Problem 10-11 DIRECT MATERIALS AND DIRECT LABOR VARIANCE;
COMPUTATION FROM INCOMPLETE DATA
SP - Standard Price
AQ - Actual Quantity
SQ - Standard Quantity
AP - Actual Price
AH - Actual Hours
AR - Actual Rate
SR - Standard Rate
SH - Standard Hours
1
a. Materials quantity variance = SP (AQ - SQ)
$5.00 per foot (AQ - 9,600 feet) = $4,500 U
$5.00 per foot x AQ - $48,000 = $4,500
$5.00 per foot x AQ = $52,500
AQ = 10,500 feet
* $3,200 units x 3 foot per unit
** $55,650 / 10,500 feet = $5.30 per foot
b. Materials price variance = AQ (AP - SP)
10,500 feet($5.30 per foot - $5.00 per foot) = $3,150 U
The total variance for materials is:
Materials price variance $3,150 U
Materials quantity variance 4,500 U
Total variance $7,650 U
2
a. Labor rate variance = AH (AR - SR)
4,900 hours ( $7.50 pr Hour - SR) = $2,450
$36,750 - 4,900 hours x SR = -$2,450
4,900 hours x SR = $39,200
SR = $8.00
* $36,750 / 4,900 hours
** $1,650 F + $800 U
b. Labor effieciency variance = SR (AH - SH)
$8 per hour (4,900 hours - SH) = $800 U
$39,200 - $8 per hour - SH = $800 U
$8 per hour x SH = $38,400
SH = 4,800 hours
The total variance for labor are:
Labor rate variance $2,450 F
Labor efficiency variance 800 U
Total variance $ 1,650 F
c. The standard hours allowed per unit of product are:
4,800 hours / 3,200 units = 1.5 hours per unit
Problem 10-12 VARIANCE ANALYSIS IN A HOSPITAL
AH - Actual Hours
SH - Standard Hours
AR - Actual Rate
SR- Standard Rate
AQ - Actual Quantity
AP - Actual Price
SP - Standard Price
1 The standard quality of plates allowed for tests performed during the month would be:
Blood tests 1,800
Smears 2,400
Total 4,200
Plates per test x2
Standard quantity allowed 8,400
Material price variance = AQ (AP - SP)
12,000 plates ( $2.35 per plate - $2.50 per plate) = $1,800 F
* $28,200 / 12,000 plates = $2.35 per plate
Materials quantity variance = SP (AQ - SQ)
$2.50 per plate (10,500 plates - 8,400 plates) = $5,250 U
* the price of the variance is due to the hospitals 6% quantity discount
**the $5,250 quantity variance for the month is equal to 25% of the standard allo
2 a. The standard hours of plates allowed for tests performed during the month would be:
Blood tests: 0.3 hours per test x 1,800 tests 540 hours
Smears: 0.15 hours per test x 2,400 test 360 hours
Total standard hours allowed 900 hours
Labor rate variance = AH (AR - SR)
1,150 hours ($12.00 per hour - $14.00 per hour) = $2,300 F
* $13,800 / 1,150 hours = $12.00 per hour
Labor efficiency variance = SR (AH - SH)
$14.00 per hour (1,150 hours - 900 hours) = $3,500 U
The variance analysis would be:
Labor efficiency variance $3,500 U
Labor rate variance $2,300 F
Spending variance $1,200 U
b. The hospital saves 2 per hour but, as we can see there is so much time taken on lab tests which s
labor efficiency variance. The policy should not be continued. The hospital's unfavorable quantity var
indicates a lack of assistants in the lab
3 Variable overhead rate variance = AH ( AR - SR)
1,150 hours ($6.80 per hour - $6.00 per hour) = $920 U
*$7,820 / 1,150 hours = $6.80 per hour
Variable overhead efficiency variance = SR (AH - SH)
$6.00 per hour (1,150 hours - 900 hours) = $1,500 U
The variable overhead variance are:
Variable overhead efficiency variance $1,500 U
Variable overhead rate variance $ 920 U
Spending variance $2,420 U
ng the month would be:
