Chapter 10 Managerial Accounting

8/18/2019 Chapter 10 Managerial Accounting

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Chapter 10Standard Costs and Variances

Solutions to Questions

© The McGraw-Hill Companies, Inc., 2012. All rights reserve.

!ol"tions Man"al, Chapter 10 #$%



10-1 A &"antit' stanar inicates howm"ch o( an inp"t sho"l )e "se to ma*ea "nit o( o"tp"t. A price stanar inicateshow m"ch the inp"t sho"l cost.

10-2 Ieal stanars ass"me per(ection

an o not allow (or an' ine+cienc'. Iealstanars are rarel', i( ever, attaine.ractical stanars 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 ner management )' eception,managers (oc"s their attention on res"ltsthat eviate (rom epectations. It isass"me that res"lts that meetepectations o not re&"ire investigation.

10-4 !eparating an overall variance intoa price variance an a &"antit' varianceprovies more in(ormation. Moreover,price an &"antit' variances are "s"all'the responsi)ilities o( i/erent managers.

10-5 The materials price variance is"s"all' the responsi)ilit' o( the p"rchasingmanager. The materials &"antit' an la)ore+cienc' variances are "s"all' theresponsi)ilit' o( pro"ction managers ans"pervisors.

10-6 The materials price variance can )ecomp"te either when materials arep"rchase or when the' are place intopro"ction. It is "s"all' )etter to comp"tethe variance when materials arep"rchase )eca"se that is when thep"rchasing manager, who hasresponsi)ilit' (or this variance, hascomplete his or her wor*. In aition,recogniing the price variance whenmaterials are p"rchase allows thecompan' to carr' its raw materials in the

inventor' acco"nts at stanar cost, whichgreatl' simplies )oo**eeping.

10-7 This com)ination o( variances ma'inicate that in(erior &"alit' materialswere p"rchase at a isco"nte price, )"tthe low-&"alit' materials createpro"ction pro)lems.

10-8 I( stanars are "se to n who to)lame (or pro)lems, the' can )reeresentment an "nermine morale.!tanars sho"l not )e "se to nsomeone to )lame (or pro)lems.

10-9 !everal (actors other than thecontract"al rate pai to wor*ers can ca"sea la)or rate variance. or eample, s*illewor*ers with high ho"rl' rates o( pa' can)e given "ties that re&"ire little s*ill anthat 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 )eassigne 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 createpro"ction pro)lems, a res"lt co"l )eecessive la)or time an there(ore an"n(avora)le la)or e+cienc' variance. oor&"alit' materials wo"l not orinaril'a/ect the la)or rate variance.

10-11 I( overhea is applie on the )asiso( irect la)or-ho"rs, then the varia)leoverhea e+cienc' variance an theirect la)or e+cienc' variance will alwa's)e (avora)le or "n(avora)le together. 4oth

variances are comp"te )' comparing then"m)er o( irect la)or-ho"rs act"all'wor*e to the stanar ho"rs allowe.

That is, in each case the (orm"la is5

6+cienc' variance 7 !89AH : !H;

3nl' the <!8= part o( the (orm"la, thestanar rate, i/ers )etween the twovariances.

10-12 A statistical control chart is agraphical ai that helps ienti(' variances

that sho"l )e investigate. pper anlower limits are set on the control chart.An' variances (alling )etween those limitsare consiere to )e normal. An'variances (alling o"tsie o( those limits areconsiere a)normal an are investigate.

10-13 I( la)or is a e cost anstanars are tight, then the onl' wa' togenerate (avora)le la)or e+cienc'


!ol"tions Man"al, Chapter 10 #$$



variances is (or ever' wor*station topro"ce at capacit'. However, the o"tp"to( the entire s'stem is limite )' thecapacit' o( the )ottlenec*. I( wor*stations)e(ore the )ottlenec* in the pro"ctionprocess 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 atcapacit', then wor* in process inventor'will )"il "p in (ront o( the wor*stationswith the least capacit'.


!ol"tions Man"al, Chapter 10 #$>



Eercise 10-1 920 min"tes;

1. ?"m)er o( chopping )loc*s........................... #,000?"m)er o( )oar (eet per chopping )loc*..... @ 2.!tanar )oar (eet allowe......................... 10,000

!tanar cost per )oar (oot........................ @ B1.$0 Total stanar cost........................................ B1$,000

Act"al cost inc"rre...................................... B1$,%00!tanar cost a)ove..................................... 1$,000!pening variance"n(avora)le................... B %00

2.!tanar D"antit'

Allowe(or Act"al 3"tp"t,at !tanar rice

9!D @ !;

Act"al D"antit' o( Inp"t,

at !tanar rice9AD @ !;


at Act"al rice9AD @ A;

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

7 B1$,000

11,000 )oar (eet@

B1.$0 per )oar(oot

7 B1>,$00 B1$,%00

Materials &"antit'variance 7 B1,$00

Materials pricevariance 7 B1,100

!pening 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.




1. ?"m)er o( meals prepare............... ,000!tanar irect la)or-ho"rs per

meal............................................... @ 0.20

Total irect la)or-ho"rs allowe......... 1,200!tanar irect la)or cost per ho"r...@ B>.0

Total stanar irect la)or cost.........B11,#00

Act"al cost inc"rre..........................B11,00 Total stanar irect la)or cost

9a)ove;........................................... 11,#00

!pening variance............................ B 100n(avora)le

2.!tanar Ho"rs

Allowe(or Act"al 3"tp"t,at !tanar 8ate

9!H @ !8;

Act"al Ho"rs o( Inp"t,

at !tanar 8ate9AH @ !8;


at Act"al 8ate9AH @ A8;

1,200 ho"rs @B>.0 per ho"r

7 B11,#00

1,10 ho"rs @B>.0 per ho"r

7 B10,>2

1,10 ho"rs @B10.00 per ho"r

7 B11,00

a)or e+cienc'variance7 B#%

a)or rate variance

7 B% !pening variance 7 B100


a)or e+cienc' variance 7 !89AH : !H;7 B>.0 per ho"r 91,10 ho"rs : 1,200 ho"rs;7 B#%

a)or rate variance 7 AH9A8 : !8;7 1,10 ho"rs 9B10.00 per ho"r : B>.0 per ho"r;7 B%




1. ?"m)er o( items shippe.......................... 1#0,000!tanar irect la)or-ho"rs per item........ @ 0.0#

Total irect la)or-ho"rs allowe................. ,00

!tanar varia)le overhea cost per ho"r @ B2.$0 Total stanar varia)le overhea cost....... B1,$0

Act"al varia)le overhea cost inc"rre..... B1,>0 Total stanar varia)le overhea cost

9a)ove;................................................... 1,$0

!pening variance.................................... B 2%0n(avora)le

2.

!tanar Ho"rsAllowe

(or Act"al 3"tp"t,at !tanar 8ate

9!H @ !8;





,00 ho"rs @B2.$0 per ho"r

7 B1,$0

,$00 ho"rs @B2.$0 per ho"r

7 B1,2#0

,$00 ho"rs @B2.% per ho"rE

7 B1,>0

aria)le overhea

e+cienc' variance7 B0

aria)le overhea

rate variance7 B2>0

!pening variance 7 B2%0

EB1,>0 F ,$00 ho"rs 7 B2.% per ho"r


aria)le overhea e+cienc' variance 7 !89AH : !H;7 B2.$0 per ho"r 9,$00 ho"rs : ,00 ho"rs;7 B0

aria)le overhea rate variance 7 AH9A8 : !8;7 ,$00 ho"rs 9B2.% per ho"r : B2.$0 per ho"r;7 B2>0



Eercise 10-4 9J0 min"tes;

1. ?"m)er o( "nits man"(act"re..................... 20,000!tanar la)or time per "nit

9 min"tes F 0 min"tes per ho"r;............ @ 0.10

Total stanar ho"rs o( la)or time allowe.... 2,000!tanar irect la)or rate per ho"r............... @ B2#.00

Total stanar irect la)or cost..................... B#$,000

Act"al irect la)or cost................................. B#>,J00!tanar irect la)or cost............................. #$,000!pening variance"n(avora)le................... B 1,J00

2.!tanar Ho"rs


9!H @ !8;





2,000 ho"rsE @B2#.00 per ho"r

7 B#$,000

2,12 ho"rs @B2#.00 per ho"r

7 B1,000 B#>,J00

a)or e+cienc'variance

7 BJ,000

a)or rate variance

7 B1,%00 !pening variance 7 B1,J00

E20,000 "nits @ 0.10 ho"r per "nit 7 2,000 ho"rs


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



Eercise 10-4 9contin"e;

J.!tanar Ho"rs

Allowe


9!H @ !8;

Act"al Ho"rs o(

Inp"t,at !tanar 8ate

9AH @ !8;

Act"al Ho"rs o(

Inp"t,at Act"al 8ate

9AH @ A8;2,000 ho"rs @B1.00 per ho"r

7 BJ2,000


7 BJ#,000 BJ>,100

aria)le overheae+cienc' variance

7 B2,000

aria)le overhearate variance7 B,100

!pening variance 7 B%,100


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




1. I( the total la)or spening variance is BJJ0 "n(avora)le, an i(the la)or rate variance is B10 (avora)le, then the la)ore+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&"althe total la)or spening 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#$0EEB12 per ho"r @ AH 7 BJ,000AH 7 20 ho"rs

E 1$ )atches @ 1.2 ho"rs per )atch 7 210 ho"rsEE hen "se with the (orm"la, "n(avora)le variances are

positive an (avora)le variances are negative.

