ie overhea )"get variance................. 1,000  3verapplie overheasee part J.............. B20,000  . 3nl' the vol"me variance wo"l have change. It wo"l have )een "n(avora)le, )eca"se the stanar SHs allowe (or the 'earRs pro"ction 9JJ,000 SHs; wo"l have )een less than the enominator SHs 9J,000 SHs;.

!ro"le# 10$-12 9J0 min"tes; 1. Sirect materials, # po"ns @ B2.0 per po"n.............. B10.#0 Sirect la)or, 2 SHs @ B>.00 per SH........................... 1$.00 aria)le man"(act"ring overhea, 2 SHs @ BJ.$0 per SHE........................................................................... %.0 ie man"(act"ring overhea, 2 SHs @ B%.00 per SHEE......................................................................... 1#.00 !tanar cost per "nit.................................................. B0.00 E BJ#,200 F >,000 SHs 7 BJ.$0 per SH EE BJ,000 F >,000 SHs 7 B%.00 per SH 2. Materials variances5 Materials &"antit' variance 7 ! 9AD : !D; 7 B2.0 per po"n 920,000 po"ns : 1>,200 po"nsE; 7 B2,0$0  E#,$00 "nits @ # po"ns per "nit 7 1>,200 po"ns Materials price variance 7 AD 9A : !; 7 J0,000 po"ns 9B2.0 per po"n : B2.0 per po"n; 7 BJ,000  a)or variances5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B>.00 per SH 910,000 SHs : >,00 SHsE; 7 BJ,00  E#,$00 "nits @ 2 SHs per "nit 7 >,00 SHs a)or rate variance 7 AH 9A8 : !8; 7 10,000 SHs 9B$.0 per SH : B>.00 per SH; 7 B#,000 

!ro"le# 10$-12 9contin"e; J. aria)le man"(act"ring overhea variances5 !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; >,00 SHs @ BJ.$0 per SH 7 BJ,#$0

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; 10,000 SHs @ BJ.$0 per SH 7 BJ$,000

aria)le overhea e+cienc' variance 7 B1,20 


BJ,>00

aria)le overhea rate variance 7 B2,100 

!pening variance 7 B$0  Alternative sol"tion5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 BJ.$0 per SH 910,000 SHs : >,00 SHs; 7 B1,20  aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8; 7 9BJ,>00; : 910,000 SHs @ BJ.$0 per SH; 7 B2,100  ie man"(act"ring overhea variances5 ie 3verhea Applie to or* in rocess >,00 SHs @ B% per SH 7 B%,200



BJ,000

B#,$00

ol"me variance 7 B#,200 

4"get variance 7 B1,$00 

!ro"le# 10$-12 9contin"e; Alternative sol"tion5

ie ortion o( Iol"me 7 the reetermine Senominator - !tanar Ho"rs Iariance Ho"rs Allowe 3verhea 8ate

9

;

7 B% per SH 9 >,000 SHs : >,G00 SHs; 7 B#,200  4"get 7 Act"al ie - 4"gete ie Iariance 3verhea Cost 3verhea Cost 7 BG#,$00 : BGJ,000 7 B1,$00  #. The choice o( a enominator activit' level a/ects stanar "nit costs in that the higher the enominator activit' level chosen, the lower stanar "nit costs will )e. The reason is that the e portion o( overhea costs is sprea over more "nits as the enominator activit' increases. The vol"me variance cannot )e controlle )' controlling spening. The vol"me variance simpl' reQects whether act"al activit' was greater or less than the enominator activit'. Th"s, the vol"me variance is controlla)le onl' thro"gh activit'.

