51
CHAPTER 25 STANDARD COSTS AND BALANCED SCORECARD SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT True-False Statements 1. 1 K 9. 3 C 17. 3 C 25. 4 C sg 33. 3 K 2. 1 K 10. 3 K 18. 4 K 26. 5 K sg 34. 4 K 3. 1 C 11. 3 C 19. 4 C 27. 6 C sg 35. 4 C 4. 1 K 12. 3 K 20. 4 K 28. 9 C sg 36. 5 K 5. 2 C 13. 3 K 21. 4 K 29. 9 C sg 37. 6 K 6. 3 C 14. 3 C 22. 4 K 30. 9 C sg 38. 7 K 7. 3 K 15. 3 K 23. 4 C sg 31. 1 K 8. 3 C 16. 3 K 24. 4 C sg 32. 2 K Multiple Choice Questions 39. 1 K 62. 3 K 85. 4 AP 108. 4 AP 131. 7 K 40. 1 K 63. 3 C 86. 4 AP 109. 4 AP 132. 7 K 41. 1 C 64. 3 C 87. 4 AP 110. 4 AP 133. 7 K 42. 1 C 65. 3 K 88. 4 AP 111. 4 AP 134. 8 K 43. 1 C 66. 3 C 89. 4 AP 112. 4 AP 135. 8 K 44. 1 K 67. 4 AP 90. 4 AP 113. 4 AP 136. 8 K 45. 1 K 68. 4 C 91. 4 AP 114. 4 AP a 137. 9 AP 46. 2 C 69. 4 C 92. 4 AP 115. 5 AP a 138. 9 C 47. 2 C 70. 4 K 93. 4 C 116. 5 AP st 139. 2 K 48. 2 C 71. 4 AP 94. 4 C 117. 5 K st 140. 3 K 49. 2 C 72. 4 AP 95. 4 C 118. 5 K st 141. 3 K 50. 2 C 73. 4 C 96. 4 C 119. 5 C sg 142. 4 K 51. 3 K 74. 4 AP 97. 4 C 120. 5 C sg 143. 4 K 52. 3 K 75. 4 AP 98. 4 C 121. 5 K st 144. 4 K 53. 3 K 76. 4 AP 99. 4 K 122. 5 K sg 145. 4 C 54. 3 K 77. 4 K 100. 4 AP 123. 5 K st 146. 5 K 55. 3 K 78. 4 K 101. 4 AP 124. 5 K sg 147. 5 K 56. 3 K 79. 4 C 102. 4 AP 125. 5 C sg 148. 6 K 57. 3 K 80. 4 K 103. 4 AP 126. 5 C sg,a 149. 9 K 58. 3 C 81. 4 K 104. 4 AP 127. 6 K 59. 3 K 82. 4 AP 105. 4 AP 128. 6 K 60. 3 C 83. 4 K 106. 4 AP 129. 6 C 61. 3 C 84. 4 K 107. 4 AP 130. 7 C Brief Exercises 150. 1 AP 152. 4 AP 154. 5 AP 156. 5 AP a 158. 9 AP 151. 3 AP 153. 4 AP 155. 5 AP 157. 5 AP a 159. 9 AP sg This question also appears in the Study Guide. st This question also appears in a self-test at the student companion website. a This question covers a topic in an appendix to the chapter.

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  • CHAPTER 25

    STANDARD COSTS AND BALANCED SCORECARD

    SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

    True-False Statements 1. 1 K 9. 3 C 17. 3 C 25. 4 C sg33. 3 K2. 1 K 10. 3 K 18. 4 K 26. 5 K sg34. 4 K 3. 1 C 11. 3 C 19. 4 C 27. 6 C sg35. 4 C 4. 1 K 12. 3 K 20. 4 K 28. 9 C sg36. 5 K 5. 2 C 13. 3 K 21. 4 K 29. 9 C sg37. 6 K 6. 3 C 14. 3 C 22. 4 K 30. 9 C sg38. 7 K 7. 3 K 15. 3 K 23. 4 C sg31. 1 K 8. 3 C 16. 3 K 24. 4 C sg32. 2 K

    Multiple Choice Questions 39. 1 K 62. 3 K 85. 4 AP 108. 4 AP 131. 7 K40. 1 K 63. 3 C 86. 4 AP 109. 4 AP 132. 7 K 41. 1 C 64. 3 C 87. 4 AP 110. 4 AP 133. 7 K 42. 1 C 65. 3 K 88. 4 AP 111. 4 AP 134. 8 K 43. 1 C 66. 3 C 89. 4 AP 112. 4 AP 135. 8 K 44. 1 K 67. 4 AP 90. 4 AP 113. 4 AP 136. 8 K 45. 1 K 68. 4 C 91. 4 AP 114. 4 AP a137. 9 AP 46. 2 C 69. 4 C 92. 4 AP 115. 5 AP a138. 9 C 47. 2 C 70. 4 K 93. 4 C 116. 5 AP st139. 2 K 48. 2 C 71. 4 AP 94. 4 C 117. 5 K st140. 3 K 49. 2 C 72. 4 AP 95. 4 C 118. 5 K st141. 3 K 50. 2 C 73. 4 C 96. 4 C 119. 5 C sg142. 4 K 51. 3 K 74. 4 AP 97. 4 C 120. 5 C sg143. 4 K 52. 3 K 75. 4 AP 98. 4 C 121. 5 K st144. 4 K 53. 3 K 76. 4 AP 99. 4 K 122. 5 K sg145. 4 C 54. 3 K 77. 4 K 100. 4 AP 123. 5 K st146. 5 K 55. 3 K 78. 4 K 101. 4 AP 124. 5 K sg147. 5 K 56. 3 K 79. 4 C 102. 4 AP 125. 5 C sg148. 6 K 57. 3 K 80. 4 K 103. 4 AP 126. 5 C sg,a149. 9 K 58. 3 C 81. 4 K 104. 4 AP 127. 6 K 59. 3 K 82. 4 AP 105. 4 AP 128. 6 K 60. 3 C 83. 4 K 106. 4 AP 129. 6 C 61. 3 C 84. 4 K 107. 4 AP 130. 7 C

    Brief Exercises 150. 1 AP 152. 4 AP 154. 5 AP 156. 5 AP a158. 9 AP151. 3 AP 153. 4 AP 155. 5 AP 157. 5 AP a159. 9 AP

    sg This question also appears in the Study Guide. st This question also appears in a self-test at the student companion website. a This question covers a topic in an appendix to the chapter.

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    SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises

    160. 3 AP 165. 4 AP 170. 4,5 AP 175. 5 AP 180. 5,9 AP161. 4 AP 166. 4 AP 171. 4,6,9 AP 176. 5 AP 181. 7 AP 162. 4 AP 167. 4,5 AN 172. 4,9 AP 177. 5 AP a182. 9 AP 163. 4 AP 168. 4,5 AN 173. 4,9 AP 178. 5 AP 164. 4 AP 169. 4,5 AP 174. 4,9 AP 179. 5 AP

    Completion Statements 183. 1 K 185. 4 K 187. 4 K 189. 5 K 191. 5 K184. 3 K 186. 4 K 188. 5 K 190. 5 K 192. 6 K

    SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Item Type

    Study Objective 1 1. TF 3. TF 31. TF 40. MC 42. MC 44. MC 150. BE 2. TF 4. TF 39. MC 41. MC 43. MC 45. MC 183. C

    Study Objective 2 5. TF 46. MC 48. MC 50. MC

    32. TF 47. MC 49. MC 139. MC Study Objective 3

    6. TF 11. TF 16. TF 53. MC 58. MC 63. MC 141. MC 7. TF 12. TF 17. TF 54. MC 59. MC 64. MC 151. BE 8. TF 13. TF 33. TF 55. MC 60. MC 65. MC 160. Ex 9. TF 14. TF 51. MC 56. MC 61. MC 66. MC 184. C

    10. TF 15. TF 52. MC 57. MC 62. MC 140. MC Study Objective 4

    18. TF 69. MC 81. MC 93. MC 105. MC 144. MC 169. Ex 19. TF 70. MC 82. MC 94. MC 106. MC 145. MC 170. Ex 20. TF 71. MC 83. MC 95. MC 107. MC 152. BE 171. Ex 21. TF 72. MC 84. MC 96. MC 108. MC 153. BE 172. Ex 22. TF 73. MC 85. MC 97. MC 109. MC 161. Ex 173. Ex 23. TF 74. MC 86. MC 98. MC 110. MC 162. Ex 174. Ex 24. TF 75. MC 87. MC 99. MC 111. MC 163. Ex 185. C 25. TF 76. MC 88. MC 100. MC 112. MC 164. Ex 186. C 34. TF 77. MC 89. MC 101. MC 113. MC 165. Ex 187. C 35. TF 78. MC 90. MC 102. MC 114. MC 166. Ex 67. MC 79. MC 91. MC 103. MC 142. MC 167. Ex 68. MC 80. MC 92. MC 104. MC 143. MC 168. Ex

    Study Objective 5 26. TF 118. MC 123. MC 147. MC 167. Ex 176. Ex 188. C 36. TF 119. MC 124. MC 154. BE 168. Ex 177. Ex 189. C

    115. MC 120. MC 125. MC 155. BE 169. Ex 178. Ex 190. C 116. MC 121. MC 126. MC 156. BE 170. Ex 179. Ex 191. C 117. MC 122. MC 146. MC 157. BE 175. Ex 180. Ex

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    Study Objective 6 27. TF 127. MC 129. MC 171. Ex 37. TF 128. MC 148. MC 192. C

    Study Objective 7 38. TF 130. MC 131. MC 132. MC 133. MC 181. Ex

    Study Objective 8 134. MC 135. MC 136. MC

    Study Objective 9a a28. TF a30. TF a138. MC a158. BE a171. Ex a173. Ex a180. Ex a29. TF a137. MC a149. MC a159. BE a172. Ex a174. Ex a182. Ex

    Note: TF = True-False BE = Brief Exercise C = Completion MC = Multiple Choice Ex = Exercise The chapter also contains one set of ten Matching questions and four Short-Answer Essay questions.

