Ch7 Raiborn SM

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Chapter 7
CHAPTER 7
STANDARD COSTING AND VARIANCE ANALYSIS
QUESTIONS
1. Thethreeprimaryusesofastandardcostsystemareto(1)assignperunitcoststo
productiontovalueinventory,(2)controloverheadspending,and(3)measureand
evaluatetheuseofproductioncapacitywithrespecttotheincurrenceoffixed
overheadcosts.
Inabusinessthatroutinelymanufacturesthesameproductsorperformsthesame
services,standardsareusefulindeterminingthenormalpricesandquantitiesthat
shouldbeassociatedwithaproductsproductionorservicesperformance.Actual
resultscanbecomparedtothesenormstodetermineifthecompanyisdoingajob
wellorpoorly.Standardscanalsobeusedinplanning,budgeting,andreducing
clericalcosts.
2. Theprocessofmanagementbyexceptionreferstoamanageronlyinvestigating
significant deviations from the standard. Both upper and lower limits of
acceptabilityareset;managersarereasonablyunconcernedwithdeviationswithin
therangeofacceptability.However,ifacostorquantityfallsoutsideeitherofthese
limits, a manager should discuss the deviation with the personresponsible and
attempttocorrect(ifnecessary)thesituation.
A standard cost system is a useful tool in a management by exception
environmentbecausethestandardcostsandquantitiessetthenormfromwhichto
judgethedegreeofacceptabilityofvariances.Forexample,managementcould
settheexceptionpolicyas5percentaboveorbelowstandardtoindicatethe
operationalareasinneedofattention.
3. Astandardcostcardsummarizesthedirectmaterial,directlabor,andoverhead
standardquantitiesandpricesneededtocompleteoneunitofoutput.Thebillof
materials specifies the quality and quantity of each raw material needed to
complete oneunit of output. The standard cost card shows the assignment of
standardcoststoeachrawmaterialinthebillofmaterialstodeterminethetotal
standardmaterialcostofoneunitofoutput.Theoperationsflowdocumentdetails
allnecessaryoperationstomakeaunitofoutputorsummarizesthetimetomake
oneunitofoutput.Timedetailsareusedtodevelopstandardlaborcostandtime
andoverheadratesforproductionofoneunitofoutput.
4. Materialstandardsmustbebasedonbothqualityandquantityofmaterials.The
qualitystandardisbasedonaconsiderationoftradeoffsbetweenhigherquality
and,potentially,highercostofinputs.Theanalysisshouldconsidertheeffectsof
inputqualityonmaterialyields,finalproductquality,laborstandards,etc.The
quantity standardis basedonphysical quantities usedinthepast,engineering
studies, improvements expected in handling or usage, and normal waste and
spoilageallowances.
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
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Chapter 7
Thequantities shownonabill ofmaterials arenotalwaysthesameas those

shownon astandard cost card because of allowances made fornormal waste
and/orspoilage.Thebillofmaterialspresentstheminimumquantitiesneededfor
production; the standard cost card presents the more realistic (although not
necessarythemostefficient)quantitiesallowedforproduction.
5. Each total variance can be broken down into a price component and a usage
component. Price variances measurethedifference betweenwhatwas actually
spentandwhatshouldhavebeenspentforthephysicalmeasureofwhatwas
actually used. Usage variances measure the difference between the physical
measureofwhatwasactuallyusedandwhatshouldhavebeenused,denominated
indollars.
Formaterial,thetwovariancesarethepriceandquantityvariances.Theprice
varianceisgenerallyrelatedtothequantityofmaterialpurchased;thequantity
varianceisrelatedtothequantityofmaterialusedinproduction.Fordirectlabor,
thetwovariancesaretherateandefficiencyvariances.Forvariableandfixed
overhead,thepricevarianceiscalledaspendingvariance.Forvariableoverhead,
the usage variance is referred to as the VOH efficiency variance. For fixed
overhead,theusagevarianceiscalledthevolume(ornoncontrollable)variance.
6. Thetermstandardhoursrefersthestandardamountofinputtimeitshouldtaketo
produce the actual quantity of output generated during the period. Thus, the
amountofstandardhoursreferstothestandardtimeallowedfortheproduction
achievedintheperiod.
7. Dominosdroppedthecampaignbecausesomecompanydriversbeganignoring
trafficlawstomakeontimedeliveries.TwolawsuitsthatcostDominos$82+
millionwerefiledagainstthecompanyin1992and1993afterdeliverypeople
causedcaraccidents(oneofwhichresultedintheotherdriversdeath).Specific
labortimestandardsmightbeproblematicinorganizationsfocusedonhealthand
safetymatters:forexample,onewouldnotwantguaranteedlabortimestandards
ineffectformedicaloperations.Intheairlineindustry,peoplewouldprobably
agreethatsettingaturnaroundtimestandardisagoodthing,butguaranteeingit
mightcreatesafetyhazards.
8. Managementisexpectedtocontrolinputcostsandinputquantitiesintheshortrun
and,therefore,thereferenceismadetocontrollable.Overheadspendingand
efficiency variances are considered controllable variances because, to some
extent,measurescanbetakenduringproductiontocorrectproblemsthatarise
relatedtosuchoverheadcosts.Onepartoftheoverheadspendingvarianceisthe
fixed overhead spending variance; cost items causing this variance must be
controlledatthepointofincurrenceratherthanduringproduction.
The volume variance is related to the fixed overhead budget, which is not
controllableintheshortrunbecauseitconsistsofcoststhathavebeencommitted
Chapter 7
to for a long period of time. Since this variance arises solely because of a
differencebetweenthecapacitymeasureusedtoestablishthepredeterminedfixed
overheadrateandthestandardhoursallowedfortheproductionachieved,any
abilitybyproductionpersonneltocontrolthisvarianceisminimal.Onlytothe
extentthatmanagerscouldinfluenceproductionbymodifyingworkorproduction
schedulesandunblockingproductionbottleneckscouldthevolumevariancebe
consideredcontrollableintheshortrun.
9. In a standard cost system, both actual costs and standard costs are recorded.
However,onlystandardcostsareaccountedforwithintheinventoryaccounts.
Differencesbetweenactualandstandardcostsarecapturedinvarianceaccounts.
By adding the variances to the standard cost amounts, actual costs can be
determined.
10. Attheendofaperiod,monetarilyinsignificantvariancesarecloseddirectlyto
CostofGoodsSold(CGS).Monetarilysignificantvariancesareproratedamong
alloftheaccountsthatareinfluencedbythevariance.Thus,asignificantmaterial
purchasepricevarianceisallocatedamongRawMaterial(RM)Inventory,Work
inProcess(WIP)Inventory,FinishedGoods(FG)Inventory,andCGS.Allother
variancesareallocatedamongWIPInventory,FGInventory,andCGS.
Thedifferenceintreatmentbetweeninsignificantandsignificantvariancesiscreated
becausestandardcostscanbeusedforfinancialstatementpurposesonlyiftheyare
substantiallyequivalenttoactualcosts.ClosinginsignificantvariancestoCostof
Goods Sold will not cause a large distortion of costs. Alternatively, closing all
variancestoCGSwhenthevariancesaresignificantwouldcausetherelatedassetand
expenseaccountstodiffersubstantiallyfromtheactualcostsincurred.
11. Managers view capacity utilization as a measure of productivity. In addition,
capacityutilizationmayfocusontheneedforfeweroradditionalresourcestobe
spentonplantassets.Ifaplantisconsistentlyoperatingsignificantlybelowits
normalcapacity,thefirmmayhavetoomuchmoneyinvestedinphysicalplant;if
theplantisconsistentlyoperatingabovenormalcapacity,theremaybeaneedfor
additionalinvestmentinfacilities.
Whentheycontrolutilization,managersarenotcontrollingcosts;theseareseparate
aspectsofthefixedoverheadissue.Costcontrolariseswhenphysicalfacilitiesare
acquiredandcostsarecommitted;utilizationcontrolarisesduringproduction.
12. Ideal standards should result in lower production costs because the standards
wouldincorporatenotoleranceforwasteandinefficiency.Ifidealstandardsare
setandexpectedtobemet,managementwouldneedtoascertainwhatnonvalue
addedactivitiesandwastewereincludedinoperationsandreduce/eliminatethose
which,inturn,wouldreduceoreliminatesomecosts.
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Chapter 7
13. Adjustingstandardswithinaperiodwouldbereasonableifsignificantchanges
occurred relative to prices, quantities, or activities related to the production
process.Ifadjustmentswerenotmade,thestandardcostsystemvarianceswould
havelittleuseforperformanceevaluation;additionally,thestandardswouldbeso
far from actual costs that the standard costs could not be used for financial
reportingpurposes.
14. (Appendix)Whenmaterialandlaborcategoriescanbesubstitutedforoneanother,
mixandyieldvariancesshouldbecalculated.Thesevariancescapturetheeffects
ofmanagerialdecisionstotradeoffoneresourceinputforanother.Ifeffective
decisions are made, the tradeoffs can be used to improve product quality or
reducecostsastherelativepricesandavailabilityoftheresourcesvaryovertime.
Themixvariancecapturestheeffectsofusingadifferentproportionofinputsthan
thestandardproportion,e.g.,usingmoreskilledlaborhoursandfewerunskilled
laborhours.Theyieldvariancecapturestheeffectofthetotalamountofresources
usedvaryingfromthestandardamount.
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182
EXERCISES
15. Eachstudentwillhaveadifferentanswer;nosolutionisprovided.
16. a. The actualtobudget comparison is totally inappropriate since the levels of
activityaredifferent.Palateshouldcompareactualcoststostandardcostsatthe
sameactivitylevelasfollows:
Directmaterial
Directlabor
VariableOH
Ind.material
Ind.labor
Utilities
FixedOH
Sup.salaries
Depreciation
Insurance
Totals
Actual BudgetatAct.Qty.
$161,000 (7,000$22.00)=
84,600 (7,000$12.00)=
$154,000
84,000
Variance
$7,000U
600U
28,000 (7,000$4.20)=
13,300 (7,000$1.75)=
7,700 (7,000$1.00)=
29,400
12,250
7,000
1,400F
1,050U
700U
82,000
30,000
17,600
$424,200
80,000 2,000U
30,000 0
19,280
1,680F
$415,930 $8,270U
b. ExplaintoPalatethathewilllosecredibilitywithheadquartersifheinsistson
hiscomparison.Theaccountantswouldimmediatelyperceivethiscomparison
aseitherignoranceoralackofintegrityonhispart.Palatesalternativeisto
stressthepositiveaspectsofsuchasmallcostoverrunandtotrytoperform
betternextyear.
17. Each student will have a different answer; no solution is provided. For (c),
however,studentsshouldrecognizethatthehousekeepersmustnotonlydotheir
jobswithintherooms,theymustacquirethenecessarysupplies,gofromroomto
room(andcangenerallycleanonlyunoccupiedrooms),pickupanddisposeof
trashacquired,possiblygofromfloortofloor,etc.Askthestudentsiftheycan
make/remaketheirbeds,vacuum,lightlydust,andcleantheirbathroomsin30
minutes!Alsoaskthemtoconsidertheconditionsinwhichtheyhavelefthotel
roomswhenconsideringthedifficultyofgettingthejobdone.
18. a. Iftheovertimepremiumcouldbeassociatedwithspecificjobsorwork,itcould
beincludedindirectlabor;otherwiseitwillbeincludedinvariableoverhead.
Ineithercase,thebasepayamountforovertimehourswillbeincludedwith
directlabor.Inmostinstances,onewouldexpectthattheuseofovertimepay,
inlieuofhiringadditionalworkers,wouldcauseashiftofcostsfromdirect
labortothevariableoverheadcategory.
b. Many workers may find themselves working overtime in jobs that were
acceptedbasedonthepremiseof(forexample)a40hourworkweek.When
employeesareforcedtoworkbeyondthebasicworkweek,timeistakenaway
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Chapter 7
fromotheractivitiesthatemployeesobviouslyvalue:leisure,timewithfamily,
education,hobbies,etc.Employersshouldnotroutinelyforceemployeesto
workovertimeagainsttheirwill.Ontheotherhand,workingovertimehours
on an occasional basis should be expected in many industries because of
seasonalityofdemandoroccurrenceofunexpectedevents.
Theimportantconsiderationiswhethertheemployerroutinelyasksemployees
to work overtime against their will and schedules regular production for
overtime hours; or alternatively, if the employer only occasionally asks
employees toworkovertime duetounforeseencircumstances orseasonality
considerations.Intheformercase,theemployermaybeactingunethically;in
thelattercase,theemployersrequestsarelikelyethical.
c. Argumentscanbemadeonbothsidesofthequestion.Assumingemployersask
theirmostproductiveemployeestoworkovertime,onemightexpectthatthe
overtime hours are at least as productive (in terms of efficiency and
effectiveness) as regular time hours. Alternatively, if employers ask such
employeestoworktoomanyhoursofovertime,productivitycouldwaneasthe
employeestireandbecomeambivalentaboutproductivityandjobperformance.
d. Governmentscostsaredrivenupbytheuseofovertimeduetotheadditional
socialprogramsthatmustbeofferedtothesubstantialnumberofindividuals
whoareunemployed.However,governmentrevenuesmaybeenhanceddueto
the tax revenues flowing from additional profit generated by firms using
overtime.Onbalance,governmentwouldprobablypreferhigheremployment,
butmanylegislators wouldhesitate toregulate freeenterpriseintheuseof
overtime.
ItisarguedthathighunemploymentintheUnitedStatesispartlyduetothe
veryhighcostsoffringebenefits,especiallyhealthcarecoverage.Withina
given class of labor, these costs tend to vary more with the number of
employeesthantotallaborcosts.Accordingly,fromthefirmsperspective,the
useofsubstantialamountsofovertimeisareasonablewayofcontrollingvery
high fringe benefit costs to remain competitive. This approach also gives
existingemployeesanopportunitytoraisetheirstandardoflivingbyincreasing
disposableincome.However,asdiscussedin(b),notallemployeesmaywish
toworkadditionalovertime.Anunemployedindividualmustseetheheavyuse
ofovertimeasanobstacletoemploymentand,assuch,wouldpreferthatlimits
exist.
19. a.Ahospitaladministratorwouldhavemixedfeelingsaboutsuchprograms.On
theonehand,theexistenceoftheprogramprovidesopportunitiestoimprove
bottomline performance by carefully managing the length of patient stays.
Alternatively,theadministratorwouldbeforcedtobearpressuresthatwouldbe
absent without such programs. Additional pressures would exist to dismiss
patients early who, from only a medical perspective, should remain in the
hospital longer. Thus, pressure would always exist to make hospital stays
shorter,evenwhenthebestinterestofthepatientwouldnotbeservedbyearly
dismissal.
Chapter 7
184
b. Inthelongterm,allofsocietywillbenefitifhospitalstaysareneithertooshort
nortoolong.Anypolicythatrigidlydeterminesthataparticulartypeofsurgery
warrants a hospital stay of a fixed number of days will create substantial
problems.Differences(suchasage,gender,size,overallstateofhealth,etc.)
exist across individuals that affect the time they require to recuperate from
surgery. In general, a patient would prefer that the hospitals incentives be
alignedwiththepatientsincentives.Ifthehospitalhasanincentivetodismiss
patientsearly,thisislikelytocreategreaterconflictandpotentialproblemsfor
individualswhohaveenduredmajorsurgeryratherthanminorsurgery.Patients
who have had only minor surgery would be affected less because early
dismissalwouldbelessharmfultothem.
c. Favorablelengthofstayvariancescouldeasilyberelatedtolowqualitycare.If
ahospitalmerelyestablishedapolicyofearlydismissal,thehospitalwould
generatefavorablevariances.Suchapolicyisclearlynotindicativeofhigh
qualityservice.
20. Eachstudentwillhaveadifferentanswer;nosolutionprovided.
21.a.Directmaterial
Raspberries(7.5qts.*$0.80perqt.)
Otheringredients(10gal.$0.45pergal.)
Directlabor
Sorting[(3min.6qts.)60min.)$9.00]
Blending[(12min.60)$9.00perhr.]
Packaging(40qts.**$0.38perqt.)
Standardcostper10gallonbatch
$6.00
4.50
$2.70
1.80
$10.50
4.50
15.20
$30.20
6qts.(5/4)=7.5qts.requiredtoobtainsixacceptablequarts
4qts.pergallon10gallons=40quarts
**
b.
In general, the purchasing manager is held responsible for

