Standard Costing and Variance Analysis Question Set

Lim, 2014 Standard Costing and Variance Analysis Question Set Hi guys, welcome to another question set Enjoy!  Quick Exercises 1) The following information is available for Mandalay Company Required (a) Determine the material price variance based on the quantity of materials purchased (b) Determine the material quantity variance (c) Determine the direct labor rate variance (d) Determine the direct labor efficiency variance 2) Company uses a standard cost system Job 822 is for the manufacturing of 500 units of the product P521 The company’s standards for one unit of product P521 are as follows: The job required 2,800 ounces of raw material costing 5,880 An unfavorable labor rate variance of 250 and a favorable labor efficiency variance of 100 also were determined for this job Required (a) Determine the direct material price variance for job 822 based on the actual quantity of materials used (b) Determine the direct material quantity variance for job 822 based on the actual quantity of materials used (c) Determine the actual quantity of direct labor hours used on job 822 (d) Determine the actual labor costs incurred for job 822 3) Each unit of job Y703 has standard requirements of 5 pounds of raw material at a price of 100 per pound and 05 hour of direct labor at 12 per hour To produce 9,000 units of this product, job Y703 actually required 40,000 pounds of the raw material costing 97 per pound The job used a total of 5,000 direct labor hours costing a total of 60,000 Lim, 2014 Required (a) Determine the material price variance for job Y703 (b) Determine the material quantity variance for job Y703 (c) Assume that the materials used on this job were purchased from a new supplier Would you recommend continuing with this new supplier? Why or why not? (d) Determine the direct labor rate variance for job Y703 (e) Determine the direct labor efficiency variance for job Y703 4) Assembly of product P13 requires one unit of component X, two units of component Y, and three units of component Z Job J372 produced 220 units of P13 The following information pertains to material variances for this job, analyzed by component: The actual material prices were 030 more, 020 less, and 050 more per unit for components X, Y, and Z, respectively, than their standard material prices per unit Required (a) Determine the number of materials units consumed of each type of component (b) Determine the standard materials price per unit of each type of component Problems 1) The Sudbury, South Carolina, plant of Saldanha Sports Company has the following standards for its soccer ball production: Required Determine the following variances for October (a) Total direct material cost variance : Lim, 2014 (b) Total direct labor cost variance (c) Total variable support cost variance (d) Direct material price variance (e) Direct material quantity variance (f) Direct labor rate variance (g) Direct labor efficiency variance (h) Variable support rate variance (i) Variable support efficiency variance 2) The North Point plant of Englehart Electronics Company has the following standards for component C93: Required Determine the following variances for May: (a) Total direct material cost variance (b) Total direct labor cost variance (c) Total variable support cost variance (d) Direct material price variance (e) Direct material quantity variance (f) Direct labor rate variance (g) Direct labor efficiency variance (h) Variable support rate variance (i) Variable support efficiency variance 3) For each of the following two jobs manufacturing two different products, determine the missing amounts for items (a) through (h): Lim, 2014 4) Trieste Toy Company manufactures only one product, Robot Ranger The company uses a standard cost system and has established the following standards per unit of Robot Ranger: During November, the company recorded the following activity: • The company produced 6,000 units • A total of 21,000 pounds of material were used, purchased at a cost of 241,500 • The company employs 40 persons to work on the production of Robot Ranger These employees worked an average of 160 hours at an average rate of 16 per hour The company’s management wishes to determine the efficiency of the activities related to the production of Robot Ranger Required (a) For direct materials used in the production of Robot Ranger, compute the direct material price variance and the direct material quantity variance Lim, 2014 (b) The direct materials were purchased from a new supplier who is eager to enter into a longterm purchase contract Would you recommend that Trieste sign the contract? Explain (c) For direct labor employed in the production of Robot Ranger, compute the direct labor rate variance and the direct labor efficiency variance (d) In the past, the 40 persons employed in the production of Robot Ranger consisted of 16 experienced workers and 24 inexperienced assistants During November, the company experimented with 20 experienced workers and 20 inexperienced assistants Would you recommend that Trieste continue the new labor mix? Explain 5) Mountain View Hospital has adopted a standard cost accounting system for evaluation and control of nursing labor Diagnosis-related groups (DRGs), instituted by the US government for health insurance reimbursement are used