$ppendi 10* +ournal Entries to 'ecord Variances Eercise 10*-1 920 min"tes; 1. The general leger entr' to recor the p"rchase o( materials (or the month is5 8aw Materials 91,000 meters at B.#0 per meter;........... $1,000 Materials rice ariance 91,000 meters at B0.20 per meter ;........ J,000 Acco"nts a'a)le 91,000 meters at B.0 per meter;...... $#,000 2. The general leger entr' to recor the "se o( materials (or the month is5 or* in rocess 912,000 meters at B.#0 per meter;........... #,$00 Materials D"antit' ariance 9100 meters at B.#0 per meter ;........ #0 8aw Materials 911,>00 meters at B.#0 per meter;...... #,20 J. The general leger entr' to recor the inc"rrence o( irect la)or cost (or the month is5 or* in rocess 92,000 ho"rs at B1#.00 per ho"r;........................................................... 2$,000 a)or 8ate ariance 91,>0 ho"rs at B0.20 per ho"r ;.............. J>0 a)or 6+cienc' ariance 90 ho"rs at B1#.00 per ho"r ;............. %00 ages a'a)le 91,>0 ho"rs at B1#.20 per ho"r;........... 2%,>0

Eercise 10*-2 9# min"tes; 1.

a.

!tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; ,20 (eetE @ B.00 per (oot 7 BJ1,00



,000 (eet @ B.00 per (oot 7 BJ,000

%,000 (eet @ B.% per (oot 7 B#0,20

Materials &"antit' variance 7 B#,00  %,000 (eet @ B.00 per (oot 7 B#2,000 Materials price variance 7 B1,%0  E1,00 "nits @ J. (eet per "nit 7 ,20 (eet Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B.00 per (oot 9,000 (eet : ,20 (eet; 7 B#,00  Materials price variance 7 AD 9A : !; 7 %,000 (eet 9B.% per (oot : B.00 per (oot; 7 B1,%0 

Eercise 10*-2 9contin"e; b.

The =ournal entries would be:

8aw Materials 9%,000 (eet @ B.00 per (oot; #2,000 Materials rice ariance 9%,000 (eet @ B0.2  per (oot;............. 1,%0 Acco"nts a'a)le 9%,000 (eet @ B.% per (oot;................ #0,20 or* in rocess 9,20 (eet @ B.00 per (oot;........................................................... J1,00 Materials D"antit' ariance 9%0 (eet  @ B.00 per (oot;.................... #,00 8aw Materials 9,000 (eet @ B.00 per (oot;...................................................... J,000 2.

a.

!tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; 00 ho"rsE @ B10 per ho"r 7 B,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; %2 ho"rs @ B10 per ho"r 7 B%,20

a)or e+cienc' variance 7 B1,20 


B$,120

a)or rate variance 7 B$%0 

!pening variance 7 B2,120  E1,00 "nits @ 0.# ho"r per "nit 7 00 ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B10.00 per ho"r 9%2 ho"rs : 00 ho"rs; 7 B1,20  a)or rate variance 7 AH 9A8 : !8; 7 %2 ho"rs 9B11.20 per ho"rE : B10.00 per ho"r;

7 B$%0  EB$,120 F %2 ho"rs 7 B11.20 per ho"r

Eercise 10*-2 9contin"e; b.

The =ournal entry would be:

or* in rocess 900 ho"rs @ B10.00 per ho"r;............................................................. a)or 8ate ariance 9%2 ho"rs @ B1.20  per ho"r;.................... a)or 6+cienc' ariance 912  ho"rs @ B10.00 per ho"r;.................. ages a'a)le 9%2 ho"rs @ B11.20 per ho"r;........................................................

,000 $%0 1,20 $,120

J. The entries are5 9a; p"rchase o( materialsX 9); iss"e o( materials to pro"ctionX an 9c; inc"rrence o( irect la)or cost. 8aw Materials J,00 0

Acco"nts a'a)le 9a #0,20 ;

Materials rice ariance 1,%0 9a;

ages a'a)le 9c $,120 ;

9a; #2,000 4al .

