Chapter 16 - Answer

MANAGEMENT ACCOUNTING - Solutions Manual

CHAPTER 16 STANDARD COSTS AND OPERATING PERFORMANCE MEASURES

I.

Questions

1. Standard Standard costs costs are superior superior to past past data for compa compariso rison n with with actual actual costs costs because they ask the question question “Is present performance performance better than the past?”. 2. No. ost contro controll and cost redu reducti ction on are are not the the same same!! but cost cost reducti reduction on does affect affect the standards standards which which are used as basis for cost control. control. ost reduction means findin" ways to achie#e a "i#en result throu"h impro#ed desi"n! desi"n! better methods! methods! new layouts layouts and so forth. ost reduction results in settin" settin" new standards. standards. $n the other other hand! cost control is a process of maintainin" performance at or as new e%istin" standards as is possible. &. 'ana"erial (ud"m (ud"ment ent is the basis for decidin decidin" " wheth whether er a "i#en "i#en #ariance is is lar"e enou"h enou"h to warrant in#esti"ation. )or some items! a small amount of #ariance may spark scrutiny. )or some items! *+! 1,+ or 2*+ #ariances from standard may call for follow-up. follow-up. 'ana"ement 'ana"ement may also deri#e deri#e the standard de#iation based on past cost data. . /he techniques techniques for o#erhea o#erhead d control control differ differ because 10 /he /he sie sie of indi indi#i #idu dual al o#er o#erhe head ad cost costss usua usuall lly y does does not not (ust (ustif ify y elaborate indi#idual control systems 20 /he beha#i beha#ior or of indi indi#i #idu dual al o#er o#erhe head ad item item is eith either er impo impossi ssibl blee or difficult to trace to specific lots or operations and &0 3arious arious o#erhead o#erhead items items are the responsibilit responsibility y of differen differentt people. people. *. In the year-to-y year-to-year ear plannin" plannin" of of fi%ed fi%ed costs! costs! mana"ers mana"ers must must consider4 consider4 10 the pro(ected pro(ected ma%imum ma%imum and minim minimum um le#els le#els of acti#ity acti#ity!! 20 price pricess of of cos costt facto factors! rs! and &0 chan"es chan"es in facil faciliti ities es and and or"ani or"aniati ation. on.

5. )our criter criteria ia for for select selectin" in" a #olum #olumee base base are4 are4 10 ause ause of of cost cost #ariab #ariabil ilit ity y. 16-1

Chapter 16 Standard Costs and Operating Performance Measures

20 6dequacy of control o#er the base. &0 Independence of acti#ity unit. 0 7ase of understandin". 8. Non-#olume factors which cause costs to #ary are4 10 han"es in plant and equipment. 20 han"es in products made! materials used! or methods of manufacturin". &0 han"es in prices paid for cost factors. 0 han"es in mana"erial policy toward costs. *0 9a" between cost incurrence and measurement of #olume. :. 6 bud"et is usually e%pressed in terms of total pesos! whereas a standard is e%pressed on a per unit basis. 6 standard mi"ht be #iewed as the bud"eted cost for one unit. ;.
Standard Costs and Operating Performance Measures Chapter 16

e%cessi#e labor time and therefore an unfa#orable labor efficiency #ariance. =oor quality materials would not ordinarily affect the labor rate #ariance. 1*. If labor is a fi%ed cost and standards are ti"ht! then the only way to "enerate fa#orable labor efficiency #ariances is for e#ery workstation to produce at capacity. >owe#er! the output of the entire system is limited by the capacity of the bottleneck. If workstations before the bottleneck in the production process produce at capacity! the bottleneck will be unable to process all of the work in process. In "eneral! if e#ery workstation is attemptin" to produce at capacity! then work in process in#entory will build up in front of the workstations with the least capacity. 15. 6 quantity standard indicates how much of an input should be used to make a unit of output. 6 price standard indicates how much the input should cost. 18. hronic inability to meet a standard is likely to be demoraliin" and may result in decreased producti#ity. 1:. 6 #ariance is the difference between what was planned or e%pected and what was actually accomplished. 6 standard cost system has at least two types of #ariances. 6 price #ariance focuses on the difference between the standard price and the actual price of an input. 6 quantity #ariance is concerned with the difference between the standard quantity of the input allowed for the actual output and the actual amount of the input used. II. Matching Type 1. 7 2. @

