Ch 11 Standards

Standard Costing and Analysis of

Variations

Standard Costs

Provide a benchmarkto evaluate performance.

Used for preparing operating budgets.Standard

Costs are

Management by Exception

DirectMaterial

Managers focus on quantities and coststhat differ from standards, a practice known as

management by exception.

Type of Product Cost

Am

ou

nt

DirectLabor

Standard

Accountants, engineers, personnel administrators, and Accountants, engineers, personnel administrators, and production managers combine efforts to set standards production managers combine efforts to set standards

based on experience and expectations.based on experience and expectations.

Participation in Setting Standards

Cost Variance Analysis

Standard Cost Variances

Quantity VariancePrice Variance

The difference betweenthe actual price and the

standard price

The difference betweenthe actual quantity andthe standard quantity

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Standard price is the amount that should have been paid for the resources acquired.




Standard quantity is the quantity allowed for the actual good output.




Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Variable overhead Variable overhead spending variance efficiency variance

AQ(AP - SP) SP(AQ - SQ)

AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity

Standard Costs

Let’s use the concepts

of the general model to

calculate standard cost

variances, starting with

direct material.

Hanson Inc. has the following direct material standard to manufacture one Zippy:

1.5 pounds per Zippy at $4.00 per pound

Last week 1,700 pounds of material were purchased and used to make 1,000 Zippies.

The material cost a total of $6,630.

Material Variances Zippy


1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb.

$6,630 $ 6,800 $6,000

Price variance$170 favorable

Quantity variance$800 unfavorable

Material Variances Summary

The price variance is computed on the entire

quantity purchased.

The quantity variance is computed only on the

quantity used.

Hanson purchased and used 1,700 pounds.

How are the variances computed if the amount purchased differs from

the amount used?

ZippyMaterial Variances

Hanson Inc. has the following material standard to manufacture one Zippy:

1.5 pounds per Zippy at $4.00 per pound

Last week 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700

pounds were used to make 1,000 Zippies.


Material Variances

Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price

2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb.

$10,920 $11,200

Price variance$280 favorable

Price variance differs from the earlier example because the quantity purchased is higher.

Zippy

Actual Quantity Used Standard Quantity

× × Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb.

$6,800 $6,000

Quantity variance$800 unfavorable

Quantity variance is unchanged from the

earlier example, because actual and standard

quantities are unchanged.


Isolation of Material Variances

I need the variances as soonas possible so that I canbetter identify problems

and control costs.

You accountants just don’tunderstand the problems

we production managers have.

Okay. I’ll start computingthe price variance when

material is purchased andthe quantity variance assoon as material is used.

Assume that Hanson Company maintains its inventory accounts at standard costs, i.e, all variances are removed from the inventory accounts as soon as they are measured. Raw materials are carried at standard acquisition costs. Work-in-process, finished goods and cost-of-sales accounts are carried at the standard costs of production. Show how the materials variances would be shown in the company’s ledger (T-) accounts.

Responsibility for Material Variances

I am not responsible for this unfavorable material

quantity variance.

You purchased cheapmaterial, so my peoplehad to use more of it.

You used too much material because of poorly trained

workers and poorly maintained equipment.

Also, your poor scheduling sometimes requires me to

rush order material at a higher price, causing

unfavorable price variances.

Standard Costs

Now let’s calculate standard cost variances for direct labor.

Hanson Inc. has the following direct labor standard to manufacture one Zippy:

1.5 standard hours per Zippy at $10.00 per direct labor hour

Last week 1,550 direct labor hours were worked at a total labor cost of $15,810 to

make 1,000 Zippies.

Labor Variances Zippy

Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate

Labor Variances Summary

Rate variance$310 unfavorable

Efficiency variance$500 unfavorable

1,550 hours 1,550 hours 1,500 hours × × ×$10.20 per hour $10.00 per hour $10.00 per hour

$15,810 $15,500 $15,000

Labor Rate Variance – A Closer Look

High skill,high rate

Low skill,low rate

Using highly paid skilled workers toperform unskilled tasks results in an

unfavorable rate variance.

