Standard Costing and Variance Analysis: Questions

178 Chapter 7
CHAPTER 7
STANDARD COSTING AND VARIANCE ANALYSIS
QUESTIONS
1. The three primary uses of a standard cost system are to (1) assign per unit costs to
production to value inventory, (2) control overhead spending, and (3) measure and
evaluate the use of production capacity with respect to the incurrence of fixed
overhead costs.
In a business that routinely manufactures the same products or performs the same
services, standards are useful in determining the normal prices and quantities that
should be associated with a product’s production or service’s performance. Actual
results can be compared to these norms to determine if the company is doing a job
well or poorly. Standards can also be used in planning, budgeting, and reducing
clerical costs.
2. The process of management by exception refers to a manager only investigating
significant deviations from the standard. Both upper and lower limits of
acceptability are set; managers are reasonably unconcerned with deviations within
the range of acceptability. However, if a cost or quantity falls outside either of these
limits, a manager should discuss the deviation with the person responsible and
attempt to correct (if necessary) the situation.
A standard cost system is a useful tool in a management by exception

environment because the standard costs and quantities set the norm from which to
judge the degree of acceptability of variances. For example, management could
set the “exception” policy as 5 percent above or below standard to indicate the
operational areas in need of attention.
3. A standard cost card summarizes the direct material, direct labor, and overhead
standard quantities and prices needed to complete one unit of output. The bill of
materials specifies the quality and quantity of each raw material needed to
complete one unit of output. The standard cost card shows the assignment of
standard costs to each raw material in the bill of materials to determine the total
standard material cost of one unit of output. The operations flow document details
all necessary operations to make a unit of output or summarizes the time to make
one unit of output. Time details are used to develop standard labor cost and time
and overhead rates for production of one unit of output.
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179 Chapter 7
4. Material standards must be based on both quality and quantity of materials. The
quality standard is based on a consideration of tradeoffs between higher quality
and, potentially, higher cost of inputs. The analysis should consider the effects of
input quality on material yields, final product quality, labor standards, etc. The
quantity standard is based on physical quantities used in the past, engineering
studies, improvements expected in handling or usage, and normal waste and
spoilage allowances.
The quantities shown on a bill of materials are not always the same as those

shown on a standard cost card because of allowances made for normal waste
and/or spoilage. The bill of materials presents the minimum quantities needed for
production; the standard cost card presents the more realistic (although not
necessary the most efficient) quantities allowed for production.
5. Each total variance can be broken down into a price component and a usage
component. Price variances measure the difference between what was actually
spent and what should have been spent for the physical measure of what was
actually used. Usage variances measure the difference between the physical
measure of what was actually used and what should have been used, denominated
in dollars.
For material, the two variances are the price and quantity variances. The price
variance is generally related to the quantity of material purchased; the quantity
variance is related to the quantity of material used in production. For direct labor,
the two variances are the rate and efficiency variances. For variable and fixed
overhead, the price variance is called a spending variance. For variable overhead,
the usage variance is referred to as the VOH efficiency variance. For fixed
overhead, the usage variance is called the volume (or noncontrollable) variance.
6. The term standard hours refers the standard amount of input time it should take to
produce the actual quantity of output generated during the period. Thus, the
amount of standard hours refers to the standard time allowed for the production
achieved in the period.
7. Domino’s dropped the campaign because some company drivers began ignoring
traffic laws to make ontime deliveries. Two lawsuits that cost Domino’s $82+
million were filed against the company in 1992 and 1993 after delivery people
caused car accidents (one of which resulted in the other driver’s death). Specific
labor time standards might be problematic in organizations focused on health and
safety matters: for example, one would not want guaranteed labor time standards
in effect for medical operations. In the airline industry, people would probably
Chapter 7 180
agree that setting a “turnaround” time standard is a good thing, but guaranteeing it
might create safety hazards.
8. Management is expected to control input costs and input quantities in the short run
and, therefore, the reference is made to “controllable.” Overhead spending and
efficiency variances are considered controllable variances because, to some
extent, measures can be taken during production to correct problems that arise
related to such overhead costs. One part of the overhead spending variance is the
fixed overhead spending variance; cost items causing this variance must be
controlled at the point of incurrence rather than during production.
The volume variance is related to the fixed overhead budget, which is not
controllable in the short run because it consists of costs that have been committed
to for a long period of time. Since this variance arises solely because of a
difference between the capacity measure used to establish the predetermined fixed
overhead rate and the standard hours allowed for the production achieved, any
ability by production personnel to control this variance is minimal. Only to the
extent that managers could influence production by modifying work or production
schedules and unblocking production bottlenecks could the volume variance be
considered controllable in the short run.
9. In a standard cost system, both actual costs and standard costs are recorded.
However, only standard costs are accounted for within the inventory accounts.
Differences between actual and standard costs are captured in variance accounts.
By adding the variances to the standard cost amounts, actual costs can be
determined.
10. At the end of a period, monetarily insignificant variances are closed directly to
Cost of Goods Sold (CGS). Monetarily significant variances are prorated among
all of the accounts that are influenced by the variance. Thus, a significant material
purchase price variance is allocated among Raw Material (RM) Inventory, Work
in Process (WIP) Inventory, Finished Goods (FG) Inventory, and CGS. All other
variances are allocated among WIP Inventory, FG Inventory, and CGS.
The difference in treatment between insignificant and significant variances is created
because standard costs can be used for financial statement purposes only if they are
substantially equivalent to actual costs. Closing insignificant variances to Cost of
Goods Sold will not cause a large distortion of costs. Alternatively, closing all
variances to CGS when the variances are significant would cause the related asset and
expense accounts to differ substantially from the actual costs incurred.
181 Chapter 7
11. Managers view capacity utilization as a measure of productivity. In addition,