&.  . >

*. 6 5. A

8.  :. B

;. I 1,. )

III. Exercises Exercise 1 (Settin Stan!ar!s" #reparin a Stan!ar! Cost Car!$

Requirement 1 ost per 2 kilo"ram container.................................................................................. =5!,,,.,, 9ess4 2+ cash discount............................................................................................ 12,.,, 16-%


Net cost................... ................................................................................................ =*!::,.,, 6dd frei"ht cost per 2 kilo"ram container C=1!,,, D 1, containers0..................................................................................... 1,,.,, /otal cost per 2 kilo"ram container Ca0.................................................................... =*!;:,.,, Number of "rams per container C2 kilo"rams E 1,,, "rams per kilo"ram0 Cb0...................................................... 2!,,, Standard cost per "ram purchased Ca0 D Cb0............................................................. = 2.;; Requirement 2 Beta '912 required per capsule as per bill of materials.......................................... 5.,, "rams 6dd allowance for material re(ected as unsuitable C5 "rams D ,.;5 F 5.2* "rams 5.2* "rams G 5.,, "rams F ,.2* "rams0.............................................................. ,.2* "rams /otal........................................................................................................................ 5.2* "rams 6dd allowance for re(ected capsules C5.2* "rams D 2* capsules0.................................................................................. ,.2* "rams Standard quantity of Beta '912 per salable capsule............................................... 5.*, "rams Requirement 3

Item Beta '912

Standard Quantity per Capsule 5.*, "rams

Standard Price per Gram =2.;;

Standard Cost per Capsule =1;.&*

Exercise 2 (Material &ariances$

Requirement 1 Number of choppin" blocks..................................................................................... !,,, Number of board feet per choppin" block........................................................ E 2.* ........ Standard board feet allowed.................................................................................... 1,!,,, Standard cost per board foot.................................................................................... E =1.:, /otal standard cost................................................................................................... =1:!,,, 6ctual cost incurred................................................................................................. =1:!8,, 16-'


Standard cost abo#e................................................................................................. 1:!,,, /otal #arianceHunfa#orable.................................................................................... = 8,, Requirement 2 6ctual uantity of Inputs! at 6ctual =rice C6 E 6=0

6ctual uantity of Inputs! at Standard =rice C6 E S=0

Standard uan tity 6llowed for $utput! at Standard =rice CS E S=0

=1:!8,,

11!,,, board feet E =1.:, per board foot

1,!,,, board feet E =1.:, per board foot

F =1;!:,,

F =1:!,,, uantity 3ariance! =1!:,, <

=rice 3ariance! =1!1,, )

/otal 3ariance! =8,, <

6lternati#ely4 'aterials =rice 3ariance F 6 C6= G S=0 11!,,, board feet C=1.8, per board footJ G =1.:, per board foot0 F =1!1,, ) J =1:!8,, D 11!,,, board feet F =1.8, per board foot. 'aterials uantity 3ariance F S= C6 G S0 =1.:, per board foot C11!,,, board feet G 1,!,,, board feet0 F =1!:,, <

Exercise % (a)or an! &aria)le O*erhea! &ariances$

Requirement 1 Number of units manufactured.................. .............................................................. 2,!,,, E ,.J Standard labor time per unit.................................................................................... /otal standard hours of labor time allowed.............................................................. :!,,, E =5 Standard direct labor rate per hour.......................................................................... /otal standard direct labor cost................................................................................ =:!,,, J2 minutes D 5, minutes per hour F ,. hour 6ctual direct labor cost............................................................................................ =;!&,, Standard direct labor cost........................................................................................ :!,,, = 1!&,, /otal #arianceHunfa#orable.................................................................................... 16-+