2. Lnowing that 20 ho"rs o( la)or time were "se "ring thewee*, the act"al rate o( pa' per ho"r can )e comp"te as(ollows5

a)or rate variance 7 AH 9A8 : !8;

20 ho"rs 9A8 : B12 per ho"r; 7 B10 20 ho"rs @ A8 : BJ,000 7 -B10E20 ho"rs @ A8 7 B2,$0A8 7 B11.#0 per ho"r

E hen "se with the (orm"la, "n(avora)le variances arepositive an (avora)le variances are negative.




An alternative approach wo"l )e to wor* (rom *nown to"n*nown ata in the col"mnar moel (or variance anal'sis5

!tanar Ho"rsAllowe


9!H @ !8;





210 ho"rsN @B12.00 per ho"rE

7 B2,20

20 ho"rs @B12.00 per ho"rE

7 BJ,000

20 ho"rs @B11.#0 per ho"r

7 B2,$0

a)or e+cienc'

variance7 B#$0

a)or rate variance

7 B10 E!pening variance 7 BJJ0 E

N1$ )atches @ 1.2 ho"rs per )atch 7 210 ho"rsEGiven




1.!tanar D"antit'

Allowe

(or Act"al 3"tp"t,at !tanar rice

9!D @ !;

Act"al D"antit' o(

Inp"t,at !tanar rice

9AD @ !;

Act"al D"antit' o(

Inp"t,at Act"al rice

9AD @ A;1$,000 o"ncesE @B2.0 per o"nce

7 B#,000

20,000 o"nces @B2.0 per o"nce

7 B0,000

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

7 B#$,000

Materials &"antit'variance 7 B,000


!pening variance 7 BJ,000

E2,00 "nits @ %.2 o"nces per "nit 7 1$,000 o"nces


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




2.!tanar Ho"rs

Allowe


9!H @ !8;

Act"al Ho"rs o(


9AH @ !8;

Act"al Ho"rs o(


9AH @ A8;1,000 ho"rsE @B10.00 per ho"r

7 B10,000

>00 ho"rs @B10.00 per ho"r

7 B>,000 B10,$00


7 B1,000

a)or rate variance

7 B1,$00

!pening variance 7 B$00

E2,00 "nits @ 0.# ho"r per "nit 7 1,000 ho"rs


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




?otice in the sol"tion )elow that the materials price variance iscomp"te on the entire amo"nt o( materials p"rchase, whereasthe materials &"antit' variance is comp"te onl' on the amo"nt

o( materials "se in pro"ction.

!tanar D"antit'Allowe (or Act"al

3"tp"t,at !tanar rice

9!D @ !;

Act"al D"antit'o( Inp"t,




1#,#00 o"ncesE @ B2.0 per o"nce

7 BJ,000


7 B#0,000

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

7 B#$,000Materials &"antit'

variance 7 B#,000


7 B0,000

Materials pricevariance

7 B2,000

E2,000 )ottles @ %.2 o"nces per )ottle 7 1#,#00 o"nces


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



Eercise 10-8 9J0 min"tes;

1. a. Notice in the solution below that the materials price variance is computed on theentire amount of materials purchased, whereas the materials quantity variance is computed onlyon the amount of materials used in production.



9!D @ !;





#0,000 ioesE @ B0.J0 per ioe

7 B12,000

0,000 ioes @ B0.J0 per ioe

7 B1,000

%0,000 ioes @ B0.2$ per ioe

7 B1>,00

Materials &"antit'variance 7 BJ,000

%0,000 ioes @ B0.J0 per ioe

7 B21,000


7 B1,#00

E,000 to's @ $ ioes per to' 7 #0,000 ioes


Materials &"antit' variance 7 ! 9AD : !D;7 B0.J0 per ioe 90,000 ioes : #0,000 ioes;7 BJ,000

Materials price variance 7 AD 9A : !;7 %0,000 ioes 9B0.2$ per ioe : B0.J0 per ioe;

7 B1,#00




b. Direct labor variances:

!tanar Ho"rsAllowe


9!H @ !8;





J,000 ho"rsE @B1#.00 per ho"r

7 B#2,000

J,200 ho"rs @B1#.00 per ho"r

7 B##,$00 B#$,000


7 B2,$00

a)or rate variance

7 BJ,200 !pening variance 7 B,000

E,000 to's @ 0. ho"rs per to' 7 J,000 ho"rs


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




2. A variance "s"all' has man' possi)le eplanations. Inpartic"lar, we sho"l alwa's *eep in min that the stanarsthemselves ma' )e incorrect. !ome o( the other possi)le

eplanations (or the variances o)serve at Topper To's appear)elow5

Materials Price VarianceO!ince this variance is (avora)le, theact"al price pai per "nit (or the material was less than thestanar price. This co"l occ"r (or a variet' o( reasons incl"ingthe p"rchase o( a lower grae material at a isco"nt, )"'ing inan "n"s"all' large &"antit' to ta*e avantage o( &"antit'isco"nts, a change in the mar*et price o( the material, anpartic"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 thanwere calle (or )' the stanar. This co"l also occ"r (or avariet' o( reasons. !ome o( the possi)ilities incl"e poorl'traine or s"pervise wor*ers, improperl' aP"ste machines,an e(ective materials.

Labor Rate VarianceO!ince this variance is "n(avora)le, theact"al average wage rate was higher than the stanar wagerate. !ome o( the possi)le eplanations incl"e an increase in

wages that has not )een reQecte in the stanars,"nanticipate overtime, an a shi(t towar more highl' paiwor*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 stanarla)or ho"rs allowe (or the act"al o"tp"t. As with the othervariances, this variance co"l have )een ca"se )' an' o( an"m)er o( (actors. !ome o( the possi)le eplanations incl"epoor s"pervision, poorl' traine wor*ers, low-&"alit' materials

re&"iring more la)or time to process, an machine )rea*owns.In aition, i( the irect la)or (orce is essentiall' e, an"n(avora)le la)or e+cienc' variance co"l )e ca"se )' are"ction in o"tp"t "e to ecrease eman (or the compan'Rspro"cts.



!ro"le# 10-9 9# min"tes;

1. a.

!tanar D"antit'

Allowe (or Act"al3"tp"t,at !tanar rice

9!D @ !;

Act"al D"antit'

o( Inp"t,at !tanar rice9AD @ !;

Act"al D"antit'

o( Inp"t,at Act"al rice9AD @ A;

20,000 po"nsE @B2.0 per po"n

7 B0,000

1>,$00 po"ns @ B2.0 per po"n

7 B#>,00

2,000 po"ns @B2.> per po"n

7 B%J,%0

Materials &"antit'variance 7 B00

2,000 po"ns @B2.0 per po"n

7 B2,00


7 B11,20

E,000 ingots @ #.0 po"ns per ingot 7 20,000 po"ns


Materials &"antit' variance 7 ! 9AD : !D;7 B2.0 per po"n 91>,$00 po"ns : 20,000 po"ns;7 B00

Materials price variance 7 AD 9A : !;7 2,000 po"ns 9B2.> per po"n : B2.0 per po"n;7 B11,20



!ro"le# 10-9 9contin"e;

1. ).

!tanar Ho"rs


9!H @ !8;

Act"al Ho"rs o( Inp"t,at !tanar 8ate

9AH @ !8;

Act"al Ho"rs o( Inp"t,at Act"al 8ate

9AH @ A8;J,000 ho"rsE @B>.00 per ho"r

7 B2%,000

J,00 ho"rs @B>.00 per ho"r

7 BJ2,#00

J,00 ho"rs @B$.%0 per ho"r

7 BJ1,J20


7 B,#00

a)or rate variance

7 B1,0$0 !pening variance 7 B#,J20

E,000 ingots @ 0. ho"r per ingot 7 J,000 ho"rs


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




1. c.

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;1,00 ho"rsE @B2.00 per ho"r

7 BJ,000

1,$00 ho"rs @B2.00 per ho"r

7 BJ,00 B#,J20


7 B00

aria)le overhearate variance

7 B%20 !pening variance 7 B1,J20

E,000 ingots @ 0.J ho"rs per ingot 7 1,00 ho"rs


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 B00

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




2. !"mmar' o( variances5

Material &"antit' variance............... B 00

Material price variance.................... 11,20 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"sethe plantRs varia)le cost o( goos sol to increase (rom the

)"gete level o( B$0,000 to B>,J>054"gete cost o( goos sol at B1 per

ingot.......................................................... B$0,000A the net "n(avora)le variance 9as

a)ove;....................................................... 1,J>0Act"al cost o( goos sol............................. B>,J>0

This B1,J>0 net "n(avora)le variance also acco"nts (or thei/erence )etween the )"gete net operating income an theact"al net loss (or the month.