unfavorable material price variances. Causes of these variances include the
following:
Failuretocorrectlyforecastpriceincreases.
Purchasingnonstandardoruneconomicallots.
Purchasingfromsuppliersotherthanthoseofferingthemostfavorableterms.
c.
In general, the production manager or foreperson is held

responsible for unfavorable labor efficiency variances. Causes of these
variancesincludethefollowing:
Poorlytrainedlabor
Substandardorinefficientequipment
Inadequatesupervision
(CMAadapted)
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Chapter 7
22. a. Totalpurchases=APAQp=$0.13115,000=$14,950
b.Materialpricevariance =(APAQp)(SPAQp)
=$14,950($0.14115,000)
=$14,950$16,100
=$1,150F
c.
Materialquantityvariance =(SPAQu)(SPSQ)
=($0.14100,000)($0.1497,900)
=$14,000$13,706
=$294U
23. a. $10,0804,200=$2.40perquart
SQ=1,000units4quarts=4,000
AQAP
4,200$2.40
$10,080
AQSP
4,200$2.50
$10,500
$420F
MaterialPriceVariance
b.
SQSP
4,000$2.50
$10,000
$500U
MaterialUsageVariance
Thepricevariancewouldbebasedonthequantityofmaterial
purchased,whiletheusagevariancewouldbebasedonthequantityofmaterial
usedinproduction.Becausetheusagevarianceisbasedonthesamequantities
asin(a),itdoesnotchange.
AQpAP
6,000$2.40
$14,400
AQpSP
6,000$2.50
$15,000
$600F
c. RawMaterialInventory
AccountsPayable
15,000
WorkinProcessInventory
RawMaterialInventory
10,000
500
d.
600
14,400
10,500
Thepurchasingagentwouldhaveresponsibilityfortheprice
varianceandtheproductionmanagerwouldhaveresponsibilityfortheusage
variance.
(CPAadapted)
Chapter 7
186
24. a. Material purchase price variance = ($2.10 $1.40) = $0.70 F variance per
pound;$0.70100,000lbs.=$70,000F
b.
c.
June 3,0005=15,000SQ;$2.10(16,40015,000)=
$2,940U
July
3,4005=17,000SQ;$2.10(17,64017,000)=$1,344U
Aug. 2,9005=14,500SQ;$2.10(14,95014,500)=$945U
Sept. 2,5005=12,500SQ;$2.10(13,10012,500)=$1,260U
Itispossiblethatthematerialpurchasedhadbeendamagedin
somewayorbecametaintedforusewhilebeingstoredatthebankruptvendors
location.(BellInc.shouldcarefullyassesstheeffectofthismaterialsusageon
laborefficiencytoseeifthereisanunfavorablevariancethere.)
25. a.&b.
Purchasingagentsresponsibility:
Materialpricevariance=(APAQp)(SPAQp)
=($0.6425,600)($0.7025,600)
=$16,384$17,920
=$1,536F
Productionsupervisorsresponsibility:
Standardquantityofmaterials=60035lbs.=21,000
Materialquantityvariance=(SPAQu)(SPSQ)
=($0.7021,400)($0.7021,000)
=$14,980$14,700
=$280U
c.
Explanations offered should consider the pattern of the