    CHAPTER STUDY OBJECTIVES 1. Distinguish between a standard and a budget. Both standards and budgets are predeter-

    mined costs. The primary difference is that a standard is a unit amount, whereas a budget is a total amount. A standard may be regarded as the budgeted cost per unit of product.

    2. Identify the advantages of standard costs. Standard costs offer a number of advantages. They (a) facilitate management planning, (b) promote greater economy and efficiency, (c) are useful in setting selling prices, (d) contribute to management control, (e) permit "management by exception," and (f) simplify the costing of inventories and reduce clerical costs.

    3. Describe how companies set standards. The direct materials price standard should be based on the delivered cost of raw materials plus an allowance for receiving and handling. The direct materials quantity standard should establish the required quantity plus an allowance for waste and spoilage.

    The direct labor price standard should be based on current wage rates and anticipated adjustments such as COLAs. It also generally includes payroll taxes and fringe benefits. Direct labor quantity standards should be based on required production time plus an allowance for rest periods, cleanup, machine setup, and machine downtime.

    For manufacturing overhead, a standard predetermined overhead rate is used. It is based on an expected standard activity index such as standard direct labor hours or standard machine hours.

    4. State the formulas for determining direct materials and direct labor variances. The formulas for direct materials variances are:

    (Actual quantity × Actual price) – (Standard quantity × Standard price) = Total materials variance (Actual quantity × Actual price) – (Actual quantity × Standard price) = Materials price variance (Actual quantity × Standard price) – (Standard quantity × Standard price) = Materials quantity variance The formulas for the direct labor variances are: (Actual hours × Actual rate) – (Standard hours × Standard rate) = Total labor variance (Actual hours × Actual rate) – (Actual hours × Standard rate) = Labor price variance (Actual hours × Standard rate) – (Standard hours × Standard rate) = Labor quantity variance

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    5. State the formulas for determining manufacturing overhead variances. The formulas for the manufacturing overhead variances are:

    Actual overhead – Overhead applied = Total overhead variance Actual overhead – Overhead budgeted = Overhead controllable variance Fixed overhead rate × (Normal capacity hours – Standard hours allowed) = Overhead volume variance

    6. Discuss the reporting of variances. Variances are reported to management in variance reports. The reports facilitate management by exception by highlighting significant differences.

    7. Prepare an income statement for management under a standard costing system. Under a standard costing system, an income statement prepared for management will report cost of goods sold at standard cost and then disclose each variance separately,

    8. Describe the balanced scorecard approach to performance evaluation. The balanced scorecard incorporates financial and nonfinancial measures in an integrated system that links performance measurement and a company’s strategic goals. It employs four perspectives: financial, customer, internal processes, and learning and growth. Objectives are set within each of these perspectives that link to objectives within the other perspectives.

    a9. Identify the features of a standard cost accounting system. In a standard cost accounting system, companies journalize and post standard costs, and they maintain separate variance accounts in the ledger.

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    TRUE-FALSE STATEMENTS 1. Inventories cannot be valued at standard cost in financial statements. 2. Standard cost is the industry average cost for a particular item. 3. A standard is a unit amount, whereas a budget is a total amount. 4. Standard costs may be incorporated into the accounts in the general ledger. 5. An advantage of standard costs is that they simplify costing of inventories and reduce

    clerical costs. 6. Setting standard costs is relatively simple because it is done entirely by accountants. 7. Normal standards should be rigorous but attainable. 8. Actual costs that vary from standard costs always indicate inefficiencies. 9. Ideal standards will generally result in favorable variances for the company. 10. Normal standards incorporate normal contingencies of production into the standards. 11. Once set, normal standards should not be changed during the year. 12. In developing a standard cost for direct materials, a price factor and a quantity factor must

    be considered. 13. A direct labor price standard is frequently called the direct labor efficiency standard. 14. The standard predetermined overhead rate must be based on direct labor hours as the

    standard activity index. 15. Standard cost cards are the subsidiary ledger for the Work in Process account in a

    standard cost system. 16. A variance is the difference between actual costs and standard costs. 17. If actual costs are less than standard costs, the variance is favorable. 18. A materials quantity variance is calculated as the difference between the standard direct

    materials price and the actual direct materials price multiplied by the actual quantity of direct materials used.

    19. An unfavorable labor quantity variance indicates that the actual number of direct labor

    hours worked was greater than the number of direct labor hours that should have been worked for the output attained.

    20. Standard cost + price variance + quantity variance = Budgeted cost. 21. The overhead controllable variance relates primarily to fixed overhead costs.

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    22. The overhead volume variance relates only to fixed overhead costs. 23. If production exceeds normal capacity, the overhead volume variance will be favorable. 24. There could be instances where the production department is responsible for a direct

    materials price variance. 25. The starting point for determining the causes of an unfavorable materials price variance is

    the purchasing department. 26. A two-variance analysis of overhead consists of a controllable variance and a volume

    variance. 27. Variance analysis facilitates the principle of "management by exception." 28. A credit to a Materials Quantity Variance account indicates that the actual quantity of

    direct materials used was greater than the standard quantity of direct materials allowed. 29. A standard cost system may be used with a job order cost system but not with a process

    cost system. 30. A debit to the Overhead Volume Variance account indicates that the standard hours

    allowed for the output produced was greater than the standard hours at normal capacity. Additional True-False Questions 31. In concept, standards and budgets are essentially the same. 32. Standards may be useful in setting selling prices for finished goods. 33. The materials price standard is based on the purchasing department's best estimate of

    the cost of raw materials. 34. The materials price variance is normally caused by the production department. 35. The use of an inexperienced worker instead of an experienced employee can result in a

    favorable labor price variance but probably an unfavorable quantity variance. 36. The overhead controllable variance is the difference between the actual overhead costs

    incurred and the budgeted costs for the standard hours allowed. 37. In using variance reports, top management normally looks carefully at every variance. 38. The use of standard costs in inventory costing is prohibited in financial statements.

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    Answers to True-False Statements Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

    1. F 7. T 13. F 19. T 25. T 31. T 37. F 2. F 8. F 14. F 20. F 26. T 32. T 38. F 3. T 9. F 15. F 21. F 27. T 33. T 4. T 10. T 16. T 22. T 28. F 34. F 5. T 11. F 17. T 23. T 29. F 35. T 6. F 12. T 18. F 24. T 30. F 36. T

    MULTIPLE CHOICE QUESTIONS 39. What is a standard cost?

    a. The total number of units times the budgeted amount expected b. Any amount that appears on a budget c. The total amount that appears on the budget for product costs d. The amount management thinks should be incurred to produce a good or service

    40. A standard cost is

    a. a cost which is paid for a group of similar products. b. the average cost in an industry. c. a predetermined cost. d. the historical cost of producing a product last year.

    41. The difference between a budget and a standard is that

    a. a budget expresses what costs were, while a standard expresses what costs should be.

    b. a budget expresses management's plans, while a standard reflects what actually happened.

    c. a budget expresses a total amount, while a standard expresses a unit amount. d. standards are excluded from the cost accounting system, whereas budgets are

    generally incorporated into the cost accounting system. 42. Standard costs may be used by

    a. universities. b. governmental agencies. c. charitable organizations. d. all of these.

    43. Which of the following statements is false?

    a. A standard cost is more accurate than a budgeted cost. b. A standard is a unit amount. c. In concept, standards and budgets are essentially the same. d. The standard cost of a product is equivalent to the budgeted cost per unit of product.

    44. Budget data are not journalized in cost accounting systems with the exception of

    a. the application of manufacturing overhead. b. direct labor budgets. c. direct materials budgets. d. cash budget data.

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    45. It is possible that a company's financial statements may report inventories at a. budgeted costs. b. standard costs. c. both budgeted and standard costs. d. none of these.

    46. If standard costs are incorporated into the accounting system,

    a. it may simplify the costing of inventories and reduce clerical costs. b. it can eliminate the need for the budgeting process. c. the accounting system will produce information which is less relevant than the

    historical cost accounting system. d. approval of the stockholders is required.

    47. Standard costs

    a. may show past cost experience. b. help establish expected future costs. c. are the budgeted cost per unit in the present. d. all of these.

    48. Which of the following statements about standard costs is false?

    a. Properly set standards should promote efficiency. b. Standard costs facilitate management planning. c. Standards should not be used in "management by exception." d. Standard costs can simplify the costing of inventories.

    49. Which of the following is not considered an advantage of using standard costs?

    a. Standard costs can reduce clerical costs. b. Standard costs can be useful in setting prices for finished goods. c. Standard costs can be used as a means of finding fault with performance. d. Standard costs can make employees "cost-conscious."

    50. If a company is concerned with the potential negative effects of establishing standards, it

    should a. set loose standards that are easy to fulfill. b. offer wage incentives to those meeting standards. c. not employ any standards. d. set tight standards in order to motivate people.

    51. A standard which represents an efficient level of performance that is attainable under

    expected operating conditions is called a(n) a. ideal standard. b. loose standard. c. tight standard. d. normal standard.

    52. Ideal standards

    a. are rigorous but attainable. b. are the standards generally used in a master budget. c. reflect optimal performance under perfect operating conditions. d. will always motivate employees to achieve the maximum output.

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    53. The final decision as to what standard costs should be is the responsibility of a. the quality control engineer. b. the managerial accountants. c. the purchasing agent. d. management.

    54. The labor time requirements for standards may be determined by the

    a. sales manager. b. product manager. c. industrial engineers. d. payroll department manager.

    55. The two levels that standards may be set at are

    a. normal and fully efficient. b. normal and ideal. c. ideal and less efficient. d. fully efficient and fully effective.