Production managers who make work assignmentsare generally responsible for rate variances.

Labor Efficiency Variance –A Closer Look

UnfavorableEfficiencyVariance

Poorlytrainedworkers

Poorsupervisionof workers

Poorquality

materials

Poorlymaintainedequipment

Responsibility for Labor Variances

I am not responsible for the unfavorable labor

efficiency variance!

You purchased cheapmaterial, so it took more

time to process it.

You used too much time because of poorly

trained workers and poor supervision.

Cost Management Using Overhead Cost Variances

Let’s turn our attentionto the computation of

overhead cost variances. We will begin withvariable overhead.

Hanson prepared this budget for overhead:

Variable Overhead Variances – Example

Budgeted variable Total overhead cost per activity activity unit units

× + Budgeted fixedoverhead cost

Total budgetedoverhead cost =

Total budgetedoverhead cost =

$2.00 permachine

hour×

Totalmachine hours

+ $9,000

Spending Variance

EfficiencyVariance

AH × SVR

AH = Actual Hours of Activity SVR = Standard Variable Overhead RateSH = Standard Hours Allowed

SH × SVR

Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours

Variable Overhead Variances

Efficiency variance = SVR(AH - SH)

Spending Variance

EfficiencyVariance


AH × SVR

SH × SVR

Variable Overhead Variances

Hanson’s actual production for the period required 3,200 standard machine hours. Actual variable overhead incurred for the period was $6,740. Actual machine hours worked were

3,300.

Compute the variable overhead spending and efficiency variances.


3,300 hours 3,200 hours × × $2.00 per hour $2.00 per hour

Spending variance$140 unfavorable

Efficiency variance$200 unfavorable


$6,740 $6,600 $6,400


3,300 hours 3,200 hours × × $2.00 per hour $2.00 per hour

The $140 unfavorable spending variance and the $200 unfavorable efficiency variance result in a $340

unfavorable flexible budget variance.


$6,740 $6,600 $6,400


Fixed Overhead

Now let’s turn our attention to fixed overhead.

Budget Variance

VolumeVariance

PFOHR = Predetermined Fixed Overhead Rate SH = Standard Hours Allowed

SH × PFOHR

Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied

Fixed Overhead Variances

PFOHR =

Applied Fixed Overhead = PFOHR × Standard Hours

Budgeted Fixed Overhead

Planned Activity in Hours

Recall that fixed overhead costs are applied to products and services using a predetermined

fixed overhead rate (PFOHR):

Fixed Overhead

Hanson used the following predeterminedfixed overhead rate:

PFOHR =Budgeted Fixed Overhead

Planned Activity in Hours

=$9,000

3,000 machine hours

= $3.00 per machine hour

Fixed Overhead Variances – Example

Hanson’s actual production required 3,200 standard machine hours. Actual fixed overhead

was $8,450.

Compute the fixed overhead budget and volume variances.


3,200 hours × $3.00 per hour


Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied

$8,450 $9,000 $9,600

Budget variance$550 favorable

Volume variance$600 (neither favorable nor

unfavorable)

Fixed Overhead Variances –A Closer Look

Budget VarianceBudget Variance Volume VarianceVolume Variance

Results from paying moreor less than expected for

fixed overhead items.

Results from the inabilityto operate at the activity

level planned for the period.

Has no significance for cost control.


Let’s look at a graph showing fixed

overhead variances. We will use Hanson’s

numbers from the previous example.