variances.Thepatternisafavorablepricevarianceandanunfavorablequantity
variance. A favorable price variance could have been obtained because the
materialwasacquiredinalargerthannormalquantitywithapricingdiscount.
Orthematerialwasacquiredfromavendorhavingadistresssale.Another
reasonwouldbethatthequalityofthescrapironwasnotashighasthequality
usually purchased. If the latter is the case, it could have influenced the
excessivematerialusageandwaste.Alternatively,thequantityvariancecould
bejustinefficiencyintheproductionprocess.
26. a. Standardhours=5670=3,350
b. Wagerateperhour=$60,407.503,310=$18.25
c. APAQ
SPAQ
$183,310
$59,580
$60,407.50
$827.50U
SPSQ
$183,350
$60,300
$720F
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Chapter 7
LaborRateVariance
LaborEfficiencyVariance
$107.50U
TotalLaborVariance
27. a. Sincethelaborratevarianceisfavorable,theactualcostofdirectlaborisless
(by$5,500)thanthestandardcost.Thestandardcostis$80,500.
APAQ
$7.5010,000
$75,000
$5,500F
LaborRateVariance
SPAQ
SP10,000
$80,500
$80,50010,000actualdirectlaborhoursequalsastandardrateof$8.05.
b. Sincetheactualhoursare1,000lessthanthestandard,theefficiencyvariance
is1,000hours$8.05=$8,050U.
APAQ
$7.5010,000
$75,000
SPAQ
$8.0510,000
$80,500
$5,500F
LaborRateVariance
c. WorkinProcessInventory
LaborRateVariance
WagesPayable
SPSQ
$8.059,000
$72,450
$8,050U
72,450
8,050
5,500
75,000
(CPAadapted)
28. a. Actualcost=Standardcost+Totalunfavorablevariance
=($250350)+$3,500
=$87,500+$3,500
=$91,000
b. Laborefficiencyvariance=(SPAH)(SPSH)
=($250330)($250350)
=$82,500$87,500
=$5,000F
c. Ratevariance+Efficiencyvariance=Totalvariance
Ratevariance+($5,000F)=$3,500U
Ratevariance=$3,500+$5,000
Ratevariance=$8,500U
d. WorkinProcessInventory
LaborRateVariance
87,500
8,500
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188
WagesPayable
e.
91,000
5,000
Becausethefavorableefficiencyvarianceiscoupledwithan
unfavorableratevariance,oneexplanationisthatthefirmused,onaverage,a
moreskilledmixoflaborthanitexpectedtouse.Forexample,thefirmmay
haveusedmoreseniorauditorsandmanagersthanitintendedtouse.Without
additionalinformationontheoriginalmixofemployeesandtheactualmixof
employees,nospecificconclusionscanbereached.
CaseA
1,000
3.5
3,500
$7.25
3,400
$23,800
$850F
725F
29.
Unitsproduced
Standardhoursperunit
Standardhours
Standardrateperhour
Actualhoursworked
Actuallaborcost
Laborratevariance
Laborefficiencyvariance
CaseA:
Standardhours=1,0003.5=3,500
CaseB
CaseC
240
1,000
0.9
2.5
900
600
$10.20 $10.50
975 560
$8,970 $6,180
$975F 300U
$765U $420F
CaseD
1,500
3.0
4,500
$7.00
4,900
$31,850
$2,450F
$2,800U
LRV=AQ(APSP)
$850=3,400(AP$7.25)
$850=3,400AP$24,650
$23,800=3,400AP
$7.00=AP
Actuallaborcost=$7.003,400=$23,800
LEV=SP(AQSQ)
LEV=$7.25(3,4003,500)=$7.25(100)=$725F
CaseB:
Unitsproduced=9000.9=1,000
LEV=SP(AQSQ)
$765=SP(975900)
$765=SP(75)
$10.20=SP
LRV=AQ(APSP)
$975=975(AP$10.20)
$975=975AP$9,945
$8,970=975AP
$9.20=AP
Actuallaborcost=$9.20975=$8,970
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Chapter 7
CaseC:
Standardhours=600240=2.5
(APAQ)LRV=(SPAQ)
$6,180$300=$5,880
$5,880=$10.50AQ
$5,880$10.50=AQ
AQ=560
LEV=SP(AQSQ)
LEV=$10.50(560600)=$10.50(40)=$420F
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190
CaseD:
Actuallaborrate=$31,8504,900=$6.50
LRV=AQ(APSP)
LRV=$31,850($74,900)
LRV=$31,850$34,300
LRV=$2,450F
LEV=(SPAQ)(SPSQ)
$2,800=$34,300$7SQ
$31,500=$7SQ
SQ=4,500
Standardhoursperunit=4,5001,500=3
30. a. Materialpricevariance=$61,000($320,000)
=$61,000$60,000
=$1,000U
Standardquantityofmaterial=3,9004.8=18,720gallons
Materialquantityvariance=($318,350)($318,720)
=$55,050$56,160
=$1,110F
b. Standardquantityoftime=3,9001/3hour=1,300hours
($9.021,290)
$11,635.80
($9.001,290)
$11,610.00
($9.001,300)
$11,700.00
$25.80U
LaborRateVariance
$90.00F
$64.20F
TotalLaborVariance
AccountsPayable
60,000.00
1,000.00
MaterialQuantityVariance
56,160.00
WorkinProcess
LaborRateVariance
WagesPayable
11,700.00
25.80
61,000.00
1,110.00
55,050.00
90.00
11,635.80
31. a. Actualmaterialprice=$83,30017,000=$4.90persquareyard
Materialpricevariance:AQp(APSP)=17,000($4.90$5.00)=$1,700F
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Chapter 7
Materialusagevariance:SP(AQuSQ)=$5(16,50015,000)=$7,500U
b.RawMaterialInventory
AccountsPayable
85,000
75,000
7,500
83,300
1,700
82,500
c. Actuallaborrate=$79,8007,600=$10.50
Laborratevariance:AQ(APSP)=7,600($10.50$10.00)=$3,800U
Laborefficiencyvariance=(SPAQ)(SPSQ)
=($107,600)($107,500)
=$76,000$75,000
=$1,000U
d. WorkinProcessInventory
LaborRateVariance
WagesPayable
e.
75,000
3,800
1,000
79,800
The material price variance is favorable. The purchasing

agentmayhavepurchasedanoptimumquantitywithanegotiatedprice.Itis
also possible that the materials are of lower quality. This possibility is
suggestedbyboththeunfavorablematerialusagevarianceandtheunfavorable
laborefficiencyvariance.Itispossiblethattheworkershaddifficultyworking
withthematerialsorthattheinferiorqualitysloweddownthemachineryor
resultedindefectiveunitsbeingproduced.Allofthesefactorswouldrequire
additionalmaterialstobeusedtocompletetherequiredproductionlevel.The
unfavorablelaborratevariancecouldhavebeentheresultofthecompanyusing
moreexperiencedworkers,atightlabormarketduetoastrongeconomyor
standards that had notbeenupdated fora changein contractual wagerates
negotiatedinaunioncontract.
(CPAadapted)
32. a. Standardquantityofmaterial=2yards10,000shirts=20,000yards
Standardlabortime=0.7hours10,000shirts=7,000DLHs
b.APAQp
$89,700
SPAQp
$330,000
$90,000
$300F
SPAQu
$320,120
$60,360
$360U
SPSQ
$320,000
$60,000
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192
APAQ
$58,756
SPAQ
$7.507,940
$59,550
SPSQ
$7.507,000
$52,500
$794F
LaborRateVariance
$7,050U
$6,256U
TotalLaborVariance
c. Thepatternisafavorablematerialpricevarianceandanunfavorablematerial
quantityvariance.Ifthequalitylevelofcottonisbelowtheexpectedlevel,a
favorablepricevariancewouldbeincurred.However,thelowerqualitycotton
could result in more waste and shrinkage during production and thus more
materialsyardageisrequiredtomakeatshirtthanexpected.
d. The favorable labor rate variance is coupled with an unfavorable labor
efficiencyvariance.Oneexplanationisthatthefirmused,onaverage,aless
skilledmixoflaborthanitexpectedtouseandthustheaveragelabortimeper
tshirt was greater than expected. Additionally, the use of inferior quality
materialcouldalsohavecontributedtotheexcesstimetakentomanufacturethe
shirts.
e. MaterialPriceVariance
CostofGoodsSold
Todisposeofthematerialvariances
LaborRateVariance
CostofGoodsSold
Todisposeofthelaborvariances
300
60
360
794
6,256
7,050
33. a. SQ=4,8000.5=2,400squareyards
b.
c.
SH=4,8002=9,600hours
Sincethequantityofmaterialpurchasedandusedisthe
same,allmaterialvariancesarebasedonthesamequantity.
Materialquantityvariance=(SPAQ)(SPSQ)
$600U=$6(AQSQ)
$600U=$6AQ$6(2,400)
$600U=$6AQ$14,400
193
Chapter 7
$15,000=$6AQ
AQ=2,500yards
Materialpricevariance=(APAQ)(SPAQ)
=$14,550($62,500)
=$14,550$15,000
=$450F
d.
Laborefficiencyvariance=SP(AHSH)
=$17(9,7609,600)
=$17(160)
=$2,720U
e. Standardprimecostpertravelbag:
Material(0.5$6)
Labor(2$17)
Total
f.
AP=SP(LaborratevarianceAQ)
=$17($1,4649,760)
=$17$0.15
=$16.85
Actualcosttoproduceonebag:
Material($14,5504,800)
Labor[$16.85(9,7604,800)]
Total(roundedforbothmaterialandlabor)
g.
$3.00
34.00
$37.00
$3.03
34.26
$37.29
Theactualcosttoproduceabagis$37.29;thestandard
cost is $37or anunfavorable difference of$0.29. The twoprimary factors
creatingthecostoverrunaretheunfavorable$0.125($6004,800)perunit
materialquantityvarianceandtheunfavorable$0.57($2,7204,800)perunit
laborefficiencyvariance.Therewerefavorablematerialpriceandlaborrate
variances.Itislikelythatalowerqualitymaterialandlessskilledlaborwere
usedthanthestandardallowed,resultinginexcessusageofmaterialandlabor
time.
34. a. Budgetedmachinehours=144,000units3.5MHsperunit=504,000MHs
VOHrate=$2,016,000504,000MHs=$4perMH
FOHrate=$3,528,000504,000MHs=$7perMH
b. StandardMHs=11,9003.5=41,650
ActualVOH
VOHRateActualHours
AppliedVOH
$441,800
$441,650
$165,000
$167,200
$166,600
$2,200F
$600U
VOHSpendingVariance
VOHEfficiencyVariance
Chapter 7
194
$1,600F
TotalVOHVariance
ActualFOH
$294,500
BudgetedFOH
$3,528,00012
$294,000
$500U
FOHSpendingVariance
AppliedFOH
$741,650
$291,550
$2,450U
VolumeVariance
$2,950U
TotalFOHVariance
d.
The company expected to produce 12,000 units per