4"gete net operating income..................B1,00

0Se"ct the net "n(avora)le variance ae

to cost o( goos sol (or the month........... 1,J>0?et operating loss....................................... B91,J>0;

J. The two most signicant variances are the materials pricevariance an the la)or e+cienc' variance. ossi)le ca"ses o(

the variances incl"e5Materials price

variance53"tate stanars, "neconomical

&"antit' p"rchase, higher &"alit'materials, high-cost metho o(transport.

a)or e+cienc' oorl' traine wor*ers, poor &"alit'




1. The stanar &"antit' o( plates allowe (or tests per(orme"ring the month wo"l )e5

!mears.............................. 2,%004loo tests........................ >00 Total.................................. J,00lates per test................... @ J!tanar &"antit' allowe. 10,$00

The variance anal'sis (or plates wo"l )e5


3"tp"t,

at !tanar rice9!D @ !;


at !tanar rice

9AD @ !;


at Act"al rice

9AD @ A;

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 plate7 B#0,000


7 B1,00


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.




?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 stanar cost

allowe (or plates. This variance ma' )e the res"lt o( "sing tooman' 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,%00tests.................................................. $10

4loo tests5 0. ho"r per test @ >00tests.................................................. #0

Total stanar ho"rs allowe............... 1,J0

The variance analysis of labor would be:

!tanar Ho"rsAllowe


9!H @ !8;





1,J0 ho"rs @B12 per ho"r7 B1,200

1,$00 ho"rs @B12 per ho"r7 B21,00 B1$,#0


7 B,#00

a)or rate variance

7 BJ,10 !pening variance 7 B2,20


a)or e+cienc' variance 7 !8 9AH : !H;7 B12 per ho"r 91,$00 ho"rs : 1,J0 ho"rs;7 B,#00

a)or rate variance 7 AH 9A8 : !8;7 1,$00 ho"rs 9B10.2 per ho"rE : B12.00 per ho"r;7 BJ,10 EB1$,#0 F 1,$00 ho"rs 7 B10.2 per ho"r




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 thanother hospitals, this savings is more than offset by other factors. Too much time is being ta$en in performing lab tests, as indicated by the large unfavorable labor efficiency variance. nd, it seemsli$ely that most %or all& of the hospital's unfavorable quantity variance for plates is traceable toinadequate supervision of assistants in the lab.

J. The varia)le overhea variances (ollow5

!tanar Ho"rsAllowe


9!H @ !8;





1,J0 ho"rs @B.00 per ho"r7 B$,100

1,$00 ho"rs @B.00 per ho"r7 B10,$00 B11,%00


7 B2,%00


7 B>00 !pening variance 7 BJ,00

Alternativel', the variances can )e comp"te "sing the

(orm"las5aria)le overhea e+cienc' variance 7 !8 9AH : !H;

7 B per ho"r 91,$00 ho"rs : 1,J0 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 stanar ho"rs allowe (orthe o"tp"t o( the perio. Th"s, i( there is an "n(avora)le la)ore+cienc' variance, there will also )e an "n(avora)le varia)leoverhea e+cienc' variance.




1. a. (n the solution below, the materials price variance is computed on the entireamount of materials purchased, whereas the materials quantity variance is computed only on theamount of materials used in production:



9!D @ !;





#,00 po"nsE @B.00 per po"n

7 B2%,000

,000 po"ns @ B.00 per po"n

7 BJ,000 B#,000

Materials &"antit'

variance 7 B>,000

$,000 po"ns @B.00 per po"n

7 B#$,000


7 B2,000

EJ,000 "nits @ 1. po"ns per "nit 7 #,00 po"ns


Materials &"antit' variance 7 ! 9AD : !D;7 B per po"n 9,000 po"ns : #,00 po"ns; 7 B>,000

Materials price variance 7 AD 9A : !;7 $,000 po"ns 9B.% per po"nE : B.00 per po"n; 7

B2,000 EB#,000 F $,000 po"ns 7 B.% per po"n

b. No, the contract should probably not be signed. lthough the new supplier is offering thematerial at only !#."# per pound, the large materials quantity variance indicates a problem usingthese materials is production. The company still has 2,))) pounds of unused material in thewarehouse* if these materials do as poorly in production as the +,))) pounds already used, thetotal quantity variance on the ,))) pounds of materials purchased will be very large.




2. a.

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;1,$00 ho"rsE @B12.00 per ho"r

7 B21,00

1,00 ho"rsEE @B12.00 per ho"r

7 B1>,200

1,00 ho"rsEE @B12.0 per ho"r

7 B20,000


7 B2,#00

a)or rate variance

7 B$00 !pening variance 7 B1,00

E J,000 "nits @ 0. ho"rs per "nit 7 1,$00 ho"rsEE 10 wor*ers @ 10 ho"rs per

wor*er 7 1,00 ho"rs


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 averagehourly labor cost from !12.)) to !12.#), resulting in an !)) unfavorable labor rate variance, thisis more than offset by greater efficiency of labor time. Notice that the labor efficiency variance is!2,/)) favorable. Thus, the new labor mi reduces overall labor costs.




J.

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;1,$00 ho"rs @B2.0 per ho"r

7 B#,00


7 B#,000 BJ,00


7 B00


7 B#00 !pening variance 7 B>00


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 B00

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 overheae+cienc' variance are comp"te )' comparing act"al la)or-ho"rs to stanar 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.




1. c.

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;10,$00 ho"rsE @B.00 per ho"r

7 B#,000

11,#00 ho"rsEE @B.00 per ho"r

7 B%,000

11,#00 ho"rsEE @B#.0 per ho"r

7 B2,##0


7 BJ,000


7 B#,0 !pening variance 7 B1,0

E 12,000 "nits @ 0.>0 ho"rs per "nit 7 10,$00ho"rs

EE12,000 "nits @ 0.> ho"rs per "nit 7 11,#00

ho"rs


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;....................................................... B0.1rice variance 9B#,200 F 12,000 "nits;... 0 .J

B0.20

a)or5

6+cienc' variance 9B10,$00 F 12,000"nits;.......................................................

0.>0



8ate variance 9B,$#0 F 12,000 "nits;.... 0 .%

0.JJ

aria)le overhea56+cienc' variance 9BJ,000 F 12,000"nits;.......................................................

0.2

8ate variance 9B#,0 F 12,000 "nits;.... 0 .J$

0.1J

6cess o( act"al over stanar cost per "nit B0.#0




J. 4oth the la)or e+cienc' an varia)le overhea e+cienc'variances are a/ecte )' ine+cient "se o( la)or time.

6cess o( act"al over stanar cost per "nit B0.#0ess portion attri)"ta)le to la)or

ine+cienc'5a)or e+cienc' variance............................ 0.>0 aria)le overhea e+cienc' variance......... 0.2 1.1

ortion "e to other variances.................... B0.%

In s"m, ha it not )een (or the apparent ine+cient "se o( la)ortime, 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 ecess o( act"al cost over stanar 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( thevariances are signicant. The materials price variance is B#,200, the la)or e+cienc' variance is B10,$00 , the la)or ratevariance is B,$#0 , the varia)le overhea e+cienc' variance

is BJ,000 , an the varia)le rate variance is B#,0 . Ta*entogether, the two variances that reQect apparent ine+cient "seo( the la)or time total B1J,$00 . 6ach o( these variances ma'warrant ("rther investigation.




1. a. 0aterials price variance %3 4 53&

,000 po"ns 9B2.% per po"nE : !; 7 B1,00 EEB1,00 : ,000 po"ns @ ! 7 B1,00EEE

,000 po"ns @ ! 7 B1$,000! 7 BJ.00 per po"n

EB1,00 F ,000 po"ns 7 B2.% per po"nEEB1,200 V W 7 BJ00 X B1,200 : B1,00 7 BJ00

EEEhen "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"ns : !D; 7 B1,200 B1$,000 : BJ.00 per po"n @ !D 7 B1,200EBJ.00 per po"n @ !D 7 B1,$00!D 7 ,00 po"ns

Ehen "se with the (orm"la, "n(avora)le variancesare positive an (avora)le variances are negative.

Alternative approach to parts 9a; an 9);5

!tanar D"antit'


9!D @ !;





,00 po"ns @BJ.00 per po"n

7 B1,$00

,000 po"nsE @BJ.00 per po"n

7 B1$,000 B1,00E

Materials &"antit'variance 7 B1,200 E


!pening variance 7 BJ00 E

EGiven.