quantity discount
l to 25% of the standard allowed for plates
month would be:
me taken on lab tests which shows large unfavorable
tal's unfavorable quantity variance
Problem 10-13 BASIC VARIANCE ANALYSIS; THE IMPACT OF VARIANCE IN UNIT COSTS
AQ- Actual Quantity of Input
AP- Actual Price
SP- Standard Price
SQ- Standard Quantity allowed for Actual Output
AH- Actual Hours of Input
AR- Actual Rate
SR- Standard Rate
SH- Standard Hours Allowed for Actual Output
1. Compute the ff. variances of May
a. Materials price and quantity variances
the variances can be computed using the formulas:
Materials price variance = AQ (AP-SP)
=21,600 feet ($3.30 per foot - $3.00 per foot)
=21,600 feet (0.3 per foot)
= $6,480 U
Materials quantity variance SP (AQ - SQ)
= $3.00 per foot (21,600 feet- 21,600 feet)
= $0
** 12,000 units x 1.80 feet per unit = 21,600 feet
*** 12,000 units x 1.80 feet per unit = 21,600 feet
b. Labor rate and efficiency variances
the variances can be computed using the formulas:
Labor rate variance = AH (AR-SR)
= 11,040 hours ($17.50 per hour-$18.00 per hour)
=$5,520 F
Labor efficiency variance SR (AH-SH)
= $18.00 per hour (11,040 hours-10,800 hours)
= $18.00 per hour (240 hours)
=$4,320 U
*12,000 units x 0.90 hours per unit = 10,800 hours
** 12,000 units x 0.92 hours per unit = 11,040 hours
c. Variable overhead rate and efficiency variances
the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR- SR)
=11,040 hours ($4.50 per hour- $5.00 per hour)
=$5,520 F
Variable overhead efficiency variance = SR (AH - SH)
=$5.00 per hour (11,040 hours -10,800 hours)
=$1,200 U
*12,000 units x 0.90 hours per unit = 10,800 hours
** 12,000 units x 0.92 hours per unit = 11,040 hours
2. How much of the $0.08 excess unit cost is traceable to each of the variances computed in (1) above.
Materials:
Price variance ($6,480 ÷ 12,000 units) $O.54 U
Quantity variance ($0 ÷ 12,000 units) 0 $0.54 U
Labor:
Rate variance ($5,520÷12,000 units) 0.46 F
Efficiency variance ($4,320 ÷ 12,000 units) 0.36 U 0.10 F
Variable Overhead:
Rate variance ($5,520 ÷ 12,000 units) 0.46 F
Efficiency variance ($1,200 ÷ 12,000 units) 0.10 U 0.36 F
Excess of actual over standard cost per unit $0.008 U
3. How much of the $0.08 excess unit cost is traceable to apparent inefficient use of labor time?
Both the labor efficiency and variable OH efficiency variances are
affected by inefficient use of labor time.
Excess of actual over standard cost per unit $0.08 U
Less portion attributable to labor inefficiency:
Labor efficiency variance 0.36 U
Variable overhead efficiency variance 0.10 U 0.46 U
Portion due to other variances $0.38 F
The total variance in unit cost for the month would have been favorable
by $0.38 rather than unfavorable by $0.08.
4.Do you agree that the excess unit cost is not of concern?
ANSWER:
Though the difference between actual and standard costs is only
$0.08 per unit, the details of the differences are significant. The
material price difference is $6,480 U, which merits further
investigation. The variance in labor efficiency is $4,320 U, and the
variance in variable overhead efficiency is $1,200 U. Taken
together, the latter two variations indicate a potential opportunity
for the company to pursue process improvement and opportunities
that would improve efficiency.
s computed in (1) above.
use of labor time?