    56. The most rigorous of all standards is the

    a. normal standard. b. realistic standard. c. ideal standard. d. conceivable standard.

    57. Most companies that use standards set them at

    a. the normal level. b. a conceivable level. c. the ideal level. d. last year's level.

    58. A managerial accountant

    1. does not participate in the standard setting process. 2. provides knowledge of cost behaviors in the standard setting process. 3. provides input of historical costs to the standard setting process.

    a. 1 b. 2 c. 3 d. 2 and 3

    59. The cost of freight-in

    a. is to be included in the standard cost of direct materials. b. is considered a selling expense. c. should have a separate standard apart from direct materials. d. should not be included in a standard cost system.

    60. The direct materials quantity standard would not be expressed in

    a. pounds. b. barrels. c. dollars. d. board feet.

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    61. The direct materials quantity standard should a. exclude unavoidable waste. b. exclude quality considerations. c. allow for normal spoilage. d. always be expressed as an ideal standard.

    62. The direct labor quantity standard is sometimes called the direct labor

    a. volume standard. b. effectiveness standard. c. efficiency standard. d. quality standard.

    63. A manufacturing company would include setup and downtime in their direct

    a. materials price standard. b. materials quantity standard. c. labor price standard. d. labor quantity standard.

    64. Allowance for spoilage is part of the direct

    a. materials price standard. b. materials quantity standard. c. labor price standard. d. labor quantity standard.

    65. The total standard cost to produce one unit of product is shown

    a. at the bottom of the income statement. b. at the bottom of the balance sheet. c. on the standard cost card. d. in the Work in Process Inventory account.

    66. An unfavorable materials quantity variance would occur if

    a. more materials were purchased than were used. b. actual pounds of materials used were less than the standard pounds allowed. c. actual labor hours used were greater than the standard labor hours allowed. d. actual pounds of materials used were greater than the standard pounds allowed.

    67. Raylight Products planned to use 1 yard of plastic per unit budgeted at $81 a yard.

    However, the plastic actually cost $80 per yard. The company actually made 2,600 units, although it had planned to make only 2,200 units. Total yards used for production were 2,640. How much is the total materials variance? a. $32,400 U b. $3,240 U c. $2,640 F d. $600 U

    68. If actual direct materials costs are greater than standard direct materials costs, it means that

    a. actual costs were calculated incorrectly. b. the actual unit price of direct materials was greater than the standard unit price of

    direct materials. c. the actual unit price of raw materials or the actual quantities of raw materials used was

    greater than the standard unit price or standard quantities of raw materials expected. d. the purchasing agent or the production foreman is inefficient.

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    69. If actual costs are greater than standard costs, there is a(n) a. normal variance. b. unfavorable variance. c. favorable variance. d. error in the accounting system.

    70. A total materials variance is analyzed in terms of

    a. price and quantity variances. b. buy and sell variances. c. quantity and quality variances. d. tight and loose variances.

    71. A company developed the following per-unit standards for its product: 2 pounds of direct

    materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for $3,800. The direct materials price variance for last month was a. $3,800 favorable. b. $200 favorable. c. $100 favorable. d. $200 unfavorable.

    72. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month,

    2,800 gallons of direct materials that actually cost $10,600 were used to produce 1,500 units of product. The direct materials quantity variance for last month was a. $800 favorable. b. $600 favorable. c. $800 unfavorable. d. $1,400 unfavorable.

    73. The purchasing agent of the Skateboard Company ordered materials of lower quality in an

    effort to economize on price. What variance will most likely result? a. Favorable materials quantity variance b. Favorable total materials variance b. Unfavorable materials price variance d. Unfavorable labor quantity variance

    74. The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in

    producing 1,200 units, the actual direct labor cost was $32,000 for 2,000 direct labor hours worked, the total direct labor variance is a. $1,200 unfavorable. b. $4,000 favorable. c. $2,500 unfavorable. d. $4,000 unfavorable.

    75. The standard rate of pay is $15 per direct labor hour. If the actual direct labor payroll was

    $88,200 for 6,000 direct labor hours worked, the direct labor price (rate) variance is a. $1,800 unfavorable. b. $1,800 favorable. c. $2,250 unfavorable. d. $2,250 favorable.

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    76. The standard number of hours that should have been worked for the output attained is 6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If the direct labor price variance was $3,150 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the actual rate of pay for direct labor? a. $8.50 per direct labor hour b. $7.50 per direct labor hour c. $9.50 per direct labor hour d. $9.00 per direct labor hour

    77. Which one of the following statements is true?

    a. If the materials price variance is unfavorable, then the materials quantity variance must also be unfavorable.

    b. If the materials price variance is unfavorable, then the materials quantity variance must be favorable.

    c. Price and quantity variances move in the same direction. If one is favorable, the others will be as well.

    d. There is no correlation of favorable or unfavorable for price and quantity variances. 78. Variances from standards are

    a. expressed in total dollars. b. expressed on a per-unit basis. c. expressed on a percentage basis. d. all of these.

    79. A favorable variance

    a. is an indication that the company is not operating in an optimal manner. b. implies a positive result if quality control standards are met. c. implies a positive result if standards are flexible. d. means that standards are too loosely specified.

    80. The total materials variance is equal to the

    a. materials price variance. b. difference between the materials price variance and materials quantity variance. c. product of the materials price variance and the materials quantity variance. d. sum of the materials price variance and the materials quantity variance.

    81. The total overhead variance is equal to the

    a. sum of the total materials variance and the total labor variance. b. difference between the total materials variance and the total labor variance. c. sum of the controllable variance and the volume variance. d. total variance minus the controllable variance and the volume variance.

    82. The total variance is $25,000. The total materials variance is $10,000. The total labor

    variance is twice the total overhead variance. What is the total overhead variance? a. $2,500 b. $5,000 c. $7,500 d. $10,000

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    83. The formula for the materials price variance is a. (AQ × SP) – (SQ × SP). b. (AQ × AP) – (AQ × SP). c. (AQ × AP) – (SQ × SP). d. (AQ × SP) – (SQ × AP).

    84. The formula for the materials quantity variance is

    a. (SQ × AP) – (SQ × SP). b. (AQ × AP) – (AQ × SP). c. (AQ × SP) – (SQ × SP). d. (AQ × AP) – (SQ × SP).

    85. A company uses 8,400 pounds of materials and exceeds the standard by 400 pounds.

    The quantity variance is $1,800 unfavorable. What is the standard price? a. $1.50 b. $3.00 c. $4.50 d. Cannot be determined from the data provided.

    86. A company purchases 20,000 pounds of materials. The materials price variance is $3,000

    favorable. What is the difference between the standard and actual price paid for the materials? a. $.75 b. $.15 c. $3.75 d. Cannot be determined from the data provided.

    87. A company uses 20,000 pounds of materials for which it paid $6.00 a pound. The

    materials price variance was $30,000 unfavorable. What is the standard price per pound? a. $1.50 b. $4.50 c. $6.00 d. $7.50

    88. If the materials price variance is $2,400 F and the materials quantity and labor variances

    are each $1,800 U, what is the total materials variance? a. $2,400 F b. $1,800 U c. $600 F d. $2,700 U

    Use the following information for questions 89–91. Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds. 89. Stiner Company's materials price variance is

    a. $100 U. b. $1,000 U. c. $900 U. d. $1,000 F.

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    90. Stiner Company's materials quantity variance is a. $1,000 U. b. $1,000 F. c. $1,100 F. d. $1,100 U.

    91. Stiner Company's total materials variance is

    a. $2,000 U. b. $2,000 F. c. $2,100 U. d. $2,100 F.

    92. The standard quantity allowed for the units produced was 6,500 pounds, the standard

    price was $2.50 per pound, and the materials quantity variance was $375 favorable. Each unit uses 1 pound of materials. How many units were actually produced? a. 6,350 b. 6,500 c. 15,875 d. 6,650

    93. The matrix approach to variance analysis

    a. will yield slightly different variances than the formula approach. b. is more accurate than the formula approach. c. does not separate the price and quantity variance calculations. d. provides a convenient structure for determining each variance.

    94. Labor efficiency is measured by the

    a. materials quantity variance. b. total labor variance. c. labor quantity variance. d. labor rate variance.

    95. An unfavorable labor quantity variance may be caused by

    a. paying workers higher wages than expected. b. misallocation of workers. c. worker fatigue or carelessness. d. higher pay rates mandated by union contracts.

    96. The investigation of materials price variance usually begins in the

    a. first production department. b. purchasing department. c. controller's office. d. accounts payable department.

    97. The investigation of a materials quantity variance usually begins in the

    a. production department. b. purchasing department. c. sales department. d. controller's department.

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    98. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the responsibility rests with the a. sales department. b. production department. c. budget office. d. controller's department.

    99. Which one of the following describes the total overhead variance?

    a. The difference between what was actually incurred and the flexible budget amount b. The difference between what was actually incurred and overhead applied c. The difference between the overhead applied and the flexible budget amount d. The difference between what was actually incurred and the total production budget

    100. A company developed the following per-unit standards for its product: 2 gallons of direct

    materials at $6 per gallon. Last month, 3,000 gallons of direct materials were purchased for $17,100. The direct materials price variance for last month was a. $17,100 favorable. b. $450 favorable. c. $900 favorable. d. $900 unfavorable.

    101. The per-unit standards for direct materials are 2 pounds at $4 per pound. Last month,

    11,200 pounds of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was a. $3,200 favorable. b. $2,400 favorable. c. $3,200 unfavorable. d. $5,600 unfavorable.

    102. The per-unit standards for direct labor are 1.5 direct labor hours at $12 per hour. If in

    producing 2,400 units, the actual direct labor cost was $36,800 for 3,000 direct labor hours worked, the total direct labor variance is a. $1,920 unfavorable. b. $6,400 favorable. c. $4,000 unfavorable. d. $6,400 unfavorable.