9);

,0001

Materials D"antit' ariance 9); #,00

9); 9c; 1

or* in rocess J1,002 ,000J

a)or 8ate ariance 9c; $%0 a)or 6+cienc' ariance 9c; 1,20

1,000 (eet o( material at a stanar cost o( B.00 per (oot Materials "se J a)or cost 2

!ro"le# 10*-3 9% min"tes; 1.

a.

!tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; J,000 (eetE @ B1.00 per (oot 7 BJ,000



J$,000 (eet @ B1.00 per (oot 7 BJ$,000

0,000 (eet @ B0.> per (oot 7 B%,000

Materials &"antit' variance 7 B2,000  0,000 (eet @ B1.00 per (oot 7 B0,000 Materials price variance 7 BJ,000  E,000 "nits @ .0 (eet per "nit 7 J,000 (eet Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 B1.00 per (oot 9J$,000 (eet : J,000 (eet; 7 B2,000  Materials price variance 7 AD 9A : !; 7 0,000 (eet 9B0.> per (oot : B1.00 per (oot; 7 BJ,000 

).

8aw Materials 90,000 (eet \ B1.00 per (oot;............................................................ 0,000 Materials rice ariance 90,000 (eet \ B0.0 per (oot ;............ J,000 Acco"nts a'a)le 90,000 (eet \ B0.> per (oot;............... %,000 or* in rocess 9J,000 (eet \ B1.00 per

J,000

(oot;............................................................ Materials D"antit' ariance 92,000 (eet  \ B1.00 per (oot;.................. 8aw Materials 9J$,000 (eet \ B1.00 per (oot;.......................................................

2,000 J$,000

!ro"le# 10*-3 9contin"e; 2.

a.

!tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; ,000 ho"rsEE @ B#.0 per ho"r 7 B2%,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; ,00 ho"rsE @ B#.0 per ho"r 7 B2>,20


B2%,>0

a)or e+cienc' a)or rate variance variance 7 B2,20  7 B1,J00  !pening variance 7 B>0  EThe act"al ho"rs wor*e "ring the perio can )e comp"te thro"gh the varia)le overhea e+cienc' variance, as (ollows5 !8 9AH : !H; 7 6+cienc' variance BJ per ho"r 9AH : ,000 ho"rsEE; 7 B1,00  BJ per ho"r @ AH : B1$,000 7 B1,00EEE BJ per ho"r @ AH 7 B1>,00 AH 7 ,00 ho"rs EE,000 "nits @ 1.0 ho"r per "nit 7 ,000 ho"rs EEEhen "se with the (orm"la, "n(avora)le variances are positive an (avora)le variances are negative. Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B#.0 per ho"r 9,00 ho"rs : ,000 ho"rs; 7 B2,20  a)or rate variance 7 AH @ 9A8 : !8; 7 ,00 ho"rs 9B#.J0 per ho"rE : B#.0 per ho"r; 7 B1,J00  EB2%,>0 F ,00 ho"rs 7 B#.J0 per ho"r

!ro"le# 10*-3 9contin"e; ).

or* in rocess 9,000 ho"rs \ B#.0 per ho"r;.............. 2%,000 a)or 6+cienc' ariance 900 ho"rs  \ B#.0 per ho"r;............. 2,20 a)or 8ate ariance 9,00 ho"rs \ B0.20 per ho"r ;...... 1,J00 ages a'a)le 9,00 ho"rs \ B#.J0 per ho"r;......... 2%,>0 ;.

a.

!tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; ,000 ho"rs @ BJ.00 per ho"r 7 B1$,000

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; ,00 ho"rs @ BJ.00 per ho"r 7 B1>,00

aria)le overhea e+cienc' variance 7 B1,00 


B20,#%

aria)le overhea rate variance 7 B>% 

!pening variance 7 B2,#%  Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 BJ.00 per ho"r 9,00 ho"rs : ,000 ho"rs; 7 B1,00  aria)le overhea rate variance 7 AH @ 9A8 : !8; 7 ,00 ho"rs 9BJ.1 per ho"rE : BJ.00 per ho"r; 7 B>%  EB20,#% F ,00 ho"rs 7 BJ.1 per ho"r

!ro"le# 10*-3 9contin"e; b. No. >hen variable manufacturing overhead is applied on the basis of direct labor?hours, it is impossible to have an unfavorable variable manufacturing overhead efficiency variance when the direct labor efficiency variance is favorable. The variable manufacturing overhead efficiency variance is the same as the direct labor efficiency variance ecept that the difference between actual hours and the standard hours allowed for the output is multiplied by a different rate. (f the direct labor efficiency variance is favorable, the variable manufacturing overhead efficiency variance must also be favorable.

#. !or $aterials&

@nfavorable rate variance: (ncrease in supplier prices, inaccurate standards, waste, theft of supplies. @nfavorable efficiency variance: 5ee comments under direct labor efficiency variance.

!ro"le# 10*-4 90 min"tes; 1. a. !tanar D"antit' Allowe (or Act"al 3"tp"t, at !tanar rice 9!D @ !; 1>,200 'arsE @ BJ.0 per 'ar 7 B>,120

Act"al D"antit' o( Inp"t, at !tanar rice 9AD @ !; 21,120 'ars @ BJ.0 per 'ar 7 B%,0J2

Act"al D"antit' o( Inp"t, at Act"al rice 9AD @ A; 21,120 'ars @ BJ.J per 'ar 7 B%0,%2

Materials &"antit' variance 7 B,>12 

Materials price variance 7 B,2$0  !pening variance 7 B1,J2 

E#,$00 "nits @ #.0 'ars per "nit 7 1>,200 'ars Alternativel', the variances can )e comp"te "sing the (orm"las5 Materials &"antit' variance 7 ! 9AD : !D; 7 BJ.0 per 'ar 921,120 'ars : 1>,200 'ars; 7 B,>12  Materials price variance 7 AD 9A : !; 7 21,120 'ars 9BJ.J per 'ar : BJ.0 per 'ar; 7 B,2$0 

).

8aw Materials 921,120 'ars \ BJ.0 per 'ar;............................................................. %,0J2 Materials rice ariance 921,120 'ars \ B0.2 per 'ar ;........... ,2$0 Acco"nts a'a)le %0,% 921,120 'ars \ BJ.J per 'ar;............. 2 or* in rocess 91>,200 'ars \ BJ.0 per 'ar;............................................................. >,120 Materials D"antit' ariance 91,>20 'ars  \ BJ.0 per 'ar;................. ,>12 8aw Materials 921,120 'ars \ BJ.0 per %,0J

'ar;........................................................

2

!ro"le# 10*-4 9contin"e; 2.

a.

!tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; %,$0 ho"rsEE @ B#.0 per ho"r 7 BJ#,0

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; ,%20 ho"rs @ B#.0 per ho"r 7 BJ0,2#0

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; ,%20 ho"rsE @ B#.$ per ho"r 7 BJ2,>2

a)or e+cienc' a)or rate variance variance 7 B#,J20  7 B2,J2  !pening variance 7 B1,>$  E#,$00 "nits @ 1.# ho"rs per "nit 7 ,%20 ho"rs #,$00 "nits @ 1. ho"rs per "nit 7 %,$0 EE ho"rs Alternativel', the variances can )e comp"te "sing the (orm"las5 a)or e+cienc' variance 7 !8 9AH : !H; 7 B#.0 per ho"r 9,%20 ho"rs : %,$0 ho"rs; 7 B#,J20  a)or rate variance 7 AH 9A8 : !8; 7 ,%20 ho"rs 9B#.$ per ho"r : B#.0 per ho"r; 7 B2,J2 

).