Problem 10A-10 COMPREHENSIVE STANDARD COST VARIANCES
1. Compute the materials price and quantity variances for the year.
Materials price variance = AQ (AP- SP)
=64,000 feet ($8.55 per foot - $8.45 per foot)
=64,000 feet ($0.1 per foot )
= $6,400 U
Materials quantity variance = SP (AQ- SQ)
=$8.45 per foot (64,000 feet- 60,000 feet)
=$8.45 per foot (4,000 feet)
=$33,800 U
*30,000 units x 2 feet per unit = 60,000 feet
2. Direct labor rate and efficiency variances:
Labor rate variance = AH (AR - SR)
=43,500 DLHrs ($15.80 per DLHrs - $16.00 per DLH)
=43,500 DLHrs ($0.2 per DLH)
= $8,700 F
Labor efficiency variance = SR (AH-SH)
=$16.00 per DLHrs (43,500 DLHrs - 42,000 DLH*)
=$16.00 per DLHrs (1,500 DLH*)
= $24,000 U
3. For manufacturing overhead compute:
a. The variable overhead rate and efficiency variances for the year.
Variable overhead rate variance = (AH x AR) - (AH x SR)
=($108,000)- (43,500 DLHrs x $2.50 per DLH)
=($108,000) - (108750 per DLH)
= $750 F
Variable overhead efficiency variance = SR (AH-SH)
=$2.50 per DLH (43,500 DLHrs - 42,000 DLHrs)
=$2.50 per DLH (1,500 DLHrs)
= $3,750 U
b.The fixed overhead budget and volume variances for the year.
Budget variance:
Budget variance=
Actual Fixed Overhead - Budgeted Fixed Overhead
= $211,800 - $210,000
= $1,800 U
Volume variance:
Volume variance =
Fixed portion of the predetermined overhead rate ( Denominator Hrs. - Standard Hrs. Allo
= $6.00 per DLH (35,000 DLHrs - 42,000 DLHrs)
= $6.00 per DLH (7,000 DLHrs)
= $42,000 F
4. Total the variances you have computed, and compare the net amount with the $18,300 mentioned by th
Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.
Direct materials variances:
Price variance $6,400 U
Quantity variance 33,800 U
Direct labor variances:
Rate variance 8,700 F
Efficiency variance 24,000 U
Variable manufacturing overhead variances:
Rate variance 750 F
Efficiency variance 3,750 U
Fixed manufacturing overhead variances:
Budget variance 1,800 U
Volume variance 42,000 F
Total of variances $18,300 U
*The total of the variances agrees with the $18,300 variance
mentioned by the president.
It simply shows that it is not always good to give a bonus for good cost control. The materials qu
variance and the labor efficiency variance are 6.7% and 3.6%, respectively, of the standard cost
thus would warrant investigation.
r Hrs. - Standard Hrs. Allowed)
he $18,300 mentioned by the president.
during the year? Explain.
st control. The materials quantity
ctively, of the standard cost allowed and
Problem 10A-11 COMPREHENSIVE STANDARD COST VARIANCES
Direct Materials, 3yards x $4.40 per yard
Direct Labor, 1DLH x $12.00 per DLH
Variable Manufacturing OH, 1 DLH x $5 per DLH (25,000 ÷ 5,000 DLH)
Fixed Manufacturing OH, 1 DLH x $11.80 per DLH (59,000 ÷ 5,000 DLH)
Standard cost per unit
2. Material Variances
Materials price variance = AQ (AP-SP)
24,000 yards ($4.80 per yard -$4.40 per yard) = $9,600 U
Materials quantity variance = SP (AQ- SQ0
4.40 per ard (18,500 yards - 18,000 yards) = $2,200 U
*6,000 units x 3 yards per unit = 18,000 yards
Labor Variances:
Labor rate variance = AH ( AR- SR)
5,800 DLH ($13 per DLH - $ 12 per DLH) = $5,800 U
Labor efficiency variance = SR ( AH - SH )
$12 per DLH ( 5,800 - 6,000 DLh ) = $2,400 F
*6,000 units x 1 DLH per unit = 6,000 DLHs
3. Variable OH variances:
Variable OH rate variance = ( AH xAR ) - (AH x SR)
($29,580) - (5,800 DLHrs x $5 per DLH) = $580 U
Variable overhead efficiency variace = SR ( AH - SH)
$5 per DLH (5,800 DLHrs - 6,000 DLHrs) = $1,000 F
Fixed OH variances:
Actual fixed OH 60,400
Budgeted fixed OH $59,000
Fixed OH applied to WIP 6,000 DLH x $11.80 per DLH = $70,800
4. The
4 standard unit cost will be reduced if the denominator activity
level is high. As the denominator activity increases, the fixed
portion of OH cost is spread across more units. Volume variation is
governed by activity.