Volume

Cost

$9,600 applied fixed OH

$9,000 budgeted fixed OH

3,200 machine hours × $3.00 fixed overhead rate

Fixed overhead

applied to products


{$600

Volume Variance

{$550Favorable

Budget Variance

$8,450 actual fixed OH

3,200 Standard

Hours

3,000 Hours PlannedActivity

Handout 11 (a):Direct Material Variances

Journal Entries

Monitor Company produces a single product with the following standard direct materials cost per unit of output:

Material pounds per unit: (SQ) 3lbs. Materials cost per pound: (SP) $20 Materials cost per unit: (SPxSQ) or (3 lbs. x $20) $60

During the past month, Monitor purchased 120,000 pounds of material at an average cost per pound of $25.00 and used 105,000 pounds in order to produce 34,000 units of output. The company had no beginning inventory. Inventories are valued at standard costs of production, and all variances are written-off (closed) to cost of goods sold at the end of the month. Required:

(1) Determine the total standard direct materials cost for the actual number of materials

pounds purchased during the month.






120,000 pounds @ $20 per pound = $2,400,000






120,000 pounds @ $20 per pound = $2,400,000

(2) Determine the total standard direct materials cost allowed for the actual number of units produced during the month.

34,000 units x 3 lbs. = 102,000 pounds

102,000 pounds @ $20 per pound = $2,040,000

(3) Determine the direct materials price and quantity (usage) variances for the month.

Price variance = ($25 - $20) (120,000 lbs.) = $ 600,000 unf.

Quantity variance = (105,000 lbs. – 102,000 lbs.) ($20)

= $ 60,000 unf

(4) Provide journal entries to record (a) the materials purchase and related price variance; (b)

the transfer of materials to work-in-process and the related quantity variance; and (c) the

closing of the materials variances to cost of goods sold.

Journal entries for materials Account Dr. Cr. Dr. Materials Inventory Dr, Material price variance Cr. Accounts Payable

$ 2,400,000 600,000

$ 3,000,000

Dr. Work in process Dr. Material quantity variance Cr. Materials Inventory

$ 2,040,000 60,000

$ 2,100,000

Dr. Cost of goods sold Cr. Materials price variance Cr. Materials quantity variance

$ 660,000 $ 600,000

60,000

(5) The firm is considering pro-ration of the materials variances among the cost of goods sold and

the ending inventory balances. Explain how the pro-ration would be determined. Would the same

approach be used for the price and the quantity variances?

The variances would be pro-rated in proportion to the standard-cost dollar amounts of the

current period’s materials purchases included in the ending balances of the relevant inventory

and cost of sales accounts. The price variance would be prorated among the materials, work-

in-process, finished goods and cost of sales accounts. The quantity variance would be prorated

among the work-in-process, finished goods and cost of sales accounts.

Entry to record materials purchased

Entry to record materials used in production.

Entry to close variance accounts to cost of goods sold.





$ 2,400,000 600,000

$ 3,000,000


$ 2,040,000 60,000

$ 2,100,000


$ 660,000 $ 600,000

60,000









Entry to record materials purchased







$ 2,400,000 600,000

$ 3,000,000


$ 2,040,000 60,000

$ 2,100,000


$ 660,000 $ 600,000

60,000















$ 2,400,000 600,000

$ 3,000,000


$ 2,040,000 60,000

$ 2,100,000


$ 660,000 $ 600,000

60,000














$ 2,400,000 600,000

$ 3,000,000


$ 2,040,000 60,000

$ 2,100,000


$ 660,000 $ 600,000

60,000









Handout 11 (b):Direct Labor Variances

Journal Entries

Merrimac Company produces a single product with the following standard direct labor cost per unit of output:

Direct labor hours per unit: 4 hrs. Direct labor cost per hour: $25 Direct labor cost per unit: (4 hours x $25) $100

During the month, the company incurred total payroll costs of $4,500,000. Of this amount,

$750,000 was paid for indirect labor, which is classified as factory overhead. The remaining payroll costs were paid for 130,000 direct labor hours used in the production of 34,000 units of output. The company had no beginning inventory. Inventories are valued at standard costs of production, and all variances are written-off (closed) to cost of goods sold at the end of the month.

