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8.E: Standard Costs and Variances (Exercises)

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    Multiple Choice

    1. Why does a company use a standard costing system?
      1. to identify variances from actual cost that assist them in maintaining profits
      2. to identify nonperformers in the workplace
      3. to identify what vendors are unreliable
      4. to identify defective materials
    Answer:

    a

    1. This standard is set at a level that may be reached with reasonable effort.
      1. ideal standard
      2. attainable standard
      3. unattainable standard
      4. variance from standard
    1. This standard is set at a level that could be achieved if everything ran perfectly.
      1. ideal standard
      2. attainable standard
      3. unattainable standard
      4. variance from standard
    Answer:

    a

    1. This variance is the difference involving spending more or using more than the standard amount.
      1. favorable variance
      2. unfavorable variance
      3. no variance
      4. variance
    2. This variance is the difference involving spending less, or using less than the standard amount.
      1. favorable variance
      2. unfavorable variance
      3. no variance
      4. variance
    Answer:

    a

    1. What are some possible reasons for a material price variance?
      1. substandard material
      2. labor rate increases
      3. labor rate decreases
      4. labor efficiency
    2. When is the material price variance unfavorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    Answer:

    c

    1. When is the material price variance favorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    2. What are some reasons for a material quantity variance?
      1. building rental charges increase
      2. labor rate decreases
      3. more qualified workers
      4. labor efficiency increases
    Answer:

    c

    1. When is the material quantity variance favorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    2. When is the material quantity unfavorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    Answer:

    a

    1. What are some possible reasons for a labor rate variance?
      1. hiring of less qualified workers
      2. an excess of material usage
      3. material price increase
      4. utilities usage change
    2. When is the labor rate variance unfavorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    Answer:

    c

    1. When is the labor rate variance favorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    2. What are some possible reasons for a direct labor time variance?
      1. utility usage decrease
      2. less qualified workers
      3. office supplies spending
      4. sales decline
    Answer:

    b

    1. When is the direct labor time variance favorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    2. When is the direct labor time variance unfavorable?
      1. when the actual quantity used is greater than the standard quantity
      2. when the actual quantity used is less than the standard quantity
      3. when the actual price paid is greater than the standard price
      4. when the actual price is less than the standard price
    Answer:

    a

    1. A flexible budget ________.
      1. predicts estimated revenues and costs at varying levels of production
      2. gives actual figures for selling price
      3. gives actual figures for variable and fixed overhead
      4. is not used in overhead variance calculations
    2. The variable overhead rate variance is caused by the sum between which of the following?
      1. actual and standard allocation base
      2. actual and standard overhead rates
      3. actual and budgeted units
      4. actual units and actual overhead rates
    Answer:

    b

    1. The variable overhead efficiency variance is caused by the difference between which of the following?
      1. actual and budgeted units
      2. actual and standard allocation base
      3. actual and standard overhead rates
      4. actual units and actual overhead rates
    2. The fixed factory overhead variance is caused by the difference between which of the following?
      1. actual and standard allocation base
      2. actual and budgeted units
      3. actual fixed overhead and applied fixed overhead
      4. actual and standard overhead rates
    Answer:

    c

    1. Which of the following is a possible cause of an unfavorable material price variance?
      1. purchasing too much material
      2. purchasing higher-quality material
      3. hiring substandard workers
      4. buying substandard material
    2. Which of the following is a possible cause of an unfavorable material quantity variance?
      1. purchasing substandard material
      2. hiring higher-quality workers
      3. paying more than should have for workers
      4. purchasing too much material
    Answer:

    a

    1. Which of the following is a possible cause of an unfavorable labor efficiency variance?
      1. hiring substandard workers
      2. making too many units
      3. buying higher-quality material
      4. paying too much for workers
    2. Which of the following is a possible cause of an unfavorable labor rate variance?
      1. hiring too many workers
      2. hiring higher-quality workers at a higher wage
      3. making too many units
      4. purchasing too much material
    Answer:

    b

    Questions

    1. What two components are needed to determine a standard for materials?
    Answer:

    The expected price of materials per unit and the expected quantity usage are needed to help determine a standard.

