ACCT 215 Problems Solutions, Fall 2011

Chapter 10 Standard Costs and Variances Chapter 10 Standard Costs and Variances Exercise 10-1 (20 minutes) 1. Number of chopping blocks................................... 4,000 Number of board feet per chopping block.......... ×         2.5 Standard board feet allowed.................................. 10,000 Standard cost per board foot................................. ×   $1.80 Total standard cost.................................................. $18,000 Actual cost incurred................................................ $18,700 Standard cost above................................................ 18,000 Spending variance—unfavorable.......................... $         700 2. Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP) Actual Quantity of Input, at Standard Price (AQ × SP) Actual Quantity of Input, at Actual Price (AQ × AP) 10,000 board feet × $1.80 per board foot = $18,000 11,000 board feet × $1.80 per board foot = $19,800 $18,700 Materials quantity variance = $1,800 U Materials price variance = $1,100 F Spending variance = $700 U Alternatively, the variances can be computed using the formulas: Materials quantity variance = SP (AQ – SQ) = $1.80 per board foot (11,000 board feet – 10,000 board feet) = $1,800 U Materials price variance = AQ (AP – SP) = 11,000 board feet ($1.70 per board foot* – $1.80 per board foot) = $1,100 F 10-1 Chapter 10 Standard Costs and Variances *$18,700 ÷ 11,000 board feet = $1.70 per board foot. 10-2 Chapter 10 Standard Costs and Variances Exercise 10-2 (20 minutes) 1. Number of meals prepared..................... 6,000 Standard direct labor-hours per meal.... × 0.20 Total direct labor-hours allowed............. 1,200 Standard direct labor cost per hour....... × $9.50 Total standard direct labor cost.............. $11,400 Actual cost incurred.................................. $11,500 Total standard direct labor cost (above)..................................................... 11,400 Spending variance.................................... $         100 Unfavorable 2. Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 1,200 hours × $9.50 per hour = $11,400 1,150 hours × $9.50 per hour = $10,925 1,150 hours × $10.00 per hour = $11,500 Labor efficiency variance = $475 F Labor rate variance = $575 U Spending variance = $100 U Alternatively, the variances can be computed using the formulas: Labor efficiency variance = SR(AH – SH) = $9.50 per hour (1,150 hours – 1,200 hours) = $475 F Labor rate variance = AH(AR – SR) = 1,150 hours ($10.00 per hour – $9.50 per hour) = $575 U 10-3 Chapter 10 Standard Costs and Variances Exercise 10-3 (20 minutes) 1. Number of items shipped.................................. 140,000 Standard direct labor-hours per item.............. × 0.04 Total direct labor-hours allowed....................... 5,600 Standard variable overhead cost per hour..... × $2.80 Total standard variable overhead cost............ $15,680 Actual variable overhead cost incurred........... $15,950 Total standard variable overhead cost (above)............................................................... 15,680 Spending variance.............................................. $       270 Unfavorable 2. Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 5,600 hours × $2.80 per hour = $15,680 5,800 hours × $2.80 per hour = $16,240 5,800 hours × $2.75 per hour* = $15,950 Variable overhead efficiency variance = $560 U Variable overhead rate variance = $290 F Spending variance = $270 U *$15,950 ÷ 5,800 hours = $2.75 per hour Alternatively, the variances can be computed using the formulas: Variable overhead efficiency variance = SR(AH – SH) = $2.80 per hour (5,800 hours – 5,600 hours) = $560 U Variable overhead rate variance = AH(AR – SR) = 5,800 hours ($2.75 per hour – $2.80 per hour) = $290 F 10-4 Chapter 10 Standard Costs and Variances Exercise 10-5 (20 minutes) 1. If the total labor spending variance is $330 unfavorable, and if the labor rate variance is $150 favorable, then the labor efficiency variance must be $480 unfavorable, because the labor rate and labor efficiency variances taken together equal the total labor spending variance. Knowing that the labor efficiency variance is $480 unfavorable, one approach to the solution would be: Labor efficiency variance = SR (AH – SH) $12 per hour (AH – 210 hours*) = $480 U $12 per hour × AH – $2,520 = $480** $12 per hour × AH = $3,000 AH = 250 hours * 168 batches × 1.25 hours per batch = 210 hours ** When used with the formula, unfavorable variances are positive and favorable variances are negative. 2. Knowing that 250 hours of labor time were used during the week, the actual rate of pay per hour can be computed as follows: Labor rate variance = AH (AR – SR) 250 hours (AR – $12 per hour) = $150 F 250 hours × AR – $3,000 = -$150* 250 hours × AR = $2,850 AR = $11.40 per hour * When used with the formula, unfavorable variances are positive and favorable variances are negative. 10-5 Chapter 10 Standard Costs and Variances Exercise 10-5 (continued) An alternative approach would be to work from known to unknown data in the columnar model for variance analysis: Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 210 hours§ × $12.00 per hour* = $2,520 250 hours × $12.00 per hour* = $3,000 250 hours × $11.40 per hour = $2,850 Labor efficiency variance = $480 U Labor rate variance = $150 F* Spending variance = $330 U* §168 batches × 1.25 hours per batch = 210 hours *Given 10-6 Chapter 10 Standard Costs and Variances Problem 10-11 (45 minutes) 1. a. In the solution below, the materials price variance is computed on the entire amount of materials purchased, whereas the materials quantity variance is computed only on the amount of materials used in production: Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP) Actual Quantity of Input, at Standard Price (AQ × SP) Actual Quantity of Input, at Actual Price (AQ × AP) 4,500 pounds* × $6.00 per pound = $27,000 6,000 pounds × $6.00 per pound = $36,000 $46,000 Materials quantity variance = $9,000 U 8,000 pounds × $6.00 per pound = $48,000 Materials price variance = $2,000 F *3,000 units × 1.5 pounds per unit = 4,500 pounds Alternatively, the variances can be computed using the formulas: Materials quantity variance = SP (AQ – SQ) = $6 per pound (6,000 pounds – 4,500 pounds) = $9,000 U Materials price variance = AQ (AP – SP) = 8,000 pounds ($5.75 per pound* – $6.00 per pound) = $2,000 F *$46,000 ÷ 8,000 pounds = $5.75 per pound b. No, the contract should probably not be signed. Although the new supplier is offering the material at only $5.75 per pound, the large materials quantity variance indicates a problem using these 10-7 Chapter 10 Standard Costs and Variances materials is production. The company still has 2,000 pounds of unused material in the warehouse; if these materials do as poorly in production as the 6,000 pounds already used, the total quantity variance on the 8,000 pounds of materials purchased will be very large. 10-8 Chapter 10 Standard Costs and Variances Problem 10-11 (continued) 2. a. Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 1,800 hours* × $12.00 per hour = $21,600 1,600 hours** × $12.00 per hour = $19,200 1,600 hours** × $12.50 per hour = $20,000 Labor efficiency variance = $2,400 F Labor rate variance = $800 U Spending variance = $1,600 F * 3,000 units × 0.6 hours per unit = 1,800 hours ** 10 workers × 160 hours per worker = 1,600 hours Alternatively, the variances can be computed using the formulas: Labor efficiency variance = SR (AH – SH) = $12.00 per hour (1,600 hours – 1,800 hours) = $2,400 F Labor rate variance = AH (AR – SR) = 1,600 hours ($12.50 per hour – $12.00 per hour) = $800 U b. Yes, the new labor mix should probably be continued. Although it increases the average hourly labor cost from $12.00 to $12.50, resulting in an $800 unfavorable labor rate variance, this is more than offset by greater efficiency of labor time. Notice that the labor efficiency variance is $2,400 favorable. Thus, the new labor mix reduces overall labor costs. 10-9 Chapter 10 Standard Costs and Variances Problem 10-11 (continued) 3. Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 1,800 hours × $2.50 per hour = $4,500 1,600 hours × $2.50 per hour = $4,000 $3,600 Variable overhead efficiency variance = $500 F Variable overhead rate variance = $400 F Spending variance = $900 F Alternatively, the variances can be computed using the formulas: Variable overhead efficiency variance = SR (AH – SH) = $2.50 per hour (1,600 hours – 1,800 hours) = $500 F Variable overhead rate variance = AH (AR – SR) = 1,600 hours ($2.25 per hour* – $2.50 per hour) = $400 F *$3,600 ÷ 1,600 hours = $2.25 per hour Both the labor efficiency variance and the variable overhead efficiency variance are computed by comparing actual labor-hours to standard labor-hours. Thus, if the labor efficiency variance is favorable, then the variable overhead efficiency variance will be favorable as well. 10-10 Chapter 10 Standard Costs and Variances Problem 10-12 (45 minutes) 1. a. Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP) Actual Quantity of Input, at Standard Price (AQ × SP) Actual Quantity of Input, at Actual Price (AQ × AP) 21,600 feet* × $3.00 per foot = $64,800 21,000 feet** × $3.00 per foot = $63,000 21,000 feet** × $3.20 per foot = $67,200 Materials quantity variance = $1,800 F Materials price variance = $4,200 U Spending variance = $2,400 U * 12,000 units × 1.80 feet per unit = 21,600 feet ** 12,000 units × 1.75 feet per unit = 21,000 feet Alternatively, the variances can be computed using the formulas: Materials quantity variance = SP (AQ – SQ) = $3.00 per foot (21,000 feet – 21,600 feet) = $1,800 F Materials price variance = AQ (AP – SP) = 21,000 feet ($3.20 per foot – $3.00 per foot) = $4,200 U 10-11 Chapter 10 Standard Costs and Variances Problem 10-12 (continued) 1. b. Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 10,800 hours* × $18.00 per hour = $194,400 11,400 hours** × $18.00 per hour = $205,200 11,400 hours** × $17.40 per hour = $198,360 Labor efficiency variance = $10,800 U Labor rate variance = $6,840 F Spending variance = $3,960 U * 12,000 units × 0.90 hours per unit = 10,800 hours ** 12,000 units × 0.95 hours per unit = 11,400 hours Alternatively, the variances can be computed using the formulas: Labor efficiency variance = SR (AH – SH) = $18.00 per hour (11,400 hours – 10,800 hours) = $10,800 U Labor rate variance = AH (AR – SR) = 11,400 hours ($17.40 per hour – $18.00 per hour) = $6,840 F 10-12 Chapter 10 Standard Costs and Variances Problem 10-12 (continued) 1. c. Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 10,800 hours* × $5.00 per hour = $54,000 11,400 hours** × $5.00 per hour = $57,000 11,400 hours** × $4.60 per hour = $52,440 Variable overhead efficiency variance = $3,000 U Variable overhead rate variance = $4,560 F Spending variance = $1,560 F * 12,000 units × 0.90 hours per unit = 10,800 hours ** 12,000 units × 0.95 hours per unit = 11,400 hours Alternatively, the variances can be computed using the formulas: Variable overhead efficiency variance = SR (AH – SH) = $5.00 per hour (11,400 hours – 10,800 hours) = $3,000 U Variable overhead rate variance = AH (AR – SR) = 11,400 hours ($4.60 per hour – $5.00 per hour) = $4,560 F 2. Materials: Quantity variance ($1,800 ÷ 12,000 units)..... $0.15 F Price variance ($4,200 ÷ 12,000 units)............ 