as the output measure in the standard cost system A DRG is a patient classification scheme that perceives hospitals to be multiproduct firms where inpatient treatment procedures are related to the numbers and types of patient ailments treated Mountain View Hospital has developed standard nursing times for the treatment of each DRG classification, and nursing labor hours are assumed to vary with the number of DRGs treated within a time period The nursing unit on the fourth floor treats patients with four DRG classifications The unit is staffed with registered nurses (RNs), licensed practical nurses (LPNs), and aides Following are the standard nursing hours and salary rates: Following are the results of operations for the fourth-floor nursing unit for the month of May Lim, 2014 The accountant for Mountain View Hospital calculated the following standard times for the fourth floor nursing unit for May: The hospital calculates labor variances for each reporting period by labor classification (RN, LPN, aide) The variances are used by nursing supervisors and hospital administration to evaluate the performance of nursing labor Required Calculate the total nursing labor variance for the fourth-floor nursing unit of Mountain View Hospital for May, indicating how much of this variance is attributed to the following for each class of hospital worker: (a) Labor efficiency (b) Rate differences 6) Asahi USA, Inc, based in Denver, Colorado, is a subsidiary of a Japanese company manufacturing specialty tools Asahi USA employs a standard cost system Following are the standards per unit of one of its products, tool KJ79 This tool requires a special chrome steel as a direct material During November, Asahi USA started and completed job KJX86 to manufacture 1,900 units of tool KJ79 It purchased and used 14,250 pounds of the special chrome steel for tool KJ79 at a total cost of 270,750 The total direct labor charged to job KJX86 was 37,800 Job KJX86 required 5,000 direct labor hours Required (a) For job KJX86, compute the following and indicate whether the variances are favorable or unfavorable: (1) Direct material price variance Lim, 2014 (2) Direct material quantity variance (3) Direct labor rate variance (4) Direct labor efficiency variance (b) Provide a plausible explanation for the variances 7) One of Sure-Bet Sherbet’s bestselling products is raspberry sherbet, which is manufactured in 10-gallon batches Each batch requires 6 quarts of raspberries Th e raspberries are sorted by hand before entering the production process and, because of imperfections, 1 quart of berries is discarded for every 4 quarts of acceptable berries The standard direct labor sorting time to obtain 1 quart of acceptable raspberries is 3 minutes After sorting, raspberries are blended with other ingredients; blending requires 12 minutes of direct labor time per batch During the blending process, some sherbet is lost because it adheres to the blending vats After blending, the sherbet is packaged in quart containers The following cost information is relevant:     Raspberries are purchased for 080 per quart All other ingredients cost a total of 045 per gallon Direct labor is paid 900 per hour The total cost of material and labor required to package the sherbet is 038 per quart a Develop the standard cost for the direct cost components of a 10-gallon batch of raspberry sherbet The standard cost should identify standard quantity, standard price/rate, and standard cost per batch for each direct cost component Discuss the possible causes of unfavorable material price variances, and identify the individual(s) who should be held responsible for these variances Discuss the possible causes of unfavorable labor efficiency variances, and identify the individual(s) who should be held responsible for these variances b c 8) Cave Company produces a product called Lem The standard direct material cost to produce one unit of Lem is 4 quarts of raw material at 250 per quart During May 2010, 4,200 quarts of raw material were purchased at a cost of 10,080 All the purchased material was used to produce 1,000 units of Lem a Compute the actual cost per quart and the material price variance for May 2010 b Assume the same facts except that Cave Company purchased 5,000 quarts of material at the previously calculated cost per quart, but used only 4,200 quarts Compute the material price variance and material usage variance for May 2010, assuming that Cave identifies variances at the earliest possible time c Which managers at Cave Company would most likely assume responsibility for control of the variance computed in requirement (b)? 