    1. What two components are needed to determine a standard for labor?
    2. What elements require consideration before establishing an overhead standard?
    Answer:

    Fixed overhead and variable overhead should be considered

    1. What is a variance?
    2. What causes the material price variance?
    Answer:

    Paying more or less than the standard price

    1. What causes the material quantity variance?
    2. What are some possible causes of a material price variance?
    Answer:

    Buying a different quality level of material; good or bad purchasing/negotiation

    1. What are some possible causes of a material quantity variance?
    2. What is the direct labor rate variance?
    Answer:

    A direct labor rate variance is the actual rate paid being different from the standard rate

    1. What is the direct labor time variance?
    2. What are some possible causes of a direct labor rate variance?
    Answer:

    Employees have a different level of experience than standards; the labor market is tighter or looser than expected; contract renegotiation.

    1. What are some possible causes of a direct labor time variance?
    2. How is the total direct labor variance calculated?
    Answer:

    \(\text {Total direct labor variance} = (\text {Actual hours} × \text {Actual rate}) – (\text {Standard hours} × \text {Standard rate})\) or the total direct labor variance is also found by combining the direct labor rate variance and the direct labor time variance.

    1. What causes the variable overhead rate variance?
    2. What causes the variable overhead efficiency variance?
    Answer:

    The difference between the actual and standard amounts of the allocation base cause variable overhead efficiency variance.

    1. What is the main difference between a flexible budget and a master budget?
    2. What causes a favorable variance?
    Answer:

    It is caused by paying or using less than the standard amount

    1. What causes an unfavorable variance?
    2. When might a favorable variance not be a good outcome?
    Answer:

    It may not be a good outcome when buying substandard material or hiring substandard employees

    1. When might an unfavorable variance be a good outcome?
    2. Identify several causes of a favorable material price variance.
    Answer:

    Causes may include substandard material, quantity discount, negotiated better price, quantity discount, or price drop.

    1. Identify several causes of an unfavorable material price variance.
    2. Identify several causes of a favorable material quantity variance.
    Answer:

    Causes may include higher-quality material, better-qualified employees, or a change in manufacturing process.

    1. Identify several causes of an unfavorable material quantity.
    2. Identify several causes of a favorable labor rate variance.
    Answer:

    Causes may include less-qualified employees or a change in quality level of employees due to a change in process.

    1. Identify several causes of an unfavorable labor rate variance.
    2. Identify several causes of a favorable labor efficiency variance.
    Answer:

    Causes may include better material, higher-quality employees, or a change in process.

    1. Identify several causes of an unfavorable labor efficiency variance.

    Exercise Set A

    1. Moisha is developing material standards for her company. The operations manager wants grade A widgets because they are the easiest to work with and are the quality the customers want. Grade B will not work because customers do not want the lower grade, and it takes more time to assemble the product than with grade A materials. Moisha calls several suppliers to get prices for the widget. All are within \(\$0.05\) of each other. Since they will use millions of widgets, she decides that the \(\$0.05\) difference is important. The supplier who has the lowest price is known for delivering late and low-quality materials. Moisha decides to use the supplier who is \(\$0.02\) more but delivers on time and at the right quality. This supplier charges \(\$0.48\) per widget. Each unit of product requires four widgets. What is the standard cost per unit for widgets?
    2. Rene is working with the operations manager to determine what the standard labor cost is for a spice chest. He has watched the process from start to finish and taken detailed notes on what each employee does. The first employee selects and mills the wood, so it is smooth on all four sides. This takes the employee \(1\) hour for each chest. The next employee takes the wood and cuts it to the proper size. This takes \(30\) minutes. The next employee assembles and sands the chest. Assembly takes \(2\) hours. The chest then goes to the finishing department. It takes \(1.5\) hours to finish the chest. All employees are cross-trained so they are all paid the same amount per hour, \(\$17.50\).
      1. What are the standard hours per chest?
      2. What is the standard cost per chest for labor?
    3. Fiona cleans offices. She is allowed \(5\) seconds per square foot. She cleans building A, which is \(3,000\) square feet, and building B, which is \(2,460\) square feet. Will she finish these two buildings in an 8-hour shift? Will she have time for a break?
    4. Use the information provided to create a standard cost card for production of one glove box switch. To make one switch it takes 16 feet of plastic-coated copper wire and \(0.5\) pounds of plastic material. The plastic material can usually be purchased for \(\$20.00\) per pound, and the wire costs \(\$2.50\) per foot. The labor necessary to assemble a switch consists of two types. The first type of labor is assembly, which takes \(3.5\) hours. These workers are paid \(\$27.00\) per hour. The second type of labor is finishing, which takes \(2\) hours. These workers are paid \(\$29.00\) per hour. Overhead is applied using labor hours. The variable overhead rate is \(\$14.90\) per labor hour. The fixed overhead rate is \(\$15.60\) per hour.
    5. Sitka Industries uses a cost system that carries direct materials inventory at a standard cost. The controller has established these standards for one ladder (unit):
    Standard Quantity times Standard Price equals Standard Cost. Direct materials, 3 pounds, $4.50 per pound, $13.50. Direct labor, 2.00 hours, $12.00 per hour, $24.00. Total cost, -, -, $37.50.