Requirement 2 6ctual >ours of Input! at the 6ctual Kate C6> E 6K0

6ctual >our of Input! at Standard Kate C6> E SK0

Standard >ours 6llowed for $utput! at the Standard Kate CS> E SK0

=;!&,,

:!*,, hours E =5 per hour

:!,,, hoursJ E =5 per hour

F =*1!,,,

F =:!,,,

7fficiency 3arian ce! =&!,,, <

Kate 3ariance! =1!8,, )

/otal 3ariance! =1!&,, < J2,!,,, units E ,. hour per unit F :!,,, hours

6lternati#e Solution4 9abor Kate 3ariance F 6> C6K G SK0 :!*,, hours C=*.:, per hourJ G =5.,, per hour0 F =1!8,, ) J=;!&,, D :!*,, hours F =*.:, per hour 9abor 7fficiency 3ariance F SK C6> G S>0 =5 per hour C:!*,, hours G :!,,, hours0 F =&!,,, < Requirement 3 6ctual >ours of Input! at the 6ctual Kate C6> E 6K0

6ctual >our of Input! at Standard Kate C6> E SK0


=&;!1,,

:!*,, hours E = per hour

:!,,, hours E = per hour

F =&!,,,

F =&2!,,,

Spendin" 3ariance! =*!1,, <

7fficiency 3arian ce! =2!,,, <

/otal 3ariance! =8!1,, <

6lternati#e Solution4 3ariable $#erhead Spendin" 3ariance F 6> C6K G SK0 :!*,, hours C=.5, per hourJ G =.,, per hour0 F =*!1,, < J=&;!1,, D :!*,, hours F =.5, per hour 3ariable $#erhead 7fficiency 3ariance F SK C6> G S>0 16-6


= per hour C:!*,, hours G :!,,, hours0 F =2!,,, < Exercise ' (,orin .ac/ar!s 0ro a)or &ariances$

Requirement 1 If the total #ariance is =&&, unfa#orable! and if the rate #ariance is =1*, fa#orable! then the efficiency #ariance must be =:, unfa#orable! since the rate and efficiency #ariances taken to"ether always equal the total #ariance. Lnowin" that the efficiency #ariance is =:, unfa#orable! one approach to the solution would be4 7fficiency 3ariance F SK C6> G S>0 =5 per hour C6> G 2, hoursJ0 F =:, < =5 per hour E 6> G =2!*2, F =:,JJ =5 per hour E 6> F =&!,,, 6> F *,, hours J 15: batches E 2.* hours per batch F 2, hours JJ Mhen used with the formula! unfa#orable #ariances are positi#e and fa#orable #ariances are ne"ati#e. Requirement 2 Lnowin" that *,, hours of labor time were used durin" the week! the actual rate of pay per hour can be computed as follows4 Kate 3ariance F 6> C6K G SK0 *,, hours C6K G =5 per hour0 F =1*, ) *,, hours E 6K G =&!,,, F G=1*,J *,, hours E 6K F =2!:*, 6K F =*.8, per hour J

Mhen used with the formula! unfa#orable #ariances are positi#e and fa#orable #ariances are ne"ati#e.

Exercise + (irect a)or &ariances$

1.

Number of meals prepared................................................... Standard direct labor-hours per meal................................... /otal direct labor-hours allowed........................................... Standard direct labor cost per hour...................................... /otal standard direct labor cost............................................ 16-3

5!,,, E ,.2, 1!2,, E =;.*, =11!,,


6ctual cost incurred............................................................. /otal standard direct labor cost Cabo#e0............................... /otal direct labor #ariance...................................................

=11!*,, 11!,, = 1,,
2. 6ctual >ours of Input! at the 6ctual Kate C6>E6  K0 1!1*, hours E =1,.,, per hour F =11!*,,

6ctual >ours of Input! at the Standard Kate C6>ESK0 1!1*, hours E =;.*, per hour F =1,!;2*

Standard >ours 6llowed for $utput! at the Standard Kate CS>ESK0 1!2,, hours E =;.*, per hour F =11!,,

↑

↑

↑ Kate 3ariance! =*8* <

7fficiency 3ariance! =8* )

/otal 3ariance! =1,, <

6lternati#ely! the #ariances can be computed usin" the formulas4 9abor rate #ariance F 6>C6K G SK0 F 1!1*, hours C=1,.,, per hour G =;.*, per hour0 F =*8* < 9abor efficiency #ariance F SKC6> G S>0 F =;.*, per hour C1!1*, hours G 1!2,, hours0 F =8* )

Exercise 6 (&aria)le O*erhea! &ariances$

1.