    103. The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was

    $39,200 for 4,000 direct labor hours worked, the direct labor price (rate) variance is a. $800 unfavorable. b. $800 favorable. c. $1,000 unfavorable. d. $1,000 favorable.

    104. The standard number of hours that should have been worked for the output attained is

    10,000 direct labor hours and the actual number of direct labor hours worked was 10,500. If the direct labor price variance was $10,500 unfavorable, and the standard rate of pay was $15 per direct labor hour, what was the actual rate of pay for direct labor? a. $14 per direct labor hour b. $12 per direct labor hour c. $16 per direct labor hour d. $15 per direct labor hour

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    105. A company purchases 15,000 pounds of materials. The materials price variance is $6,000 favorable. What is the difference between the standard and actual price paid for the materials? a. $2.00 b. $.40 c. $2.50 d. $10.00

    106. A company uses 40,000 gallons of materials for which they paid $9.00 a gallon. The

    materials price variance was $80,000 favorable. What is the standard price per gallon? a. $2.00 b. $7.00 c. $10.00 d. $11.00

    107. CIB, Inc. produces a product requiring 4 pounds of material costing $2.50 per pound.

    During December, CIB purchased 4,200 pounds of material for $10,080 and used the material to produce 500 products. What was the materials price variance for December? a. $400 F b. $420 F c. $80 U d. $480 U

    108. Debbie Co. manufactures a product requiring two pounds of direct material. During 2009,

    Debbie purchases 24,000 pounds of material for $74,400 when the standard price per pound is $3.00. During 2009, Debbie uses 22,000 pounds to make 12,000 products. The standard direct material cost per unit of finished product is a. $6.20. b. $6.76. c. $6.00. d. $6.40.

    109. Cola Co. manufactures a product with a standard direct labor cost of two hours at $24.00

    per hour. During July, 2,000 units were produced using 4,200 hours at $24.40 per hour. The labor quantity variance was a. $4,880 F. b. $4,800 U. c. $3,280 U. d. $4,880 U.

    110. Cola Co. manufactures a product with a standard direct labor cost of two hours at $24.00

    per hour. During July, 2,000 units were produced using 4,200 hours at $24.40 per hour. The labor price variance was a. $1,680 U. b. $6,480 U. c. $6,480 F. d. $4,800 U.

    111. A company developed the following per unit materials standards for its product: 3 pounds

    of direct materials at $4 per pound. If 12,000 units of product were produced last month and 37,500 pounds of direct materials were used, the direct materials quantity variance was

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    a. $3,600 favorable. b. $6,000 unfavorable. c. $3,600 unfavorable. d. $6,000 favorable.

    112. The standard direct labor cost for producing one unit of product is 5 direct labor hours at a

    standard rate of pay of $12. Last month, 15,000 units were produced and 73,500 direct labor hours were actually worked at a total cost of $810,000. The direct labor quantity variance was a. $18,000 unfavorable. b. $27,000 unfavorable. c. $27,000 favorable. d. $18,000 favorable.

    113. Blue Fin Co. produces a product requiring 10 pounds of material at $1.50 per pound. Blue

    Fin produced 10,000 units of this product during 2009 resulting in a $30,000 unfavorable materials quantity variance. How many pounds of direct material did Blue Fin use during 2009? a. 120,000 pounds b. 100,000 pounds c. 200,000 pounds d. 145,000 pounds

    114. Wild West Inc. produces a product requiring 3 direct labor hours at $20.00 per hour.

    During January, 2,000 products are produced using 6,300 direct labor hours. Wild West’s actual payroll during January was $122,850. What is the labor quantity variance? a. $2,850 U b. $6,000 F c. $3,150 F d. $6,000 U

    115. Budgeted overhead for Harrington Company at normal capacity of 30,000 direct labor

    hours is $4.50 per hour variable and $3 per hour fixed. In May, $232,500 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed. The overhead controllable variance is a. $3,750 favorable. b. $1,500 favorable. c. $7,500 favorable. d. $7,500 unfavorable.

    116. Using the data in question 115, the overhead volume variance is

    a. $6,000 favorable. b. $8,250 favorable. c. $3,750 favorable. d. $7,500 favorable.

    117. An overhead volume variance is calculated as the difference between normal capacity

    hours and standard hours allowed a. times the total predetermined overhead rate. b. times the predetermined variable overhead rate. c. times the predetermined fixed overhead rate. d. divided by actual number of hours worked.

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    118. Manufacturing overhead costs are applied to work in process on the basis of a. actual hours worked. b. standard hours allowed. c. ratio of actual variable to fixed costs. d. actual overhead costs incurred.

    119. Which of the following statements is false?

    a. The overhead volume variance indicates whether plant facilities were used efficiently during the period.

    b. The costs that cause the overhead volume variance are usually controllable costs. c. The overhead volume variance relates solely to fixed costs. d. The overhead volume variance is favorable if standard hours allowed for output are

    greater than the standard hours at normal capacity. 120. If the standard hours allowed are less than the standard hours at normal capacity,

    a. the overhead volume variance will be unfavorable. b. variable overhead costs will be underapplied. c. the overhead controllable variance will be favorable. d. variable overhead costs will be overapplied.

    121. Which of the following statements about overhead variances is false?

    a. Standard hours allowed are used in calculating the controllable variance. b. Standard hours allowed are used in calculating the volume variance. c. The controllable variance pertains solely to fixed costs. d. The total overhead variance pertains to both variable and fixed costs.

    122. The overhead volume variance relates only to

    a. variable overhead costs. b. fixed overhead costs. c. both variable and fixed overhead costs. d. all manufacturing costs.

    123. What does the controllable variance measure?

    a. Whether a company incurred more or less fixed overhead costs compared to the amount of overhead applied

    b. Whether a company incurred more or less overhead costs than allowed c. The efficiency of using variable overhead resources d. Whether the production manager is able to control the production facility

    124. The overhead controllable variance is calculated as the difference between actual

    overhead costs incurred and the budgeted a. overhead costs for the standard hours allowed. b. overhead costs applied to the product. c. overhead costs at the normal level of activity. d. fixed overhead costs.

    125. If the standard hours allowed are less than the standard hours at normal capacity, the

    volume variance a. cannot be calculated. b. will be favorable. c. will be unfavorable. d. will be greater than the controllable variance.

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    126. The budgeted overhead costs for standard hours allowed and the overhead costs applied to the product are the same amount a. for both variable and fixed overhead costs. b. only when standard hours allowed are less than normal capacity. c. for variable overhead costs. d. for fixed overhead costs.

    127. When is a variance considered to be 'material'?

    a. When it is large compared to the actual cost b. When it is infrequent c. When it is unfavorable d. When it could have been controlled more effectively

    128. Variance reports are

    a. external financial reports. b. SEC financial reports. c. internal reports for management. d. all of these.

    129. In using variance reports, management looks for

    a. total assets invested. b. significant variances. c. competitors’ costs in comparison to the company's costs. d. more efficient ways of valuing inventories.

    130. Magliano Company prepared its income statement for internal use. How would amounts

    for cost of goods sold and variances appear? a. Cost of goods sold would be at actual costs, and variances would be reported

    separately. b. Cost of goods sold would be combined with the variances, and the net amount

    reported at standard cost. c. Cost of goods sold would be at standard costs, and variances would be reported

    separately. d. Cost of goods sold would be combined with the variances, and the net amount

    reported at actual cost. a131. Dell Widgets prepared its income statement for management using a standard cost

    accounting system. Which of the following appears at the “standard” amount? a. Sales b. Selling expenses c. Gross profit d. Cost of goods sold

    132. The costing of inventories at standard cost for external financial statement reporting

    purposes is a. not permitted. b. preferable to reporting at actual costs. c. in accordance with generally accepted accounting principles if significant differences

    exist between actual and standard costs. d. in accordance with generally accepted accounting principles if significant differences

    do not exist between actual and standard costs.

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    133. Income statements prepared internally for management often show cost of goods sold at standard cost and variances are a. separately disclosed. b. deducted as other expenses and revenues. c. added to cost of goods sold. d. closed directly to retained earnings.

    134. The balanced scorecard approach

    a. uses only financial measures to evaluate performance. b. uses rather vague, open statements when setting objectives in order to allow

    managers and employees flexibility. c. normally sets the financial objectives first, and then sets the objectives in the other

    perspectives to accomplish the financial objectives. d. evaluates performance using about 10 different perspectives in order to effectively

    incorporate all areas of the organization. 135. The customer perspective of the balanced scorecard approach

    a. is the most traditional view of the company. b. evaluates the internal operating processes critical to the success of the organization. c. evaluates how well the company develops and retains its employees. d. evaluates how well the company is performing from the viewpoint of those people who

    buy its products and services. 136. The perspectives included in the balanced scorecard approach include all of the following

    except the a. internal process perspective. b. capacity utilization perspective. c. learning and growth perspective. d. customer perspective.

    a137. If 10,000 pounds of direct materials are purchased for $7,200 on account and the

    standard cost is $.70 per pound, the journal entry to record the purchase is a. Raw Materials Inventory ...................................................... 7,200 Accounts Payable ....................................................... 7,200 b. Work In Process Inventory................................................... 7,200 Accounts Payable ....................................................... 7,000 Materials Quantity Variance........................................ 200 c. Raw Materials Inventory ...................................................... 7,200 Accounts Payable ....................................................... 7,000 Materials Price Variance............................................. 200 d. Raw Materials Inventory ...................................................... 7,000 Materials Price Variance...................................................... 200 Accounts Payable ....................................................... 7,200

    a138. Debit balances in variance accounts represent

    a. unfavorable variances. b. favorable variances. c. favorable for price variances; unfavorable for quantity variances. d. favorable for quantity variances; unfavorable for price variances.

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    Additional Multiple Choice Questions 139. All of the following are advantages of standard costs except they

    a. facilitate management planning. b. are useful in setting selling prices. c. simplify costing in inventories. d. increase net income.