$13.20
12
5
11.8
$42.00
Problem 10A-12 SELECTION OF A DENOMINATOR; OVERHEAD ANALYSIS; STANDARD COST CARD
1&2
Per Direct Labor-Hour
Variable Fixed Total
Denominator of 30,000 DLHs:
$135,000 ÷ 30,000 DLHs $4.50 $4.50
$270,000 ÷ 30,000 DLHs $9 $9
Total predetermined rate $13.50
Denominator of 40,000 DLHs:
$180,000 ÷ 40,000 DLHs $4.50 $4.50
$270,000 ÷ 40,000 DLHs $6.75 6.75
Total predetermined rate $11.25
30,000 DLHrs
Direct Material, 4ft x $8.75 per foot $35
Direct Labor, 2DLHs x $15 per DLH 30
Variable OH, 2 DLHs x $4.50 per DLH 9
Fixed OH, 2DLHs x $9 per DLH 18
Standard cost per unit $92
4
a. 18,000 units x 2 DLHrs per unit = 36,000 standard DLHrs
b. Manufacturing Overhead
Actual Cost 446,400 Applied Cost 486,000
Overapplied OH 39,600
36,000 standard DLHrs x $13.50 predetermined rate per DLH = $486,000
c.
Variable OH rate variace = (AH x AR) - (AH x SR)
($174,800) - (38,000 DLHrs x $4.50 per DLH) = $3,800 U
Variable OH efficiency variance = SR ( AH - SH)
$4.50 per DLH (38,000 DLHrs - 36,000 DLHrs ) =$9,000 U
Fixed overhead variances:
Actual Fixed Overhead 271600
Budgeted fixed Overhead 270,000 30,000 denominator DLHrs
Fixed Overhead Applied to WIP 36,000 DLHrs x $9per DLH = $324,000
(271,600 - 270,000) Budget Variance = $1,600 U
(324000-270000) Volume Variance = $54,000 F
Variable OH rate variance $3,800 U
Variable OH efficiency variance 9,000 U
Fixed OH budget variance 1,600 U
Fixed OH volume variance 54,000 F
Overapplied Overhead $39,600 F
5
The main disadvantage of using normal activity is the large fluctuation in volume that usually
results. This is because the activity name used to calculate the standard overhead rate is differen
from the activity level expected for the period. Run the normal activity count of 30,000 DLH to
calculate the standard overhead rate while the expected activity is 40,000 DLH for the period,
favorable volume variance that can be difficult for management to interpret. In addition, the larg
variation in cheap volume in this case masked the fact that the company did not achieve the leve
of activity planned for the period. They managed to work only 36,000 DLHs (in the standard).
This unfavorable result is hidden by the use of a denominator that does not match the current
activity.This leads to unit costs that remain stable from one year to the next. Therefore,
management decisions are not clouded by unit costs, which rise and fall with increasing and
decreasing activity.