0 .35 U $0.20 U Labor: Efficiency variance ($10,800 ÷ 12,000 units).. 0.90 U Rate variance ($6,840 ÷ 12,000 units)............ 0 .57 F 0.33 U Variable overhead: Efficiency variance ($3,000 ÷ 12,000 units).... 0.25 U Rate variance ($4,560 ÷ 12,000 units)............ 0 .38 F 0.13 F 10-13 Chapter 10 Standard Costs and Variances Excess of actual over standard cost per unit..... $0.40 U 10-14 Chapter 10 Standard Costs and Variances Problem 10-12 (continued) 3. Both the labor efficiency and variable overhead efficiency variances are affected by inefficient use of labor time. Excess of actual over standard cost per unit..... $0.40 U Less portion attributable to labor inefficiency: Labor efficiency variance..................................... 0.90 U Variable overhead efficiency variance................ 0.25 U 1.15 U Portion due to other variances............................ $0.75 F In sum, had it not been for the apparent inefficient use of labor time, the total variance in unit cost for the month would have been favorable by $0.75 rather than unfavorable by $0.40. 4. Although the excess of actual cost over standard cost is only $0.40 per unit, the total amount of $4,800 (= $0.40 per unit × 12,000 units) is substantial. Moreover, the details of the variances are significant. The materials price variance is $4,200 U, the labor efficiency variance is $10,800 U, the labor rate variance is $6,840 F, the variable overhead efficiency variance is $3,000 U, and the variable rate variance is $4,560 F. Taken together, the two variances that reflect apparent inefficient use of the labor time total $13,800 U. Each of these variances may warrant further investigation. 10-15 Chapter 10 Standard Costs and Variances Problem 10-13 (45 minutes) 1. a. Materials price variance = AQ (AP – SP) 6,000 pounds ($2.75 per pound* – SP) = $1,500 F** $16,500 – 6,000 pounds × SP = $1,500*** 6,000 pounds × SP = $18,000 SP = $3.00 per pound *$16,500 ÷ 6,000 pounds = $2.75 per pound **$1,200 U + ? = $300 F; $1,200 U – $1,500 F = $300 F ***When used with the formula, unfavorable variances are positive and favorable variances are negative. b. Materials quantity variance = SP (AQ – SQ) $3.00 per pound (6,000 pounds – SQ) = $1,200 U $18,000 – $3.00 per pound × SQ = $1,200* $3.00 per pound × SQ = $16,800 SQ = 5,600 pounds *When used with the formula, unfavorable variances are positive and favorable variances are negative. Alternative approach to parts (a) and (b): Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP) Actual Quantity of Input, at Standard Price (AQ × SP) Actual Quantity of Input, at Actual Price (AQ × AP) 5,600 pounds × $3.00 per pound = $16,800 6,000 pounds* × $3.00 per pound = $18,000 $16,500* Materials quantity variance = $1,200 U* Materials price variance = $1,500 F Spending variance = $300 F* *Given. c. 5,600 pounds ÷ 1,400 units = 4 pounds per unit. 10-16 Chapter 10 Standard Costs and Variances Problem 10-13 (continued) 2. a. Labor efficiency variance = SR (AH – SH) $9.00 per hour (AH – 3,500 hours*) = $4,500 F $9.00 per hour × AH – $31,500 = –$4,500** $9.00 per hour × AH = $27,000 AH = 3,000 hours *1,400 units × 2.5 hours per unit = 3,500 hours **When used with the formula, unfavorable variances are positive and favorable variances are negative. b. Labor rate variance = AH (AR – SR) 3,000 hours ($9.50 per hour* – $9.00 per hour) = $1,500 U Alternative approach to parts (a) and (b): Standard Hours Allowed for Actual Output, at Standard Rate (SH × SR) Actual Hours of Input, at Standard