Merrimac Company produces a single product with the following standard direct labor cost per unit of output:


During the month, the company incurred total payroll costs of $4,500,000. Of this amount,

$750,000 was paid for indirect labor, which is classified as factory overhead. The remaining payroll costs were paid for 130,000 direct labor hours used in the production of 34,000 units of output. The company had no beginning inventory. Inventories are valued at standard costs of production, and all variances are written-off (closed) to cost of goods sold at the end of the month. Required:

(1) Determine the total standard direct labor cost for the actual number of direct labor hours worked during

the month.

130,000 dlh @ $25 per dlh = $3,250,000

(2) Determine the total standard direct labor cost allowed for the actual number of units produced during the

month.

34,000 units x 4dlh = 136,000 dlh

136,000 dlh @ $25 per dlh = $3,400,000

(3) Determine the direct labor rate and efficiency (usage) variances for the month.

(Note that the actual payroll cost for direct labor is $ 3,750,000)

Rate variance = $ 3,750,000 – ($25) (130,000 dlh) = $ 500,000 unf

Efficiency variance = (136,000 dlh – 130,000 dlh.) ($25)

= $ 150,000 fav

(1) Provide journal entries to record (a) the factory payroll and related rate variance; (b) the transfer of indirect labor

to the factory overhead account; (c) the transfer of direct labor cost to work-in-process and the related efficiency

variance; and (d) the closing of the direct labor variances to cost of goods sold.

Journal entries for direct labor Account Dr. Cr. Dr. Payroll suspense Cr. Wages payable, etc.

$ 4,500,000 $ 4,500,000

Dr. Overhead Dr. Labor rate variance Cr. Payroll suspense

$ 750,000 500,000

$ 1,250,000 Dr. Work in process Cr. Payroll suspense

$ 3,400,000 $ 3,400,000

Dr. Payroll suspense Cr. Labor efficiency variance

$ 150,000 $ 150,000

Dr. Cost of goods sold Dr. Labor efficiency variance Cr. Labor rate variance

$ 350,000 $ 150,000

500,000

(1) The firm is considering pro-ration of the direct labor variances among the cost of

goods sold and the ending inventory balances. Explain how the pro-ration would be

determined. Would the same approach be used for the rate and the efficiency

variances?

The variances would be pro-rated in proportion to the standard-cost dollar amounts

of current period’s direct labor in the ending balances of the work-in-process,

finished goods and cost of sales accounts. The labor rate and efficiency variances

would be pro-rated in the same proportions to these accounts.

To record the actual payroll cost.

To charge indirect labor to overhead, and to recognize the labor rate variance.

To charge WIP with the standard labor cost allowed.

To recognize the labor efficiency variance.

To close the labor variances to cost of goods sold.





$ 4,500,000 $ 4,500,000


$ 750,000 500,000


$ 3,400,000 $ 3,400,000


$ 150,000 $ 150,000


$ 350,000 $ 150,000

500,000

(1) The firm is considering pro-ration of the direct labor variances among the cost of goods sold

and the ending inventory balances. Explain how the pro-ration would be determined. Would

the same approach be used for the rate and the efficiency variances?

The variances would be pro-rated in proportion to the standard-cost dollar amounts of

current period’s direct labor in the ending balances of the work-in-process, finished

goods and cost of sales accounts. The labor rate and efficiency variances would be pro-

rated in the same proportions to these accounts.

To charge indirect labor to overhead, and to recognize the labor rate variance.