2.

Number of items shipped.................................................................. Standard direct labor-hours per item................................................. /otal direct labor-hours allowed........................................................ Standard #ariable o#erhead cost per hour......................................... /otal standard #ariable o#erhead cost...............................................

1,!,,, E ,., *!5,, E =2.:, =1*!5:,

6ctual #ariable o#erhead cost incurred............................................. /otal standard #ariable o#erhead cost Cabo#e0.................................. /otal #ariable o#erhead #ariance.......................................................

=1*!;*, 1*!5:, = 28,
6ctual >ours of Input! at the 6ctual Kate

6ctual >ours of Input! at the Standard Kate 16-4

Standard >ours 6llowed for $utput! at the


C6>E6  K0 *!:,, hours E =2.8* per hourJ F =1*!;*,

C6>ESK0 *!:,, hours E =2.:, per hour F =15!2,

Standard Kate CS>ESK0 *!5,, hours E =2.:, per hour F =1*!5:,

↑

↑

↑ 3ariable o#erhead spendin" #ariance! =2;, )

3ariable o#erhead efficiency #ariance! =*5, <

/otal #ariance! =28, < J=1*!;*,D *!:,, hours F=2.8* per hour

6lternati#ely! the #ariances can be computed usin" the formulas4 3ariable o#erhead spendin" #ariance4 6>C6K G SK0 F *!:,, hours C=2.8* per hour G =2.:, per hour0 F =2;, ) 3ariable o#erhead efficiency #ariance4 SKC6> G S>0 F =2.:, per hour C*!:,, hours G *!5,, hours0 F =*5, <

I3. Problems #ro)le 1 (Coprehensi*e &ariance Anal5sis$

Requirement 1 a. 6ctual uantity of Inputs! at the 6ctual =rice C6 E 6=0


Standard uan tity 6llowed for $utput! at the Standard =rice CS E S=0

2*!,,, pounds % =2.;* per pound

2*!,,, pounds % =2.*, per pound

2,!,,, poundsJ % =2.*, per pound

F =8&!8*,

F =52!*,,

F =*,!,,,

=rice 3ariance! =11!2*, < 1;!:,, pounds % =2.*, per pound F =;!*,, 16-

uantity 3ariance! =*,, )


J *!,,, metal molds E ., pounds per metal mold F 2,!,,, pounds

6lternati#ely4 'aterials =rice 3ariance F 6 C6= G S=0 2*!,,, pounds C=2.;* per pound G =2.*, per pound0 F =11!2*, < 'aterials uantity 3ariance F S= C6 G S0 =2.*, per pound C1;!:,, pounds G 2,!,,, pounds0 F =*,, )

b. 6ctual >ours of Input! at the 6ctual Kate C6> E 6K0

6ctual >ours of Input! at the Standard Kate C6> E SK0


&!5,, hours % =:.8, per hour

&!5,, hours % =;.,, per hour

&!,,, hoursJ % =;.,, per hour

F =&1!&2,

F =&2!,,

F =28!,,, 7fficiency 3arian ce! =*!,, <

Kate 3ariance! =1!,:, )

/otal 3ariance! =!&2, < J *!,,, metal molds E ,.5 hour per metal mold F &!,,, hours

6lternati#ely4 9abor Kate 3ariance F 6> C6K G SK0 &!5,, hours C=:.8, per hour G =;.,, per hour0 F =1!,:, ) 9abor 7fficiency 3ariance F SK C6> G S>0 =;.,, per hour C&!5,, hours G &!,,, hours0 F =*!,, < c. 6ctual >ours of Input! at the 6ctual Kate C6> E 6K0