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




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%,000AH 7 J,000 ho"rs

E1,#00 "nits @ 2. ho"rs per "nit 7 J,00 ho"rsEEhen "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!tanar Ho"rs


9!H @ !8;





J,00 ho"rsEEE @B>.00 per ho"rEE

7 BJ1,00

J,000 ho"rs @B>.00 per ho"rEE

7 B2%,000

J,000 ho"rs @B>.0 per ho"rE

7 B2$,00E


7 B#,00 E

a)or rate variance

7 B1,00 !pening variance 7 BJ,000

E B2$,00 total la)or cost F J,000 ho"rs 7 B>.0 per ho"rEE Given

EEE 1,#00 "nits @ 2. ho"rs per "nit 7 J,00 ho"rs



!ro"le# 10-14 90 min"tes;

1. Total stanar cost (or "nits pro"ce "ring A"g"st500 *its @ B#2 per *it................................................ B21,000

ess stanar cost o( la)or an overhea5

Sirect la)or................................................................. 9$,000;aria)le man"(act"ring overhea............................... 91,00;!tanar cost o( materials "se "ring A"g"st............ B11,#00

2. !tanar cost o( materials "se "ring A"g"st 9a;....... B11,#00?"m)er o( "nits pro"ce 9);...................................... 00!tanar materials cost per *it 9a; F 9);...................... B22.$0

!tanar materials cost per *it B22.$0 per *it7 7J.$ 'ars per *it

!tanar materials cost per 'ar BG per 'ar

J. !ince there were no )eginning or ening inventories o(materials, all o( the materials that were p"rchase "ring theperio were "se in pro"ction. There(ore, the s"m o( the pricean &"antit' variances e&"als the spening variance, which isthe i/erence )etween the act"al cost an stanar cost o(materials "se in pro"ction.

Act"al cost o( material "se........ B10,000

!tanar cost o( material "se.. . 11,#00!pening variance...................... B 1,#00

As isc"sse a)ove, in this case the price an &"antit' variancestogether e&"al the spening variance. I( the &"antit' variance isB00 , then the price variance m"st )e B2,0005

Materials price variance.............. B 2,000 Materials &"antit' variance......... 00 !pening variance...................... B 1,#00





!tanar D"antit'Allowe(or Act"al 3"tp"t,at !tanar rice

9!D @ !;





1,>00 'arsEE @B per 'arE7 B11,#00

2,000 'ars @B per 'arE7 B12,000

2,000 'ars @B per 'ar7 B10,000E

Materials &"antit'

variance 7 B00 E

Materials price

variance 7 B2,000

!pening variance 7 B1,#00

EGiven.

EE00 *its @ J.$ 'ars per *it 7 1,>00

'ars

#. The rst step in comp"ting the stanar irect la)or rate is toetermine the stanar irect la)or-ho"rs allowe (or the

monthRs pro"ction. The stanar irect la)or-ho"rs can )ecomp"te )' wor*ing with the varia)le man"(act"ringoverhea cost g"res )eca"se the' are )ase on irect la)or-ho"rs wor*e5

!tanar man"(act"ring varia)le overhea cost(orA"g"st 9a;........................................................... B1,00

!tanar man"(act"ring varia)le overhea rateperirect la)or-ho"r 9);............................................ B2

!tanar irect la)or-ho"rs (or the month 9a; F9);....................................................................... $00



Total stanar la)or cost (or the month B$,0007

Total stanar irect la)or-ho"rs (or the month $00 SHs

7 B10 per SH




. 4e(ore the la)or variances can )e comp"te, the act"al irectla)or cost (or the month m"st )e comp"te5

Act"al cost per *it pro"ce 9B#2.00 VB0.1#;......................................................... B #2.1#?"m)er o( *its pro"ce............................... @ 00

Total act"al cost o( pro"ction...................... B21,0%0ess5 Act"al cost o( materials........................ B10,000

Act"al cost o( man"(act"ring varia)leoverhea............................................ 1,20 11,20

Act"al cost o( irect la)or............................. B >,#0

ith this in(ormation, the variances can )e comp"te5

!tanar Ho"rsAllowe


9!H @ !8;





B$,000E

>00 ho"rsE @B10 per ho"r

7 B>,000 B>,#0


7 B1,000

a)or rate variance

7 B#0 !pening variance 7 B1,#0

EGiven.




.

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;

B1,00E

>00 ho"rsE @B2 per ho"rE

7 B1,$00 B1,20E


7 B200


7 B1$0 !pening variance 7 B20

EGiven.

%. !tanarD"antit' orHo"rs per

Lit!tanar

rice or 8ate

!tanarCost per

LitSirect materials............ J.$ 'ars1 B per 'ar B22.$0

Sirect la)or................... 1. ho"rs

2

B10 per ho"r

J

1.00aria)le man"(act"ringoverhea.................... 1. ho"rs B 2 per ho"r J.20

Total stanar cost per*it............................... B#2.00

1rom part 2.2$00 ho"rs 9(rom part #; F 00 *its 7 1. ho"rs per *it.Jrom part #.




This is a ver' i+c"lt pro)lem that is harer than it loo*s. 4e s"re'o"r st"ents have )een thoro"ghl' <chec*e o"t= in thevariance (orm"las )e(ore assigning it.

1.

!tanar D"antit'Allowe

(or Act"al 3"tp"t,at !tanar rice

9!D @ !;





,00 'arsEE @B.0 per 'arE

7 BJ,#00

,000 'ars @B.0 per 'arE

7 BJ>,000 BJ,000

Materials &"antit'variance 7 B2,00

Materials pricevariance 7 BJ,000

!pening variance 7 B#00

EB1$.20 F 2.$ 'ars 7 B.0 per 'ar.EE2,000 "nits @ 2.$ 'ars per "nit 7 ,00 'ars


Materials &"antit' variance 7 ! 9AD : !D;7 B.0 per 'ar 9,000 'ars : ,00 'ars;7 B2,00

Materials price variance 7 AD 9A : !;7 ,000 'ars 9B.00 per 'arE : B.0 per 'ar;7 BJ,000 EBJ,000 F ,000 'ars 7 B.00 per 'ar




2. Man' st"ents will miss parts 2 an J )eca"se the' will tr' to"se product costs as i( the' were hourly costs. a' partic"larattention to the comp"tation o( the stanar irect la)or time

per "nit an the stanar irect la)or rate per ho"r.

!tanar Ho"rsAllowe


9!H @ !8;





$00 ho"rsEE @B> per ho"rE

7 B%,200

%0 ho"rs @B> per ho"rE

7 B,$#0 B%,00

a)or e+cienc'variance7 BJ0

a)or rate variance

B%0 !pening variance 7 B#00

E %$0 stanar ho"rs F 1,>0 ro)es 7 0.# stanar ho"rper ro)e

BJ.0 stanar cost per ro)e F 0.# stanar ho"rs 7 B>stanar rate per ho"r

EE2,000 ro)es @ 0.# stanar ho"r per ro)e 7 $00 stanar

ho"rs


a)or e+cienc' variance 7 !8 9AH : !H;7 B> per ho"r 9%0 ho"rs : $00 ho"rs;7 BJ0

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




J.

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;$00 ho"rs @

BJ.00 per ho"rE7 B2,#00

%0 ho"rs @BJ.00 per ho"rE

7 B2,2$0 BJ,$00


7 B120


7 B1,20 !pening variance 7 B1,#00

EB1.20 stanar cost per ro)e F 0.# stanar ho"rs 7BJ.00 stanar rate per ho"r


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




1.StandardQuantity

or Hours

Standard Price

or Rate

Standar

d Cost Alpha$5Sirect materialsYJ#2. 1.$ *ilos BJ.0 per *ilo B .J0Sirect materialsU1. 2.0 liters B1.#0 per liter 2.$0Sirect la)or!intering. . 0.20

ho"rsB20.00 per

ho"r#.00

Sirect la)orinishing. . 0.$0ho"rs

B1>.00 perho"r

1.20

Total.............................. B2$.J0

Zeta>5Sirect materialsYJ#2. J.0 *ilos BJ.0 per *ilo B10.0Sirect materialsU1. #. liters B1.#0 per liter .J0Sirect la)or!intering. . 0.J

ho"rsB20.00 per

ho"r%.00

Sirect la)orinishing. . 0.>0ho"rs

B1>.00 perho"r

1%.10

Total.............................. B#0.>0



!ro"le# 10-16 9contin"e;g)

2. The comp"tations to (ollow will re&"ire the stanar &"antitiesallowe (or the act"al o"tp"t (or each material.

Standard Quantity AllowedMaterial YJ#25ro"ction o( Alpha$ 91.$ *ilos per "nit @ 1,00"nits;.......................................................................

2,%00 *ilos

ro"ction o( Zeta> 9J.0 *ilos per "nit @ 2,000"nits;.......................................................................

,000 *ilos

Total......................................................................... $,%00 *ilos

Material U15ro"ction o( Alpha$ 92.0 liters per "nit @ 1,00"nits;.......................................................................

J,000 liters

ro"ction o( Zeta> 9#. liters per "nit @ 2,000"nits;.......................................................................