capacity utilization may focus on the need for fewer or additional resources to be
spent on plant assets. If a plant is consistently operating significantly below its
normal capacity, the firm may have too much money invested in physical plant; if
the plant is consistently operating above normal capacity, there may be a need for
additional investment in facilities.
When they control utilization, managers are not controlling costs; these are separate
aspects of the fixed overhead issue. Cost control arises when physical facilities are
acquired and costs are committed; utilization control arises during production.
12. Ideal standards should result in lower production costs because the standards
would incorporate no tolerance for waste and inefficiency. If ideal standards are
set and expected to be met, management would need to ascertain what nonvalue
added activities and waste were included in operations and reduce/eliminate those
—which, in turn, would reduce or eliminate some costs.
13. Adjusting standards within a period would be reasonable if significant changes
occurred relative to prices, quantities, or activities related to the production
process. If adjustments were not made, the standard cost system variances would
have little use for performance evaluation; additionally, the standards would be so
far from actual costs that the standard costs could not be used for financial
reporting purposes.
14. (Appendix) When material and labor categories can be substituted for one another,
mix and yield variances should be calculated. These variances capture the effects
of managerial decisions to trade off one resource input for another. If effective
decisions are made, the tradeoffs can be used to improve product quality or
reduce costs as the relative prices and availability of the resources vary over time.
The mix variance captures the effects of using a different proportion of inputs than
the standard proportion, e.g., using more skilled labor hours and fewer unskilled
labor hours. The yield variance captures the effect of the total amount of resources
used varying from the standard amount.
Chapter 7 182
EXERCISES
15. Each student will have a different answer; no solution is provided.
16. a. The actualtobudget comparison is totally inappropriate since the levels of

activity are different. Palate should compare actual costs to standard costs at the
same activity level as follows:
Actual Budget at Act. Qty. Variance