9) Heath Construction builds standard prefabricated wooden frames for walls Each frame requires 10 direct labor hours and the standard hourly direct labor rate is 18 During July, the company produced 670 frames and worked 6,800 direct labor hours Payroll records indicate that workers earned 127,500 a What were the standard hours for July construction? b Calculate the direct labor variances c What was the actual hourly wage rate? 10) Edina Co manufactures a product that requires 35 machine hours per unit The variable and fixed overhead rates were computed using expected capacity of 144,000 units (produced evenly throughout the year) and expected variable and fixed overhead costs, respectively, of 2,016,000 and 3,528,000 In October, Edina manufactured Lim, 2014 11,800 units using 40,800 machine hours October variable overhead costs were 171,000; fixed overhead costs were 284,500 a What are the standard variable and fixed overhead rates? b Compute the variable overhead variances c Compute the fixed overhead variances d Explain the volume variance computed in part (c) 11) FUN Inc has a fully automated production facility in which almost 97 percent of overhead costs are driven by machine hours As the company’s cost accountant, you have computed the following overhead variances for May: Variable overhead spending variance 34,000 F Variable overhead efficiency variance 41,200 F Fixed overhead spending variance 28,000 U Fixed overhead volume variance 20,000 U The company’s president is concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions Budgeted fixed overhead for the month is 1,000,000; the predetermined variable and fixed overhead rates are, respectively, 20 and 40 per machine hour Budgeted capacity is 20,000 units a Using the four-variance approach, prepare an overhead analysis in as much detail as possible b What is the standard number of machine hours allowed for each unit of output? c How many actual hours were worked in May? d What is the total spending variance? e What additional information about the manufacturing overhead variances is gained by inserting detailed computations into the variable and fixed manufacturing overhead variance analysis? f How would the overhead variances be closed if the three-variance approach were used? 12) The manager of the Texas Department of Transportation has determined that it typically takes 30 minutes for the department’s employees to register a new car In Bexar County, the predetermined fi xed overhead rate was computed on an estimated 10,000 direct labor hours per month and is 9 per direct labor hour, whereas the predetermined variable overhead rate is 3 per direct labor hour During July, 18,800 cars were registered in Bexar County and 9,500 direct labor hours were worked in registering those vehicles For the month, variable overhead was 27,700 and fi xed overhead was 90,800 a Compute overhead variances using a four-variance approach b Compute overhead variances using a three-variance approach c Compute overhead variances using a two-variance approach 13) Kemp Manufacturing set 70,000 direct labor hours as the 2010 capacity measure for computing its predetermined variable overhead rate At that level, budgeted variable overhead costs are 315,000 Kemp will apply budgeted fixed overhead of 140,400 on the basis of 3,900 budgeted machine hours for the year Both machine hours and fixed overhead costs are expected to be incurred evenly each month During March 2010, Kemp incurred 5,900 direct labor hours and 300 machine hours Actual variable and fixed overhead were 26,325 and 11,400, respectively The standard times allowed for March production were 5,980 direct labor hours and 290 machine hours a Using the four-variance approach, determine the overhead variances for March 2010 Lim, 2014 14) Bobcat Inc’s total predetermined overhead rate is 50 per hour based on a monthly capacity of 58,000 machine hours Overhead is 30 percent variable and 70 percent fixed During September 2010, Bobcat Inc produced 5,100 units of product and recorded 60,000 machine hours September’s actual overhead cost was 2,927,000 Each unit of product requires 12 machine hours a What were standard hours for September? b What is total monthly budgeted fixed overhead cost? c What is the controllable overhead variance? d What is the noncontrollable overhead variance? 15) Schmidt Co has the following standard material and labor quantities and costs for one unit of Product SWK#468: Material 185 pounds 350 per pound Labor 004 hours 12 per hour During July, the purchasing agent found a “good deal” on the raw material needed for Product SWK#468 and bought 100,000 pounds of material at 315 per pound In July, the company produced 48,000 units of Product SWK#468 with the following material and labor usage: Material 95,000 pounds Labor 2,200 hours 1210 (due to a renegotiated labor contract) a What is the standard quantity of material and the standard labor time for July? b Calculate the material and labor variances for July c Did the purchasing agent make a “good deal” on the raw material? Explain 16) Pier Corp has an expected monthly capacity of 9,000 units but only 5,700 units were produced and 6,000 direct labor hours were used during August 2010 due to a flood in the manufacturing facility Actual variable overhead for August was 48,165 and actual fixed overhead was 140,220 Standard cost data follow: a Compute and compare the actual overhead cost per unit with the expected overhead cost per unit b Calculate overhead variances using the four-variance method c Explain why the volume variance is so large 17) N Joy makes wooden picnic tables, swings, and benches Standard hours for each product are as follows: Picnic table 10 standard direct labor hours Swing 3 standard direct labor hours Bench 7 standard direct labor hours Lim, 2014 The standard variable overhead rate is 4 per direct labor hour The standard fixed overhead rate, computed using an expected annual capacity of 36,000 direct labor hours, is 2 per direct labor hour The company estimates stable fixed