=!&2,

1!:,, hours E =2 per hour

1!*,, hoursJ E =2 per hour

F =&!5,,

F =&!,,,

Spendin" 3ariance! =82, <

7fficiency 3arian ce! =5,, <

/otal 3ariance! =1!&2, < 16-17


J*!,,, metal molds E ,.& hours per metal mold F 1!*,, hours

6lternati#ely4 3ariable $#erhead Spendin" 3ariance F 6> C6K G SK0 1!:,, hours C=2., per hourJ G =2.,, per hour0 F =82, < J =!&2, D 1!:,, hours F =2. , per hour 3ariable $#erhead 7fficiency 3ariance F SK C6> G S>0 =2.,, per hour C1!:,, hours G 1!*,, hours0 F =5,, <

Requirement 2 Summary of #ariances4 'aterial price #ariance............................................................................................ =11!2*, < 'aterial quantity #ariance....................................................................................... *,, ) 9abor rate #ariance.................................................................................................. 1!,:, ) 9abor efficiency #ariance......................................................................................... *!,, < 3ariable o#erhead spendin" #ariance....................................................................... 82, < 3ariable o#erhead efficiency #ariance...................................................................... 5,, < Net #ariance....................................................................................=15!&;, ........................ < /he net unfa#orable #ariance of =15!&;, for the month caused the plantOs #ariable cost of "oods sold to increase from the bud"eted le#el of =:,!,,, to =;5!&;,4 Bud"eted cost of "oods sold at =15 per metal mold................................................. =:,!,,, 6dd the net unfa#orable #ariance Cas abo#e0........................................................... 15!&;, 6ctual cost of "oods sold......................................................................................... =;5!&;, /his =15!&;, net unfa#orable #ariance also accounts for the difference between the bud"eted net operatin" income and the actual net loss for the month. Bud"eted net operatin" income................................................................................ =1*!,,, Aeduct the net unfa#orable #ariance added to cost of "oods sold for the month....................................................................................................... 15!&;, Net operatin" loss.................................................................................................... =C1!&;,0

16-11


Requirement 3 /he two most si"nificant #ariances are the materials price #ariance and the labor efficiency #ariance. =ossible causes of the #ariances include4 'aterials =rice 3ariance4

$utdated standards! uneconomical quantity purchased! hi"her quality materials! hi"hcost method of transport.

9abor 7fficiency 3ariance4

=oorly trained workers! poor quality materials! faulty equipment! work interruptions! inaccurate standards! insufficient demand.

#ro)le 2

1. 1!,,, units 2. 2*!,,, lbs. &. =2.,1 per lb.

. 1!;,, lbs. *. &!1,, hours 5. =&.;: per hour

#ro)le %

Material mix variance: 6ctual quantity % Standard price 'aterial 6 C:!,,, % =,.&,0 =2!,, 'aterial B C2!,, % =,.2,0 :, 'aterial  C2!:,, % =,.2*0 1!1;, 9ess4 /otal actual input % 6#era"e Standard price C1&!2,, % ,.&,J0
F

= 82, 2!,,

=!,8, &!;5, = 11, F

=,.&,

Material yield variance: /otal actual input at 6#era"e Standard price 9ess4 /otal actual output at Standard raw material cost C1,!,,, % ,.&5JJ0
F

16-12

= 82, 2!,,,

F

=&!;5, &!5,, = &5,

=,.&5


#ro)le ' (Coprehensi*e &ariance Anal5sis" 8ournal Entries$

Requirement 1 a. 6ctual uantity of Inputs! at 6ctual =rice C6 E 6=0


Standard uan tity 6llowed for $utput! at Standard =rice CS E S=0

21!12, yards % =&.&* per yard

21!12, yards % =&.5, per yard

1;!2,, yardsJ % =&.5, per yard

F =8,!8*2

F =85!,&2

F =5;!12, uantity 3ariance! =5!;12 <

=rice 3ariance! =*!2:, )