    140. Standards based on the optimum level of performance under perfect operating conditions

    are a. attainable standards. b. ideal standards. c. normal standards. d. practical standards.

    141. The direct materials price standard should include an amount for all of the following

    except a. receiving costs. b. storing costs. c. handling costs. d. normal spoilage costs.

    142. The standard unit cost is used in the calculation of which of the following variances?

    Materials Price Variance Materials Quantity Variance a. No No b. No Yes c. Yes No d. Yes Yes

    143. The difference between the actual labor rate multiplied by the actual labor hours worked

    and the standard labor rate multiplied by the standard labor hours is the a. total labor variance. b. labor price variance. c. labor quantity variance. d. labor efficiency variance.

    144. The formula for the labor price variance is

    a. (AH) x (SR) less (SH) x (SR). b. (AH) x (AR) less (AH) x (SR). c. (AH) x (AR) less (SH) x (SR). d. (AH) x (SR) less (AH) x (SR).

    145. Which department is usually responsible for a labor price variance attributable to

    misallocation of workers? a. Quality control b. Purchasing c. Engineering d. Production

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    146. The formula for computing the overhead volume variance is a. fixed overhead rate times (actual hours less standard hours allowed). b. variable overhead rate times (actual hours less standard hours allowed). c. fixed overhead rate times (normal capacity hours less standard hours allowed). d. variable overhead rate times (normal capacity hours less standard hours allowed).

    147. The overhead controllable variance is the difference between the

    a. budgeted overhead based on standard hours allowed and the overhead applied to production.

    b. budgeted overhead based on standard hours allowed and budgeted overhead based on actual hours worked.

    c. actual overhead and the overhead applied to production. d. actual overhead and budgeted overhead based on standard hours allowed.

    148. In reporting variances,

    a. promptness is relatively unimportant. b. management normally investigates all variances. c. the reports should facilitate management by exception. d. the reports are not departmentalized.

    a149. A standard cost system may be used in

    Job Order Costing Process Costing a. No No b. Yes No c. No Yes d. Yes Yes

    Answers to Multiple Choice Questions

    Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.39. d 55. b 71. b 87. b 103. b 119. b 135. d40. c 56. c 72. a 88. c 104. c 120. a 136. b 41. c 57. a 73. d 89. b 105. b 121. c a137. d 42. d 58. d 74. b 90. a 106. d 122. b a138. a 43. a 59. a 75. b 91. a 107. b 123. b 139. d 44. a 60. c 76. c 92. a 108. c 124. a 140. b 45. b 61. c 77. d 93. d 109. b 125. c 141. d 46. a 62. c 78. a 94. c 110. a 126. c 142. d 47. d 63. d 79. b 95. c 111. b 127. a 143. a 48. c 64. b 80. d 96. b 112. d 128. c 144. b 49. c 65. c 81. c 97. a 113. a 129. b 145. d 50. b 66. d 82. b 98. b 114. d 130. c 146. c 51. d 67. d 83. b 99. b 115. b 131. d 147. d 52. c 68. c 84. c 100. c 116. a 132. d 148. c 53. d 69. b 85. c 101. a 117. c 133. a a149. d 54. c 70. a 86. b 102. b 118. b 134. c

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    BRIEF EXERCISES BE 150 Go Mix Company uses both standards and budgets. The company estimates that production for the year will be 250,000 units of Product Fast. To produce these units of Product Fast, the company expects to spend $600,000 for materials and $800,000 for labor. Instructions Compute the estimates for (a) a standard cost and (b) a budgeted cost. Solution 150 (5 min.) (a) Standards are stated as a per unit amount. Thus, the standards are materials $2.40,

    ($600,000 ÷ 250,000), and labor $3.20, ($800,000 ÷ 250,000). (b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are materials

    $600,000 and labor $800,000. BE 151 Labor data for making one pound of finished product in Perez Company are as follows: (1) Price—hourly wage rate $10.00, payroll taxes $0.80, and fringe benefits $1.20. (2) Quantity—actual production time 1.1 hours, rest periods and clean up 0.25 hours, and setup and downtime 0.15 hours. Instructions Compute the following. (a) Standard direct labor rate per hour. (b) Standard direct labor hours per pound. (c) Standard cost per pound. Solution 151 (5 min.) Standard direct labor rate per hour = $12.00 ($10.00 + $.80 + $1.20). Standard direct labor hours per pound = 1.5 hours (1.1 +.25 +.15). Standard labor cost per pound = $18.00 ($12.00 × 1.5). BE 152 During March, Tile Company purchases and uses 6,600 pounds of materials costing $26,730 to make 3,000 tiles. Tile Company’s standard material cost per tile is $8 (2 pounds of material × $4.00). Instructions Compute the total, price, and quantity material variances for Tile Company for March.

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    Solution 152 (5 min.) Total materials variance = $2,730 U, (6,600 × $4.05) – (6,000 × $4.00). Materials price variance = $330 U, (6,600 × $4.05) – (6,600 × $4.00). Materials quantity variance = $2,400 U, (6,600 × $4.00) – (6,000 × $4.00). BE 153 During January, Ray Company incurs 1,850 hours of direct labor at an hourly cost of $9.60 in producing 1,000 units of its finished product. Ray’s standard labor cost per unit of output is $18 (2 hours x $9.00). Instructions Compute the total, price, and quantity labor variances for Ray Company for January. Solution 153 (5 min.) Total labor variance = $240 F, (1,850 × $9.60) – (2,000 × $9.00). Labor price variance = $1,110 U, (1,850 × $9.60) – (1,850 × $9.00). Labor quantity variance = $1,350 F, (1,850 × $9.00) – (2,000 × $9.00 BE 154 Manufacturing overhead data for the production of Product B by Barkley Company are as follows. Overhead incurred for 68,000 actual direct labor hours worked $206,000 Overhead rate (variable $2.00; fixed $1.00) at normal capacity of 72,000 direct labor hours $3.00 Standard hours allowed for work done 68,000 Instructions Compute the controllable and volume overhead variances. Solution 154 (5 min.) Overhead controllable variance: Actual Overhead – Overhead Budgeted $206,000 – $208,000 = $2,000 F [(68,000 × $2) + $72,000] Overhead volume variance: Fixed Overhead Rate × Normal Capacity Hours = Standard Hours Allowed $1.00 × (72,000 – 68,000) = $4,000 U

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    BE 155 In October, Halo Inc. reports 42,000 actual direct labor hours, and it incurs $192,000 of manufacturing overhead costs. Standard hours allowed for the work done is 40,000 hours. Halo’s predetermined overhead rate is $5.00 per direct labor hour. Instructions Compute the total manufacturing overhead variance. Solution 155 (2 min.) Actual Overhead – Overhead Applied = Total overhead Variance $192,000 – $200,000* = $8,000 F

    *40,000 × $5 = $200,000 BE 156 Overhead data for Halo Inc. are given in BE 155. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $3.50 variable per direct labor hour and $75,000 fixed. Instructions Compute the manufacturing overhead controllable variance. Solution 156 (3 min.) Actual overhead – Overhead Budgeted = Overhead Controllable Variance $192,000 – $215,000* = $23,000 F

    *(40,000 × $3.50) + $75,000 = $215,000 BE 157 Using the data in BE 155 and BE 156, compute the manufacturing overhead volume variance. Normal capacity was 50,000 direct labor hours. Solution 157 (3 min.) Fixed Overhead Rate × (Normal Capacity Hours – Standard Hours Allowed) = Overhead Volume Variance $1.50/hr. × (50,000 – 40,000) = $15,000 U aBE 158 Auction Company purchased 6,000 units of raw material on account for $11,700, when the standard cost was $12,000. Later in the month, Auction Company issued 5,600 units of raw materials for production, when the standard units were 5,800. Instructions Journalize the transactions for Auction Company to account for this activity.

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    aSolution 158 (5 min.) (a) Raw Materials Inventory .............................................................. 12,000 Materials Price Variance.................................................... 300 Accounts Payable .............................................................. 11,700 (b) Work in Process Inventory (5,800 × $2*)..................................... 11,600 Materials Quantity Variance............................................... 400 Raw Materials Inventory (5,600 × $2)................................ 11,200

    *$2 = $12,000 ÷ 6,000 units aBE 159 Red Rope Co. incurred direct labor costs of $48,000 for 6,000 hours. The standard labor cost was $48,600. During the month, Red Rope assigned 6,000 direct labor hours costing $48,000 to production. The standard hours were 6,200. Instructions Journalize the transactions for Red Rope Co. to account for this activity. aSolution 159 (5 min.) (a) Factory Labor ............................................................................. 48,600 Labor Price Variance ........................................................ 600 Wages Payable................................................................. 48,000 (b) Work in Process Inventory (6,200 × $8.10*)............................... 50,220 Labor Quantity Variance ................................................... 1,620 Factory Labor.................................................................... 48,600

    *$8.10 = $48,600 ÷ 6,000 hours

    EXERCISES Ex. 160 Jane Short manufactures and sells a nutrition drink for children. She wants to develop a standard cost per gallon. The following are required for production of a 100 gallon batch:

    1,960 ounces of lime Kool-Drink at $.12 per ounce 40 pounds of granulated sugar at $.60 per pound 63 kiwi fruit at $.50 each 100 protein tablets at $.90 each 4,000 ounces of water at $.003 per ounce Jane estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the kiwis cannot be used. Instructions Compute the standard cost of the ingredients for one gallon of the nutrition drink.