ANDARD COST CARD
Denominator Activity
30,000 DLHrs 40,000 DLHrs
$35
30
9
13.5 Fixed OH, 2 DLHs x $6.75 per DLH
$87.50
30,000 denominator DLHrs x $9per DLH
LH = $324,000
ion in volume that usually
ard overhead rate is different
vity count of 30,000 DLH to
0,000 DLH for the period,
nterpret. In addition, the large
pany did not achieve the level
00 DLHs (in the standard).
oes not match the current
he next. Therefore,
fall with increasing and
Exercise 8-1 SCHEDULE OF EXPECTED CASH COLLECTION
1 April May
February sales: $230,000 x 10% $23,000
March sales: $260,000 x 70%, 10% 182,000 $26,000
April: $300,000 x 20%, 70%, 10% 60,000 210,000
May sales: $500,000 x 20%, 70% 100,000
June sales: $200,000 x 20%
Total cash collections $265,000 $336,000
2 Accounts receivable at June 30:
From May sales: $500,000 x 10% $50,000
From June sales: $200,000 x (70% + 10%) 160,000
Total accounts receivable at June 30 $210,000
June Total
$23,000
208,000
$30,000 300,000
350,000 450,000
40,000 40,000
$420,000 $1,021,000
Exercise 8-2 PRODUCTION BUDGET
April May
1
Budgeted unit sales 50,000 75,000
Add: desired units of ending finished goods inventory 7,500 9,000
Total needs 57,500 84,000
Less: units of beginning finished goods inventory 5,000 7,500
Required production in units 52,500 76,500
*10% of the following month's sales in units
June Quarter
90,000 215,000
8,000 8,000
98,000 223,000
9,000 5,000
89,000 218,000
Exercise 8-3 DIRECT MATERIALS BUDGET
Quarter-Year 2
First
Required production in units of finished goods 60,000
Units of raw materials needed per unit of finished goods x 3
Units of raw materials needed to meet production 180,000
Add: desired units of ending raw materials inventory 54,000
Total units of raw materials needed 234,000
Less: units of beginning raw materials inventory 36,000
Units of raw materials to be purchased 198,000
Unit cost of raw materials x $1.50
Cost of raw materials to purchased $297,000
Quarter-Year 2
Second Third Fourth Year
90,000 150,000 100,000 400,000
x 3 x 3 x 3 x 3
270,000 450,000 300,000 1,200,000
90,000 60,000 42,000 42,000
360,000 510,000 342,000 1,242,000
54,000 90,000 60,000 36,000
306,000 420,000 282,000 1,206,000
x $1.50 x $1.50 x $1.50 x $1.50
$459,000 $630,000 $423,000 $1,809,000
Exercise 8-4 DIRECT LABOR BUDGET
1 Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget is:
1st 2nd
Required production in units 8,000 6,500
Direct labor time per unit (hours) x 0.35 x 0.35
Total direct labor-hours needed 2,800 2,275
Direct labor cost per hour x $12.00 x $12.00
Total direct labor cost $ 33,600 $ 27,300
2 Assuming that the direct labor workforce is not adjusted each quarter and that overtime wages a
the direct labor budget is:
1st 2nd
Required production in units 8,000 6,500
Direct labor time per unit (hours) x 0.35 x 0.35
Total direct labor-hours needed 2,800 2,275
Regular hours paid 2,600 2,600
Overtime hours paid 200 0
Wages for regular hours ($12.00 per hour) $31,200 $31,200
Overtime wages ( 1.5 x $12.00 per hour) 3,600 0
Total direct labor cost $34,800 $31,200
er, the direct labor budget is:
QUARTER YEAR
3rd 4th
7,000 7,500 29,000
x 0.35 x 0.35 x 0.35
2,450 2,625 10,150
x $12.00 x $12.00 x $12.00
$ 29,400 $31,500 $121,800
uarter and that overtime wages are paid
QUARTER YEAR
3rd 4th
7,000 7,500
x 0.35 x 0.35
2,450 2,625
2,600 2,600
0 25
$31,200 $31,200 $124,800
0 450 4,050
$31,200 $31,650 $128,850
Exercise 8-5 MANUFACTURING OVERHEAD BUDGET
1 Yuvwell Corporation
Manufacturing Overhead Budget
QUARTER
1st 2nd
Budgeted direct labor-hours 8,000 8,200
Variable manufacturing overhead rate x $3.25 x $3.25
Variable manufacturing overhead $26,000 $26,650
Fixed mabufacturing overhead 48,000 48,000
Total manufacturing overhead 74,000 74,650
Less: depreciation 16,000 16,000
Cash disbursement for manufacturing overhead $58,000 $58,650
2 Total budgeted manufacturing overhead for the year (a) $297,625
Budgeted direct labor-hours for the year (b) 32,500
Predetermined overhead rate for the year (a) ÷ (b) $9.16
get
QUARTER YEAR
3rd 4th
8,500 7,800 32,500
x $3.25 x $3.25 x $3.25
$27,625 $25,350 $105,625
48,000 48,000 192,000
75,625 73,350 297,625
16,000 16,000 64,000
$59,625 $57,350 $233,625
