1

Lesson 8 Standard Costing Solutions

Problem No 1: (Pacific Furniture)
Actual Price = $259,120 12,640 = $20.50
Direct
Materials
MPV
MQV/MEV
Direct Labor
LRV
LEV

(20.50 20) 12,640

(11,850 75016)
$20

$6,320 U
$3,000 F

(31 20) 2,325

Hours
(2,325 7503)
$30

$2,325 U
$2,250 U

Problem No 2: (Chemical, Inc.)

1.
Direct
Materials
MPV
MQV/MEV
Direct Labor
LRV
LEV/LUV

(3.10 3) 100,000
(98,073 981010)
$3
(21 20) 4,900
(4,900 98100.5)
$20

$10,000
U
$81 F

4,900 U
$100F

2.
a.

b.

c.

Materials (98,1003)
MPV
A/P (100,0003.10)

$294,300
10,000

WIP (98,1003)
Materials(98,0733)
MEV

$294,300

WIP (98100.5) 20
LRV

$310,000

294,219
81
$98,100
4,900

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Wages/P (4,90021)
LUV

102,900
100

Problem No 3 (Mary Flanagan)

1. Variance Analysis
Actual
23,000
$874,000
630,000
244,000
195,000
$49,000

Units Sold
Revenue
Variable Cost
Contribution margin
Fixed costs
Operating Income
Units Sold
Revenue
Variable Cost
Contribution
margin
Fixed costs
Operating Income

Static Budget
20,000
$800,000
500,000
300,000
200,000
$100,000

Static budget Variance

3,000 F
$74,000 F
130,000 U
56,000 U
5,000 F
$51,000 U
SVV
Static Budget
3,000 F
20,000
$120,000 U
$800,000
75,000 U
500,000

Actual
23,000
$874,000
630,000

FBV
0
$46,000 U
55,000 U

FB
23,000
920,000
575,000

244,000

101,000 U

345,000

45,000 F

300,000

195,000
$49,000

5,000 F 200,000
$96,000 U $145,000

0
$45,000 F

200,000
$100,000

2. The actual SP per unit is $38 ($874,00023,000) compared to a budgeted $40 per
unit. This reduction in SP may explain the 15% increase in unit sales (23,000 Vs
20,000). VC may have exceeded the budget for many reasons, including individual
price increases in materials and supplies and possible inefficiencies because of the
15% spurt in production.
FC could be less than the budget because of delays in planned salary increases,
adjustments in insurance coverage, and other reasons.
Problem No 4: (Bovar Company)
1. Standard DL hours allowed for actual output achieved
= 4,000 0.5 = 2,000 Hours
2. Actual DL hours worked

LEV = (Actual Hours Standard Hours) Standard Price

-2,000 = (Actual Hours 4,0000.5) $20
Actual Hours = 38,00020 = 1,900 Hours

3. Actual DL Rate
LRV = (Actual Rate Standard Rate) Actual hours
1,900 = (Actual Rate $20) 1,900 hours
Actual Rate = 39,9001,900 = $21
4. Standard quantity of DM allowed
4,000 3 Kg = 12,000 Kg
5. Actual quantity of DM used
MEV = (Actual quantity Standard quantity) Standard Price
2,500 = (Actual quantity 12,000 Kg) $5
Actual quantity = 62,5005 = 12,500 Kg
6. Actual quantity of DM purchased in Kg
MPV = (Actual Price Standard Price) DM purchased
3,250 = (Actual Price DM purchased Standard Price DM purchased)
3,250 = (68,250 - $5 DM purchased)
DM purchased = 65,0005 = 13,000 Kg
7. Actual DM price per Kg
= 13,000 Kg Actual Price = $68,250
Actual Price = $5.25

Debit variances are unfavorable variance and shows as +

Credit variances are favorable variance and shows as

Problem No 5: (Aquafloat)
a). Direct-labor rate variance for November.
LRV = (A. Rate S. Rate) A. Hours
= (8.24 -8.20) 36,500 = $1,460 U
300,76036,500 = $8.24

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b). Direct-labor efficiency variance for November.
Units completed 5,600 6 hours per unit = 33,600 hours
Partial completed 800 0.75 6 hours
= 3,600
37,200
LEV = (A. Hours S. Hours) S. Hours
= (36,500 37,200) 4 8.20 = $5,740 F
c). Actual kilograms of material used in the production process during November
Units completed 5,600 8
Partial completed 800 8