    Sitka Industries made \(3,000\) ladders in July and used \(8,800\) pounds of material to make these units. Smith Industries bought \(15,500\) pounds of material in the current period. There was a \(\$250\) unfavorable direct materials price variance.

    1. How much in total did Sitka pay for the \(15,500\) pounds?
    2. What is the direct materials quantity variance?
    3. What is the total direct material cost variance?
    4. What if \(9,500\) pounds were used to make these ladders, what would be the direct materials quantity variance?
    5. If there was a \(\$340\) favorable direct materials price variance, how much did Sitka pay for the \(15,500\) pounds of material?
    1. Use the information provided to answer the questions.
    Actual price paid per pound of material $14.50, Total standard pounds for units produced this period 12,500, Pounds of material used 13,250, Direct materials price variance favorable $4,637.50.

    All material purchased was used in production.

    1. What is the standard price paid for materials?
    2. What is the direct materials quantity variance?
    3. What is the total direct materials cost variance?
    4. If the direct materials price variance was unfavorable, what would be the standard price?
    1. Dog Bone Bakery, which bakes dog treats, makes a special biscuit for dogs. Each biscuit uses \(0.75\) cup of pure semolina flour. They buy \(4,000\) cups of flour at \(\$0.55\) per cup. They use \(3,550\) cups of flour to make \(4,750\) biscuits. The standard cost per cup of flour is \(\$0.53\).
      1. What are the direct materials price variance, the direct materials quantity variances, and the total direct materials cost variance?
      2. What is the standard cost per biscuit for the semolina flour?
    2. Queen Industries uses a standard costing system in the manufacturing of its single product. It requires \(2\) hours of labor to produce \(1\) unit of final product. In February, Queen Industries produced \(12,000\) units. The standard cost for labor allowed for the output was \(\$90,000\), and there was an unfavorable direct labor time variance of \(\$5,520\).
      1. What was the standard cost per hour?
      2. How many actual hours were worked?
      3. If the workers were paid \(\$3.90\) per hour, what was the direct labor rate variance?
    3. Penny Company manufactures only one product and uses a standard cost system. The following information is from Penny’s records for May:
    Direct labor rate variance $15,000 favorable. Direct labor time variance $25,000 unfavorable. Standard hours per unit produced 2.5. Standard rate per hour $25.

    During May, the company used \(12.5\%\) more hours than the standard allowed.

    1. What were the total standard hours allowed for the units manufactured during the month?
    2. What were the actual hours worked?
    3. How many actual units were produced during May?
    1. ThingOne Company has the following information available for the past year. They use machine hours to allocate overhead.
    Actual total overhead $75,000. Actual fixed overhead $32,500. Actual machine hours 10,000. Standard hours for the units produced 9,500. Standard variable overhead rate $4.50.

    What is the variable overhead efficiency variance?