monthand,thus,use42,000MHs.Byonlyproducing11,900units,thestandard
hourswere41,650or350MHslessthanexpected.SinceFOHisappliedto
each standard MH at $7 per hour, the volume variance is $2,450 U.
Alternatively,eachunitrequires3.5MHsorreceives$24.50ofFOH.Bynot
producinganexpected100units,thecompanyunderappliedFOHby(100
$24.50)or$2,450.
35. a. Calculationsbeginwithfixedoverhead.Dividingthe$1,000,000ofbudgeted
FOHby$40perhourgives25,000budgetednumberofmachinehours.Adding
the $28,000 U FOH spending variance gives $1,028,000 actual FOH cost.
Subtracting the $20,000 U volume variance gives $980,000 which, when
dividedbythe$40FOHrate,gives24,500standardhours.
ActualFOH
BudgetedFOH
AppliedFOH
$4025,000
$4024,500
$1,000,000
$1,028,000
$980,000
$28,000U
$20,000U
FOHSpendingVariance
VolumeVariance
$48,000U
TotalFOHVariance
StandardhoursaremovedtotheVOHprongdiagramandaremultipliedbythe
VOHrateof$20.Subtractingthe$41,200FVOHefficiencyvarianceprovides
themiddleprongamountof$448,800,which,whendividedbythe$20VOH
rate,givesactualhoursof22,440.Subtractingthe$34,000FVOHspending
varianceprovidesactualVOHof$414,800.
ActualVOH
VOHRateActualHours
AppliedVOH
$2022,440
$2024,500
$414,800
$448,800
$490,000
$34,000F
$41,200F
VOHSpendingVariance
$75,200F
TotalVOHVariance
195
Chapter 7
b.
c.
Standardmachinehoursis25,000budgetedMHs20,000budgeted
units=1.25MHsperunit
Actualmachinehoursworkedis$448,800$20=22,440
d.
Totalspendingvarianceis$28,000UFOHspendingvariance
$34,000FVOHspendingvariance=$6,000F
e.
TheVOHfavorableefficiencyvarianceresultedfromusing2,060
fewermachinehoursthanallowedgivenproductionof20,000units.TheFOH
volumevarianceresultedfromunderutilizingcapacityby500machinehours.
f.
OHSpendingVariance
VolumeVariance
CostofGoodsSold
Todisposeofoverheadvariances
6,000
41,200
20,000
27,200
36. a. Standardhours=18,8002carsperhour=9,400
VariableOverhead:
Actual
Budget
Applied
$27,700
$39,500=$28,500
$39,400=$28,200
$800F
$300U
VOHSpendingVariance
$500F
TotalVOHVariance
TotalbudgetedFOH=$910,000=$90,000
FixedOverhead:
Actual
$90,800
Budget
$90,000
Applied
$99,400=$84,600
$800U
$5,400U
FOHSpendingVariance
VolumeVariance
$6,200U
TotalFOHVariance
b.
Actual
BudgetatActual
BudgetatStandard
Applied
VOH=$27,700 $39,500=$28,500
$39,400=$28,200
$39,400=$28,200
FOH=90,800
90,000
90,000
$99,400=84,600
$118,500
$118,500
$118,200
$112,800
$0
$300U
$5,400U
OHSpendingVar.
OHEfficiencyVar.
VolumeVariance
$5,700U
TotalOHVariance
c. Actual
VOH=$27,700
FOH=90,800
Budget
$39,400=$28,200
90,000
Applied
$39,400=$28,200
$99,400=84,600
Chapter 7
196
$118,500
$118,200
$300U
BudgetVariance
$112,800
$5,400U
VolumeVariance
$5,700U
TotalOHVariance
37. a. Variableoverheadrate=$315,00070,000DLHs=$4.50perDLH
Fixedoverheadrate=$140,4003,900MHs=$36perMH
ActualVOH
$26,325
BudgetedVOH
$4.505,900
$26,550
$225F
$360F
VOHSpendingVariance VOHEfficiencyVariance
$585F
TotalVOHVariance
ActualFOH
$11,400
AppliedVOH
$4.505,980
$26,910
BudgetedFOH
$140,40012months
$11,700
$300F
FOHSpendingVariance
AppliedFOH
$36290
$10,440
$1,260U
VolumeVariance
$960U
TotalFOHVariance
b. VariableManufacturingOverheadControl
FixedManufacturingOverheadControl
Variousaccounts
TorecordactualoverheadcostsforMarch2013
VariableManufacturingOverheadControl
ToapplyoverheadtoworkinprocessforMarch2013
VariableOverheadSpendingVariance
VariableOverheadEfficiencyVariance
TorecordvariableoverheadvariancesforMarch2013
VolumeVariance
FixedManufacturingOverheadSpendingVariance
26,325
11,400
37,350
37,725
26,910
10,440
585
225
360
1,260
960
300
197
Chapter 7
TorecordfixedoverheadvariancesforMarch2013
38. BudgetedFOHpermonth=$250,80012=$20,900
StandardFOHrate=$250,800264,000=$0.95perMH
StandardVOHrate=$2.90$0.95=$1.95perMH
Standardhours=11,9602=23,920
Actual
BudgetatActual
BudgetatStandard
Applied
$47,100 $1.9524,700= $48,165 $1.9523,920= $46,644
$2.9023,920
+20,000
+20,900
+20,900
$69,368
$67,100
$69,065
$67,544
$1,965F
$1.521U
$1,824F
OHSpendingVar.
OHEfficiencyVar.
VolumeVariance
39. a. The$20combinedOHrateminusthe$8VOHrate(fromtheflexiblebudget
formula)givesafixedoverheadrateof$12perDLH.Budgetedannualcapacity
= $360,000 budgeted FOH $12 FOH rate = 30,000 direct labor hours.
Dividingthevolumevarianceof$24,000bythe$12FOHrategives2,000
hours,whichisthedifferencebetweenstandardhoursandthebudgetedannual
capacityinhours.Sincethevolumevariancewasunfavorable,standardhours
arelowerthanexpectedannualcapacityor30,0002,000= 28,000standard
hours.
Actual
BudgetatStandard
Applied
($828,000)+$360,000
$2028,000
$580,000
$596,000
$584,000
$560,000
$16,000F
$12,000U
$24,000U
OHSpendingVar.
OHEfficiencyVar.
VolumeVariance
b.
BudgetatActual
Actual(Budgetatactualhours)=Spendingvariance$580,000
$596,000=$16,000F
Budgetatactualhours=(BudgetedVOHatactualhours)+BudgetedFOH
$596,000=($8actualhours)+$360,000
$236,000=$8actualhours
Actualhours=$236,000$8
Actualhours=29,500
40. a. 5,10012=61,200standardhours
b. 59,400MHs$500.70fixed=$2,079,000budgetedmonthlyFOH
c. ActualOHformonth
Budgetatoutput(61,200$500.3)+$2,079,000
ControllableOHvariance
$2,927,000
(2,997,000)
$70,000F
d. BudgetpermonthforFOH
AppliedFOH(61,200$500.70)
$2,079,000
(2,142,000)
Chapter 7
198
Noncontrollablevariance
$63,000F
41. MaterialPriceVariance($14,500U):
Balances
RawMaterial
$73,200
WorkinProcess
87,840
FinishedGoods
131,760
CostofGoodsSold
1,171,200
Total
$1,464,000
%ofTotal
5
6
9
80
100
FinishedGoodsInventory
CostofGoodsSold
Todisposeofthematerialpricevariance
Allothervariances($15,350F):
Balances
WorkinProcess
$87,840
FinishedGoods
131,760
CostofGoodsSold
1,171,200
Total
$1,390,800
Allocation
$725.00
870.00
1,305.00
11,600.00
$14,500.00
725.00
870.00
1,305.00
11,600.00
14,500.00
%ofTotal
6.3
9.5
84.2
100.0
Allocation
$967.05
1,458.25
12,924.70
$15,350.00
LaborRateVariance
CostofGoodsSold
Todisposeoftheremainingmaterialand
laborvariances
21,930.00
2,200.00
8,780.00
967.05
1,458.25
12,924.70
42. a Variableconversionrate=$170,00010,000MHs=$17perMH
Fixedconversionrate=$76,00010,000MHs=$7.60perMH
Standardquantityperunit=10,000MHs5,000units=2MHs
Standardhoursproduction=4,800units2MHs=9,600MHs
ActualFixedConv.
$78,000
BudgetedFixedConv.
$2,000U
SpendingVariance
$76,000
$5,040U
AppliedFixedConv.
($7.609,600)
$72,960
$3,040U
VolumeVariance
199
Chapter 7
TotalFixedConv.Variance
ActualVar.Conv.
$150,000
BudgetedVar.Conv.
($179,000)
$153,000
$3,000F
SpendingVariance
AppliedVar.Conv.
($179,600)
$163,200
$10,200F
EfficiencyVariance
$13,200F
TotalVar.Conv.Variance
b. Theoverallcostperformancewasveryfavorable.Thetotalvariance($3,000+
$10,200 $2,000 $3,040) or $8,160 F. Although cost control of fixed
conversioncostswasrelativelypoor,costcontrolofvariableconversioncosts
wasexcellent.Furthermorethelarge,favorableefficiencyvarianceforvariable
conversionindicatesthefirmwasveryefficientinuseofthecostdriverfor
variableconversion,machinehours.Last,thefirmfailedtomaketheexpected
numberofrotorsasindicatedbytheunfavorablevolumevariance.Evenso,on
balance,thecostcontrolmanagementwascommendable.
43. a. 1,008,600MHs12months=84,050machinehourspermonth
84,050MHs4.1MHsperunit=20,500unitspermonth
b.
Variableconversionrate=$22.50$16.00=$6.50perMH
StandardMHs=21,000units4.1MHs=86,100MHs
Chapter 7
200
ActualVar.
Conv.Costs
BudgetedVar.Conv.Costs
AppliedVar.
atActualMHs
Conv.Costs
$6.5083,000
$6.5086,100
$551,230
$539,500
$559,650
$11,730U
$20,150F
Var.Conv.SpendingVariance Var.Conv.EfficiencyVariance
$8,420F
TotalVariableConversionVariance
Expectedannualfixedconversioncosts=$16.001,008,600=$16,137,600
Expectedmonthlyfixedconversioncosts=$16,137,60012=$1,344,800
ActualFixed
Conv.Costs
BudgetedFixedConv.Costs
$1,330,000
$1,344,800
AppliedFixed
Conv.Costs
$1686,100
$1,377,600
$14,800F
$32,800F
FixedConv.SpendingVariance FixedConv.EfficiencyVariance
$47,600F
TotalFixedConversionVariance
ActualConv.Costs
Budget@Actual
Budget@Std.
Applied
$551,230+$1,330,000$539,500+$1,344,800$559,650+$1,344,800$559,650+$1,377,600
$1,881,230
$1,884,300
$1,904,450
$1,937,250
$3,070F
$20,150F
$32,800F
OHSpendingVar.
OHEfficiencyVar.
VolumeVar.
$56,020
TotalOHVariance
44. a. Standardmix=50%pecansand50%cashews
Totalpoundsused=15,554+12,726=28,280
Actualmix=15,55428,280or55%pecans;thus,45%cashews
Standardquantity=(36,000cans12oz.)16oz.=27,000lbs.
Actualpriceofpecans=15,554$5.80=$90,213.20
Actualpriceofcashews=12,726$8.50=$108,171.00
Standardprice;actualmix&quantityofpecans=$615,554=$93,324
Standardprice;actualmix&quantityofcashews=$812,726=$101,808
Standardprice&mix;actualquantityofpecans=$6.000.5028,280=
$84,840
Standardprice&mix;actualquantityofcashews=$8.000.5028,280=
$113,120
Standardforpecans=$6.000.5027,000=$81,000
Standardforcashews=$8.000.50 27,000 = $108,000
201
Chapter 7
AMAQAP
AMAQSP