Direct material $161,000 (7,000 × $22.00) = $154,000 $7,000 U
Direct labor 84,600 (7,000 × $12.00) = 84,000 600 U
Variable OH
Ind. material 28,000 (7,000 × $ 4.20) = 29,400 1,400 F
Ind. labor 13,300 (7,000 × $ 1.75) = 12,250 1,050 U
Utilities 7,700 (7,000 × $ 1.00) = 7,000 700 U
Fixed OH
Sup. salaries 82,000 80,000 2,000 U
Depreciation 30,000 30,000 0
Insurance
17,600 19,280
1,680 F
Totals $424,200 $415,930 $8,270 U
b. Explain to Palate that he will lose credibility with headquarters if he insists on
his comparison. The accountants would immediately perceive this comparison
as either ignorance or a lack of integrity on his part. Palate’s alternative is to
stress the positive aspects of such a small cost overrun and to try to perform
better next year.
17. Each student will have a different answer; no solution is provided. For (c),
however, students should recognize that the housekeepers must not only do their
jobs within the rooms, they must acquire the necessary supplies, go from room to
room (and can generally clean only unoccupied rooms), pick up and dispose of
trash acquired, possibly go from floor to floor, etc. Ask the students if they can
make/remake their beds, vacuum, lightly dust, and clean their bathrooms in 30
minutes! Also ask them to consider the conditions in which they have left hotel
rooms when considering the difficulty of getting the job done.
18. a. If the overtime premium could be associated with specific jobs or work, it could
be included in direct labor; otherwise it will be included in variable overhead.
In either case, the base pay amount for overtime hours will be included with
direct labor. In most instances, one would expect that the use of overtime pay,
183 Chapter 7
in lieu of hiring additional workers, would cause a shift of costs from direct
labor to the variable overhead category.
b. Many workers may find themselves working overtime in jobs that were
accepted based on the premise of (for example) a 40hour workweek. When
employees are forced to work beyond the basic workweek, time is taken away
from other activities that employees obviously value: leisure, time with family,
education, hobbies, etc. Employers should not routinely force employees to
work overtime against their will. On the other hand, working overtime hours
on an occasional basis should be expected in many industries because of
seasonality of demand or occurrence of unexpected events.
The important consideration is whether the employer routinely asks employees
to work overtime against their will and schedules regular production for
overtime hours; or alternatively, if the employer only occasionally asks
employees to work overtime due to unforeseen circumstances or seasonality
considerations. In the former case, the employer may be acting unethically; in
the latter case, the employers’ requests are likely ethical.
c. Arguments can be made on both sides of the question. Assuming employers ask
their most productive employees to work overtime, one might expect that the
overtime hours are at least as productive (in terms of efficiency and
effectiveness) as regular time hours. Alternatively, if employers ask such
employees to work too many hours of overtime, productivity could wane as the
employees tire and become ambivalent about productivity and job performance.
d. Government’s costs are driven up by the use of overtime due to the additional
social programs that must be offered to the substantial number of individuals
who are unemployed. However, government revenues may be enhanced due to
the tax revenues flowing from additional profit generated by firms using
overtime. On balance, government would probably prefer higher employment,
but many legislators would hesitate to regulate free enterprise in the use of
overtime.
It is argued that high unemployment in the United States is partly due to the
very high costs of fringe benefits, especially health care coverage. Within a
given class of labor, these costs tend to vary more with the number of
employees than total labor costs. Accordingly, from the firm’s perspective, the
use of substantial amounts of overtime is a reasonable way of controlling very
high fringe benefit costs to remain competitive. This approach also gives
existing employees an opportunity to raise their standard of living by increasing
disposable income. However, as discussed in (b), not all employees may wish
to work additional overtime. An unemployed individual must see the heavy use
Chapter 7 184
of overtime as an obstacle to employment and, as such, would prefer that limits
exist.
19. a. A hospital administrator would have mixed feelings about such programs. On
the one hand, the existence of the program provides opportunities to improve
bottomline performance by carefully managing the length of patient stays.
Alternatively, the administrator would be forced to bear pressures that would be
absent without such programs. Additional pressures would exist to dismiss
patients early who, from only a medical perspective, should remain in the
hospital longer. Thus, pressure would always exist to make hospital stays
shorter, even when the best interest of the patient would not be served by early
dismissal.
b. In the long term, all of society will benefit if hospital stays are neither too short
nor too long. Any policy that rigidly determines that a particular type of surgery
warrants a hospital stay of a fixed number of days will create substantial
problems. Differences (such as age, gender, size, overall state of health, etc.)
exist across individuals that affect the time they require to recuperate from
surgery. In general, a patient would prefer that the hospital’s incentives be
aligned with the patient’s incentives. If the hospital has an incentive to dismiss
patients early, this is likely to create greater conflict and potential problems for
individuals who have endured major surgery rather than minor surgery. Patients
who have had only minor surgery would be affected less because early
dismissal would be less harmful to them.
c. Favorable lengthofstay variances could easily be related to low quality care. If
a hospital merely established a policy of early dismissal, the hospital would
generate favorable variances. Such a policy is clearly not indicative of high
quality service.
20. Each student will have a different answer; no solution provided.
21. a. Direct material
Raspberries (7.5 qts.* × $0.80 per qt.) $6.00
Other ingredients (10 gal. × $0.45 per gal.) 4.50
$10.50
Direct labor
Sorting [(3 min. × 6 qts.) ÷ 60 min.) × $9.00] $2.70
Blending [(12 min. ÷ 60) × $9.00 per hr.] 1.80
4.50
Packaging (40 qts.** × $0.38 per qt.)
15.20
Standard cost per 10gallon batch $30.20
185 Chapter 7
*
6 qts. × (5/4) = 7.5 qts. required to obtain six acceptable quarts
**
4 qts. per gallon × 10 gallons = 40 quarts
b. In general, the purchasing manager is held responsible for

