SUMMARY PROBLEM 10-1
Bates Corporation has decided to accumulate standard costs, in addition to actual costs, for the next
accounting period, 19X5. The following data have been collected:
Projected production for 19X5...........................................................................30,000 units
Direct materials required to produce one unit.................................... ..............2 tons
Price per ton of direct materials based on annual order of:
1-25,000 tons.................................................................................................... $200 per ton
25,001-50,000 tons.......................................................................................... $190 per ton
50,001-75,000 tons......................................................................................... $185 per ton
Direct labor requirements
Shaping time per ton....................................................................................... 3 hours
Welding time per unit..........................................;........................................... 10 hours
Average wage rate per hour for:
Shapers............................................................................................................ $11
Welders........................................................................................................... $15
Factory overhead is applied based on direct labor hours
Budgeted variable factory overhead .............................................................. $120,000
Budgeted fixed factory overhead.................................................................... $ 57,600
Bates Corporation uses a process cost system to accumulate costs.
Required:
A) Calculate the following standards:
1) Direct materials price per unit
2) Direct materials efficiency per unit
3) Direct labor price per hour
4) Direct labor efficiency (hours) per unit
5) Variable factory overhead application rate per direct labor hour
6) Fixed factory overhead application rate per direct labor hour
B) Compute the total standard cost per unit.
Exercises
11-1 DIRECT MATERIALS VARIANCES
Ha-Ha Company produced 7,600 comic books for the year. The direct materials quantity
standard was 6 units of direct material per unit of finished goods. The amount of direct
materials used in production was 46,500 units. Direct materials purchased amounted to t
36,000 units. The actual direct materials cost was $3.25 each but the standard direct materials
cost was $3.30 each. A process cost system is used to accumulate costs.
Required:
Compute the direct materials price (at time of purchase) and efficiency variances and state
whether they are favorable or unfavorable.
11-2 DIRECT LABOR VARIANCES
Useless Company produced 16,000 widgets for the year. The direct labor efficiency standard
was 3 hours per unit. The actual direct labor hours worked was 47,750. The company employs a
direct labor standard wage rate of $7.25 per hour; $7.18 was the actual direct labor wage rate.
A process cost system is used to accumulate costs.
Required:
Compute the direct labor efficiency and price variances and stale whether they are favorable or
unfavorable.
11-3 DIRECT MATERIAL AND DIRECT LABOR VARIANCES
Baker Company employs a standard cost system. The standard product costs for direct
materials were six pieces at $6.25 per piece;' for direct labor they were 12 hours at $4.50 per
hour; and for factory overhead they were 12 hours at $2.00 per hour. During the month of May,
production amounted to 400 sets. The direct materials used for the 400 sets amounted to 2,200
pieces for a total cost of $15,400. The direct labor cost for 5,000 actual hours was $23,750.
Actual factory overhead was $9,500. A process cost system is used to accumulate costs.
Required:
a) Compute the direct materials efficiency and price variances and state whether they are
favorable or unfavorable.
b) Compute the direct labor efficiency arid price variances and state whether they are
favorable or unfavorable.
11-4 FACTORY OVERHEAD VARIANCE: ONE-FACTOR ANALYSIS
The XYZ Corporation produces one main product. The company employs a standard cost
system. Below is October's flexible budget:
Direct labor hours 800 900 1,000
Variable factory overhead:
Indirect materials $ 600 $ 675 $ 750
Indirect labor 400 450 500
Supplies 200 225 250
Total variable $1,200 $1,35 $1,500
0
Fixed factory overhead:
Factory rent $ 950 $ 950 $ 950
Depreciation on equipment 700 700 700
Supervisor 240 240 240
Total fixed $1,890 $1,89 $1,890
0
Total factory overhead $3,090 $3,24 $3,390
0
Factory overhead is applied based on normal capacity. The number of standard direct labor
hours allowed for October's production is 850 hours. Actual factory overhead costs for October
were $3,350. Actual direct labor hours worked for the month were 910 hours. Normal capacity
is 900 direct labor hours. A job order cost system is used to accumulate costs.
Required:
Calculate the factory overhead variance for October using the one-factor analysis method.
11-5 FACTORY OVERHEAD VARIANCES: TWO-FACTOR ANALYSIS
Information on Ripley Company's factory overhead costs for January 19X1 production activity is
as follows:
Budgeted fixed factory overhead...................................................................... $75,000
Standard fixed factory overhead application rate per direct labor hour............. $3
Standard variable factory overhead application rate per direct labor hour........ $6
Standard direct labor hours allowed for actual production................................. 24,000
Actual total factory overhead incurred....................... ....................................... $220,000
Ripley has a standard absorption and flexible budgeting system, and uses a job order cost
system to accumulate costs.
Required: Calculate the FOH variances using the two-factor analysis method.
11-6 FACTORY OVERHEAD VARIANCES: THREE-FACTOR ANALYSIS
The Smith Company uses a process cost system. Costs are applied to production on the basis of
standard costs. Information for September is shown below:
Actual factory overhead..................... .............. $21,700
Standard direct labor hours allowed................. 6,200
Actual direct labor hours................................... 5,900
Normal capacity direct labor hours.................. 6,500
Budgeted variable factory overhead................. $5,525
Budgeted fixed factory overhead...................... $19,500
Cost of goods sold ............... . ....................... $20,000
Ending finished goods inventory....................... $40,000
Ending work-in-process inventory..................... $10,000
Required:
Calculate the factory overhead variances for September using the three-factor analysis method.
Budget Performance Report
Herald’s Fish House is a family-owned restaurant that specializes in Scandinavian-style seafood. Data
concerning the restaurant’s monthly revenues and costs appear below (q refers to the number of meals
served):
Formula
Revenue $16.50q
Cost of ingredients $6.25q
Wages and salaries $10,400
Utilities $800 + $0.20q
Rent $2,200
Miscellaneous $600 + $0.80q
1) Prepare the restaurant’s planning budget for April assuming that 1,800 meals are served.
2) Assume that 1,700 meals were actually served in April. Prepare a flexible budget for this level of
activity.
3) The actual results for April appear below. Prepare a flexible budget performance report for the
restaurant for April.
Revenue $27,920
Cost of ingredients $11,110
Wages and salaries $10,130
Utilities $1,080
Rent $2,200
Miscellaneous $2,240