SMAQSP
SMSQSP
P$90,213.20
$93,324
$84,840
$81,000
C108,171.00
101,808
113,120
108,000
$198,384.20
$195,132
$197,960
$189,000
$3,252.20U
$2,828F
$8,960U
MaterialPriceVar. MaterialMixVar. MaterialYieldVar.
45. LetErepresentengineers,andDrepresentdraftspeople
Totaltime=400+600=1,000;E=40%andD=60%
Actualmix=50%Eand50%D
Standardquantity(hoursallowed)=1,000hrs.
ActualcostofE=$65500=$32,500
ActualcostofD=$32500=$16,000
Standardrate;actualmix&quantityofE=$60500=$30,000
Standardrate;actualmix&quantityofD=$30500=$15,000
Standardrate&mix;actualquantityofE=$600.41,000=$24,000
Standardrate&mix;actualquantityofD=$300.61,000=$18,000
StandardforE=$600.41,000=$24,000
StandardforD=$300.61,000=$18,000
AMAQAP
AMAQSP
SMAQSP
SMSQSP
E$32,500
$30,000
$24,000
$24,000
D16,000
15,000
18,000
18,000
$48,500
$45,000
$42,000
$42,000
$3,500U
$3,000U
$0
LaborRateVar.
LaborMixVar.
LaborYieldVar.
46. a. Totalactualhours=900+2,520+1,500=4,920
Standardhours=1,008+2,772+1,260=5,040
Standardrate;actualmix&hours:
Admin.assistant($30900)
Paralegal($602,520)
Attorney($1251,500)
Standardrate&mix;actualhours:
Admin.assistant($300.24,920)
Paralegal($600.554,920)
Attorney($1250.254,920)
Standardrate,mix,&hours:
Admin.assistant($301,008)
Paralegal($602,772)
Attorney($1251,260)
$27,000
151,200
187,500
$365,700
$29,520
162,360
153,750
$345,630
$30,240
166,320
157,500
$354,060
Chapter 7
202
AMAHSR
$365,700
SMAHSR
$345,630
$20,070U
LaborMixVariance
(1)
SMSHSR
$354,060
$8,430F
LaborYieldVariance
(2)
c. Management used an inefficient mix of labor. The total variance for labor
efficiencyis($20,070)+$8,430=$11,640U.Totalactualhourswerelessthan
thestandardallows,resultinginafavorableyieldvarianceof$8,430.Thiswas
offsetbythefactthattoomanyhourswereworkedbyattorneysandtoofew
hourswereworkedbyadministrativeassistantsandparalegals,resultinginan
unfavorable labor mix variance of $20,070. The actual labor content of
administrative assistants and paralegals (combined) was 69.5 percent; at
standard,theadministrativeassistantandparalegallaborcontentshouldbe75
percent.
(CMAadapted)
203
Chapter 7
PROBLEMS
47. a. Standardquantityofmaterial=48,0001.85=88,800pounds
Standardquantityoflabortime=48,0000.04=1,920hours
b.
APAQp
$3.15100,000
$315,000
SPAQp
$3.50100,000
$350,000
$35,000F
Mat.Purch.PriceVariance
SPAQu
$3.5095,000
$332,500
SPSQ
$3.5088,800
$310,800
SPAQ
$12.002,200
$26,400
SPSQ
$12.001,920
$23,040
$21,700U
APAQ
$12.102,200
$26,620
$220U
LaborRateVariance
$3,360U
$3,580U
TotalLaborVariance
AccountsPayable
350,000
310,800
21,700
WorkinProcess
LaborRateVariance
WagesPayable
23,040
220
3,360
35,000
315,000
332,500
26,620
d. Itdoesntseemthatthepurchasingagentmadesuchagreatdealbecause
therewassubstantialexcessmaterialandlaborusageduringJuly.Itispossible
thatthematerialwasdefectiveinsomeway,andeventhoughthereisstilla
verylargenetfavorablevariancebecauseofthesubstantiallydiscountedprice,
thecompanymayhavetoworryaboutpotentialfutureproductreturns,higher
thannormalwarrantyworkonproducts,andcustomerdissatisfactionwiththe
product.
48. a. Materialpricevariance=(APAQp)(SPAQp)
=($3.0860,000)($3.0060,000)
=$0.0860,000
=$4,800U
Chapter 7
204
Standardquantity=100,0000.25=25,000lbs.
=($324,800)($325,000)
=$3(200)
=$600or$600F
Standardhours=100,0001/20hour=5,000hours
APAQ
SPAQ
SPSQ
$8.805,320
$9.005,320
$9.005,000
$46,816
$47,880
$45,000
$1,064F
$2,880U
LaborRateVariance
$1,816U
TotalLaborVariance
b.RawMaterialInventory
AccountsPayable
Torecordrawmaterialpurchasedin
Octoberatstandardcost
180,000
4,800
184,800
Torecordissuanceofrawmaterialat
standardcostduringOctober
74,400
600
LaborRateVariance
Cash(Salaries/WagesPayable)
TorecordOctoberdirectlaborpayroll
andvariances
45,000
2,880
75,000
1,064
46,816
49. a. Material
Fiberglass:
Pricevariance=(APAQp)(SPAQp)
=($1.832,100,000)($1.802,100,000)
=$0.032,100,000
=$63,000U
Quantityvariance=(SPAQu)(SPSQ)
=($1.801,380,000)($1.801,200,000)
=$1.80180,000
=$324,000U
205
Chapter 7
Paint(4quarts=1gallon)
=($55.501,000)($601,000)
=$4.501,000
=$4,500F
=($60924)($60900)
=$6024
=$1,440U
Trim:
=($205640)($200640)
=$5640
=$3,200U
=($200608)($200600)
=$2008
=$1,600U
SHforlabor=600boats40hours=24,000DLHs
Labor
APAQ
$23.5023,850
$560,475
SPAQ
$25.0023,850
$596,250
SPSQ
$25.0024,000
$600,000
$35,775F
$3,750F
LaborRateVariance
$39,525F
TotalLaborVariance
50. a. (1) Standardquantityofmaterial:300,0000.85=255,000sq.ft.
(2) AQofmaterialused:
SQStandardprice(255,000$0.80)
Materialquantityvariance
(ActualquantityusedStandardprice)
$204,000
1,440U
$205,440
$205,440$0.80=256,800sq.ft.=AQuofmaterial
(3)Actualquantitypurchased:256,800+2,500=259,300sq.ft.
Chapter 7
206
(4) Actualpriceofmaterial:
(Actualquantitypurchased)(ActualStandardprice)=MPV
(259,300)(AP$0.80)=$5,186
259,300(AP)$207,440=$5,186
259,300(AP)=$212,626
AP=$212,626259,300
AP=$0.82perfoot
(5) SH=300,0001,000=300hours
(6) Laborefficiencyvariance=$15(315300)
=$225U
(7) Laborratevariance:
Totallaborvariance=Laborratevariance+Laborefficiencyvariance
$288U=Laborratevariance+$225ULEV
$63U=Laborratevariance
(8)Standardlaborrate
Laborratevariance($63315)
Actuallaborrate
$15.00
(0.20)
$15.20
b. Actualwagespayable=315DLHs$15.20=$4,788
AccountsPayable
207,440
5,186
204,000
1,440
WorkinProcess
LaborRateVariance
WagesPayable
212,626
205,440
4,500
63
225
4,788
51. a. 49,6003.1=16,000unitsproducedinSeptember
b. Materialpricevariance=(APAQp)(SPAQp)
=($1.0550,000)($1.1050,000)
=$2,500F
=($1.1048,600)($1.1049,600)
=$1,100F
c. 4,030actualhours30abovestandard=4,000standardhours
4,00016,000=0.25standardhourperunit
207
Chapter 7
d.
APAQ
$9.804,030
$39,494
SPAQ
$9.804,030
$39,494
SPSQ
$9.804,000
$39,200
$0
LaborRateVariance
$294U
$294U
TotalLaborVariance
e. RawMaterialInventory
AccountsPayable
TorecordpurchasesforSeptember
55,000
Torecordissuancesofdirectmaterialfor
September
54,560
Cash(Salaries/WagesPayable)
Torecorddirectlaborpayrollandthe
varianceaccountsforSeptember
39,200
294
2,500
52,500
53,460
1,100
39,494
52. a. Materialpricevariance=(APAQ)(SPAQ)
=($4.9050,000)($4.0050,000)
=$45,000U
=($450,000)($451,600*)
=$6,400F
*Standardquantity=17,2003=51,600
Laborratevariance=(APAQ)(SPAQ)
=($9.0517,800)($617,800)
=$54,290U
=($617,800)($625,800*)
=$48,000F
*Standardquantity=17,2001.5=25,800
b. Materialpricestandard:4%priceincreasesforsixyears
2007:$4.001.04=$4.16
2008:$4.161.04=$4.33
Chapter 7
208
2009:$4.331.04=$4.50
2010:$4.501.04=$4.68
2011:$4.681.04=$4.87
2012:$4.871.04=$5.06
Purchasedata5%volumediscount,$5.060.95=$4.81peryard
Materialquantitystandard:3yards1/8yard=2
yards
Laborratestandard:7%(COLA)forsixyears
2007:$6.001.07=$6.42
2008:$6.421.07=$6.87
2009:$6.871.07=$7.35
2010:$7.351.07=$7.86
2011:$7.861.07=$8.41
2012:$8.411.07=$9.00perhour
Labortimestandard:timereducedby1/3;1/3of1.5hrsis0.5hr;newstandard
is1hourpermuumuu
c. Materialpricevariance=(APAQ)(SPAQ)
=($4.9050,000)($4.8150,000)
=$4,500U
=($4.8150,000)($4.8149,450*)
=$2,645.50U
*
Standardquantity=17,2002=49,450
Laborratevariance=(APAQ)(SPAQ)
=($9.0517,800)($9.0017,800)
=$890U
=($9.0017,800)($9.0017,200*)
=$5,400U
*
Standardquantity=17,2001=17,200
53.a. ActualOHcost[($48,165+$140,220)5,700]
ExpectedOHcost($8+$16)
Costdifferenceperunit
b. VariableOverhead:
Actual
$48,165
Budget
$86,000
$48,000
Applied
$85,700
$45,600
Budget
Applied
$165U
VOHSpendingVariance
FixedOverhead:
Actual
$33.05
(24.00)
$9.05
$2,400U
209
Chapter 7
$140,220
$169,000
$144,000
$3,780F
FOHSpendingVariance
$52,800U
VolumeVariance
$165,700
$91,200
c. The$52,800unfavorablevolumevarianceexistsbecausethecompanybasedits
standardfixedoverheadrateonanexpectedcapacityof9,000units(and,thus,
9,000directlaborhours).Whenonly5,700units(astandardof5,700DLHs)
wereproducedduringAugust,thecompanywasunabletoapply$16ofFOHon
3,300units(orhours)...amountingtothe$52,800Uvolumevariance.
54.a.Totalstandardhours:
Tables(10010)
Swings(4003)
Benches(607)
ActualVOH
1,000
1,200
420
2,620
BudgetVOH
VOHRateAH
$42,780=$11,120
AppliedVOH
VOHRateSH
$12,800
$42,620=$10,480
$1,680U
$640U
VOHSpendingVariance
$2,320U
TotalVOHVariance
36,000DLHsperyear12months=3,000DLHspermonth
ActualFOH
BudgetFOH
AppliedFOH
$23,000
FOHRateSH
$5,900
$6,000
$22,620=$5,240
$100F
$760U
FOHSpendingVariance
VolumeVariance
$660U
TotalFOHVariance
b.VariableManufacturingOverheadControl
FixedOverhead
Variousaccounts
TorecordactualOHcostsforMarch
TorecordappliedOHcostsforMarch
VOHSpendingVariance
FOHVolumeVariance
12,800
5,900
18,700
15,720
10,480
5,240
1,680
640
760
Chapter 7
210
FOHSpendingVariance
TorecordOHvariancesforMarch
FOHSpendingVariance
CostofGoodsSold
VOHSpendingVariance
FOHVolumeVariance
TocloseOHvariancesforMarch
100
2,320
660
100
2,980
1,680
640
760
c. Managersgenerated netunfavorablecontrollablevariances intheamountof