unfavorable material price variances. Causes of these variances include the
following:
 Failure to correctly forecast price increases.
 Purchasing nonstandard or uneconomical lots.
 Purchasing from suppliers other than those offering the most favorable terms.
c. In general, the production manager or foreperson is held

responsible for unfavorable labor efficiency variances. Causes of these
variances include the following:
Poorly trained labor
Substandard or inefficient equipment
Inadequate supervision
(CMA adapted)
22. a. Total purchases = AP × AQp = $0.13 × 115,000 = $14,950
b. Material price variance = (AP × AQp) – (SP × AQp)
= $14,950 – ($0.14 × 115,000)
= $14,950 – $16,100
= $1,150 F
c. Material quantity variance = (SP × AQu) – (SP × SQ)
= ($0.14 × 100,000) – ($0.14 × 97,900)
= $14,000 – $13,706
= $294 U
23. a. $10,080 ÷ 4,200 = $2.40 per quart
SQ = 1,000 units × 4 quarts = 4,000
AQ × AP AQ × SP SQ × SP

4,200 × $2.40 4,200 × $2.50 4,000 × $2.50
$10,080 $10,500 $10,000
$420 F $500 U
Material Price Variance Material Usage Variance
Chapter 7 186
b. The price variance would be based on the quantity of material
purchased, while the usage variance would be based on the quantity of material
used in production. Because the usage variance is based on the same quantities
as in (a), it does not change.
AQp × AP AQp × SP
6,000 × $2.40 6,000 × $2.50
$14,400 $15,000
$600 F
Material Price Variance
c. Raw Material Inventory 15,000
Material Price Variance 600
Accounts Payable 14,400
Work in Process Inventory 10,000
Material Usage Variance 500
Raw Material Inventory 10,500
d. The purchasing agent would have responsibility for the price
variance and the production manager would have responsibility for the usage
variance.
(CPA adapted)
24. a. Material purchase price variance = ($2.10 – $1.40) = $0.70 F variance per
pound; $0.70 × 100,000 lbs. = $70,000 F
b. June 3,000 × 5 = 15,000 SQ; $2.10 × (16,400 – 15,000) =
$2,940 U
July 3,400 × 5 = 17,000 SQ; $2.10 × (17,640 – 17,000) = $1,344 U
Aug. 2,900 × 5 = 14,500 SQ; $2.10 × (14,950 – 14,500) = $ 945 U
Sept. 2,500 × 5 = 12,500 SQ; $2.10 × (13,100 – 12,500) = $1,260 U
c. It is possible that the material purchased had been damaged in
some way or became tainted for use while being stored at the bankrupt vendor’s
location. (Bell Inc. should carefully assess the effect of this material’s usage on
labor efficiency to see if there is an unfavorable variance there.)
25. a. & b.
Purchasing agent’s responsibility:
187 Chapter 7
Material price variance = (AP × AQp) – (SP × AQp)
= ($0.64 × 25,600) – ($0.70 × 25,600)
= $16,384 – $17,920
= $1,536 F
Production supervisor’s responsibility:
Standard quantity of materials = 600 × 35 lbs. = 21,000
Material quantity variance = (SP × AQu) – (SP × SQ)
= ($0.70 × 21,400) – ($0.70 × 21,000)
= $14,980 – $14,700
= $280 U
c. Explanations offered should consider the pattern of the