= 44,800 Kg
= 6,400
51,200 Kg

MQV = ( A.Q S.Q) S. Rate

1500 = ( A.Q 51,200) $5
Actual Quantity = 51,500 Kg
d). Actual price paid per kilogram of direct material in November.
Actual price paid = 249,250 50,000 = $ 4.985 per Kg
e). Total amounts of DM and DL cost transferred to FG inventory during November.
DM cost transferred
DL cost transferred

5,600$40($58)
5,600$49.20

$224,000
275,520
$499,520

f). The total amount of DM and DL cost in the ending balance of WIP inventory at the
end of November.
DM 800$40
= 32,000
DL 80075%49.20 = 29,520
$61,520
2.
a.

MPV
b.

c.

Direct Materials
MPV
A/P

$250,000
$750
$249,250

(4.985 5 ) 50,000

$750 F

WIP (51,2005)
MQV
DM (51,5005)

$256,000

WIP (37,200$8.20)

$305,040

294,219
257,500

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LRV

1,460
LUV
Wages payable

$5,740
300,760

Problem No 6: (Your Company)

Standard Price or rate per unit of
input
Standard Quantity per unit of input
Actual quantity used per unit of
output
Actual price or rate per unit of input
Actual output
Direct material price variance
Direct material quantity variance
Total of Direct material variances
Direct labor rate variance
Direct labor efficiency variance
Total of Direct labor variances

Direct Labor
E ($20)

Direct Material
$8 per pound

F ( 4 Hrs )

C (2.75 per
unit)
A ( 3 lbs)

3.5 Hours
$21 per
Hour
10,000
units
-------------------D (35,000
U)
$100,000 F
$65,000 F

$7 per pound
10,000 units
$30,000 F
B (20,000 U)
$10,000 F
---------

A.

MPV = (AP-SP) PQ
-30,000 (F) = ($7 - $8) PQ
Actual Qty Used = Qty Purchased
AQ = PQ = 30,000 lbs
Actual Qty per unit of output = 30,000 10,000 units = 3 lbs per unit

B.

Total DMV = MPV + MQV

10,000(F) = 30,000(F) + MQV
MQV = 20,000 U

C.

MQV = (AQ SQ) SP

20,000(U) = (30,000 SQ) $8
SQ = 27,500 lbs
Std Quantity per unit = 27,50010,000 units = 2.75 lbs per unit

D.

Total DLV = LRV + LEV

65,000(F) = LRV - 100,000 (F)
LRV = 35,000 U

----------------

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E.

A. Hours = 10,000 units 3.5 Hours = 35,000 hours

LRV = (21 Std Rate ) 35,000
35,000 (U) = (21 Std Rate) 35,000
Std Rate = $20

F.

LEV = (35,000 Std. Hrs) $20

100,000 F = (35,000 Std. Hrs) $20
Std Hrs = 40,000 Hrs
Std Hr per unit 40,000 10,000 = 4 Hrs pr unit

Problem No 14
Sullivan Tuxedo Company produces a single line of formal wear.

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The standard costs for one suit are:
Direct materials:
5 yards of black cloth at $1.80 per yard,
2.5 yards of white cloth at $1.50 per yard
Direct labor: 2 hours at $9.50 per hour
During February, 450 suits were produced.
The costs incurred during the month were:
Materials purchased:
2500 yards of black cloth at $1.85 per yard
1200 yards of white cloth at $1.40 per yard
Materials used:
2300 yards of black cloth ,
1200 yards of white cloth
Direct labor:
960 hours at $9.80 per hour
Required:
A. Compute the material price and quantity variances and prepare all
journal entries
associated with direct materials for the month of February
B. Compute the labor rate and efficiency variances and prepare the
journal entries to
record the incurrence of direct labor costs.

Solution (P-14)
A.