$2,220($1,680+$640$100).Inaddition,becausetheproductionlevelwas
below expectations, an unfavorable volume variance was generated in the
amount of $760. Together these variances suggest that management was
ineffective in controlling costs during this period. However, upperlevel
managers should pursue explanations of the causes of the variances in
evaluatingproductionmanagers.
55. (Theitemsmarkedwithan*weregiven.)
ActualLaborCost
$112,500
BudgetLaborCost
SRAH
$129,000
$108,000
$4,500U*
LaborRateVariance
AppliedLaborCost
SRSH
$128,000*
$96,000
$12,000U*
BudgetedFOH=10,000DLHsexpectedcapacity$9FOHrate=$90,000(The
hoursbelowareinthousands.)
ActualOverhead
VOH
FOH
BudgetatActual
BudgetatStandard
AppliedOverhead
LaborHours
LaborHours
$162,000*
($169k) =$144,000 ($168k) =$128,000
($168k) =$128,000
84,000*
90,000
90,000
($98k)
72,000
$246,000
$234,000
$218,000
$200,000
$12,000U
$16,000U
$18,000U
SpendingVariance
EfficiencyVariance
VolumeVariance
a. Numberofunitsmanufactured=8,0004=2,000
b. Totalappliedoverhead=$200,000
c. Volumevariance=$18,000U
d. VOHspendingvariance=$162,000$144,000=$18,000U
e. VOHefficiencyvariance=$16,000U
211
Chapter 7
f. Totalactualoverhead=$246,000
56.a.ActualOH($265,400+$177,250)
AppliedOH($1531,000)
TotalOHvariance
$442,650
465,000
$22,350F
b. BudgetedFOH=$630,000=$180,000
CombinedOHrate=$9+$6=$15
Standardhours=62,0001/2=31,000
VOH
FOH
Actual
$265,400
177,250
$442,650
BudgetatOutput
Applied
$931,000 =$279,000
180,000
$459,000 $1531,000=$465,000
$16,350F
$6,000F
BudgetVariance
VolumeVariance
$22,350F
TotalOHVariance
c. Thevolumevarianceisthesameunderthethreevarianceapproachasunderthe
twovarianceapproach:$6,000F.ThetotalOHvarianceisthesameasunder
theoneandtwovarianceapproaches,$22,350F.
Actual
VOH $265,400
FOH
177,250
$442,650
BudgetatInput
BudgetatOutput
$933,300 =$299,700
$931,000 =$279,000
180,000
180,000
$479,700
$459,000
$37,050F
$20,700U
TotalOHSpendingVariance VOHEfficiencyVariance
57. a. StandardMHs=3,3601.25=4,200MHs
ActualVOH
$27,000
BudgetedVOH
AppliedVOH
$6.504,100=$26,650
$6.504,200=$27,300
$350U
$650F
VOHSpendingVariance
$300F
TotalVOHVariance
MonthlybudgetedFOH=4,000MHs$9.35=$37,400
ActualFOH
$41,400
BudgetedFOH
AppliedFOH
$37,400
$9.354,200=$39,270
$4,000U
$1,870F
FOHSpendingVariance
VolumeVariance
$2,130U
Chapter 7
212
TotalVOHVariance
BudgetatInput
BudgetatOutput
Applied
b. ActualOH
VOH$27,000$6.504,100=$26,650$6.504,200=$27,300
$27,300
FOH41,400
37,400
37,400
39,270
$68,400 $64,050
$64,700
$66,570
$4,350U
$650F
$1,870F
OHSpendingVar.
OHEfficiencyVariance
VolumeVar.
$1,830U
TotalOHVariance
c.ActualOH
VOH$27,000
FOH41,400
$68,400
BudgetatOutput
Applied
$6.504,200=$27,300
$27,300
37,400
39,270
$64,700
$66,570
$3,700U
$1,870F
OHBudgetVariance
VolumeVariance
$1,830U
TotalOHVariance
d.ActualOH
VOH$27,000
FOH41,400
$68,400
AppliedOH
$27,300
39,270
$66,570
$1,830U
TotalOHVariance
58.a.Materialpricevariance:
Aluminum:AQp(APSP)=4,000($3.80$4.00)=
Copper:AQp(APSP)=3,000($8.40$8.00)=
Total
$800F
1,200U
$400U
b. Materialusagevariance
Standardquantityofaluminum=8504=3,400
Standardquantityofcopper=8503=2,550
Aluminum:SP(AQuSQ)=$4(3,5003,400)=
Copper:SP(AQuSQ)=$8(2,6002,550)=
Total
$400U
400U
$800U
c.
Totalactuallaborcost=($165,200)+($17.00900)
=$83,200+$15,300
=$98,500
Standardlaborcost=$166,100
=97,600
Laborratevariance
$900U
213
Chapter 7
d.
Standardhours=8507=5,950
Laborefficiencyvariance=(SRAH)(SRSH)
=($166,100)($165,950)
=$97,600$95,200
=$2,400U
e.
VOHspendingvariance=ActualVOH(BudgetedVOHatAHs)
=$23,300($64,175)
=$23,300$25,050
=$1,750F
f.
VOHefficiencyvariance=(Budgetatactualhours)(BudgetatSHs)
=$25,050($64,250)
=$25,050$25,500
=$450F
g.
BudgetedFOH=6,000MHs$4=$24,000
FOHspendingvariance=ActualFOHBudgetedFOH
=$18,850$24,000
=$5,150F
h.
FOHvolumevariance=BudgetedFOHAppliedFOH
=$24,000($44,250)
=$24,000$17,000
=$7,000U
i.
Budgetvariance=ActualOH(BudgetedOHatstandardhrs.)
=($18,850+$23,300)[($64,250)+$24,000]
=$42,150($25,500+$24,000)
=$42,150$49,500
=$7,350F
Or
Budgetvariance=VOHspending+VOHefficiency+FOHspending
=$1,750F+$450F+$5,150F
=$7,350F
AluminumMaterialInventory
AluminumMaterialPriceVariance
AccountsPayable
16,000
CopperMaterialInventory
CopperMaterialPriceVariance
AccountsPayable
24,000
1,200
AluminumMaterialQuantityVariance
AluminumMaterialInventory
13,600
400
800
15,200
25,200
14,000
Chapter 7
214
CopperMaterialQuantityVariance
CopperMaterialInventory
20,400
400
WorkinProcess
LaborRateVariance
WagesPayable
95,200
900
2,400
WorkinProcess
VariableOHSpendingVariance
VariableOHEfficiencyVariance
VariableOHControl
25,500
WorkinProcess
VolumeVariance
FixedOHSpendingVariance
FixedOHControl
17,000
7,000
59.a. Actual
SPAQ
$18450
$8,100
$8,300
20,800
98,500
1,750
450
23,300
5,150
18,850
SPSQ
$18(6,00012)
$9,000
$200U
$900F
$700F
TotalMaterialVariance
b.
Actual
$12,242.50
SRAH
$81,475
$11,800
SHSR
$8(6,0004)
$12,000
SRAQ
$2.401,475
$3,540
SRSQ
$2.401,500
$3,600
$442.50U
$200F
LaborRateVariance
$242.50U
TotalLaborVariance
c. ActualVOH
$3,480
$60F
$60F
VOHSpendingVariance
$120F
TotalVOHVariance
ActualFOH
Budget
$1.256,000
$7,500
$7,720
$220U
SRSH
$7,500
$0
215
Chapter 7
FOHSpendingVariance
VolumeVariance
$220U
TotalFOHVariance
d. Actual
VOH$3,480
FOH7,720
$11,200
Budget@Input
Budget@Output
Applied
$3,540
$3,600
$3,600
7,500
7,500
7,500
$11,040
$11,100
$11,100
$160U
$60F
$0
OHSpendingVar. OHEfficiencyVar.
VolumeVariance
e.
Actual
VOH$3,480
FOH7,720
$11,200
Budget
Applied
$3,600
$3,600
7,500
7,500
$11,100
$11,100
$100U
$0
BudgetVariance
VolumeVariance
f.
Actual
VOH$3,480
FOH7,720
$11,200
$100U
UnderappliedOH
OHspendingvariance
OHefficiencyvariance
Budgetvariance
Volumevariance
TotalOHvariance
g.
Applied
$3,600
7,500
$11,100
$160U
60F
$100U
0U
$100U
Costdrivers:numberofjobsworkedpermonth;distancefromjobsite
tobusinessoffice;numberofroomspainted;numberofcolorspainted;number
ofbrushcleanings;numberofhoursworked;numberofhoursofoperationfor
paintsprayers.
60.a.Materialpricevariance
Materialquantityvariance
Laborratevariance
Laborefficiencyvariance
VOHspendingvariance
VOHefficiencyvariance
FOHspendingvariance
FOHvolumevariance
$23,400U
24,900F
5,250F
36,900U
3,000U
1,800F
6,600F
16,800U
Chapter 7
216
Total
$41,550U
LaborRateVariance
CostofGoodsSold
24,900
5,250
30,150
VOHControl
VOHSpendingVariance
1,800
1,200
CostofGoodsSold
VOHControl
1,200
FOHSpendingVariance
FOHControl
FOHVolumeVariance
6,600
10,200