>,000liters

Total......................................................................... 12,000liters

Sirect Materials ariancesMaterial 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 EB1,$00 F 1#,000 *ilos 7 BJ.%0 per *ilo

Sirect Materials ariancesMaterial U15

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




J. The comp"tations to (ollow will re&"ire the stanar &"antitiesallowe (or the act"al o"tp"t (or irect la)or in eachepartment.

Standard Hours Allowed!intering5ro"ction o( Alpha$ 90.20 ho"rs per "nit @ 1,00"nits;.......................................................................

J00 ho"rs

ro"ction o( Zeta> 90.J ho"rs per "nit @ 2,000"nits;.......................................................................

%00 ho"rs

Total......................................................................... 1,000ho"rs

inishing5ro"ction o( Alpha$ 90.$0 ho"rs per "nit @ 1,00"nits;.......................................................................

1,200ho"rs

ro"ction o( Zeta> 90.>0 ho"rs per "nit @ 2,000"nits;.......................................................................

1,$00ho"rs

Total......................................................................... J,000ho"rs

Sirect a)or ariances!intering5


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 ariancesinishing5

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



Case 10-17 90 min"tes;

1. The n"m)er o( "nits pro"ce can )e comp"te )' "sing thetotal stanar cost applie (or the perio (or any inp"t materials, la)or, or varia)le overhea. sing the stanar cost

applie (or materials, we have5

Total stanar cost applie BG0$,0007 71>,000 "nits

!tanar cost per "nit BJ2.00 per "nit

The same answer can )e o)taine )' "sing an' other costinp"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 etaileanal'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 etaileanal'sis.

. B1%,000X see the (ollowing pages (or a etaile anal'sis.



Case 10-17 9contin"e;

Sirect materials anal'sis5

!tanar D"antit'


9!D @ !;

Act"al D"antit' o( Inp"t,at !tanar rice

9AD @ !;

Act"al D"antit' o( Inp"t,at Act"al rice

9AD @ A;J$,000 metersE @ B1.00 per meter

7 B0$,000

#0,000 metersEE @ B1.00 per meter

7 B#0,000

#0,000 meters @B1.%1 per meterEEE

7 B2$,#00

Materials &"antit'variance 7 BJ2,000

Materials pricevariance 7

B11,00 E 1>,000 "nits @ 2.0 meters per "nit 7 J$,000

meters

EEB#0,000 F B1.00 per meter 7 #0,000

meters

EEEB2$,#00 F #0,000 meters 7 B1.%1 per

meter

Sirect la)or anal'sis5

!tanar Ho"rsAllowe


9!H @ !8;





1>,000 ho"rsE@ B1.00 per ho"r

7 B2$,000

20,000 ho"rs @B1.00 per ho"r

7 BJ00,000

20,000 ho"rs @B1.20 per ho"r

7 BJ0#,000

a)or e+cienc'

variance7 B1,000

a)or rate variance

7 B#,000

E 1>,000 "nits @ 1.0 ho"rs per "nit 7 1>,000ho"rs

EE BJ00,000 F B1.00 per ho"r 7 20,000 ho"rsEEE BJ0#,000 F 20,000 ho"rs 7 B1.20 per ho"r



Case 10-17 9contin"e;

aria)le overhea anal'sis5

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;1>,000 ho"rs @B>.00 per ho"r

7 B1%1,000

20,000 ho"rs @B>.00 per ho"r

7 B1$0,000 B1%,000E


7 B>,000


7 B#,000 E B1$0,000 : B#,000 7 B1%,000



$ppendi 10$!redeter#ined %&erhead 'ates and%&erhead $nal(sis in a StandardCostin) S(ste#

Eercise 10$-1 91 min"tes;

1. The total overhea cost at the enominator level o( activit'm"st )e etermine )e(ore the preetermine overhea ratecan )e comp"te.

Total e overhea cost per 'ear......................... B00,000 Total varia)le overhea cost

9BJ.0 per SH @ $0,000 SHs;.......................... 2$0,000 Total overhea cost at the enominator level o(

activit'................................................................B$$0,00

0

3verhea at the enominator level o( activit'reetermine7overhea rate Senominator level o( activit'

B$$0,0007 7B11.00 per SH$0,000 SHs

2. !tanar irect la)or-ho"rs allowe(or the act"al o"tp"t 9a;................ $2,000 SHs

reetermine overhea rate 9);..... B11.00 per SH3verhea applie 9a; @ 9);.............. B>02,000




1.ie overheaie portion o( the 7

preetermine overhea rate Senominator level o( activit'

B#00,00070,000 SHs

7 B$.00 per SH

2.4"get Act"al e 4"gete e 7 -variance overhea cost overhea cost

7 BJ>#,000 - B#00,000

7 BG,000

9 ;ie portion o(

Iol"me Senominator !tanar ho"rs 7 the preetermine @ -variance ho"rs alloweoverhea rate

7 B$.00 per SH 90,000 SHs - #$,000 SHs;

7 B1G,000




1. Total overhea at theenominator activit'reetermine 7

overhea rate Senominator activit'

B1.G0 per SH @ 2#,000 per SH V B$#,0007

2#,000 SHs

B122,#007

2#,000 SHs

7 B.10 per SH

aria)le element5 9B1.0 per SH @ 2#,000 SH; F 2#,000SHs 7 BJ$,#00 F 2#,000 SHs 7 B1.0 per SH

ie element5 B$#,000 F 2#,000 SHs 7 BJ.0 per SH

2. Sirect materials, 2 po"ns @ B#.20 per po"n........... B $.#0Sirect la)or, J SHsE @ B12.0 per SH.................... J%.$0aria)le man"(act"ring overhea, J SHs @ B1.0

per SH................................................................... #.$0

ie man"(act"ring overhea, J SHs @ BJ.0 perSH......................................................................... 10.0 Total stanar cost per "nit........................................ B1.0

E2#,000 SHs F $,000 "nits 7 J SHs per "nit




1. B1.0 per MH @ $,000 MHs V B2#,$00reetermine 7overhea rate $,000 MHs

BJJ,2007$,000 MHs

7 B#.1 per MH

Iaria)le portion o( B1.0 per MH @ $,000 MHsthe preetermine 7

$,000 MHsoverhea rate

B$,#007

$,000 MHs

7 B1.0 per MH

ie portion o( B2#,$00the preetermine 7

$,000 MHsoverhea rate

7 BJ.10 per MH

2. The stanar ho"rs per "nit o( pro"ct are5$,000 MHs F J,200 "nits 7 2. MHs per "nit

The stanar ho"rs allowe (or the act"al pro"ction wo"l )e5J,00 "nits @ 2. MHs per "nit 7 $,%0 MHs

J. aria)le overhea variances5aria)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 B22.0



Eercise 10$-6 9contin"e;

ie overhea )"get an vol"me variances5

ie 3verhea

Applie to or* inrocess 4"gete ie3verhea Act"al ie3verhea$,%0 stanar MHs

@ BJ.10 per MH7 B2%,12 B2#,$00E B2,100

ol"me variance7 B2,J2

4"get variance7 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 Act"al ie 4"gete ie7 -Iariance 3verhea Cost 3verhea Cost

7 B2,100 - B2#,$00

7 BJ00

Alternative approach to the vol"me variance5

9 ;ie ortion o(

Iol"me Senominator !tanar Ho"rs7the reetermine -Iariance Ho"rs Allowe3verhea 8ate

7 BJ.10 per MH 9$,000 MHs - $,%0 MHs;

7 B2,J2




1. 10,000 "nits @ 0.$ SH per "nit 7 $,000 SHs.

2. an J.

ie 3verheaApplie to or* in

rocess4"gete ie

3verheaAct"al ie3verhea

$,000 stanar SHs@ B.00 per SHE

7 B#$,000 B#,000 B#,00E

ol"me variance7 BJ,000 E

4"get variance7 B00

EGiven.

#. 4"gete e overhea costie cost element o( the 7preetermine overhea rate Senominator activit'

B#,0007

Senominator activit'

7BG.00 per SH

There(ore, the enominator activit' was B#,000 F B.00 perSH 7 %,00 SHs.