    1. A manufacturer planned to use \(\$78\) of variable overhead per unit produced, but in the most recent period, it actually used \(\$76\) of variable overhead per unit produced. During this same period, the company planned to produce \(500\) units but actually produced \(540\) units. What is the variable overhead spending variance?
    2. Acme Inc. has the following information available:
    Actual price paid for material $1.00. Standard price for material $1.20. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $16. Actual hours 200. Standard hours for units produced 220.
    1. Compute the material price and quantity, and the labor rate and efficiency variances.
    2. Describe the possible causes for this combination of favorable and unfavorable variances.
    1. Acme Inc. has the following information available:
    Actual price paid for material $1.00. Standard price for material $0.90. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $16. Actual hours 200. Standard hours for units produced 220.
    1. Compute the material price and quantity, and the labor rate and efficiency variances.
    2. Describe the possible causes for this combination of favorable and unfavorable variances.
    1. Acme Inc. has the following information available:
    Actual price paid for material $1.00. Standard price for material $0.90. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $14. Actual hours 200. Standard hours for units produced 220.
    1. Compute the material price and quantity, and the labor rate and efficiency variances.
    2. Describe the possible causes for this combination of favorable and unfavorable variances.

    Exercise Set B

    1. Bristol is developing material standards for her company. The operations manager wants grade A plastic tops because they are the easiest to work with and are the quality the customers want. Grade B will not work because customers do not want the lower grade, and it takes more time to assemble the product than with grade A materials. Bristol calls several suppliers to get prices for the plastic top. All are within \(\$0.10\) of each other. Since the company will use millions of the plastic tops, she decides that the \(\$0.10\) difference is important. The supplier who has the lowest price is known for delivering late and low-quality materials. Bristol decides to use the supplier who is \(\$0.04\) more but delivers on time and at the right quality. This supplier charges \(\$0.52\) per plastic top. Each unit of product requires six plastic tops. What is the standard cost per unit for plastic tops?
    2. Salley is developing material and labor standards for her company. She finds that it costs \(\$0.55\) per pound of material per widget. Each widget requires \(6\) pounds of material per widget. Salley is also working with the operations manager to determine what the standard labor cost is for a widget. Upon observation, Salley notes that it takes \(3\) hours in the assembly department and \(1\) hour in the finishing department to complete one widget. All employees are paid \(\$10.50\) per hour.
      1. What is the standard materials cost per unit for a widget?
      2. What is the standard labor cost per unit for a widget?
    3. Use the following information to create a standard cost card for production of one photography drone from Drone Experts.
      1. To make one drone it takes \(2\) pounds of plastic material. The material can usually be purchased for \(\$25.00\) per pound. The labor necessary to build a drone consists of two types. The first type of labor is assembly, which takes \(10.5\) hours. These workers are paid \(\$21.00\) per hour. The second type of labor is finishing, which takes \(7\) hours. These workers are paid \(\$25.00\) per hour. Overhead is applied using labor hours. The variable overhead rate is \(\$14.00\) per labor hour. The fixed overhead rate is \(\$16.00\) per hour.
    4. Mateo makes gizmos. He would like to set up a system to help him manage his business. The gizmos are made in a standard process. There is a certain amount of material and labor that goes into each gizmo. The only difference between the gizmo is the color of the material. What information should Mateo collect, how should he format it, and what kind of reports should he prepare to help him run his business?
    5. Smith Industries uses a cost system that carries direct materials inventory at a standard cost. The controller has established these standards for the cost of one basket (unit):
    Standard Quantity times Standard Price equals Standard Cost. Direct materials, 5 pounds, $2.60 per pound, $18.00. Direct labor, 1.25 hours, $12.00 per hour, $15.00. Total cost, -, -, $33.00.

    Smith Industries made \(3,000\) baskets in July and used \(15,500\) pounds of material to make these units. Smith Industries paid \(\$39,370\) for the \(15,500\) pounds of material.