CostofGoodsSold
FOHControl
10,200
23,400
36,900
3,000
1,200
16,800
b.OriginalbalanceofCGS
Addnetunfavorablevariances
AdjustedbalanceofCGS
$2,702,200
41,550
$2,743,750
c.Materialpricevarianceallocation:
CostofGoodsSold
Total
Total
$320,600
916,000
641,200
2,702,200
$4,580,000
Allocationofmaterialpricevariance:
RawMaterialInventory($23,4000.07)
WorkinProcessInventory($23,4000.20)
FinishedGoodsInventory($23,4000.14)
CostofGoodsSold($23,4000.59)
Total
CostofGoodsSold
Toallocatematerialpricevarianceto
appropriateaccounts
10,200
Percent
7
20
14
59
100
$1,638
4,680
3,276
13,806
$23,400
1,638.00
4,680.00
3,276.00
13,806.00
23,400.00
217
Chapter 7
Allocationofallothervariances=($41,550$23,400)=$18,150
Total
Percent*
$916,000
22
641,200
15
CostofGoodsSold
2,702,200
63
Total
$4,259,400
100
*
rounded
Allocation:
WorkinProcessInventory($18,1500.22)
FinishedGoodsInventory($18,1500.15)
CostofGoodsSold($18,1500.63)
Total
VOHControl
VOHSpendingVariance
$3,993.00
2,722.50
11,434.50
$18,150.00
1,800.00
1,200.00
3,000.00
FOHSpendingVariance
FOHControl
FOHVolumeVariance
6,600.00
10,200.00
CostofGoodsSold
LaborRateVariance
VOHControl
FOHControl
Toallocateremainingvarianceto
appropriateaccounts
3,993.00
2,722.50
11,434.50
24,900.00
5,250.00
d.RawMaterialInventory($320,600.00+$1,638.00)
WorkinProcessInventory($916,000.00+$4,680.00+
$3,993.00)
FinishedGoodsInventory($641,200.00+$3,276.00+
$2,722.50)
CostofGoodsSold($2,702,200.00+$13,806.00+
$11,434.50)
16,800.00
36,900.00
1,200.00
10,200.00
$322,238.00
924,673.00
647,198.50
2,727,440.50
Note that the total difference in Cost of Goods Sold from (b) and (d) is
($2,743,750$2,727,440.50)or$16,309.50.This amountisonly6/10of1
percentoftheoriginalbalance...probablynotsignificantenoughtowarrant
individualaccountallocation.
Chapter 7
61.a.(1)Materialquantitypurchased
Unfavorableunitprice($2.00$2.10)
Unfavorablepurchasepricevariance
(2)Materialquantityused
Materialquantityrequiredatstandardfor15,000
units(15,0001sq.ft.)
Unfavorablequantity
Standardpricepersq.ft.
Unfavorablematerialquantityvariance
(3)Directlaborused
Unfavorablehourlyrate($9.00$9.10)
Unfavorablelaborratevariance
(4)Directlaborused
Directlaborrequiredatstandardfor15,000units
(15,0001.6hrs.)
Unfavorabledirectlaborusage
Standardwagerateperhour
Unfavorablelaborefficiencyvariance
218
15,600 sq.ft.
$0.10
$1,560
15,900 sq.ft.
15,000 sq.ft.
900 sq.ft.
$2
$1,800
24,600 hrs.
$0.10
$2,460
24,600 hrs.
24,000 hrs.
600 hrs.
$9
$5,400
(5)TheOHincludedinthestandardunitcostisrelatedtoDLHs.
TheOHbudgetisbasedonoutput.
219
Chapter 7
OH
Charged
Indirectlabor
Suppliesoil
Allocatedsupportdept.
VOHcosts
TotalVOH
Supervision
Depreciation
Other
TotalFOH
TotalOH
OHbudgetvariance
b.
OHBudgetfor
OneMonthPeriod
and15,000
UnitsofOutput
(Under)
Overbudget
$51,120
9,900
$52,500
7,500
$(1,380)
2,400
9,600
$70,620
7,500
$67,500
2,100
$3,120
$7,425
11,250
3,750
$22,425
$93,045
$6,750
11,250
3,750
$21,750
$89,250
$675
0
0
$675
$3,795
Clearlyindicatingwheretheresponsibilitiesforpriceandquantity
variances lie and charging the variances to the departments with initial
responsibilityreducestheconflictbutdoesnoteliminateit.
Thespecificcause(s)ofthevarianceneedstobedeterminedbeforetherecan
be certainty that the proper department was charged. For example, if
materials were purchased at higher than standard prices because the
manufacturingdepartmentrequiredarushorder,thenthepricevarianceis
theresponsibilityofthemanufacturingdepartment.Ifthematerialsprovided
by the purchasing department were of slightly lower quality than
specificationsrequired,duetocarelesspurchasing,theexcessquantityused
bymanufacturingistheresponsibilityofthepurchasingdepartment.
Evenifthevariancesareproperlychargedtothetwodepartments,itcanbe
arguedthatthepurchasingdepartmentsvarianceisinfluencedbytheexcess
quantityrequiredbymanufacturing.Inthisproblemtheextra300sq.ft.will
increase the purchasing departments variance (accumulated over several
periods)by$30(300sq.ft.$0.10).The$30isthejointresponsibilityof
thetwodepartments.
c.
TheManufacturingDepartmentmanagercannotcontrolthepriceof
theoverheaditems.Therefore,thepricesshouldnotinfluencethedatainher
report. Further, the allocation method for service department costs is not
sufficientlyexplainedtoidentifywhatpart,ifany,ofthisvariationcanbe
identified with the department. The fixed overhead items listed in this
problemnormallyareoutsidethecontrolofadepartmentmanager.Supplies
andindirectlaborareleft.
Controlcanbeexercisedatthedepartmentallevelovertheamountofthings
used; therefore, emphasis should be placed on the quantities within the
varianceswithlittleornoemphasisonthedollarvalues.Themajoruseof
Chapter 7
220
thedollarvalueswouldbetoestablishthequantitylevelofeachvariancethat
wouldbeeconomicallyworthmanagementattention.
To:DepartmentManagerManufacturing
From:PerformanceAnalysis
Subject:ControllableOverheadPerformanceNovember
ControllableOverheadItems
Quantity
(1)
(2)
%Compared
toStandard
Indirectlabor*
Favorableindirectlaboruse
(dollarvalue$2,100)
300hrs.
4%
Oil*
Unfavorableoiluse
(dollarvalue$1,500)
3,000gal.
20%
Commentary:
Thedollarvalueoftheoilvariationanditslargepercentagerequirethatthe
causebeidentifiedandcontrolproceduresbeapplied.
Theindirectlaborvariation,althoughfavorable,shouldbeinvestigatedtobe
sure that it does not represent unaccomplished activities that affect other
aspectsoftheoperations.
CalculationsforMemorandum
Indirectlaborhoursused
SHsfor15,000unitsoutput(15,0000.5hrs.)
Favorableindirectlaborusage
Dollarvalueatstandardprices($7perhour)
Suppliesoil
Oilused
Standardquantityfor15,000unitsoutput
Unfavorableoilusage
Dollarvalueatstandardcostof$0.50pergallon
*
d.
7,200
7,500
300hrs.
$2,100
18,000gal.
15,000gal.
3,000gal.
$1,500
Theimmediatereactionmightbetodismissthedepartmentmanager.
However,carefulthoughtwouldrequireanalysisofthesituationtodetermine
(1)if,onanoverallbasis,thedepartmentisbeingoperatedeconomically(ifso,
thendismissalmaybeundesirable);and(2)ifthecauseofsuchbehavioris
duetomanagementsreactiontounfavorablevarianceswithoutregardtosize
ortoundueemphasisbymanagementonindividualvariancestotheexclusion
ofmeasurementofoverallperformance.
Ifitisassumedthatthemanagerisperformingsatisfactorilyonanoverall
basis and should not be dismissed, then two possible solutions can be
221
Chapter 7
considered: (1) revise reporting methods so as to emphasize overall