!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 'ars : $0,000 'arsE;7 B%,000

Materials price variance 7 AD 9A : !;7 %$,000 'ars 9BJ.% per 'ar : BJ.0 per 'ar;7 B1>,00

E20,000 "nits @ # 'ars per "nit 7 $0,000 'ars

2. Sirect la)or rate an e+cienc' variances5


7 B12.00 per SH 9J2,00 SHs : J0,000 SHsE;7 BJ0,000

a)or rate variance 7 AH 9A8 : !8;7 J2,00 SHs 9B11.$0 per SH : B12.00 per SH;7 B,00

E20,000 "nits @ 1. SHs per "nit 7 J0,000 SHs

J. a. aria)le man"(act"ring overhea spening an e+cienc'variances5

!tanar Ho"rsAllowe


9!H @ !8;





J0,000 SHs @ B2 per SH7 B0,000

J2,00 SHs @ B2 per SH7 B,000 B$,20

aria)le overheae+cienc' variance7 B,000

aria)le overhearate variance7 BJ,20



!ro"le# 10$-8 9contin"e;

Alternative sol"tion5

aria)le overhea e+cienc' variance 7 !8 9AH : !H;

7 B2.00 per SH 9J2,00 SHs : J0,000 SHs;7 B,000

aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8;7 9B$,20; : 9J2,00 SHs @ B2.00 per SH;7 BJ,20

;. b. <ied overhead variances:


rocess

4"gete ie

3verhea

Act"al ie

3verheaJ0,000 SHs @B per SH7 B1$0,000 B10,000 B1#$,000

ol"me variance7 BJ0,000

4"get variance7 B2,000


9 ;9 ;

ie ortion o( Iol"me Senominator !tanar Ho"rs7the reetermine -Iariance Ho"rs Allowe3verhea 8ate

7BG.00 per SH 2,000 SHs : J0,000 SHs

7 BJ0,000

4"get Act"al ie lei)le 4"get ie7 -Iariance 3verhea Cost 3verhea Cost

7B1#$,000 : B10,000

7B2,000




#. 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 overheavariances56+cienc' variance.................................. ,000 8ate variance.......................................... J,20

ie man"(act"ring overhea variances5

ol"me variance..................................... J0,000 4"get variance...................................... 2,000

Total o( variances...................................... B12,20

?otice that the total o( the variances agrees with the B12,20"n(avora)le variance mentione )' the vice presient.

It appears that not ever'one sho"l )e given a )on"s (or goocost control. The materials price variance an the la)ore+cienc' variance are %.1 an $.J, respectivel', o( the

stanar cost allowe an th"s wo"l warrant investigation. Inaition, the varia)le overhea spening variance is .0 o(the stanar cost allowe.

The reason the compan'Rs large "n(avora)le variances 9(ormaterials price an la)or e+cienc'; o not show "p moreclearl' is that the' are o/set )' the compan'Rs (avora)levol"me variance (or the 'ear. This (avora)le vol"me variance isthe res"lt o( the compan' operating at an activit' level that iswell a)ove the enominator activit' level "se to setpreetermine overhea rates. 9The compan' operate at anactivit' level o( J0,000 stanar SHsX the enominatoractivit' level set at the )eginning o( the 'ear was 2,000SHs.; As a res"lt o( the large (avora)le vol"me variance, the"n(avora)le price an e+cienc' variances have )eenconceale in a small <net= g"re. inall', the large (avora)levol"me variance ma' have )een achieve )' )"iling "p



inventories.



!ro"le# 10$-9 90 min"tes;

1. an 2. Per Direct LaborHour Variabl

e !i"ed #otal

Senominator o( #0,000 SHs5B2.0 B 2.0

B$.00 $.00 Total preetermine rate............... B10.0

Senominator o( 0,000 SHs5B2.0 B 2.0

B.#0 .#0 Total preetermine rate............... B $.>0

J. Deno$inator Acti%ity&'()((( DLHs

Deno$inator Acti%ity&*()((( DLHs

Sirect materials, J'ars @ B.00 per'ar..........................

B1.00 !ame............................

B1.00

Sirect la)or, 2. SHs@ B20.00 per SH..... 0.00 !ame............................ 0.00

aria)le overhea, 2.

SHs @ B2.0 perSH.......................... .2 !ame............................ .2ie overhea, 2.

SHs @ B$.00 perSH.......................... 20.00

ie overhea, 2.SHs @ B.#0 perSH............................ 1.00

Total stanar cost per"nit...........................

B>1.2

Total stanar cost per"nit............................

B$%.2

#. a. 1$,00 "nits @ 2. SHs per "nit 7 #,20 stanar SHs

).

Man"(act"ring 3verhea

Act"alcosts

##,00

Applie costs 9#,20stanar SHsE @B10.0 per SH; #$,2

3verapplie overhea J>,12



ESetermine in 9a;.!ro"le# 10$-9 9contin"e;

#. c.!tanar Ho"rs

Allowe


9!H @ !8;

Act"al Ho"rs o(


9AH @ !8;

Act"al Ho"rs o(


9AH @ A8;#,20 SHs @B2.0 per SH

7 B11,2

#$,000 SHs @B2.0 per SH

7 B120,000 B12#,$00


7 B#,J%

aria)le overhearate variance7 B#,$00

Alternative sol"tion5aria)le overhea e+cienc' variance 7 !8 9AH : !H;

7 B2.0 per SH 9#$,000 SHs : #,20 SHs;7 B#,J%

aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8;7 9B12#,$00; : 9#$,000 SHs @ B2.0 per SH;7 B#,$00

ie overhea variances5


rocess4"gete ie


#,20 stanarSHs @

B$.00 per SH7 BJ%0,000 BJ20,000E BJ21,%00

ol"me variance7 B0,000

4"get variance7 B1,%00

E#0,000 enominator SHs @ B$ per SH 7 BJ20,000.




. The maPor isavantage o( "sing normal activit' as theenominator in the preetermine rate is the large vol"mevariance that orinaril' res"lts. This occ"rs )eca"se the

enominator activit' "se to comp"te the preetermineoverhea rate is i/erent (rom the activit' level that isanticipate (or the perio. In the case at han, the compan'has "se the normal activit' o( #0,000 irect la)or-ho"rs tocomp"te the preetermine overhea rate, whereas activit' (orthe perio was epecte to )e 0,000 SHs. This has res"ltein a large (avora)le vol"me variance that ma' )e i+c"lt (ormanagement to interpret. In aition, the large (avora)levol"me variance in this case has mas*e the (act that the

compan' i not achieve the )"gete level o( activit' (or theperio. The compan' ha planne to wor* 0,000 SHs, )"tmanage to wor* onl' #,20 SHs 9at stanar;. This"n(avora)le res"lt is conceale "e to "sing a enominatorg"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, managementRsecisions are not clo"e )' "nit costs that P"mp "p an ownas the activit' level rises an (alls.



!ro"le# 10$-10 9# min"tes;

1. [J1,00 V [%2,000 Total rate5 7[.% per MH

1$,000 MHs

[J1,00Iaria)le element5 7[1.% per MH1$,000 MHs

[%2,000ie element5 7[#.00 per MH

1$,000 MHs

2. 1,000 stanar MHs @ [.% per MH 7 [>2,000

J. aria)le man"(act"ring overhea variances5

!tanar Ho"rsAllowe


9!H @ !8;





1,000 MHs @ [1.% per MH

7 [2$,000

1,000 MHs @[1.% per MH

7 [2,20 [2,00

aria)le overheae+cienc' variance7 [1,%0

aria)le overhearate variance7 [20


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 [20





ie 3verhea

Applie to or* inrocess 4"gete ie3verhea Act"al ie3verhea1,000 MHs @

[# per MH7 [#,000 [%2,000 [%0,000

ol"me variance7 [$,000

4"get variance7 [2,000


9 ;

9 ;

ie ortion o( Iol"me Senominator !tanar Ho"rs 7 the reetermine -Iariance Ho"rs Allowe3verhea 8ate

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

7 [$,000

4"get Act"al ie lei)le 4"get ie 7 -Iariance 3verhea Cost 3verhea Cost

7 [%0,000 : [%2,000

7 [2,000

erication o( variances5aria)le overhea e+cienc' variance.... .. [1,%0 aria)le overhea rate variance............... 20 ie overhea vol"me variance.............. $,000 ie overhea )"get variance............... 2,000

nerapplie overhea............................ [#,00




#. aria)le overhea

Variable o%erhead rate %ariance& This variance incl"es )oth

price an &"antit' elements. The overhea spening variancereQects i/erences )etween act"al an stanar prices (orvaria)le overhea items. It also reQects i/erences )etweenthe amo"nts o( varia)le overhea inp"ts that were act"all'"se an the amo"nts that sho"l have )een "se (or theact"al o"tp"t o( the perio. 4eca"se the varia)le overheaspening variance is "n(avora)le, either too m"ch was pai (orvaria)le overhea items or too man' o( them were "se.

Variable o%erhead efciency %ariance& The term <varia)leoverhea e+cienc' variance= is a misnomer, )eca"se thevariance oes not meas"re e+cienc' in the "se o( overheaitems. It meas"res the inirect e/ect on varia)le overhea o(the e+cienc' or ine+cienc' with which the activit' )ase is"tilie. In this compan', machine-ho"rs is the activit' )ase. I(varia)le overhea is reall' proportional to machine-ho"rs, thenmore e/ective "se o( machine-ho"rs has the inirect e/ect o(re"cing varia)le overhea. 4eca"se 1,000 (ewer machine-ho"rs were re&"ire than inicate )' the stanars, theinirect e/ect was pres"ma)l' to re"ce varia)le overhea

spening )' a)o"t [1,%0 9[1.% per machine-ho"r @ 1,000machine-ho"rs;.

ie overhea

!i"ed o%erhead bud+et %ariance& This variance is simpl' thei/erence )etween the )"gete e cost an the act"ale cost. In this case, the variance is (avora)le, whichinicates that act"al e costs were lower than anticipate inthe )"get.