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    Solution 160 (15–20 min.) Ingredient Amount Per Gallon Standard Waste Lime Kool-Drink 19.6 oz. 2% Sugar .40 lb. 20% Kiwis .63 10% Protein Tablets 1 0% Water 40 oz. 0%

    Standard Usage Standard Price Standard Cost Lime Kool-Drink (a) 20.00 oz. $ .12 $2.40 Sugar (b) .50 lb. .60 .30 Kiwis (c) .70 .50 .35 Protein Tablets 1 .90 .90 Water 40 oz. .003 .12 Standard Cost per Gallon $4.07 (a) .98X = 19.6 ounces X = 20.00 (b) .80X = .40 pounds X = .50 (c) .90X = .63 kiwis X = .70 Ex. 161 Deines, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each tybo for $8. At the start of monthly production, Deines estimated 8,000 tybos would be produced in March. Deines has established the following material and labor standards to produce one tybo:

    Standard Quantity Standard Price Direct materials 2.5 pounds $3 per pound Direct labor 0.6 hours $10 per hour

    During March 2009, the following activity was recorded by the company relating to the production of tybos: 1. The company produced 7,500 units during the month. 2. A total of 20,000 pounds of materials were purchased at a cost of $55,000. 3. A total of 20,000 pounds of materials were used in production. 4. 4,000 hours of labor were incurred during the month at a total wage cost of $44,000. Instructions Calculate the following variances for March for Deines, Inc. (a) Materials price variance (b) Materials quantity variance (c) Labor price variance (d) Labor quantity variance

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    Solution 161 (10 min.) (a) Materials price variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price) = (20,000 × $2.75) – (20,000 × $3) = $5,000 favorable (b) Materials quantity variance = (Actual quantity used × Standard price) – (Standard quantity × Standard price) = (20,000 × $3) – [(7,500 × 2.5) × $3] = $3,750 unfavorable (c) Labor price variance = (Actual hours x Actual rate) – (Actual hours × Standard rate) = (4,000 × $11) – (4,000 × $10) = $4,000 unfavorable (d) Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate) = (4,000 × $10) – [(0.6 × 7,500) × $10] = $5,000 favorable Ex. 162 The following direct labor data pertain to the operations of Laird Manufacturing Company for the month of November:

    Actual labor rate $9.20 per hr. Actual hours used 18,000 Standard labor rate $9.00 per hr. Standard hours allowed 17,100 Instructions Prepare a matrix and calculate the labor variances. Price Variance Quantity Variance Total Labor Variance

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    Solution 162 (15–20 min.) Actual Hours Actual Hours Standard Hours × Actual Rate × Standard Rate × Standard Rate 18,000 × $9.20 = 18,000 × $9.00 = 17,100 × $9.00 = $165,600 $162,000 $153,900 Price Variance Quantity Variance $3,600 U $8,100 U Total Labor Variance $11,700 U Ex. 163 The following direct materials data pertain to the operations of Jenson Manufacturing Company for the month of December.

    Standard materials price $4.00 per pound Actual quantity of materials purchased and used 16,500 pounds The standard cost card shows that a finished product contains 4 pounds of materials. The 16,500 pounds were purchased in December at a discount of 5% from the standard price. In December, 4,000 units of finished product were manufactured. Instructions Prepare a matrix for materials and calculate the materials variances. Price Variance Quantity Variance Total Materals Variance

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    Solution 163 (13–18 min.) Actual Quantity Actual Quantity Standard Quantity × Actual Rate × Standard Rate × Standard Price 16,500 × $3.80 = 16,500 × $4.00 = 16,000 × $4.00 = $62,700 $66,000 $64,000 Price Variance Quantity Variance $3,300 F $2,000 U Total Materials Variance $1,300 F Ex. 164 Addison Industries provided the following information about its standard costing system for 2009:

    Standard Data Actual Data Materials 10 lbs. @ $4 per lbs. Produced 6,000 units Labor 3 hrs. @ $21 per hr. Materials purchased 75,000 lbs. for $315,000 Budgeted fixed overhead $100,000 Materials used 61,500 lbs. Budgeted variable overhead $30 per unit Labor worked 16,500 hrs. costing $330,000 Budgeted production 5,000 units Actual overhead $355,000 Instructions Calculate the labor price variance and the labor quantity variance. Solution 164 (8 min.) Labor price (rate) variance = (Actual hours x Actual rate) – (Actual hours x Standard rate) = (16,500 × $20) – (16,500 × $21) = $16,500 favorable Labor quantity (efficiency) variance = (Actual hours × Standard rate) – (Standard hours × Standard rate) = (16,500 × $21) – (3 × 6,000 × $21) = $31,500 favorable Ex. 165 Consider the information shown for Addison Industries in Ex. 164. Determine the amount of the materials price variance. By how much will the materials price variances differ if the price variance is determined at the time of production?

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    Solution 165 (6 min.) Identification of price variances at the time of purchase: Materials price variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased x Standard price)

    = (75,000 × $4.20) – (75,000 × $4) = $15,000 Unfavorable Identification of price variances at the time of production: Materials price variance = (Actual quantity used × Actual price) – (Actual quantity used × Standard price) = (61,500 × $4.20) – (61,500 × $4) = $12,300 Unfavorable Difference = $15,000 – $12,300 = $2,700 Unfavorable Ex. 166 Chee See Company estimated it would produce 6,200 buckets, though actual production was 6,000 during August. The standard labor cost is 2 buckets per hour at $24.00 per hour. Actual cost per hour was $24.50 with a total labor cost of $71,050. Instructions Determine the amounts of the labor price and the labor quantity variances for August. Solution 166 (8 min.) Labor price (rate) variance = (Actual hours × Actual rate) – (Actual hours × Standard rate) = (2,900 × $24.50) – (2,900 × $24) = $1,450 Unfavorable Labor quantity (efficiency) variance = (Actual hours × Standard rate) – (Standard hours × Standard rate) = (2,900 × $24) – [(6,000 × 1/2 × $24) = $2,400 Favorable Ex. 167 Hite Company has developed the following standard costs for its product for 2009:

    HITE COMPANY Standard Cost Card

    Product A Cost Element Standard Quantity × Standard Price = Standard Cost Direct materials 4 pounds $3 $12 Direct labor 3 hours 8 24 Manufacturing overhead 3 hours 4 12 $48 The company expected to produce 25,000 units of Product A in 2009 and work 75,000 direct labor hours.

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    Ex. 167 (cont.) Actual results for 2009 are as follows: • 26,000 units of Product A were produced. • Actual direct labor costs were $630,800 for 76,000 direct labor hours worked. • Actual direct materials purchased and used during the year cost $283,500 for 105,000 pounds. • Actual variable overhead incurred was $130,000 and actual fixed overhead incurred was

    $170,000. Instructions Compute the following variances showing all computations to support your answers. Indicate whether the variances are favorable or unfavorable. (a) Materials quantity variance. (b) Total direct labor variance. (c) Direct labor quantity variance. (d) Direct materials price variance. (e) Total overhead variance. Solution 167 (20–25 min.) (a) Materials quantity variance = $3,000 unfavorable. (AQ × SP) – (SQ × SP) = Materials quantity variance (105,000 × $3) – (104,000 × $3) = $315,000 – $312,000 = $3,000 unfavorable SQ = 26,000 × 4 = 104,000 pounds (b) Total direct labor variance = $6,800 unfavorable. (AH × AR) – (SH × SR) = Total direct labor variance (76,000 × $8.30) – (78,000 × $8) = $630,800 – $624,000 = $6,800 unfavorable SH = 26,000 × 3 = 78,000 direct labor hours (c) Direct labor quantity variance = $16,000 favorable. (AH × SR) – (SH × SR) = Direct labor quantity variance (76,000 × $8) – (78,000 × $8) = $608,000 – $624,000 = $16,000 favorable (d) Direct materials price variance = $31,500 favorable. (AQ × AP) – (AQ × SP) = Direct materials price variance (105,000 × $2.70) – (105,000 × $3) = $283,500 – $315,000 = $31,500 favorable (e) Total overhead variance = $12,000 favorable. (Actual overhead) – (Overhead applied) = Total overhead variance ($130,000 + $170,000) – (78,000 × $4) = $300,000 – $312,000 = $12,000 favorable Standard hours = 26,000 × 3 = 78,000 direct labor hours

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    Ex. 168 Feeney Company developed the following standard costs for its product for 2009:

    FEENEY COMPANY Standard Cost Card

    Cost Elements Standard Quantity × Standard Price = Standard Cost Direct materials 4 pounds $ 5 $20 Direct labor 2 hours 10 20 Variable overhead 2 hours 4 8 Fixed overhead 2 hours 2 4 $52 The company expected to work at the 60,000 direct labor hours level of activity and produce 30,000 units of product. Actual results for 2009 were as follows: • 28,400 units of product were actually produced. • Direct labor costs were $546,000 for 56,000 direct labor hours actually worked. • Actual direct materials purchased and used during the year cost $554,400 for 115,500 pounds. • Total actual manufacturing overhead costs were $340,000. Instructions Compute the following variances for Feeney Company for 2009 and indicate whether the variance is favorable or unfavorable. 1. Direct materials price variance. 2. Direct materials quantity variance. 3. Direct labor price variance. 4. Direct labor quantity variance. 5. Overhead controllable variance. 6. Overhead volume variance. Solution 168 (20–25 min.) 1. Direct materials price variance = $23,100 favorable. (AQ × AP) – (AQ × SP) = Materials price variance (115,500 × $4.80) – (115,500 × $5) = $554,400 – $577,500 = $23,100 favorable 2. Direct materials quantity variance = $9,500 unfavorable. (AQ × SP) – (SQ × SP) = Materials quantity variance (115,500 × $5) – (113,600 × $5) = $577,500 – $568,000 = $9,500 unfavorable SQ = 28,400 products × 4 lbs = 113,600 lbs. 3. Direct labor price variance = $14,000 favorable. (AH × AR) – (AH × SR) = Labor price variance (56,000 × $9.75) – (56,000 × $10) = $546,000 – $560,000 = $14,000 favorable 4. Direct labor quantity variance = $8,000 favorable. (AH × SR) – (SH × SR) = Labor quantity variance (56,000 × $10) – (56,800 × $10) = $560,000 – $568,000 = $8,000 favorable SH = 28,400 units × 2 hrs = 56,800 direct labor hours