performance;or(2)revisereportingonlabortocombinedirectandindirect
laborintoasingleitemforperformanceevaluation.
[Noteonthisquestion:Thecalculationsforoverheadwerebasedonoutput
measures.Theproblemdoesnotspecificallyindicatethebasisforoverhead
budgetdevelopment.Itseemsreasonablethatvariancesbasedoninputvalues
(e.g.,laborhours)wouldbeacceptableanswers.]
(CMAadapted)
62. a. (1) Revisingthestandardsimmediatelywouldfacilitatetheiruseinamaster
budget.Useofrevisedstandardswouldminimizeproductioncoordination
problemsandfacilitatecashplanning.Revisedstandardswouldfacilitate
moremeaningful costvolumeprofitanalysis andresultinsimpler,more
meaningfulvarianceanalysis.Standardsareoftenusedindecisionanalysis
suchasmakeorbuy,productpricing,orproductdiscontinuance.Useof
obsoletestandardswouldimpairsuchanalyses.
(2) Standardcostsarecarriedthroughtheaccountsinastandardcostsystem.
Retaining the current standards and expanding the analysis of variances
wouldeliminatetheneedtomakechangesintheaccountingsystem.
Changing standards could have an adverse psychological impact on the
peopleusingthem.Retainingthecurrentstandardswouldpreservethewell
known benchmarks and allow for consistency in reporting variances
throughouttheyear.Variancesareoftencomputedandignored.Retaining
thecurrentstandardsandexpandingtheanalysisofvarianceswouldforcea
diagnosis of the costs and would increase the likelihood that significant
varianceswouldbeinvestigated.
b. (1) Changesinprimecostsperunitduetotheuseofnewdirectmaterial:
Changesduetodirectmaterialprice
(NewmaterialpriceOldmaterialprice)Newmaterialquantity($7.77
$7.00)1lb.=$0.77U
Changesduetotheeffectofdirectmaterial
qualityondirectmaterialusage
(OldmaterialquantityNewmaterialquantity)Oldmaterialprice
(1.25lbs.1.00)$7.00=$1.75F
Changesduetotheeffectofdirectmaterial
qualityondirectlaborusage
(OldlabortimeNewlabortime)Oldlaborrate
[(2460)(2260)]$12.60=$0.42F
Totalchangesinprimecostsperunitduetotheuseofnewdirectmaterial
=$1.40F
(2) Changesinprimecostsperunitduetothenewlaborcontract(Newlabor
rateOldlaborrate)Newlabortime
($14.40$12.60)(2260)=$0.66U
Chapter 7
222
Reductionofprimecostsperunit
$13.79$13.05=$0.74F
(CMAadapted)
63.a.
ActualVariable
ConversionCosts
$1,128,800
ActualMachineHrs
StandardMachineHours
StandardVar.Rate
StandardVar.Rate
76,000$15=$1,140,000
72,000$15=$1,080,000
$11,200F
$60,000U
VariableConversion
VariableConversion
SpendingVariance
EfficiencyVariance
ActualFixed
ConversionCosts
$374,500
BudgetedFixed
ConversionCosts
$360,000
$14,500U
FixedConversion
SpendingVariance
b.
StandardMachineHours
StandardFixedRate
72,000$5=$360,000
$0
VolumeVariance
ActualMachine
Hours
BudgetatActual
Budgetat
AppliedConversion
MachineHours
StandardCosts
(76,000$15)+
(72,000$15)+
$360,000=
$360,000=
72,000$20=
$1,503,300
$1,500,000
$1,440,000
$1,440,000
$3,300U
$60,000U
$0
SpendingVariance
EfficiencyVariance
VolumeVariance
$63,300U
TotalConversionCostVariance
64. a. 60,000budgetedDLHs3DLHspersuit=20,000suits
b. FOHrate=$72,00060,000DLHs=$1.20perDLH
c. 1,800suits3DLHspersuit=5,400
d.
ActualVariable
ConversionCosts
$103,100
ActualDLHs
StandardDLHs
StandardVar.Rate
StandardVar.Rate
5,490$18=$98,820
5,400$18=$97,200
$4,280U
$1,620U
VariableConversion
VariableConversion
SpendingVariance
EfficiencyVariance
$5,900U
TotalVariableConversionCostVariance
223
Chapter 7
ActualVariable
ConversionCosts
$5,750
BudgetedFixed
StandardDLHs
ConversionCost
StandardVar.Rate
$72,00012=$6,000
5,400$1.20=$6,480
$250F
$480F
FixedConversion
VolumeVariance
SpendingVariance
$730F
TotalFixedConversionCostVariance
Actual
BudgetatActual
BudgetatStandard
Applied
DLHs
DLHs
$103,100 (5,490$18)=$98,820 (5,400$18)=$97,200
+5,750
+6,000
+6,000 5,400$19.20=
$108,850
$104,820 $103,200
$103,680
$4,030U
$1,620U
$480F
SpendingVariance
EfficiencyVariance
VolumeVariance
$5,170U
TotalConversionCostVariance
65.a.
StandardMix
ActualMix
Onions
1/3
2/7
Olives
1/3
3/7
Mushrooms
1/3
2/7
Standardquantity=(48,000units9ozs.)16oz.perlb.=27,000lbs.
Actualquantity=8,000+12,000+8,000=28,000lbs.
Standardcost;actualquantity&mix
Onions(8,000$1.60)
Olives(12,000$5.60)
Mushrooms(8,000$8.00)
$12,800
67,200
64,000
$144,000
Standardcost&mix;actualquantity(rounded)
Onions(1/328,000=9,333$1.60)
Olives(1/328,000=9,333$5.60)
Mushrooms(1/328,000=9,334$8.00)
$14,933
52,265
74,672
$141,870
Standardcost,quantity,mix
Onions(1/327,000$1.60)
Olives(1/327,000$5.60)
Mushrooms(1/327,000$8.00)
AMAQSP
$144,000
$14,400
50,400
72,000
$136,800
SMAQSP
$141,870
$2,130U
SMSQSP
$136,800
$5,070U
Chapter 7
224
MaterialMixVariance
MaterialYieldVariance
MaterialQuantityVariance=$2,130+$5,070=$7,200U
b.
Labor1
Labor2
StandardMix
5/11
6/11
ActualMix
13/23
10/23
Standardhours=(48,00011minutes)60minutesperhour=8,800hours
Standardrate;actualmix&hours:
Category#1(5,200$12)
Category#2(4,000$8)
Standardrate&mix;actualhours(rounded)
Category#1(5/119,200=4,182$12)
Category#2(6/119,200=5,018$8)
Standardrate,mix,hours
Category#1=5/118,800$12=
Category#2=6/118,800$8=
$62,400
32,000
$94,400
$50,184
40,144
$90,328
$48,000
38,400
$86,400
AMAHSR
SMAHSR
SMSHSR
$94,400
$90,328
$86,400
$4,072U
$3,928U
LaborMixVariance
LaborYieldVariance
Laborefficiencyvariance=$4,072U+$3,928U=$8,000U
c.
136,800
MaterialMixVariance
2,130
5,070
RawMaterialOnions
RawMaterialOlives
RawMaterialMushrooms
Torecordthematerialmixandyieldvariances
86,400
LaborMixVariance
4,072
LaborYieldVariance
3,928
WagesPayable
Torecordthelabormixandyieldvariances
66.a.
AMAQSP
SMAQSP
18,000$0.22 =$3,960 17,500$0.20 =$3,500
14,000$0.11 =1,540 17,500$0.10 =1,750
12,800
67,200
64,000
94,400
SMSQSP
15,000$0.20 =$3,000
15,000$0.10 =1,500
225
Chapter 7
10,000$0.07 =700 7,000$0.05 =350

6,000$0.05 =300
$6,200
$5,600
$4,800
$600U
$800U
MaterialMixVariance
Supportingcalculations:Standardmix,actualquantity:
Wheat:42,000(2560)=17,500
Barley:42,000(2560)=17,500
Corn:42,000(1060)=7,000
Materialquantityvariance=$600U+$800U=$1,400U
Chapter 7
b.
AMAHSR
400$12.25=$4,900
260$9.00=2,340
$7,240
226
SMAHSR
SMSHSR
6600.8$12=$6,336
6000.8$12=$5,760
6600.2$8=1,056
6000.2$8=960
$7,392
$6,720
$152F
$672U
LaborMixVariance
LaborYieldVariance
Laborefficiencyvariance=$152F+$672U=$520U

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178

Thequantities shownonabill ofmaterials arenotalwaysthesameas those

In general, the purchasing manager is held responsible for

In general, the production manager or foreperson is held

Explanations offered should consider the pattern of the

The material price variance is favorable. The purchasing

The company expected to produce 12,000 units per

c. Managersgenerated netunfavorablecontrollablevariances intheamountof

considered: (1) revise reporting methods so as to emphasize overall

10,000$0.07 =700 7,000$0.05 =350

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