    1. What was the direct materials price variance for July?
    2. What was the direct materials quantity variance for July?
    3. What is the total direct materials cost variance?
    4. If Smith Industries used \(15,750\) pounds to make the baskets, what would be the direct materials quantity variance?
    1. Lizbeth, Inc., makes ice cream. The toffee coffee ice cream takes \(4\) quarts of cream, \(3\) cups of sugar, \(2\) tablespoons of toffee flavoring, and \(1.5\) tablespoons of coffee flavoring per gallon. The standard prices are \(\$2.00\) per quart of cream, \(\$0.40\) per cup of sugar, \(\$0.50\) per tablespoon of toffee flavoring, and \(\$0.75\) per tablespoon of coffee flavoring.
      1. What is the standard material cost for a gallon of toffee coffee ice cream?
      2. If Lizbeth makes \(35\) gallons of toffee coffee ice cream, how much of each of the ingredients should she use?
      3. If Lizbeth uses \(105\) quarts of cream to make \(25\) gallons of ice cream, what would be the cream (direct materials) quantity variance?
      4. If Lizbeth uses \(45\) tablespoons of toffee flavoring to make \(25\) gallons of ice cream, what would be the toffee flavoring (direct materials) quantity variance?
    2. Woodpecker manufactures sawmill equipment. They use a standard costing system and recognize material price variance at the time of material purchases. They use carbide to make the teeth on their band-saw blades. They received an order for \(250\) band-saw blades, but they did not have any carbide in stock. They purchased \(3,500\) pounds of carbide for \(\$14,875\) but should have spent \(\$16,275\). Each saw blade has a standard carbide direct materials quantity of \(7.8\) pounds.
      1. If they used \(8\) pounds per blade, what would be the direct materials quantity variance?
      2. If they used \(7.5\) pounds per blade, what would be the direct materials quantity variance?
      3. Compute the direct materials price variance based on \(7.5\) pounds of carbide per blade actually used.
    3. Case made \(24,500\) units during June, using \(32,000\) direct labor hours. They expected to use \(31,450\) hours per the standard cost card. Their employees were paid \(\$15.75\) per hour for the month of June. The standard cost card uses \(\$15.50\) as the standard hourly rate.
      1. Compute the direct labor rate and time variances for the month of June, and also calculate the total direct labor variance.
      2. If the standard rate per hour was \(\$16.00\), what would change?
    4. Eagle Inc. uses a standard cost system. During the most recent period, the company manufactured \(115,000\) units. The standard cost sheet indicates that the standard direct labor cost per unit is \(\$1.50\). The performance report for the period includes an unfavorable direct labor rate variance of \(\$3,700\) and a favorable direct labor time variance of \(\$10,275\). What was the total actual cost of direct labor incurred during the period?
    5. A manufacturer planned to use \(\$45\) of variable overhead per unit produced, but in the most recent period, it actually used \(\$47\) of variable overhead per unit produced. During this same period, the company planned to produce \(200\) units but actually produced \(220\) units. What is the variable overhead spending variance?
    6. Fitzgerald Company manufactures sewing machines, and they produced \(2,500\) this past month. The standard variable manufacturing overhead (MOH) rate used by the company is \(\$6.75\) per machine hour. Each sewing machine requires \(13.5\) machine hours. Actual machine hours used last month were \(33,500\), and the actual variable MOH rate last month was \(\$7.00\). Calculate the variable overhead rate variance and the variable overhead efficiency variance.
    7. Acme Inc. has the following information available:
    Actual price paid for material $1.00. Standard price for material $0.90. Actual quantity purchased and used in production 100. Standard quantity for units produced 90. Actual labor rate per hour $15. Standard labor rate per hour $14. Actual hours 200. Standard hours for units produced 190.
    1. Compute the material price and quantity, and the labor rate and efficiency variances.
    2. Describe the possible causes for this combination of favorable and unfavorable variances.
    1. Acme Inc. has the following information available:
    Actual price paid for material $1.00. Standard price for material $1.10. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $14. Actual hours 200. Standard hours for units produced 190.
    1. Compute the material price and quantity, and the labor rate and efficiency variances.
    2. Describe the possible causes for this combination of favorable and unfavorable variances.
    1. Acme Inc. has the following information available:
    Actual price paid for material $1.00. Standard price for material $0.90. Actual quantity purchased and used in production 100. Standard quantity for units produced 90. Actual labor rate per hour $15. Standard labor rate per hour $16. Actual hours 200. Standard hours for units produced 220.
    1. Compute the material price and quantity, and the labor rate and efficiency variances.
    2. Describe the possible causes for this combination of favorable and unfavorable variances.