$ 4,500,000 $ 4,500,000


$ 750,000 500,000


$ 3,400,000 $ 3,400,000


$ 150,000 $ 150,000


$ 350,000 $ 150,000

500,000















$ 4,500,000 $ 4,500,000


$ 750,000 500,000


$ 3,400,000 $ 3,400,000


$ 150,000 $ 150,000


$ 350,000 $ 150,000

500,000














$ 4,500,000 $ 4,500,000


$ 750,000 500,000


$ 3,400,000 $ 3,400,000


$ 150,000 $ 150,000


$ 350,000 $ 150,000

500,000













$ 4,500,000 $ 4,500,000


$ 750,000 500,000


$ 3,400,000 $ 3,400,000


$ 150,000 $ 150,000


$ 350,000 $ 150,000

500,000








Handout 11 (c):Variable and Fixed Overhead Variances

Journal Entries

Titanic Company produces a single product with the following standard direct labor cost per unit of output:


The company assigns overhead costs to production using a predetermined rate based on budgeted direct labor hours. The company has estimated the following flexible overhead budget equation:

TOH = Fixed overhead + variable overhead rate x direct labor hours = $ 4,000,000 + $60 x direct labor hours At the start of last month the company had budgeted monthly output of 40,000 units. During the month, Titanic incurred total overhead costs of $14,500,000. Of this amount, $4,500,000 was incurred for fixed overhead, and $10,000,000 was incurred for variable overhead. The company used 130,000 direct labor hours in order to produce 34,000 units of output. The company had no beginning inventory. Inventories are valued at standard costs of production, and all variances are written-off (closed) to cost of goods sold at the end of the month.

Titanic Company produces a single product with the following standard direct labor cost per unit of output:


The company assigns overhead costs to production using a predetermined rate based on budgeted direct labor hours. The company has estimated the following flexible overhead budget equation:

TOH = Fixed overhead + variable overhead rate x direct labor hours = $ 4,000,000 + $60 x direct labor hours At the start of last month the company had budgeted monthly output of 40,000 units. During the month, Titanic incurred total overhead costs of $14,500,000. Of this amount, $4,500,000 was incurred for fixed overhead, and $10,000,000 was incurred for variable overhead. The company used 130,000 direct labor hours in order to produce 34,000 units of output. The company had no beginning inventory. Inventories are valued at standard costs of production, and all variances are written-off (closed) to cost of goods sold at the end of the month.

(1) Determine the total flexible budget allowance for overhead costs for the actual number of direct labor hours worked during the

month.

Budgeted TOH = $ 4,000,000 + ($ 60) (130,000 dlh) = $ 11,800,000

(2) Determine the total flexible budget allowance for overhead costs for the allowed number of direct labor hours during the month.

(Note: allowed labor hours are the total standard hours allowed for the actual number of units produced).

Budgeted TOH = $ 4,000,000 + ($ 60) (136,000 dlh) = $ 12,160,000

(3) Determine the company’s predetermined overhead rates for fixed and variable overhead, and the combined (fixed plus variable)

overhead rate.

PFOHR = $ 4,000,000 / 160,000 dlh = $ 25 per dlh

PVOHR = $ 60 per dlh (slope of the flexible budget equation)

PTOHR = $ 85 per dlh ($ 25 + $60)

(1) Determine the total amounts of fixed and variable overheads applied to

production during the month, and the amounts of over- or under-applied fixed

and variable overhead.

Actual fixed overhead $ 4,500,000

Applied fixed overhead $ 3,400,000 ($ 25 x 136,000 dlh)

Under-applied $ 1,100,000

Actual variable overhead $ 10,000,000

Applied variable overhead $ 8,160,000 ( $60 x 136,000 dlh)

Under-applied $ 1,840,000

(1) Determine the variable overhead spending and efficiency variances for the month.

Actual variable overhead $ 10,000,000

Flexible VOH budget at actual dlh $ 7,800,000 ($ 60 x 130,000 dlh)

VOH Spending variance $ 2,200,000 unf

Flexible VOH budget at actual dlh $ 7,800,000 ($ 60 x 130,000 dlh)

Flexible VOH budget at allowed dlh $ 8,160,000 ($ 60 x 136,000 dlh)

VOH Efficiency variance $ 360,000 fav

(2) Determine the fixed overhead spending and volume variances for the month.

