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According to the standard cost card, each helmet should require 0.6 kilograms of plastic, at a cost of $8
per kilogram.
Required:
1. According to the standards, what cost for plastic should have been incurred to make 35,000
helmets? How much greater or less is this than the cost that was incurred?
2. Break down the difference computed in (1) above into a materials price variance and a materials
quantity variance.
SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is
grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week,
the company prepared 4,000 of these meals using 960 direct labor-hours. The company paid these direct
labor workers a total of $9,600 for this work, or $10.00 per hour.
According to the standard cost card for this meal, it should require 0.25 direct labor-hours at a cost of
$9.75 per hour.
Required:
1. According to the standards, what direct labor cost should have been incurred to prepare 4,000
meals? How much does this differ from the actual direct labor cost?
2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency
variance.
During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate.
The direct labor cost totaled $73,600 for the month.
Required:
1. According to the standards, what direct labor cost should have been incurred to make 20,000 units
of the Jogging Mate? By how much does this differ from the cost that was incurred?
2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency
variance.
3. The budgeted variable manufacturing overhead rate is $4 per direct labor-hour. During August, the
company incurred $21,850 in variable manufacturing overhead cost. Compute the variable overhead
rate and efficiency variances for the month.
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The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in
the shop. The standard labor cost for a motor tune-up is given below:
d
The record showing the time spent in the shop last week on motor tune-ups has been misplaced.
However, the shop supervisor recalls that 50 tune-ups were completed during the week, and the
controller recalls the following variance data relating to tune-ups:
Required:
1. Determine the number of actual labor-hours spent on tune-ups during the week.
2. Determine the actual hourly rate of pay for tune-ups last week.
(Hint: A useful way to proceed would be to work from known to unknown data either by using the variance
formulas in Exhibit 10-7 or by using the columnar format shown in Exhibit 10-6.)
Exercise 10-5 (20 minutes)
1. If the labor spending variance is $93 unfavorable, and the rate variance
is $87 favorable, then the efficiency variance must be $180 unfavorable,
because the rate and efficiency variances taken together always equal
the spending variance. Knowing that the efficiency variance is $180
unfavorable, one approach to the solution would be:
Efficiency variance = SR (AH – SH)
$9.00 per hour (AH – 125 hours*) = $180 U
$9.00 per hour × AH – $1,125 = $180**
$9.00 per hour × AH = $1,305
AH = $1,305 ÷ $9.00 per hour
AH = 145 hours
*50 jobs × 2.5 hours per job = 125 hours
**When used with the formula, unfavorable variances are positive and
favorable variances are negative.
During the most recent month, the following activity was recorded:
a. Twenty thousand pounds of material were purchased at a cost of $2.35 per pound.
b. All of the material purchased was used to produce 4,000 units of Zoom.
c. 750 hours of direct labor time were recorded at a total labor cost of $10,425.
Required:
1. Compute the materials price and quantity variances for the month.
2. Compute the labor rate and efficiency variances for the month
Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard
cost system to help control costs and has established the following standards for the Maze toy:
During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow:
Direct materials: 25,000 microns were purchased at a cost of $0.48 per micron. 5,000 of these microns
were still in inventory at the end of the month.
Direct labor: 4,000 direct labor-hours were worked at a cost of $36,000.
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Required:
1. Compute the following variances for July:
a. The materials price and quantity variances.
b. The labor rate and efficiency variances.
2. Prepare a brief explanation of the possible causes of each variance.
Exercise 10-8 (30 minutes)
1. a. Notice in the solution below that 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.
Actual Quantity Standard Quantity
of Input, at Actual Quantity of Allowed for Output, at
Actual Price Input, at Standard Price Standard Price
(AQ × AP) (AQ × SP) (SQ × SP)
25,000 microns × 25,000 microns × 18,000 microns* ×
$0.48 per micron $0.50 per micron $0.50 per micron
= $12,000 = $12,500 = $9,000
Price Variance,
$500 F
20,000 microns × $0.50 per micron
= $10,000
Quantity Variance,
$1,000 U
*3,000 toys × 6 microns per toy = 18,000 microns