    Problem Set A

    1. The comptroller wants to set the standards according to a study done by a consulting firm for a company. The consulting firm used the following assumptions: The machines never break down. Workers never take a break. The material used is perfect. The material arrives on time. No one takes a day off. Workers are well trained. Workers do not make defective units. What kinds of standards are these? Will the workers be motivated to achieve these standards?
    2. Stan is opening a coffee shop next to Big State University. He knows that controlling his costs will be important to the success of the shop. He will not be able to work all the hours the shop is open, so the employees will need some guidelines to perform their jobs correctly. After talking to an accounting professor, he decides he needs a standard cost system for his shop. Describe the process Stan should follow in setting his standards for materials and labor.
    3. What makes a variance favorable? Give an example of a favorable variance involving materials. What makes a variance unfavorable? Give an example of an unfavorable variance involving labor.
    4. April Industries employs a standard costing system in the manufacturing of its sole product, a park bench. They purchased \(60,000\) feet of raw material for \(\$300,000\), and it takes \(5\) feet of raw materials to produce one park bench. In August, the company produced \(10,000\) park benches. The standard cost for material output was \(\$100,000\), and there was an unfavorable direct materials quantity variance of \(\$6,000\).
      1. What is April Industries’ standard price for one unit of material?
      2. What was the total number of units of material used to produce the August output?
      3. What was the direct materials price variance for August?
    5. Ed Co. manufactures two types of O rings, large and small. Both rings use the same material but require different amounts. Standard materials for both are shown.
    Large Small
    Rubber 3 feet at $0.25 per foot 1.25 feet at $0.25 per foot
    Connector 1 at $0.03 1 at $0.03

    At the beginning of the month, Ed Co. bought \(25,000\) feet of rubber for \(\$6,875\). The company made \(3,000\) large O rings and \(4,000\) small O rings. The company used \(14,500\) feet of rubber.

    1. What are the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance?
    2. If they bought \(10,000\) connectors costing \(\$310\), what would the direct materials price variance be for the connectors?
    3. If there was an unfavorable direct materials price variance of \(\$125\), how much did they pay per foot for the rubber?
    1. The Whizbang Company makes a special type of toy. Each top takes \(6\) ounces of a special material that costs \(\$3\) per ounce. Whizbang bought \(4,000\) ounces of the material at a cost of \(\$11,300\). They used \(3,400\) ounces to make \(534\) toys. Compute the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance.
    2. Ellis Company’s labor information for September is as follows:
    Direct labor hourly rate paid $32.00. Total standard direct labor hours for units produced 11,000. Direct labor ours worked 10,850. Direct labor rate variance $8,137.50 favorable.
    1. Compute the standard direct labor rate per hour.
    2. Compute the direct labor time variance.
    3. Compute the standard direct labor rate if the direct labor rate variance was \(\$2,712.50\) (unfavorable).
    1. Breakaway Company’s labor information for May is as follows:
    Actual direct labor hours worked 48,000. Standard direct labor hours allowed 47,400. Total payroll for direct labor $1,128,000. Direct labor time variance $13,800 unfavorable.
    1. What is the actual direct labor rate per hour?
    2. What is the standard direct labor rate per hour?
    3. What was the total standard direct labor cost for May?
    4. What was the direct labor rate variance for May?
    1. Power Co.’s labor information for June is as follows:
    Direct labor hours worked 67,200. Standard direct labor hours for units manufactured 70,000. Unfavorable direct labor rate variance $23,520. Total payroll for direct labor $823,200.
    1. What was the actual labor rate per hour?
    2. What was the standard labor rate per hour?
    3. What was the total standard labor cost for units produced in June?
    4. What was the direct labor time variance for June?
    1. Prepare a flexible budget for overhead based on the following data:
    Percent of capacity 90%, 100%, 110% respectively: Direct labor hours 3,600, 4,000, 4,400. Units of output 900, 1,000, 1,100. Variable overhead $3,600, 4,000, 4,400. Fixed overhead $6,000, 6,000, 6,000. Total overhead $9,600, 10,000, 10,400. Normal capacity = 100% and overhead is applied based on direct labor hours. Standard overhead rate = $10,000/4,000 = $2.50 per direct labor hour. Direct materials are $67.50 per unit. Direct labor is $23.50 per hour.
    1. Reddy Corporation has collected the following data for the month of June:
    Actual total factory overhead incurred $61,250. Budgeted fixed factory overhead costs $42,000. Activity level, in direct labor hours 15,000. Actual direct labor hours 18,000. Standard hours for output this period 17,000. Total factory overhead rate $4.35.