Material Price Variance

Black (1.85 -1.80) 2,500 = $125 U

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White

(1.40 -1.50) 1,200 = $120 F

Material Quantity Variance

Black (2,300 (4505= 2,250) $1.80 = $90 U
White (1,200 (4502.5 =1,125) $1.50 = $112.50 U
Black
1. DM (2,5001.80)
MPV
A/P (2,5001.85)
2. WIP (2,2501.80)
MQV
DM (2,3001.80)
White
1. DM (1,200 1.50)
A/P (1,200 1.40)
MPV
2. WIP (1,1251.50)
MQV
DM ( 1,200 1.50)

4,500
125
4,625
4,050
120
4,140
1,800
8,000

1,680
120

1,687.50
112.50
1,800

B.
LRV
LEV

(9.80 - 9.50) 960 = $288 U

(960 (4502= 900)) 9.50 = $570 U

1. DL (9609.50)
LRV
Payroll (9609.80)

9120
288

2. WIP ( 9009.5)
LEV
Payroll (9609.50)

8,550
570

9,408

9,120

Problem No 15
The production manager of Pippin Company exercises management
by exception by reviewing materials usage and labor efficiency
variances incurred during any given week. His decision rule is that any
variance that is at least $5,000 or at least 10% of standard cost

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whichever is smaller, should be investigated to determine the
underlying cause. During last week, the companys operating
performance included the following.
Units produced: 5,000
Direct material used: (21,600 lbs @ $18.20)
Direct Labor hours worked: (8,300 hours@ $12.30)
Standard cost specifications for each unit produced are:
Direct materials: 4lb at $18.00 each
Direct labor: 1.6 hours @ $12.30 each
Required:
A. Calculate all cost variances for direct materials and direct labor
B. Should the production department manager investigate either of
the variances for
which he is responsible?
C. Identify three possible causes of each of the variances for which
the manager is
responsible.

Solution (P-15)
Direct Material
MPV

(18.20 18) 21,600

4,320 U

10
MQV

(21,600 5,0004)
$18

28,800 U
$33,120
U

Direct Labor
LPV

(12.30 12.30)
8,300
(8,300 8,000)
$12.30

LEV

0
3,690 U
$3,690 U

B. MQV of $28,800 U should be investigated because it is greater than

$5,000.
LEV of $3,690 is not a significant variance as it is less than $5,000
and under 10% of
standard cost.
C.

MQV

Material inferior quality

Faulty equipment
Mistakes during production

LEV

Faulty equipment
Inexperienced workers
Inadequate supervision

Problem No 16

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Chemway Company produces an individual cleaning solvent. Each

gallon of solvent requires 1.2 gallons of a liquid chemical and 1.7
pounds of a chemical compound. In addition 0.2 direct labor hour is
needed for each gallon of solvent at a standard rate of $8.90. The
liquid chemical is purchased in drums at a cost of $3 per gallon subject
to a 2% discount if paid for within 10 days. The companys policy is to
take advantage of all discounts. The chemical compound has a
standard cost of $50 per 100 pounds.
During 1990, the firm experienced the following:
Actual Production of solvent was 109,100 gallons
Actual Purchases of raw materials:
Liquid chemical: 163,650 gallons at $494,223,
Chemical compound: 218,200 pounds at $100,372
Actual usage of raw materials:
Liquid chemical: 141,830 gallons
Chemical compound: 180,015 pounds
Actual Direct Labor Hours: 23,100 hours at $207,900
Required:
A. Calculate material price and quantity variances
B. Calculate the labor rate and efficiency variance

Solution (P-16)

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A. MPV
Liquid Chemical
Chemical
Compound

(3.02 2.94)
163,650
(46 50) 2,182

13,092 U
8,728 F

$494,000 163,650 = $3.02

$3 0.98 = 2.94
100,372 218,200 = $ 0.46

B. MQV
Liquid Chemical
Chemical
Compound

(141,830 130,920) 2.94

(180,015 100
185,470100) 50

23,075.40
U
2,727.50 F

109,100 1.7 = 185,470

109,100 1.2 = 130,920

C. LRV
LRV

($9 $8.90)
23,100

$2,310 U

Actual Hours Rate = 207,900 23,100 = $9

D. LEV
LEV

(23,100 21,820)
$ 8.90

$11,392
U

Standard Hours = 109,100 0.20 = 21,820

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Problem No 17
Flexmem Inc., manufacturer and sells four GB flash drives wholesale
to computer retail chains and direct marketing organizations that we
sell the drives as a house grand. The drives retail for an average of
$8.00 per unit and compete with well known brands that retail for
between $ 10 and $ 12 per drive. Flexmem CFO has provided the
following budgeted standards for the month of February 2010.
Budgeted average wholesale selling price per drive
Total direct materials standard cost per drive
Direct manufacturing labor:
Direct manufacturing standard labor cost per
hour
Average labor productivity rate (drives per hour)
Direct marketing cost per unit
Fixed overhead
Forecasted sales for the month

$4.00
$0.85
$15.00
300
$0.30
$900,000
1,500,000 units

On March 8th, the vice president of planning and control needs with
the executive committee to discuss February results. He reports as
follows.