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    Solution 168 (cont.) 5. Overhead controllable variance = $7,200 favorable. Actual overhead – Budgeted overhead for = Controllable overhead variance standard hours allowed $340,000 – $347,200 = $7,200 favorable Budgeted overhead for 56,800 direct labor hours allowed. Variable overhead (56,800 × $4) = $227,200 Fixed overhead = 120,000 $347,200 6. Overhead volume variance = $6,400 unfavorable. Volume variance: (60,000 – 56,800) × $2/SH = $6,400 unfavorable Ex. 169 Spaulding, Inc. uses standard costing for its one product, baseball bats. The standards call for 3 board-feet of wood at $1.40 per board-foot, and 45 minutes of work at $12 per hour per bat. Total manufacturing overhead costs were estimated at $5,250, of which the variable portion was $0.50 per bat and the fixed portion was $0.75 per bat with an estimate of 4,200 bats to be produced. Spaulding identifies price variances at the earliest possible point in time. During March, the company had the following results:

    Direct labor used = 3,200 hours at a cost of $37,760 Actual manufacturing overhead fixed costs = $3,000 Actual manufacturing overhead variable costs = $2,050 Bats produced = 4,000

    Instructions Compute the following variances for March. 1. Labor quantity variance 2. Total labor variance 3. Overhead controllable variance 4. Overhead volume variance Solution 169 (12 min.) 1. Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate) = (3,200 × $12) – [(3/4 × 4,000) × $12] = $2,400 Unfavorable 2. Total labor variance = (Actual hours × Actual rate) – (Standard hours × Standard rate) = (3,200 × $11.80) – [(3/4 × 4,000) × $12] = $1,760 Unfavorable 3. Overhead controllable variance = Actual overhead – Overhead budgeted = ($2,050 + $3,000) – [($0.50 × 4,000) + $3,150] = $100 Favorable 4. Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate = [(4,200 × 3/4) – 3,000] × $1.00* = $150 Unfavorable *$.75 ÷ 3/4 hr./bat

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    Ex. 170 Thomas, Inc. manufactures widgets for distribution. The standard costs for the manufacture of widgets follow: Standard Costs Actual Costs

    Direct materials 3 lbs. per widget at 15,500 lbs. at $34 $35 per pound per pound Direct labor 2.5 hours per widget 11,250 hours at at $11 per hour $11.80 per hour Factory overhead Variable cost, $24/widget $120,750 variable cost

    Fixed cost, $40/widget $190,625 fixed cost Budgeted factory overhead was $320,000. Overhead applied is based on widgets produced. The company estimated that 5,000 widgets would be produced; however, only 4,800 were produced. Instructions Calculate the following amounts. 1. Rate at which total factory overhead is applied 2. Materials price variance 3. Total materials variance 4. Overhead volume variance 5. Overhead controllable variance Solution 170 (12 min.) 1. Budgeted overhead cost/budgeted activity = $320,000 ÷ 5,000 = $164 per widget 2. Materials price variance = (Actual quantity × Actual price) – (Actual quantity × Standard price) = (15,500 × $34) – (15,500 × $35) = $15,500 Favorable 3. Total materials variance = (Actual quantity × Actual price ) – (Standard quantity × Standard price) = (15,500 × $34) – [(3 × 4,800) × $35] = $23,000 Unfavorable 4. Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate = (12,500 – 12,000) × $16* = $8,000 Unfavorable *$40 ÷ 2.5 5. Overhead controllable variance = Actual overhead – Overhead budgeted = [$120,750 + $190,625] – [($24 × 4,800) + ($40 × 5,000)] = $3,825 Favorable

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    Ex. 171 American Sporting Goods Company manufactures aluminum baseball bats that it sells to university athletic departments. It has developed the following per unit standard costs for 2009 for each baseball bat: Manufacturing Direct Materials Direct Labor Overhead Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour Standard Price $4.00 $10.00 $6.00 Unit Standard Cost $8.00 $5.00 $3.00 In 2009, the company planned to produce 80,000 baseball bats at a level of 40,000 hours of direct labor. Actual results for 2009 are presented below: 1. Direct materials purchases were 164,000 pounds of aluminum which cost $688,800. 2. Direct materials used were 145,000 pounds of aluminum. 3. Direct labor costs were $379,270 for 39,100 direct labor hours actually worked. 4. Total manufacturing overhead was $235,000. 5. Actual production was 76,000 baseball bats. Instructions (a) Compute the following variances: 1. Direct materials price. 2. Direct materials quantity. 3. Direct labor price. 4. Direct labor quantity. 5. Total overhead variance. a(b) Prepare the journal entries to record the transactions and events in 2009. Solution 171 (40–45 min.) (a) 1. Direct materials price variance = $32,800 Unfavorable. (AQ × AP) – (AQ × SP) (164,000 × $4.20) – (164,000 × $4.00) = $688,800 – $656,000 = $32,800

    2. Direct materials quantity variance = $28,000 Favorable. (AQ × SP) – (SQ × SP) (145,000 × $4.00) – (152,000* × $4.00) = $580,000 – $608,000 = $28,000 *SQ = 76,000 × 2 pounds = 152,000 pounds

    3. Direct labor price variance = $11,730 Favorable. (AH × AR) – (AH × SR) (39,100 × $9.70) – (39,100 × $10.00) = $379,270 – $391,000 = $11,730

    4. Direct labor quantity variance = $11,000 Unfavorable. (AH × SR) – (SH × SR) (39,100 × $10.00) – (38,000* × $10.00) = $391,000 – $380,000 = $11,000 *SH = 76,000 × 1/2 hour = 38,000 hours

    5. Actual overhead – Overhead applied = Total overhead variance. $235,000 – $228,000* = $7,000 Unfavorable *SH = 38,000 × $6.00 = $228,000

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    Solution 171 (cont.) a(b) 1. Raw Materials Inventory ........................................................... 656,000 Materials Price Variance........................................................... 32,800 Accounts Payable.............................................................. 688,800 (To record purchase of materials) 2. Work in Process Inventory........................................................ 608,000 Materials Quantity Variance .............................................. 28,000 Raw Materials Inventory.................................................... 580,000 (To record issuance of direct materials) 3. Factory Labor............................................................................ 391,000 Labor Price Variance......................................................... 11,730 Wages Payable ................................................................. 379,270 (To record direct labor costs) 4. Work in Process Inventory........................................................ 380,000 Labor Quantity Variance .......................................................... 11,000 Factory Labor ................................................................... 391,000 (To assign factory labor to jobs) 5. Manufacturing Overhead .......................................................... 235,000 Accounts Payable/Cash etc. ............................................. 235,000 (To record overhead incurred) 6. Work in Process Inventory........................................................ 228,000 Manufacturing Overhead................................................... 228,000 (To assign overhead to jobs) 7. Finished Goods Inventory (76,000 × $16.00) ........................... 1,216,000 Work in Process Inventory ................................................ 1,216,000 (To record transfer of completed work to finished goods) Ex. 172 The standard cost of Product 245 manufactured by Starr Company includes 2 pounds of direct materials at $5.00 per pound. During September, 40,000 pounds of direct materials are purchased at a cost of $4.80 per pound, and all of the direct materials are used to produce 19,000 units of Product 245. Instructions (a) Compute the materials price and quantity variances. a(b) Journalize the purchase of the materials and the issuance of the materials, assuming a

    standard cost system is used.

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    Solution 172 (15–20 min.) (a) Materials Price Variance: $192,000 – $200,000 = $8,000 F (40,000 × $4.80) (40,000 × $5.00) Materials Quantity Variance: $200,000 – $190,000 = $10,000 U (40,000 × $5.00) *(38,000 × $5.00)

    *19,000 × 2 pounds = 38,000 a(b) Raw Materials Inventory ................................................................ 200,000 Materials Price Variance ....................................................... 8,000 Accounts Payable ................................................................. 192,000 Work in Process Inventory ............................................................. 190,000 Materials Quantity Variance........................................................... 10,000 Raw Materials Inventory........................................................ 200,000 Ex. 173 Lankford Company's standard labor cost of producing one unit of product is 2 hours at the rate of $14.00 per hour. During February, 39,000 hours of labor are incurred at a cost of $13.80 per hour to produce 19,000 units of product. Instructions (a) Compute the labor price and labor quantity variances. a(b) Journalize the incurrence of the labor costs and the assignment of direct labor to production,

    assuming a standard cost system is used. Solution 173 (15–20 min.) (a) Labor Price Variance: $538,200 – $546,000 = $7,800 F (39,000 × $13.80) (39,000 × $14.00) Labor Quantity Variance: $546,000 – $532,000 = $14,000 U (39,000 × $14.00) (38,000 × $14.00) a(b) Factory Labor................................................................................. 546,000 Labor Price Variance............................................................. 7,800 Wages Payable ..................................................................... 538,200 Work in Process Inventory ............................................................. 532,000 Labor Quantity Variance ................................................................ 14,000 Factory Labor ........................................................................ 546,000

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    Ex. 174 The following direct labor data pertain to the operations of Foster Manufacturing Company for the month of November:

    Standard labor rate $10.00 per hr. Actual hours incurred and used 4,500

    The standard cost card shows that 2.5 hours are required to complete one unit of product. The actual labor rate incurred exceeded the standard rate by 10%. Two thousand units were manu-factured in November.