    What is the variable overhead efficiency variance?

    1. ABC Inc. spent a total of \(\$48,000\) on factory overhead. Of this, \(\$28,000\) was fixed overhead. ABC Inc. had budgeted \(\$27,000\) for fixed overhead. Actual machine hours were \(5,000\). Standard hours for units made were \(4,800\). The standard variable overhead rate was \(\$4.10\). What is the variable overhead rate variance?
    2. Recompute the variances from the second Acme Inc. exercise using \(\$0.0725\) as the standard cost of the material and \(\$14\) as the standard labor cost per hour. How has your explanation of the variances changed?

    Problem Set B

    1. Sameerah is trying to determine the standard hours to make one unit. She has studied the manufacturing process and is trying to determine what portion of the employees’ time should be included in the standard time to make the product. She knows that the actual time the worker is assembling, cutting, and painting should be part of the standard hours. She is questioning whether setup, down time, rest periods, and cleanup should be part of the standard hours. Explain why you would or would not include these times.
    2. Carl cleans offices. He has the following buildings to clean every day: building A, which is \(12,500\) square feet; building B, which is \(24,500\) square feet; building C, which is \(10,500\) square feet; and building D, which is \(6,700\) square feet. He is allowed \(5\) seconds per square foot. Each employee is allowed one \(30\)-minute lunch per shift. How many employees will he need to hire?
    3. Freidrich is working with the operations manager to determine what the standard material cost is for a spice chest. He has watched the process from start to finish and taken detailed notes on what material is used. The easiest material to measure is the wood. Each chest uses \(5\) board feet and produces \(1.5\) feet of scrap. He is not sure what to do with the scrap that is produced; the company cannot buy the boards in any other dimensions. What amount of materials should be included in the standard for material costs?
    4. A company bought \(45,000\) pounds of plastic pellets to make DVDs at a cost of \(\$9,900\). The standard cost per pound for the pellets is \(20.5\) cents. Some of these pellets were used in three jobs. The first job called for \(7,500\) pounds but used \(7,250\) pounds. The second job called for \(8,800\) pounds but used \(9,000\) pounds. The third job called for \(2,300\) pounds but used \(2,250\) pounds. Compute the direct materials price variance and the direct materials quantity variance for each job and in total. Why would you want to calculate the direct materials quantity variance for each job?
    5. Illinois Company is a medium-sized company that makes dresses. During the month of June, \(8,575\) dresses were made. All material purchases were used to make the dresses. The company had this information: standard per dress of \(6\) yards of material at \(\$6.20\) per yard. The actual quantity was \(52,000\) yards at a cost of \(\$325,520\). Compute the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance.
    6. Corolla Manufacturing has a standard cost for steel of \(\$20\) per pound for a product that uses \(4\) pounds of steel. During September, Corolla purchased and used \(4,200\) pounds of steel to make \(1,040\) units. They paid \(\$20.75\) per pound for the steel. Compute the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance for the month of September. What would change if Corolla had made \(2,200\) units?
    7. Marymount Company makes one product. In the month of April, it made \(3,500\) units. Workers were paid \(\$32\) per hour for labor, for a total of \(\$718,848\). The standard hours per unit are \(6.4\), and the standard labor wage rate is \(\$38.40\) per hour.
      1. What are the actual hours worked?
      2. What are the standard hours for the units made?
      3. What is the direct labor rate variance for April?
      4. What is the direct labor time variance for April?
      5. What is the total direct labor variance for April?
    8. Adam Inc.’s records for May include the following information:
    Actual payroll $40,000. Actual hours worked 3,200. Labor rate variance $8,000 favorable. Labor time variance $4,800 unfavorable.
    1. What are Adam’s standard labor hours for the units made?
    2. What is Adam’s total standard labor cost for the units made?
    1. Ribco’s labor cost information for making its only product for March is as follows:
    Standard hours per unit 1.25. Budgeted units or the period 12,000. Finished units for the period 10,000. Standard rate per hour $40. Actual labor costs incurred $414,000. Actual rate paid per hour $36.
    1. What is the direct labor rate variance?
    2. What is the direct labor time variance?
    3. What is the total direct labor variance?
    1. Use the following standard cost card for \(1\) gallon of ice cream to answer the questions.
    Standard Cost Card Product: Gallon of Ice Cream. Manufacturing Cot Information, Standard. Quantity times Standard Cost per Unit equals Cost Summary. Direct Materials: Cream, 5 quarts, $1.15 per quart, $5.75. Direct Materials Sugar, 16 ounces, $0.08 per ounce, $1.28. Direct Labor 3 minutes, $36.00 per hour, $1.80. Total Direct Costs, - , - $8.83.