Unit sales total 80% of plan

Actual average selling price decline to $3.70
Productivity drop to 250 drives per hour. However due to
favorable market conditions the actual price of direct materials
per unit drop to $0.80.
Actual direct marketing cost were $0.30 per unit
Fixed overhead costs were $30,000 below plan

Required:
1. Calculate
a) Flexible- budget operating income
b) Total flexible- budget variance
c) Total sales volume variance
2. Calculate price and efficiency variances for direct manufacturing
labor

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Problem No 18
Tedken Company produces and sells a special formula shampoo,
marketed under the label of Classique. The firm uses a just in time
inventory system. The standard costs for the direct material and direct
labor needed for each bottle of shampoo are as follows.
Direct materials
Direct labor

10 ounces $0.15 per ounce

0.4 hours $12 per hour

During the month of May, the company produced 32,000 bottles of

shampoo and incurred the following actual direct manufacturing costs:
Purchases and usage of direct materials: 330,000 ounces at a total cost
of $56,100
Usage of direct labor: 13,100 hours at a total cost of $159,820.
Required:
A. What was the total manufacturing cost variance for the firms May
production performance?
B. Compute the following cost variances:
1.
2.
3.
4.

Material price variance

Materials quantity variance
Labor rate variance
Labor efficiency variance

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Problem No 19
Maria Company produces a laundry detergent known as Clean-up.
The firm uses a standard cost system to control costs. The standard
direct materials required for one box of Clean-up are as follows.
Chemical Compound: 5 pounds at $1.10 per pound
Container:
I box at $0.05 per box
During August, the company purchased and used 110,000 pounds of
chemical compound at $1.25 each and 22,000 containers at $.04 each.
The actual production of Clean-up amounted to 21,200 boxes.
Required:
Compute the material price and material quantity variances

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Problem No 20
Lemon Tent Company produces a tent which requires two types of
Nylon. Nylon F4 and Nylon Q7. The raw material standards are as
follows.
Materials
Nylon F4
Nylon Q7

Std Qty per

unit
10 yards
6 yards

Standard cost
$14 per yard
$24 per yard

The direct labor standards are 8 hours per tent at $10 per hour.
There were no beginning or ending work in process inventories.
Actual production for the year are as follows.
Direct Materials
Purchases
Purchase Price

Nylon F4
122,000 yards
$11.50 per yard

Beginning inventory
Ending inventory

8,000 yards
6,000 yards

Direct labor: 95,200 hours @ $10.30 per hour

12,000 tents were produced during the year
Required:
A. Calculate material price and quantity variances.
Price Variance
Nylon F4 ($11.5 $14) 122,000
Nylon Q7 ($24.50 $24) 74,000

= $305,000 F
= $37,000 U

Total MPV = $305,000 - $ 37,000 = $268,000 F

Quantity Variance
Nylon F4 (124,000 120,000) $14 = $56,000 U
Nylon Q7 (72,000 72,000) $24
=0

Nylon Q7
74,000 yards
$24.50 per
yard
3,000 yards
5,000 yards

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Total MPV = $56,000 U

B. Calculate the labor rate and efficiency variances.
LRV = ($10.30 $10) 95,200 = $28,560 U
LEV = (95,200 96,000) $ 10 =
8,000 F
Total = 28,560 8,000 = $20,560

Problem No 21:
Cool Ice Company is a large producer and distributor of packaged
ice. The Company uses standard costs for all of its different sized
packages. The standard costs and actual costs for the month of
August are given below for one of the companys product lines (per
unit of product)
Standard
Cost
Direct Materials:
Standard: 25 gallons at
$0.50 each
Actual: 28 gallons at $0.60
each
Direct Labor:
Standard: 3 hour at $10.00
per hour
Actual: 0.25 hour at $10.80
per hour
Total Cost per unit