!i"ed o%erhead %olu$e %ariance& This variance occ"rs as ares"lt o( act"al activit' )eing i/erent (rom the enominatoractivit' that was "se in the preetermine overhea rate. Inthis case, the variance is "n(avora)le, so act"al activit' wasless than the enominator activit'. It is i+c"lt to place m"cho( a meaning("l economic interpretation on this variance. Ittens to )e large, so it o(ten swamps the other, more



meaning("l variances i( the' are simpl' nette against eachother.



!ro"le# 10$-11 9# min"tes;

1. B2#0,000 Total5 7B$.00 per SH

J0,000 SHs

BG0,000Iaria)le5 7B2.00 per SHJ0,000 SHs

B1$0,000ie5 7BG.00 per SH

J0,000 SHs

2. Sirect materials5 # (eet @ BJ.00 per (oot.... .. B12.00Sirect la)or5 1. SHs @ B12.00 per SH...... 1$.00aria)le overhea5 1. SHs @ B2.00 per

SH............................................................ J.00ie overhea5 1. SHs @ B.00 per SH. . >.00!tanar cost per "nit.................................. B#2.00

J. a. 22,000 "nits @ 1. SHs per "nit 7 JJ,000 stanar SHs.

).

Man"(act"ring 3verhea

Act"alcosts

2##,000

Applie costs

9JJ,000 stanarSHs @ B$.00 perSH; 2#,000

3verapplieoverhea

20,000

#. aria)le overhea variances5

!tanar Ho"rsAllowe


9!H @ !8;

Act"al Ho"rs o(


9AH @ !8;

Act"al Ho"rs o(


9AH @ A8;JJ,000 SHs @

B2 per SH7 B,000

J,000 SHs @B2 per SH7 B%0,000 BJ,000




7 B#,000


7 B%,000





aria)le overhea e+cienc' variance 7 !8 9AH : !H;

7 B2.00 per SH 9J,000 SHs : JJ,000 SHs;7 B#,000

aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8;7 9BJ,000; : 9J,000 SHs @ B2.00 per SH;7 B%,000



rocess

4"gete ie

3verhea

Act"al ie

3verheaJJ,000 SHs @

B per SH7 B1>$,000 B1$0,000 B1$1,000

ol"me variance7 B1$,000

4"get variance7 B1,000


9 ;9 ;

ie ortion o(

Iol"me Senominator !tanar Ho"rs 7 the reetermine -Iariance Ho"rs Allowe3verhea 8ate

7 BG per SH J0,000 SHs : JJ,000 SHs

7 B1$,000

4"get Act"al ie lei)le 4"get ie 7 -Iariance 3verhea Cost 3verhea Cost

7 B1$1,000 : B1$0,000

7 B1,000




!"mmar' o( variances5aria)le overhea e+cienc' variance....... . B #,000 aria)le overhea rate variance................. %,000

ie overhea vol"me variance................ 1$,000 ie overhea )"get variance................. 1,000 3verapplie overheasee part J.............. B20,000

. 3nl' the vol"me variance wo"l have change. It wo"l have)een "n(avora)le, )eca"se the stanar SHs allowe (or the'earRs pro"ction 9JJ,000 SHs; wo"l have )een less than theenominator SHs 9J,000 SHs;.



!ro"le# 10$-12 9J0 min"tes;

1. Sirect materials, # po"ns @ B2.0 per po"n.............. B10.#0Sirect la)or, 2 SHs @ B>.00 per SH........................... 1$.00aria)le man"(act"ring overhea, 2 SHs @ BJ.$0 per

SHE........................................................................... %.0ie man"(act"ring overhea, 2 SHs @ B%.00 per

SHEE......................................................................... 1#.00!tanar cost per "nit.................................................. B0.00

E BJ#,200 F >,000 SHs 7 BJ.$0 per SHEE BJ,000 F >,000 SHs 7 B%.00 per SH

2. Materials variances5

Materials &"antit' variance 7 ! 9AD : !D;7 B2.0 per po"n 920,000 po"ns : 1>,200 po"nsE;7 B2,0$0 E#,$00 "nits @ # po"ns per "nit 7 1>,200 po"ns

Materials price variance 7 AD 9A : !;7 J0,000 po"ns 9B2.0 per po"n : B2.0 per po"n;7 BJ,000

a)or variances5


7 B>.00 per SH 910,000 SHs : >,00 SHsE;7 BJ,00 E#,$00 "nits @ 2 SHs per "nit 7 >,00 SHs

a)or rate variance 7 AH 9A8 : !8;7 10,000 SHs 9B$.0 per SH : B>.00 per SH;7 B#,000




J. aria)le man"(act"ring overhea variances5

!tanar Ho"rs


9!H @ !8;


9AH @ !8;


9AH @ A8;>,00 SHs @

BJ.$0 per SH7 BJ,#$0

10,000 SHs @ BJ.$0 per SH

7 BJ$,000 BJ,>00


7 B1,20


7 B2,100 !pening variance 7 B$0


aria)le overhea e+cienc' variance 7 !8 9AH : !H;7 BJ.$0 per SH 910,000 SHs : >,00 SHs;7 B1,20

aria)le overhea rate variance 7 9AH @ A8; : 9AH @ !8;7 9BJ,>00; : 910,000 SHs @ BJ.$0 per SH;7 B2,100

ie man"(act"ring overhea variances5


rocess4"gete ie


>,00 SHs @B% per SH7 B%,200 BJ,000 B#,$00

ol"me variance7 B#,200

4"get variance7 B1,$00





9 ;9 ;

ie ortion o( Iol"me Senominator !tanar Ho"rs

7 the reetermine -Iariance Ho"rs Allowe3verhea 8ate

7 B% per SH >,000 SHs : >,G00 SHs

7 B#,200

4"get Act"al ie 4"gete ie 7 -Iariance 3verhea Cost 3verhea Cost

7 BG#,$00 : BGJ,000

7 B1,$00

#. The choice o( a enominator activit' level a/ects stanar "nitcosts in that the higher the enominator activit' level chosen,the lower stanar "nit costs will )e. The reason is that thee portion o( overhea costs is sprea over more "nits as theenominator activit' increases.

The vol"me variance cannot )e controlle )' controlling

spening. The vol"me variance simpl' reQects whether act"alactivit' 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

Eercise 10*-1 920 min"tes;

1. The general leger entr' to recor the p"rchase o( materials (orthe month is5

8aw Materials91,000 meters at B.#0 per meter;........... $1,000

Materials rice ariance

91,000 meters at B0.20 per meter ;........ J,000Acco"nts a'a)le91,000 meters at B.0 per meter;...... $#,000

2. The general leger entr' to recor the "se o( materials (or themonth is5

or* in rocess912,000 meters at B.#0 per meter;........... #,$00

Materials D"antit' ariance9100 meters at B.#0 per meter ;........ #0

8aw Materials911,>00 meters at B.#0 per meter;...... #,20

J. The general leger entr' to recor the inc"rrence o( irectla)or cost (or the month is5

or* in rocess 92,000 ho"rs at B1#.00 perho"r;........................................................... 2$,000

a)or 8ate ariance91,>0 ho"rs at B0.20 per ho"r ;.............. J>0

a)or 6+cienc' ariance90 ho"rs at B1#.00 per ho"r ;............. %00

ages a'a)le91,>0 ho"rs at B1#.20 per ho"r;........... 2%,>0



Eercise 10*-2 9# min"tes;

1. a.



9!D @ !;





,20 (eetE @B.00 per (oot

7 BJ1,00

,000 (eet @ B.00 per (oot

7 BJ,000

%,000 (eet @B.% per (oot

7 B#0,20

Materials &"antit'variance 7 B#,00

%,000 (eet @B.00 per (oot

7 B#2,000


7 B1,%0

E1,00 "nits @ J. (eet per "nit 7 ,20 (eet


Materials &"antit' variance 7 ! 9AD : !D;7 B.00 per (oot 9,000 (eet : ,20 (eet;7 B#,00

Materials price variance 7 AD 9A : !;7 %,000 (eet 9B.% per (oot : B.00 per (oot;7 B1,%0



Eercise 10*-2 9contin"e;

b. The =ournal entries would be:

8aw Materials 9%,000 (eet @ B.00 per (oot; #2,000Materials rice ariance

9%,000 (eet @ B0.2 per (oot;............. 1,%0Acco"nts a'a)le

9%,000 (eet @ B.% per (oot;................ #0,20

or* in rocess 9,20 (eet @ B.00 per(oot;........................................................... J1,00

Materials D"antit' ariance9%0 (eet @ B.00 per (oot;.................... #,00

8aw Materials 9,000 (eet @ B.00 per(oot;...................................................... J,000

2. a.