variances. The pattern is a favorable price variance and an unfavorable quantity
variance. A favorable price variance could have been obtained because the
material was acquired in a largerthannormal quantity with a pricing discount.
Or the material was acquired from a vendor having a distress sale. Another
reason would be that the quality of the scrap iron was not as high as the quality
usually purchased. If the latter is the case, it could have influenced the
excessive material usage and waste. Alternatively, the quantity variance could
be just inefficiency in the production process.
26. a. Standard hours = 5 × 670 = 3,350
b. Wage rate per hour = $60,407.50 ÷ 3,310 = $18.25
c. AP × AQ SP × AQ SP × SQ

$18 × 3,310 $18 × 3,350
$60,407.50 $59,580 $60,300
$827.50 U $720 F
Labor Rate Variance Labor Efficiency Variance
$107.50 U
Total Labor Variance
27. a. Since the labor rate variance is favorable, the actual cost of direct labor is less
(by $5,500) than the standard cost. The standard cost is $80,500.
AP × AQ SP × AQ
$7.50 × 10,000 SP × 10,000
$75,000 $80,500
$5,500 F
Labor Rate Variance
Chapter 7 188
$80,500 ÷ 10,000 actual direct labor hours equals a standard rate of $8.05.
b. Since the actual hours are 1,000 less than the standard, the efficiency variance
is 1,000 hours × $8.05 = $8,050 U.
AP × AQ SP × AQ SP × SQ

$7.50 × 10,000 $8.05 × 10,000 $8.05 × 9,000
$75,000 $80,500 $72,450
$5,500 F $8,050 U
c. Work in Process Inventory 72,450
Labor Efficiency Variance 8,050
Labor Rate Variance 5,500
Wages Payable 75,000
(CPA adapted)
28. a. Actual cost = Standard cost + Total unfavorable variance
= ($250 × 350) + $3,500
= $87,500 + $3,500
= $91,000
b. Labor efficiency variance = (SP × AH) – (SP × SH)
= ($250 × 330) – ($250 × 350)
= $82,500 – $87,500
= $5,000 F
c. Rate variance + Efficiency variance = Total variance
Rate variance + (–$5,000 F) = $3,500 U
Rate variance = $3,500 + $5,000
Rate variance = $8,500 U
d. Work in Process Inventory 87,500
e. Because the favorable efficiency variance is coupled with an
unfavorable rate variance, one explanation is that the firm used, on average, a
189 Chapter 7
more skilled mix of labor than it expected to use. For example, the firm may
have used more senior auditors and managers than it intended to use. Without
additional information on the original mix of employees and the actual mix of
employees, no specific conclusions can be reached.
29. Case A Case B Case C Case D