Actual Cost

$12.50
$16.80
3.00
2.70
$15.50

$19.50

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During the month of August, the company produced 18,400 units of

product. A comparison of standard and actual costs for the period on
a total cost basis is given below.
Actual Costs
Standard costs
Unfavorable cost
variance

18,400 units at $19.50

18,400 units at $15.50

$358,800
(258,200)
$73,600

There was no inventory of materials on hand at the beginning of

August. During the month, 515,200 gallons of materials were
purchased, all of which were used in production.
Required:
A. for direct materials
1. Compute the price and quantity variances for August
2. Prepare journal entries to record all activity relating to direct
materials for
August.
B. for direct labor
1. Compute the rate and efficiency variances.
2. Prepare journal entries to record the incurrence of direct labor
cost for August.

Problem No 22
Albert manufacturing Company manufactures a single product. The
standard cost of one unit of this product is:
Direct Materials: 6 meters at
$1.50
Direct Labor: 1 hour at $6.75
Variable Overhead: 1 hour at
$4.50
Total Standard Variable Cost per
unit

$9.00
$6.75
$4.50
$20.25

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During the month of October, 6,000 units were produced. Selected cost
data relating to the months production follow:

Materials Purchased: 60,000 meters at $1.43

$85,800
Materials Used in Production: 38,000 meters
Direct Labor____ hours at $_____ per hour
$41,925
Variable Overhead Cost incurred
$30,713
Variable Overhead Efficiency Variance
$ 2,250 U

There was no beginning inventory of raw material. The variable

overhead rate is based on direct labor hours.
Required:
a) For direct materials, compute the price and quantity variances for
the month, and
prepare journal entries to record activity for the month.
b) For direct labor, compute the rate and efficiency variances for the
month, and
prepare a journal entry to record labor activity for the month.
c) For variable overhead, compute the spending variances for the
month, and
prove the efficiency variance given above.

Problem No 23
The manager of the BlackBerry Department of RIM is unhappy with the
sales for the accounting period, but points out to you that both variable
and fixed costs have a favorable variance as is shown in the following
analysis
Actual
results

Static Budget

SB
Variance

20
Units sold
Sales revenue

10,000
$1,850,000

Variable costs

1,120,000

CM

730,000

Fixed costs

705,000

Operating
Income

25,000

0.0
100.
0
60.5
0
39.5
0
38.1
0
1.40

12,000
0.0
-2,000
$2,160,000 100. $(310,000
0
)
1,188,000 55.0
68,000
0
972,000 45.0 (242,0000
0
710,000 32.9
5,000
0
262,000 12.1 (237,000)
0

The Product Manager asks you to interpret these results. You tell the
Product manager that there is a better way to calculate variances. You
tell her that using only the static budget for variance analysis does not
give the true picture.
Required
Prepare variance analysis for the Product Manager using flexible
budget variance analysis. Explain the variances to the product
manager.She knows nothing about management accounting.

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A: Xavier Company produces a single product. Variable manufacturing

overhead is applied to
products on the basis of direct labor-hours. The standard costs for
one unit of product are as
follows. (6 Marks)
Direct materials: 6 ounces at $0.50 per ounce
Direct labor: 1.8 hours at $10 per hour
Variable manufacturing overhead: 1.8 hours at
$5 per hour
Total standard variable cost per unit

$3.00
$18.00
$9.00
$30.00

During June, 2000 units were produced. The costs associated with
Junes operations were as follows:
Materials purchased: 18,000 ounces at $0.60
per ounce
Materials used in production: 14,000 ounces
Direct labor: 4,000 hours at $9.75 per hour
Variable manufacturing overhead costs incurred

$10,80
0
39,000
20,800

Required:
1. Compute the Materials variances. (2 Marks)
MPV = (0.60 0.50) 18,000 = $1,800 U
MQV = (14,000 12,000) O.50 = $ 1,000 U
Total = $2,800 U
2. Compute the labor variance.( 2 Marks)
LRV = (9.75 10.00) 4,000 = $ 1,000 F
LEV = (4,000 3,600) $10 = $ 4,000 U
Total= $3,000
3. Compute the variable manufacturing overhead variance. (2 Marks)
Variable overhead spending Variance = (5.20 5)4,000 = $800 U
Variable overhead efficiency variance = (4000 3,600) $5 = $2,000
U

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Total Variance = $2,800