!tanar Ho"rsAllowe


9!H @ !8;





00 ho"rsE @B10 per ho"r

7 B,000

%2 ho"rs @B10 per ho"r

7 B%,20 B$,120a)or e+cienc'

variance7 B1,20

a)or rate variance

7 B$%0

!pening 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"las5a)or e+cienc' variance 7 !8 9AH : !H;

7 B10.00 per ho"r 9%2 ho"rs : 00 ho"rs;7 B1,20

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



Eercise 10*-2 9contin"e;

b. The =ournal entry would be:

or* in rocess 900 ho"rs @ B10.00 perho"r;............................................................. ,000

a)or 8ate ariance9%2 ho"rs @ B1.20 per ho"r;.................... $%0

a)or 6+cienc' ariance912 ho"rs @ B10.00 per ho"r;.................. 1,20

ages a'a)le 9%2 ho"rs @ B11.20 perho"r;........................................................ $,120

J. The entries are5 9a; p"rchase o( materialsX 9); iss"e o( materialsto pro"ctionX an 9c; inc"rrence o( irect la)or cost.

8aw Materials Acco"nts a'a)le9a;

#2,000 9);J,00

09a;

#0,20

4al. ,0001

Materials rice ariance ages a'a)le

9a;1,%0 9c

;$,120

Materials D"antit' ariance a)or 8ate ariance9); #,00 9c; $%0

or* in rocess a)or 6+cienc' ariance9); J1,002 9c; 1,209c; ,000J

11,000 (eet o( material at a stanar cost o( B.00 per (oot2Materials "seJ

a)or cost



!ro"le# 10*-3 9% min"tes;

1. a.



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 B0,000


7 BJ,000

E,000 "nits @ .0 (eet per "nit 7 J,000 (eet


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 90,000 (eet \ B1.00 per

(oot;............................................................ 0,000Materials rice ariance

90,000 (eet \ B0.0 per (oot ;............ J,000Acco"nts a'a)le

90,000 (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;.................. 2,0008aw Materials 9J$,000 (eet \ B1.00 per

(oot;....................................................... J$,000



!ro"le# 10*-3 9contin"e;

2. a.

!tanar Ho"rsAllowe


9!H @ !8;

Act"al Ho"rs o(


9AH @ !8;

Act"al Ho"rs o(


9AH @ A8;,000 ho"rsEE @B#.0 per ho"r

7 B2%,000

,00 ho"rsE @B#.0 per ho"r

7 B2>,20 B2%,>0


7 B2,20

a)or rate variance

7 B1,J00

!pening variance 7 B>0

EThe act"al ho"rs wor*e "ring the perio can )ecomp"te thro"gh the varia)le overhea e+cienc'variance, as (ollows5

!8 9AH : !H; 7 6+cienc' varianceBJ per ho"r 9AH : ,000 ho"rsEE; 7 B1,00 BJ per ho"r @ AH : B1$,000 7 B1,00EEEBJ per ho"r @ AH 7 B1>,00

AH 7 ,00 ho"rsEE,000 "nits @ 1.0 ho"r per "nit 7 ,000 ho"rs

EEEhen "se with the (orm"la, "n(avora)le variances arepositive an (avora)le variances are negative.


a)or e+cienc' variance 7 !8 9AH : !H;7 B#.0 per ho"r 9,00 ho"rs : ,000 ho"rs;

7 B2,20

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




). or* in rocess9,000 ho"rs \ B#.0 per ho"r;.............. 2%,000

a)or 6+cienc' ariance

900 ho"rs \ B#.0 per ho"r;............. 2,20a)or 8ate ariance

9,00 ho"rs \ B0.20 per ho"r ;...... 1,J00ages a'a)le

9,00 ho"rs \ B#.J0 per ho"r;......... 2%,>0

;. a.

!tanar Ho"rsAllowe


9!H @ !8;





,000 ho"rs @BJ.00 per ho"r

7 B1$,000

,00 ho"rs @BJ.00 per ho"r

7 B1>,00 B20,#%


7 B1,00


7 B>%

!pening variance 7 B2,#%


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




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 whenthe direct labor efficiency variance is favorable. The variable manufacturing overhead efficiencyvariance is the same as the direct labor efficiency variance ecept that the difference betweenactual hours and the standard hours allowed for the output is multiplied by a different rate. (f thedirect labor efficiency variance is favorable, the variable manufacturing overhead efficiencyvariance must also be favorable.

#. !or $aterials&

<avorable price variance: Decrease in outside purchase prices, fortunate buy, inferior qualitymaterials, unusual discounts due to quantity purchased, inaccurate standards.

@nfavorable quantity variance: (nferior quality materials, carelessness, poorly ad=usted machines,uns$illed wor$ers, inaccurate standards.

For labor:

<avorable rate variance: @ns$illed wor$ers %paid lower rates&, piecewor$, inaccurate standards.

@nfavorable efficiency variance: 3oorly trained wor$ers, poor quality materials, faultyequipment, wor$ interruptions, fied labor with insufficient demand to $eep them all busy,inaccurate standards.

For variable overhead:

@nfavorable rate variance: (ncrease in supplier prices, inaccurate standards, waste, theft ofsupplies.

@nfavorable efficiency variance: 5ee comments under direct labor efficiency variance.



'ar;........................................................ 2




2. a.

!tanar Ho"rsAllowe


9!H @ !8;

Act"al Ho"rs o(


9AH @ !8;

Act"al Ho"rs o(


9AH @ A8;%,$0 ho"rsEE @B#.0 per ho"r

7 BJ#,0

,%20 ho"rs @B#.0 per ho"r

7 BJ0,2#0

,%20 ho"rsE @B#.$ per ho"r

7 BJ2,>2


7 B#,J20

a)or rate variance

7 B2,J2

!pening variance 7 B1,>$

E#,$00 "nits @ 1.# ho"rs per "nit 7 ,%20ho"rs

EE#,$00 "nits @ 1. ho"rs per "nit 7 %,$0

ho"rs



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,J2

).or* in rocess 9%,$0 ho"rs \ B#.0 per

ho"r;............................................................. J#,0a)or 8ate ariance

9,%20 ho"rs \ B0.J per ho"r ;................. 2,J2a)or 6+cienc' ariance

9>0 ho"rs \ B#.0 per ho"r;............... #,J20ages a'a)le 9,%20 ho"rs \ B#.$ per

ho"r;........................................................ J2,>2




. The variances have man' possi)le ca"ses. !ome o( the moreli*el' ca"ses incl"e5

Materials %ariances&

avora)le price variance5 Goo price, inacc"rate stanars,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' aP"stemachines, "ns*ille wor*ers, in(erior &"alit' materials,inacc"rate stanars.

Labor %ariances&

n(avora)le rate variance5 se o( highl' s*ille wor*ers,change in wage rates, inacc"rate stanars, overtime.

avora)le e+cienc' variance5 se o( highl' s*ille wor*ers,high-&"alit' materials, new e&"ipment, inacc"rate stanars.

Variable o%erhead %ariances&

n(avora)le rate variance5 Increase in costs, inacc"ratestanars, 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 itre&"ires loo*ing at stanar costs (rom an entirel' i/erentperspective. In this case, stanar costs have )een

inappropriatel' "se as a means to manip"late reporte earningsrather than as a wa' to control costs.

1. ansing has evientl' set ver' loose stanars in which thestanar prices an stanar &"antities are (ar too high. Thisg"arantees that (avora)le variances will orinaril' res"lt (romoperations. I( the stanar costs are set articiall' high, thestanar cost o( goos sol will )e articiall' high an th"s theivisionRs net operating income will )e epresse "ntil the

(avora)le variances are recognie. I( ansing saves the(avora)le variances, he can release P"st eno"gh in the seconan thir &"arters to show some improvement an then he canrelease all o( the rest in the last &"arter, creating the ann"al<Christmas present.=

2. ansing sho"l not )e permitte to contin"e this practice (orseveral reasons. irst, it istorts the &"arterl' earnings (or )oththe ivision an the compan'. The istortions o( the ivisionRs&"arterl' earnings are tro")ling )eca"se the manip"lations

ma' mas* real signs o( tro")le. The istortions o( thecompan'Rs &"arterl' earnings are tro")ling )eca"se the' ma'mislea eternal "sers o( the nancial statements. !econ,ansing sho"l not )e reware (or manip"lating earnings. Thissets a moral tone in the compan' that is li*el' to lea to eveneeper tro")le. Inee, the permissive attit"e o( topmanagement towar the manip"lation o( earnings ma' inicatethe eistence o( other, even more serio"s, ethical pro)lems inthe compan'. Thir, a clear message sho"l )e sent to ivision

managers li*e ansing that their Po) is to manage theiroperations, not their earnings. I( the' *eep on top o( operationsan manage well, the earnings sho"l ta*e care o( themselves.

Chapter 10 Managerial Accounting

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Transcript of Chapter 10 Managerial Accounting