/otal 3ariance! =1!5&2 < J !:,, units E ., yards per unit F 1;!2,, yards

6lternati#ely4 'aterials =rice 3ariance F 6 C6= G S=0 21!12, yards C=&.&* per yard G =&.5, per yard0 F =*!2:, ) 'aterials uantity 3ariance F S= C6 G S0 =&.5, per yard C21!12, yards G 1;!2,, yards0 F =5!;12 < Kaw 'aterials C21!12, yards P =&.5, per yard0.................................................... 85!,&2 'aterials =rice 3ariance C21!12, yards P =,.2* per yard )0............................................................. *!2:, 6ccounts =ayable C21!12, yards P =&.&* per yard0................................................................. 8,!8*2 Mork in =rocess C1;!2,, yards P =&.5, per yard0.................................................................................................................... 5;!12, 'aterials uantity 3ariance C1!;2, yards < P =&.5, per yard0....................................................................... 5!;12 Kaw 'aterials C21!12, yards P =&.5, per yard0........................................................................................................... 85!,&2 . 16-1%


Requirement 2 a. 6ctual >ours of Input! at the 6ctual Kate C6> E 6K0



5!82, hoursJ % =.:* per hour

5!82, hours % =.*, per hour

8!5:, hoursJJ % =.*, per hour

F =&2!*;2

F =&,!2,

F =&!*5, 7fficiency 3arian ce! =!&2, )

Kate 3ariance! =2!&*2 <

/otal 3ariance! =1!;5: )

J !:,, units E 1. hours per unit F 5!82, hours JJ !:,, units E 1.5 hours per unit F 8!5:, hours 6lternati#ely4 9abor Kate 3ariance F 6> C6K G SK0 5!82, hours C=.:* per hour G =.*, per hour0 F =2!&*2 < 9abor 7fficiency 3ariance F SK C6> G S>0 =.*, per hour C5!82, hours G 8!5:, hours0 F =!&2, ) Mork in =rocess C8!5:, hours P =.*, per hour0.................................................... &!*5, 9abor Kate 3ariance C5!82, hours P =,.&* per hour <0...................................................................... 2!&*2 9abor 7fficiency 3ariance C;5, hours ) P =.*, per hour0.................................................................. !&2, Ma"es =ayable C5!82, hours P =.:* per hour0............................................................................................................ &2!*;2

16-1'


Requirement 3 6ctual >ours of Input! at the 6ctual Kate C6> E 6K0



5!82, hours % =2.1* per hour

5!82, hours % =1.:, per hour

8!5:, hours % =1.:, per hour

=1!:

F =12!,;5

F =1&!:2

Spendin" 3ariance! =2!&*2 <

7fficiency 3arian ce! =1!82: )

/otal 3ariance! =52 <

6lternati#ely4 3ariable $#erhead Spendin" 3ariance F 6> C6K G SK0 5!82, hours C=2.1* per hour G =1.:, per hour0 F =2!&*2 < 3ariable $#erhead 7fficiency 3ariance F SK C6> G S>0 =1.:, per hour C5!82, hours G 8!5:, hours0 F =1!82: ) Requirement  No. /his total #ariance is made up of se#eral quite lar"e indi#idual #ariances! some of which may warrant in#esti"ation. 6 summary of #ariances is shown on the ne%t pa"e. 'aterials4 =rice #ariance uantity #ariance 9abor4 Kate #ariance 7fficiency #ariance 3ariable o#erhead4 Spendin" #ariance 7fficiency #ariance Net unfa#orable #ariance

=*!2:, ) 5!;12 <

=1!5&2 <

2!&*2 < !&2, )

1!;5: )

2!&*2 < 1!82: )

Requirement !

16-1+

52 < = 2:: <


/he #ariances ha#e many possible causes. Some of the more likely causes include4 Materials variances: )a#orable price #ariance4 )ortunate buy! inaccurate standards! inferior quality materials! unusual discount due to quantity purchased! drop in market price.
  6 B 6 B   B B

11. 12. 1&. 1. 1*. 15. 18. 1:. 1;. 2,.

B 6 B  6 A A 6 A B

21. 22. 2&. 2. 2*. 25. 28. 2:. 2;. &,.

16-16

6     A 7 B B 6

&1. &2. &&. &. &*. &5. &8. &:. &;. ,.

6 B B A B B  A A 6

1. 2. &. . *.

B  A 6 B

Chapter 16 - Answer

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