Units produced 1,000 1,000 240 1,500
Standard hours per unit 3.5 0.9 2.5 3.0
Standard hours 3,500 900 600 4,500
Standard rate per hour $7.25 $10.20 $10.50 $7.00
Actual hours worked 3,400 975 560 4,900
Actual labor cost $23,800 $8,970 $6,180 $31,850
Labor rate variance $850 F $975 F 300 U $2,450 F
Labor efficiency variance 725 F $765 U $420 F $2,800 U
Case A:
Standard hours = 1,000 × 3.5 = 3,500
LRV = AQ (AP – SP)
–$850 = 3,400 (AP – $7.25)
–$850 = 3,400AP – $24,650
$23,800 = 3,400AP
$7.00 = AP
Actual labor cost = $7.00 × 3,400 = $23,800
LEV = SP (AQ – SQ)
LEV = $7.25 (3,400 – 3,500) = $7.25 (–100) = $725 F
Case B:
Units produced = 900 ÷ 0.9 = 1,000
$765 = SP (975 – 900)
$765 = SP (75)
$10.20 = SP
–$975 = 975 (AP – $10.20)
–$975 = 975AP – $9,945
$8,970 = 975AP
$9.20 = AP
Actual labor cost = $9.20 × 975 = $8,970
Chapter 7 190
Case C:
Standard hours = 600 ÷ 240 = 2.5
(AP × AQ)  LRV = (SP × AQ)
$6,180 – $300 = $5,880
$5,880 = $10.50 × AQ
$5,880 ÷ $10.50 = AQ
AQ = 560
LEV = $10.50 (560 – 600) = $10.50 (–40) = $420 F
191 Chapter 7
Case D:
Actual labor rate = $31,850 ÷ 4,900 = $6.50
LRV = $31,850  ($7 × 4,900)
LRV = $31,850 – $34,300
LRV = $2,450 F
LEV = (SP × AQ)  (SP × SQ)
$2,800 = $34,300 – $7SQ
–$31,500 = –$7SQ
SQ = 4,500
Standard hours per unit = 4,500 ÷ 1,500 = 3
30. a. Material price variance = $61,000  ($3 × 20,000)
= $61,000  $60,000
= $1,000 U
Standard quantity of material = 3,900 × 4.8 = 18,720 gallons
Material quantity variance = ($3 × 18,350) – ($3 × 18,720)
= $55,050 – $56,160
= $1,110 F
b. Standard quantity of time = 3,900 × 1/3 hour = 1,300 hours
($9.02 × 1,290) ($9.00 × 1,290) ($9.00 × 1,300)

$11,635.80 $11,610.00 $11,700.00
$25.80 U $90.00 F
$64.20 F
c. Raw Material Inventory 60,000.00
Material Price Variance 1,000.00
Accounts Payable 61,000.00
Work in Process Inventory 56,160.00
Material Quantity Variance 1,110.00
Raw Material Inventory 55,050.00
Work in Process 11,700.00
Labor Rate Variance 25.80
Labor Efficiency Variance 90.00
Chapter 7 192
Wages Payable 11,635.80
31. a. Actual material price = $83,300 ÷ 17,000 = $4.90 per square yard
Material price variance: AQp (AP – SP) = 17,000 × ($4.90 – $5.00) = $1,700 F
Material usage variance: SP × (AQu – SQ) = $5 × (16,500 – 15,000) = $7,500 U
b. Raw Material Inventory 85,000
Material Price Variance 1,700
Material Usage Variance 7,500
c. Actual labor rate = $79,800 ÷ 7,600 = $10.50
Labor rate variance: AQ × (AP – SP) = 7,600 × ($10.50 – $10.00) = $3,800 U
Labor efficiency variance = (SP × AQ) – (SP × SQ)
= ($10 × 7,600) – ($10 × 7,500)
= $76,000 – $75,000
= $1,000 U
d. Work in Process Inventory 75,000
e. The material price variance is favorable. The purchasing

agent may have purchased an optimum quantity with a negotiated price. It is
also possible that the materials are of lower quality. This possibility is
suggested by both the unfavorable material usage variance and the unfavorable
labor efficiency variance. It is possible that the workers had difficulty working
with the materials or that the inferior quality slowed down the machinery or
resulted in defective units being produced. All of these factors would require
additional materials to be used to complete the required production level. The
unfavorable labor rate variance could have been the result of the company using
more experienced workers, a tight labor market due to a strong economy or
standards that had not been updated for a change in contractual wage rates
negotiated in a union contract.
(CPA adapted)
32. a. Standard quantity of material = 2 yards × 10,000 shirts = 20,000 yards
193 Chapter 7
Standard labor time = 0.7 hours × 10,000 shirts = 7,000 DLHs
b. AP × AQp SP × AQp
$3 × 30,000
$89,700 $90,000
$300 F
Material Price Variance
SP × AQu SP × SQ
$3 × 20,120 $3 × 20,000
$60,360 $60,000
$360 U
Material Quantity Variance