    Instructions (a) Calculate the price, quantity, and total labor variances. a(b) Journalize the entries to record the labor variances. Solution 174 (15–20 min.) Actual Hours Actual Hours Standard Hours × Actual Rate × Standard Rate × Standard Rate 4,500 × $11.00 = 4,500 × $10.00 = 5,000 × $10.00 = $49,500 $45,000 $50,000 Price Variance Quantity Variance $4,500 U $5,000 F Total Labor Variance $500 F a(b) Factory Labor ................................................................................. 45,000 Labor Price Variance ...................................................................... 4,500 Wages Payable...................................................................... 49,500 Work in Process Inventory.............................................................. 50,000 Labor Quantity Variance ........................................................ 5,000 Factory Labor......................................................................... 45,000

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    Ex. 175 Edmiston Industries provided the following information about its standard costing system for 2009: Standard Data Actual Data Labor 2 hrs. @ $21 per hr. Produced 8,000 units Budgeted fixed overhead $100,000 Labor worked 15,000 hrs. costing $300,000 Budgeted variable overhead $30 per unit Actual overhead $355,000 Budgeted production 10,000 units Edmiston applies fixed overhead at $10 per unit produced. Instructions Determine the amounts of the overhead variances. Solution 175 (8 min.) Overhead controllable variance = Actual overhead - Overhead budgeted = $355,000 – [($100,000 + (8,000 × $30)] = $15,000 Unfavorable Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate = [(10,000 × 2) – (8,000 × 2)] × $5/hr. = $20,000 Unfavorable Total overhead variance = Actual overhead – Overhead applied = $15,000 U + $20,000 U = $35,000 Unfavorable Ex. 176 Reagan Company planned to produce 20,000 units of product and work 100,000 direct labor hours in 2009. Manufacturing overhead at the 100,000 direct labor hours level of activity was estimated to be:

    Variable manufacturing overhead $ 700,000 Fixed manufacturing overhead 300,000 Total manufacturing overhead $1,000,000

    At the end of 2009, 21,000 units of product were actually produced and 108,000 actual direct labor hours were worked. Total actual overhead costs for 2009 were $1,025,000. Instructions (a) Compute the total overhead variance. (b) Compute the overhead controllable variance. (c) Compute the overhead volume variance.

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    Solution 176 (11–16 min.) (a) Actual overhead – Overhead applied = Total overhead variance $1,025,000 – $1,050,000 = $25,000 favorable

    Overhead applied = 21,000 units × 5 hrs = 105,000 standard hours allowed 105,000 × $10 = $1,050,000 (b) Actual overhead – Overhead budgeted = Overhead controllable variance $1,025,000 – $1,035,000 = $10,000 favorable

    Overhead budgeted at 105,000 actual direct labor hours allowed.

    Variable overhead (105,000 × $7) $ 735,000 Fixed overhead 300,000 $1,035,000 (c) (Normal hours – Standard hours) × Fixed overhead rate = Overhead volume variance (100,000 – 105,000) × $3/hour = $15,000 favorable Ex. 177 Stone Company planned to produce 20,000 units of product and work at the 60,000 direct labor hours level of activity for 2009. Manufacturing overhead at this level of activity and the predetermined overhead rate are as follows: Predetermined Overhead Rate per Direct Labor Hour Variable manufacturing overhead $300,000 $5.00 Fixed manufacturing overhead 180,000 3.00 Total manufacturing overhead $480,000 $8.00 At the end of 2009, 21,000 units were actually produced and 61,500 direct labor hours were actually worked. Total actual manufacturing overhead costs were $488,000. Instructions Using a two-variance analysis of manufacturing overhead, calculate the following variances and indicate whether they are favorable or unfavorable: (a) Overhead controllable variance. (b) Overhead volume variance. Solution 177 (12–17 min.) (a) Overhead controllable variance = $7,000 unfavorable. Overhead budgeted for standard hours allowed Variable overhead (63,000 × $5) = $315,000 Fixed overhead = 180,000 495,000 Actual overhead incurred 488,000 Overhead controllable variance $ 7,000 favorable

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    Solution 177 (cont.) (b) Overhead volume variance = $9,000 favorable. Overhead volume variance: (Normal hours – Standard hours) × Fixed overhead rate (60,000 – 63,000) × $3/hr = $9,000 favorable Ex. 178 The following information was taken from the annual manufacturing overhead cost budget of Olson Company: Variable manufacturing overhead costs $124,000 Fixed manufacturing overhead costs $62,000 Normal production level in direct labor hours 31,000 Normal production level in units 15,500 During the year, 15,000 units were produced, 32,000 hours were worked, and the actual manufacturing overhead costs were $190,000. The actual fixed manufacturing overhead costs did not deviate from the budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Instructions (a) Compute the total, fixed, and variable predetermined manufacturing overhead rates. (b) Compute the total, controllable, and volume overhead variances. Solution 178 (13–18 min.) (a) Item Amount Hours Rate Variable Overhead $124,000 31,000 $4.00 Fixed Overhead 62,000 31,000 2.00 Total Overhead $186,000 31,000 $6.00 (b) Total overhead variance: Overhead incurred – Overhead applied = $10,000 U ($190,000) (30,000 hours × $6.00) Overhead controllable variance: Overhead incurred – Overhead budgeted = $8,000 U ($190,000) [(30,000 × 4.00) + $62,000] Overhead volume variance: (Normal hours – Standard hours) × Fixed overhead rate (31,000 – 30,000) × $2.00/hr = $2,000 U

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    Ex. 179 Lapins Company has a standard costing system. The following data are available for July:

    a. Actual manufacturing overhead cost incurred: $22,000 b. Actual machine hours worked: 1,600 c. Overhead volume variance: $3,600 Unfavorable d. Total overhead variance: $1,000 Unfavorable e. Overhead is assigned to production on the basis of machine hours Instructions Determine the amount of (1) the controllable overhead variance and (2) the overhead applied. Solution 179 (6 min.) (1) Volume variance plus controllable variance = total overhead variance $3,600 U + X = $1,000 U; so controllable variance = $2,600 F (2) Overhead applied = $21,000 ($22,000 – $1,000) Ex. 180 Presented below is a flexible manufacturing budget for Waner Company, which manufactures fine timepieces: Activity Index: Standard direct labor hours 2,000 3,200 3,600 4,000 Variable costs Indirect materials $ 4,000 $ 6,400 $ 7,200 $ 8,000 Indirect labor 2,300 3,680 4,140 4,600 Utilities 5,200 8,320 9,360 10,400 Total variable 11,500 18,400 20,700 23,000 Fixed costs Supervisory salaries 1,000 1,000 1,000 1,000 Rent 3,000 3,000 3,000 3,000 Total fixed 4,000 4,000 4,000 4,000 Total costs $15,500 $22,400 $24,700 $27,000 The company applies the overhead on the basis of direct labor hours at $7.00 per direct labor hour and the standard hours per timepiece is 1/2 hour each. The company's actual production was 5,800 timepieces with 2,900 actual hours of direct labor. Actual overhead was $21,200. Instructions (a) Compute the controllable and volume overhead variances. a(b) Prepare the entries for manufacturing overhead during the period and the entry to recognize

    the overhead variances at the end of the period.

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    Solution 180 (16–21 min.) (a) Computation of variances: Actual overhead – Budgeted overhead = Controllable overhead variance $21,200 – [(5,800 × 1/2 × $5.75) + $4,000] = $525 Unfavorable Overhead volume variance: (Normal hours – Standard hours) × Fixed overhead rate (3,200 – 2,900) × ($4,000 ÷ 3,200) = $375 Unfavorable (b) 1. Manufacturing Overhead.......................................................... 21,200 Accounts Payable, Cash, Etc. ......................................... 21,200 (To record overhead incurred) 2. Work in Process Inventory ...................................................... 20,300 Manufacturing Overhead ................................................. 20,300 (To assign overhead to production) 3. Overhead Controllable Variance ............................................. 525 Overhead Volume Variance .................................................... 375 Manufacturing Overhead ................................................. 900 (To recognize overhead variances) Ex. 181 Zena Company uses a standard cost accounting system. During March, 2009, the company reported the following manufacturing variances: Materials price variance $1,600 F Materials quantity variance 2,400 U Labor price variance 600 U Labor quantity variance 2,200 U Overhead controllable 500 F Overhead volume 3,000 U In addition, 15,000 units of product were sold at $18 per unit. Each unit sold had a standard cost of $12. Selling and administrative expenses for the month were $10,000. Instructions Prepare an income statement for management for the month ending March 31, 2009.

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    Solution 181 (15–20 min.) ZENA COMPANY Income Statement

    For the Month Ended March 31, 2009 Sales (15,000 × $18).............................................................................. $270,000 Cost of goods sold (15,000 × $12)......................................................... 180,000 Gross profit (at standard) ....................................................................... 90,000 Variances: Materials price............................................................................... $(1,600) Materials quantity .......................................................................... 2,400 Labor price .................................................................................... 600 Labor quantity ............................................................................... 2,200 Overhead controllable ................................................................... (500) Overhead volume.......................................................................... 3,000 Total variances (unfavorable)............................................... 6,100 Gross profit (actual) ............................................................................... 83,900 Selling and administrative expenses...................................................... 10,000 Net income............................................................................................. $ 73,900 aEx. 182 Snyder Company developed the following standards for 2009:

    SNYDER COMPANY Standard Cost Card

    Cost Elements Standard Quantity × Standard Price = Standard Cost Direct materials 5 pounds $ 5 $25 Direct labor 1 hour $18 18 Manufacturing overhead 1 hour $10 10 $53 The company planned to produce 90,000 units of product and work at the 90,000 direct labor level of activity in 2009. The company uses a standard cost accounting system which records standard costs in the accounts and recognizes variances in the accounts at the earliest opportunity. During 2009, 87,000 actual units of product were produced. Instructions Prepare the journal entries to record the following transactions for Snyder Company during 2009. (a) Purchased 441,000 pounds of raw materials for $4.90 per pound on account. (b) Actual direct labor payroll amounted to $1,581,000 for 85,500 actual direct labor hours

    worked. Factory labor cost is to be recorded and distributed to production. (c) Direct materials issued for production amounted to 441,000 pounds which