overhead costs and direct labor hours each month of the annual period March production was 100 picnic tables, 400 swings, and 60 benches; production required 2,780 actual direct labor hours Actual variable and fi xed overhead for March were 12,800 and 5,900, respectively a Prepare a variance analysis using the four-variance approach (Hint: Convert the production of each type of product into standard hours for all work accomplished for the month) b Prepare journal entries to record actual overhead costs, application of overhead to production, and closing of the overhead variance accounts (assuming those variances are immaterial) c Evaluate the effectiveness of the managers in controlling costs 18) During December 2010, Amin Corp manufactured products requiring 8,000 standard labor hours Th e following variance and actual information is available: Labor rate variance 4,500 U Labor efficiency variance 12,000 U Actual variable overhead 162,000 Actual fixed overhead 84,000 Amin Corp’s standard costs for labor and overhead were set at the beginning of 2010 and have remained constant through the year as follows: Direct labor (4 hours _ 12 per hour) 48 Factory overhead (10,000 DLHs expected capacity) Variable (4 hours _ 16 per direct labor hour) 64 Fixed (4 hours _ 9 per direct labor hour) 36 Total unit conversion cost 148 Calculate the following unknown amounts: a Number of units manufactured b Total applied factory overhead c Volume variance d Variable overhead spending variance e Variable overhead efficiency variance f Total actual overhead 19) Terkelsen Mfg produces comforter sets with the following standard cost information: • Each comforter set requires 05 hours of machine time to produce • Variable overhead is applied at the rate of 9 per machine hour • Fixed overhead is applied at the rate of 6 per machine hour, based on an expected annual capacity of 30,000 machine hours a Calculate variances using the one-variance approach Lim, 2014 b Calculate variances using the two-variance approach c Calculate variances using the three-variance approach 20) During December 2010, Amin Corp manufactured products requiring 8,000 standard labor hours The following variance and actual information is available: Labor rate variance Labor efficiency variance Actual variable overhead Actual fixed overhead 4,500 U 12,000 U 162,000 84,000 Amin Corp’s standard costs for labor and overhead were set at the beginning of 2010 and have remained constant through the year as follows: Direct labor (4 hours x 12 per hour) 48 Factory overhead (10,000 DLHs expected capacity) Variable (4 hours x 16 per direct labor hour) 64 Fixed (4 hours x 9 per direct labor hour) 36 Total unit conversion cost 148 Calculate the following unknown amounts: a Number of units manufactured b Total applied factory overhead c Volume variance d Variable overhead spending variance e Variable overhead efficiency variance f Total actual overhead Comprehensive Problems 1) Piedmont Manufacturing produces metal products with the following standard quantity and cost information: Direct Material Aluminum Copper Direct labor Variable overhead Fixed overhead 4 sheets at 4 3 sheets at 8 7 hours at 16 5 machine hours at 6 5 machine hours at 4 16 24 112 30 20 Overhead rates were based on normal monthly capacity of 6,000 machine hours During November, the company produced only 850 units because of a labor strike, which occurred during union contract negotiations After the dispute was settled, the company scheduled overtime to try to meet regular production levels The following costs were incurred in November: Material Aluminum 4,000 sheets purchased at 380; used 3,500 sheets Copper 3,000 sheets purchased at 840; used 2,600 sheets Direct Labor Regular time 5,200 hours at 16 (pre-contract settlement) Regular time 900 hours at 17 (post-contract settlement) Variable Overhead Lim, 2014 23,300 (based on 4,175 machine hours) Fixed Overhead 18,850 (based on 4,175 machine hours) Determine the following: a Total material price variance b Total material usage (quantity) variance c Labor rate variance d Labor efficiency variance e Variable overhead spending variance f Variable overhead efficiency variance g Fixed overhead spending variance h Volume variance i Budget variance 2) Hellier Contractors paints interiors of residences and commercial structures The firm’s management has established cost standards per 100 square feet of area to be painted Direct material (18 per gallon of paint) 150 Direct labor 200 Variable overhead 060 Fixed overhead (based on 600,000 square feet per month) 125 Management has determined that 400 square feet can be painted by the average worker each hour During May, the company painted 600,000 square feet of space and incurred the following costs: Direct material (450 gallons purchased and used) 8,30000 Direct labor (1,475 hours) 12,24250 Variable overhead 3,48000 Fixed overhead 7,72000 a Compute the direct material variances b Compute the direct labor variances c Use a four-variance approach to compute overhead variances d Use a three-variance approach to compute overhead variances e Use a two-variance approach to compute overhead variances f Reconcile your answers for parts (c) through (e) g Discuss other cost drivers that could be used as a basis for measuring activity and computing variances for this company