$7.50 × 7,940 $7.50 × 7,000
$58,756 $59,550 $52,500
$794 F $7,050 U
$6,256 U
c. The pattern is a favorable material price variance and an unfavorable material
quantity variance. If the quality level of cotton is below the expected level, a
favorable price variance would be incurred. However, the lower quality cotton
could result in more waste and shrinkage during production and thus more
materials yardage is required to make a tshirt than expected.
d. The favorable labor rate variance is coupled with an unfavorable labor

efficiency variance. One explanation is that the firm used, on average, a less
skilled mix of labor than it expected to use and thus the average labor time per
tshirt was greater than expected. Additionally, the use of inferior quality
material could also have contributed to the excess time taken to manufacture the
shirts.
e. Material Price Variance 300
Cost of Goods Sold 60
Material Quantity Variance 360
To dispose of the material variances
Chapter 7 194
Labor Rate Variance 794
Cost of Goods Sold 6,256
To dispose of the labor variances
33. a. SQ = 4,800 × 0.5 = 2,400 square yards
b. SH = 4,800 × 2 = 9,600 hours
c. Since the quantity of material purchased and used is the
same, all material variances are based on the same quantity.
Material quantity variance = (SP × AQ) – (SP × SQ)
$600 U = $6 (AQ – SQ)
$600 U = $6 AQ – $6(2,400)
$600 U = $6 AQ – $14,400
$15,000 = $6 AQ
AQ = 2,500 yards
Material price variance = (AP × AQ) – (SP × AQ)
= $14,550 – ($6 × 2,500)
= $14,550 – $15,000
= $450 F
d. Labor efficiency variance = SP (AH – SH)
= $17 (9,760 – 9,600)
= $17 (160)
= $2,720 U
e. Standard prime cost per travel bag:
Material (0.5 × $6) $ 3.00
Labor (2 × $17) 34.00

Total $37.00
f. AP = SP – (Labor rate variance ÷ AQ)
= $17 – ($1,464 ÷ 9,760)
= $17 – $0.15
= $16.85
Actual cost to produce one bag:
Material ($14,550 ÷ 4,800) $ 3.03
195 Chapter 7
Labor [$16.85 × (9,760 ÷ 4,800)] 34.26

Total (rounded for both material and labor) $37.29
g. The actual cost to produce a bag is $37.29; the standard
cost is $37 or an unfavorable difference of $0.29. The two primary factors
creating the cost overrun are the unfavorable $0.125 ($600 ÷ 4,800) per unit
material quantity variance and the unfavorable $0.57 ($2,720 ÷ 4,800) per unit
labor efficiency variance. There were favorable material price and labor rate
variances. It is likely that a lower quality material and less skilled labor were
used than the standard allowed, resulting in excess usage of material and labor
time.
34. a. Budgeted machine hours = 144,000 units × 3.5 MHs per unit = 504,000 MHs
VOH rate = $2,016,000 ÷ 504,000 MHs = $4 per MH
FOH rate = $3,528,000 ÷ 504,000 MHs = $7 per MH
b. Standard MHs = 11,900 × 3.5 = 41,650
Actual VOH VOH Rate × Actual Hours Applied VOH

$4 × 41,800 $4 × 41,650
$165,000 $167,200 $166,600
$2,200 F $600 U
VOH Spending Variance VOH Efficiency Variance
$1,600 F
Total VOH Variance
Actual FOH Budgeted FOH Applied FOH

$3,528,000 ÷ 12 $7 × 41,650
$294,500 $294,000 $291,550
$500 U $2,450 U
FOH Spending Variance Volume Variance
$2,950 U
Total FOH Variance
d. The company expected to produce 12,000 units per

month and, thus, use 42,000 MHs. By only producing 11,900 units, the standard
hours were 41,650 or 350 MHs less than expected. Since FOH is applied to
each standard MH at $7 per hour, the volume variance is $2,450 U.
Alternatively, each unit requires 3.5 MHs or receives $24.50 of FOH. By not
producing an expected 100 units, the company underapplied FOH by (100 ×
$24.50) or $2,450.
Chapter 7 196
35. a. Calculations begin with fixed overhead. Dividing the $1,000,000 of budgeted
FOH by $40 per hour gives 25,000 budgeted number of machine hours. Adding
the $28,000 U FOH spending variance gives $1,028,000 actual FOH cost.
Subtracting the $20,000 U volume variance gives $980,000 which, when
divided by the $40 FOH rate, gives 24,500 standard hours.