Actual fixed overhead $ 4,500,000

Budgeted fixed overhead $ 4,000,000

FOH Spending variance $ 500,000 unf

Budgeted fixed overhead $ 4,000,000

Applied fixed overhead $ 3,400,000 ($ 25 x 136,000 dlh)

FOH Volume variance $ 600,000 under-applied

(1) Assume that the company maintains separate control accounts for fixed and variable overheads, and

provide journal entries to record (a) the actual amounts of overhead incurred; (b) the application of fixed

and variable overheads to work-in-process; (c) the closing of the over-/under-applied overheads to

variance accounts; and (d) the closing of the overhead variances to cost of goods sold.

Journal entries for overhead Account Dr. Cr. Dr. Fixed overhead Dr. Variable overhead Cr. Sundry accounts

$ 4,500,000 $ 10,000,000

$ 14,500,000 Dr. Work in process Cr. Fixed overhead Cr. Variable overhead

$ 11,560,000

$ 3,400,000 $ 8,160,000

Dr. FOH Spending variance Dr. FOH Volume variance Cr. Fixed overhead

$ 500,000 $ 600,000

$ 1,100,000 Dr. VOH Spending variance Cr. VOH efficiency variance Cr. Variable overhead

$ 2,200,000 $ 360,000 $ 1,840,000

Dr. Cost of goods sold Dr. VOH efficiency variance Cr. VOH spending variance Cr. FOH spending variance Cr. FOH volume variance

$ 2,940,000 $ 360,000

$ 2,200,000 $ 500,000 $ 600,000

Record actual amounts of FOH and VOH.

Charge WIP with allowed FOH and VOH.

Record FOH volume and spending variances.

Record VOH spending and efficiency variances

Close all overhead variances to cost of goods sold.






$ 4,500,000 $ 10,000,000


$ 11,560,000

$ 3,400,000 $ 8,160,000


$ 500,000 $ 600,000


$ 2,200,000 $ 360,000 $ 1,840,000


$ 2,940,000 $ 360,000

$ 2,200,000 $ 500,000 $ 600,000

Charge WIP with allowed FOH and VOH.









$ 4,500,000 $ 10,000,000


$ 11,560,000

$ 3,400,000 $ 8,160,000


$ 500,000 $ 600,000


$ 2,200,000 $ 360,000 $ 1,840,000


$ 2,940,000 $ 360,000

$ 2,200,000 $ 500,000 $ 600,000









$ 4,500,000 $ 10,000,000


$ 11,560,000

$ 3,400,000 $ 8,160,000


$ 500,000 $ 600,000


$ 2,200,000 $ 360,000 $ 1,840,000


$ 2,940,000 $ 360,000

$ 2,200,000 $ 500,000 $ 600,000








$ 4,500,000 $ 10,000,000


$ 11,560,000

$ 3,400,000 $ 8,160,000


$ 500,000 $ 600,000


$ 2,200,000 $ 360,000 $ 1,840,000


$ 2,940,000 $ 360,000

$ 2,200,000 $ 500,000 $ 600,000







$ 4,500,000 $ 10,000,000


$ 11,560,000

$ 3,400,000 $ 8,160,000


$ 500,000 $ 600,000


$ 2,200,000 $ 360,000 $ 1,840,000


$ 2,940,000 $ 360,000

$ 2,200,000 $ 500,000 $ 600,000

(1) The firm is considering pro-ration of the overhead

variances among the cost of goods sold and the

ending inventory balances. Explain how the pro-

ration would be determined. Would the same

approach be used for all four of the overhead

variances?

The variances would be pro-rated in proportion to the standard-cost dollar amounts of the current period’s applied overhead in the ending balances of the work-in-process, finished goods and cost of sales accounts. All four of the overhead variances would be pro-rated in the same proportions to these accounts.