Rate (AH × SR) Actual Hours of Input, at Actual Rate (AH × AR) 3,500 hours*** × $9.00 per hour** = $31,500 3,000 hours × $9.00 per hour** = $27,000 3,000 hours × $9.50 per hour* = $28,500* Labor efficiency variance = $4,500 F* Labor rate variance = $1,500 U Spending variance = $3,000 F * $28,500 total labor cost ÷ 3,000 hours = $9.50 per hour ** Given *** 1,400 units × 2.5 hours per unit = 3,500 hours 10-17 Chapter 10 Standard Costs and Variances Problem 10-16 (45 minutes) 1. Standard Quantity or Hours Standard Price or Rate Standard Cost Alpha8: Direct materials—X342..... 1.8 kilos $3.50 per kilo $ 6.30 Direct materials—Y561..... 2.0 liters $1.40 per liter 2.80 Direct labor—Sintering.... 0.20 hours $20.00 per hour 4.00 Direct labor—Finishing..... 0.80 hours $19.00 per hour 15.20 Total.................................... $28.30 Zeta9: Direct materials—X342..... 3.0 kilos $3.50 per kilo $10.50 Direct materials—Y561..... 4.5 liters $1.40 per liter 6.30 Direct labor—Sintering.... 0.35 hours $20.00 per hour 7.00 Direct labor—Finishing..... 0.90 hours $19.00 per hour 17.10 Total.................................... $40.90 10-18 Chapter 10 Standard Costs and Variances Problem 10-16 (continued) 2. The computations to follow will require the standard quantities allowed for the actual output for each material. Standard Quantity Allowed Material X342: Production of Alpha8 (1.8 kilos per unit × 1,500 units).... 2,700 kilos Production of Zeta9 (3.0 kilos per unit × 2,000 units)...... 6,000 kilos Total........................................................................................ 8,700 kilos Material Y561: Production of Alpha8 (2.0 liters per unit × 1,500 units)... 3,000 liters Production of Zeta9 (4.5 liters per unit × 2,000 units)..... 9,000 liters Total........................................................................................ 12,000 liters Direct Materials Variances—Material X342: Materials quantity variance = SP (AQ – SQ) = $3.50 per kilo (8,500 kilos – 8,700 kilos) = $700 F Materials price variance = AQ (AP – SP) = 14,000 kilos ($3.70 per kilo* – $3.50 per kilo) = $2,800 U *$51,800 ÷ 14,000 kilos = $3.70 per kilo Direct Materials Variances—Material Y561: Materials quantity variance = SP (AQ – SQ) = $1.40 per liter (13,000 liters – 12,000 liters) = $1,400 U Materials price variance = AQ (AP – SP) = 15,000 liters ($1.30 per liter* – $1.40 per liter) = $1,500 F *$19,500 ÷ 15,000 liters = $1.30 per liter 10-19 Chapter 10 Standard Costs and Variances Problem 10-16 (continued) 3. The computations to follow will require the standard quantities allowed for the actual output for direct labor in each department. Standard Hours Allowed Sintering: Production of Alpha8 (0.20 hours per unit × 1,500 units) 300 hours Production of Zeta9 (0.35 hours per unit × 2,000 units).. 700 hours Total........................................................................................ 1,000 hours Finishing: Production of Alpha8 (0.80 hours per unit × 1,500 units) 1,200 hours Production of Zeta9 (0.90 hours per unit × 2,000 units).. 1,800 hours Total........................................................................................ 3,000 hours Direct Labor Variances—Sintering: Labor efficiency variance = SR (AH – SH) = $20.00 per hour (1,200 hours – 1,000 hours) = $4,000 U Labor rate variance = AH (AR – SR) = 1,200 hours ($22.50 per hour* – $20.00 per hour) = $3,000 U *$27,000 ÷ 1,200 hours = $22.50 per hour Direct Labor Variances—Finishing: Labor efficiency variance = SR (AH – SH) = $19.00 per hour (2,850 hours – 3,000 hours) = $2,850 F Labor rate variance = AH (AR – SR) = 2,850 hours ($21.00 per hour* – $19.00 per hour) = $5,700 U *$59,850 ÷ 2,850 hours = $21.00 per hour 10-20