    Actual direct costs incurred to make \(50\) gallons of ice cream:

    • \(275\) quarts of cream at \(\$1.05\) per quart
    • \(832\) ounces of sugar at \(\$0.075\) per ounce
    • \(165\) minutes of labor at \(\$37\) per hour

    All material used was bought during the current period.

    1. Compute the material and labor variances.
    2. Comment on the results and possible causes of the variances.
    1. Use the following standard cost card for \(1\) gallon of ice cream to answer the questions.
    Standard Cost Card Product: Gallon of Ice Cream. Manufacturing Cot Information, Standard. Quantity times Standard Cost per Unit equals Cost Summary. Direct Materials: Cream, 6 quarts, $1.00 per quart, $6.00. Direct Materials Sugar, 15 ounces, $0.07 per ounce, $1.05. Direct Labor 3 minutes, $38.00 per hour, $1.90. Total Direct Costs, - , - $8.95.

    Actual direct costs incurred to make \(50\) gallons of ice cream:

    • \(275\) quarts of cream at \(\$1.05\) per quart
    • \(832\) ounces of sugar at \(\$0.075\) per ounce
    • \(165\) minutes of labor at \(\$37\) per hour

    All materials used were bought during the current period.

    1. Compute the material and labor variances.
    2. Comment on the results and possible causes of the variances.

    Thought Provokers

    1. How do you balance a firm’s need to succeed and the need for not asking the workers for perfection?
    2. What type of firm would use standard costing? What type of firm would not use standard costing?
    3. You started your own construction business and need to determine the cost of materials used to build one house, and how many materials you will need to do so.
      1. Where would you begin to determine the standard price and quantity needs to build one house?
      2. What would produce a difference between the standard cost to build a house and the actual cost? What would cause a favorable outcome? What would cause an unfavorable outcome?
      3. What action might your company take if you had an unfavorable total direct materials cost variance?
    4. Is labor a true variable cost?
    5. Why would managers use a flexible budget? What information does it provide that a regular budget does not?
    6. Fill in the blanks in the following flexible budget:
    Percent of Capacity: ?, 100%, ?. Direct labor hours 3,600, ?, ?. Units of output 1,800, 2,000, 2,200. Variable overhead ?, $8,000, ?. Fixed overhead ?, $10,000, ?. Total overhead ?, $18,000, ?
    1. Before automation became more prevalent, overhead was often calculated and allocated as a function of direct labor costs or direct labor hours. Why was this the case, and has this pattern changed?
    2. In your opinion, is it important that an organization set standards and measure them monthly? Why or why not?

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