or* in rocess 9%,$0 ho"rs \ B#.0 per ho"r;............................................................. J#,0 a)or 8ate ariance 9,%20 ho"rs \ B0.J per ho"r ;................. 2,J2 a)or 6+cienc' ariance 9>0 ho"rs  \ B#.0 per ho"r;............... #,J20 ages a'a)le 9,%20 ho"rs \ B#.$ per ho"r;........................................................ J2,>2

!ro"le# 10*-4 9contin"e; J. !tanar Ho"rs Allowe (or Act"al 3"tp"t, at !tanar 8ate 9!H @ !8; %,$0 ho"rs @ B1.$0 per ho"r 7 B1J,$2#

Act"al Ho"rs o( Inp"t, at !tanar 8ate 9AH @ !8; ,%20 ho"rs @ B1.$0 per ho"r 7 B12,0>

Act"al Ho"rs o( Inp"t, at Act"al 8ate 9AH @ A8; ,%20 ho"rs @ B2.1 per ho"r 7 B1#,##$

aria)le overhea aria)le overhea e+cienc' variance rate variance 7 B1,%2$  7 B2,J2  !pening variance 7 B2#  Alternativel', the variances can )e comp"te "sing the (orm"las5 aria)le overhea e+cienc' variance 7 !8 9AH : !H; 7 B1.$0 per ho"r 9,%20 ho"rs : %,$0 ho"rs; 7 B1,%2$  aria)le overhea rate variance 7 AH 9A8 : !8; 7 ,%20 ho"rs 9B2.1 per ho"r : B1.$0 per ho"r; 7 B2,J2  #. ?o. This total variance is mae "p o( several &"ite large inivi"al variances, some o( which ma' warrant investigation. A s"mmar' o( variances is given )elow5 Materials5 D"antit' variance....................... B,>12  rice variance............................. ,2$0  a)or5 6+cienc' variance...................... #,J20  8ate variance............................. 2,J2  aria)le overhea5 6+cienc' variance...................... 1,%2$  !pening variance...................... 2,J2  ?et "n(avora)le variance..............

B1,J2 

1,>$ 

2#  B 2$$ 

!ro"le# 10*-4 9contin"e; . The variances have man' possi)le ca"ses. !ome o( the more li*el' ca"ses incl"e5 Materials %ariances& avora)le price variance5 Goo price, inacc"rate stanars, in(erior &"alit' materials, "n"s"al isco"nt "e to &"antit' p"rchase, rop in mar*et price. n(avora)le &"antit' variance5 Carelessness, poorl' aP"ste machines, "ns*ille wor*ers, in(erior &"alit' materials, inacc"rate stanars. Labor %ariances& n(avora)le rate variance5 se o( highl' s*ille wor*ers, change in wage rates, inacc"rate stanars, overtime. avora)le e+cienc' variance5 se o( highl' s*ille wor*ers, high-&"alit' materials, new e&"ipment, inacc"rate stanars. Variable o%erhead %ariances& n(avora)le rate variance5 Increase in costs, inacc"rate stanars, waste, the(t, spillage, p"rchases in "neconomical lots. avora)le e+cienc' variance5 !ame as (or la)or e+cienc' variance.

Case 10*-5 9J0 min"tes; This case ma' )e i+c"lt (or some st"ents to grasp )eca"se it re&"ires loo*ing at stanar costs (rom an entirel' i/erent perspective. In this case, stanar costs have )een inappropriatel' "se as a means to manip"late reporte earnings rather than as a wa' to control costs. 1. ansing has evientl' set ver' loose stanars in which the stanar prices an stanar &"antities are (ar too high. This g"arantees that (avora)le variances will orinaril' res"lt (rom operations. I( the stanar costs are set articiall' high, the stanar cost o( goos sol will )e articiall' high an th"s the ivisionRs net operating income will )e epresse "ntil the (avora)le variances are recognie. I( ansing saves the (avora)le variances, he can release P"st eno"gh in the secon an thir &"arters to show some improvement an then he can release all o( the rest in the last &"arter, creating the ann"al

Chapter 10 Managerial Accounting

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