Handout 11 (e):Standard Cost Variances

Multiple choice items

1. Lion Company's direct labor costs for the month of January were as follows:

What was Lion's direct labor efficiency variance? A. $6,450 favorable B. $6,150 favorable C. $6,300 favorable D. $6,000 favorable

1. Lion Company's direct labor costs for the month of January were as follows:

What was Lion's direct labor efficiency variance? A. $6,450 favorable B. $6,150 favorable C. $6,300 favorable D. $6,000 favorable

Total standard cost for 20,000 DLHs is $123,000 or $6.15 per hour. The efficiency variance is 1,000 DLH x $6.15 or $6,150.

2. Information on Rex Co.'s direct material costs for May follows:

For the month of May, what was Rex's direct materials price variance? A. $6,000 favorable B. $2,800 favorable C. $2,800 unfavorable D. $6,000 unfavorable

2. Information on Rex Co.'s direct material costs for May follows:

For the month of May, what was Rex's direct materials price variance? A. $6,000 favorable B. $2,800 favorable C. $2,800 unfavorable D. $6,000 unfavorable

1,000 lbs. were used efficiently,implying a standard cost of $3.00 per lb. The 30,000 lbs. used had a total standard cost of $90,000. This is $6,000 less than the actual cost of $84,000.

3. The standards for direct materials in making a certain product are 20 pounds at $0.75 per pound. During the past period, 56,000 units of product were made and the material quantity variance was $30,000 U. The number of pounds of direct material used during the period amounted to: A. 1,200,000 B. 784,000 C. 1,080,000 D. 1,160,000

3. The standards for direct materials in making a certain product are 20 pounds at $0.75 per pound. During the past period, 56,000 units of product were made and the material quantity variance was $30,000 U. The number of pounds of direct material used during the period amounted to: A. 1,200,000 B. 784,000 C. 1,080,000 D. 1,160,000

The quantity variance implies that 40,000 lbs. were used inefficiently. Production allows a total of 1,120,000 lbs (20 x 56,000). Actual usage is 1,160,000 (1,120,000 + 40,000).

4. Elliott Company makes and sells a single product. Last period the company's labor rate variance was $14,400 U. During the period, the company worked 36,000 actual direct labor-hours at an actual cost of $338,400. The standard labor rate for the product in dollars per hour is: A. $9.00 B. $8.50 C. $8.10 D. $9.40

4. Elliott Company makes and sells a single product. Last period the company's labor rate variance was $14,400 U. During the period, the company worked 36,000 actual direct labor-hours at an actual cost of $338,400. The standard labor rate for the product in dollars per hour is: A. $9.00 B. $8.50 C. $8.10 D. $9.40

The total standard cost for 36,000 DLH is $324,000 ($338,400 - $14,400), or $9 per DLH ($324,000 / 36,000DLH).

5. The following standards for variable manufacturing overhead have been established for a company that makes only one product:

What is the variable overhead spending variance for the month? A. $24,860 U B. $1,200 U C. $1,750 F D. $23,660 U

5. The following standards for variable manufacturing overhead have been established for a company that makes only one product:

What is the variable overhead spending variance for the month? A. $24,860 U B. $1,200 U C. $1,750 F D. $23,660 U

The allowed overhead at 7,000 DLH is $ 80,850 (7,000 x $11.55). This is $ $1,750 above the actual overhead of $79,100.

6. Alapai Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:

What was the total of the variable overhead spending and fixed overhead budget variances for the month? A. $1,880 unfavorable B. $1,840 favorable C. $2,280 unfavorable D. $3,720 favorable

6. Alapai Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:

What was the total of the variable overhead spending and fixed overhead budget variances for the month? A. $1,880 unfavorable B. $1,840 favorable C. $2,280 unfavorable D. $3,720 favorable

Variable: Actual is $66,960 and allowed is$67,680 (7,200 x $9.40), so the variance is $720 favorable.Fixed: Actual is $37,000 and budget is $40,000 so the variance is $3,000 favorable.

Documents

Ch 11 Standards