$40 × 25,000 $40 × 24,500
$1,028,000 $1,000,000 $980,000
$28,000 U $20,000 U
$48,000 U
Total FOH Variance
Standard hours are moved to the VOH prong diagram and are multiplied by the
VOH rate of $20. Subtracting the $41,200F VOH efficiency variance provides
the middle prong amount of $448,800, which, when divided by the $20 VOH
rate, gives actual hours of 22,440. Subtracting the $34,000 F VOH spending
variance provides actual VOH of $414,800.
Actual VOH VOH Rate × Actual Hours Applied VOH

$20 × 22,440 $20 × 24,500
$414,800 $448,800 $490,000
$34,000 F $41,200 F
$75,200 F
Total VOH Variance
b. Standard machine hours is 25,000 budgeted MHs ÷ 20,000 budgeted
units = 1.25 MHs per unit
c. Actual machine hours worked is $448,800 ÷ $20 = 22,440
d. Total spending variance is $28,000 U FOH spending variance –
$34,000 F VOH spending variance = $6,000 F
e. The VOH favorable efficiency variance resulted from using 2,060
fewer machine hours than allowed given production of 20,000 units. The FOH
volume variance resulted from underutilizing capacity by 500 machine hours.
f. OH Spending Variance 6,000
VOH Efficiency Variance 41,200
197 Chapter 7
Volume Variance 20,000
To dispose of overhead variances
36. a. Standard hours = 18,800 ÷ 2 cars per hour = 9,400
Variable Overhead:
Actual Budget Applied
$27,700 $3 × 9,500 = $28,500 $3 × 9,400 = $28,200
$800 F $300 U
$500 F
Total VOH Variance
Total budgeted FOH = $9 × 10,000 = $90,000
Fixed Overhead:
$90,800 $90,000 $9 × 9,400 = $84,600
$800 U $5,400 U
$6,200 U
Total FOH Variance
b. Actual Budget at Actual Budget at Standard Applied

VOH = $ 27,700 $3 × 9,500 = $ 28,500 $3 × 9,400 = $ 28,200 $3 × 9,400 = $ 28,200
FOH = 90,800 90,000
90,000 $9 × 9,400 = 84,600
$118,500 $118,500 $118,200 $112,800
$0 $300 U $5,400 U
OH Spending Var. OH Efficiency Var. Volume Variance
$5,700 U
Total OH Variance
c. Actual Budget Applied

VOH = $ 27,700 $3 × 9,400 = $ 28,200 $3 × 9,400 = $ 28,200
FOH = 90,800 90,000 $9 × 9,400 = 84,600
$118,500 $118,200 $112,800
$300 U $5,400 U
Budget Variance Volume Variance
$5,700 U
Total OH Variance
37. a. Variable overhead rate = $315,000 ÷ 70,000 DLHs = $4.50 per DLH
Chapter 7 198
Fixed overhead rate = $140,400 ÷ 3,900 MHs = $36 per MH
Actual VOH Budgeted VOH Applied VOH

$4.50 × 5,900 $4.50 × 5,980
$26,325 $26,550 $26,910
$225 F $360 F
$585 F
Total VOH Variance

$140,400 ÷ 12 months $36 × 290
$11,400 $11,700 $10,440
$300 F $1,260 U
$960 U
Total FOH Variance
b. Variable Manufacturing Overhead Control 26,325
Fixed Manufacturing Overhead Control 11,400
Various accounts 37,725
To record actual overhead costs for March 2013
Variable Manufacturing Overhead Control 26,910
To apply overhead to work in process for March 2013
Variable Manufacturing Overhead Control 585
Variable Overhead Spending Variance 225
Variable Overhead Efficiency Variance 360
To record variable overhead variances for March 2013
Fixed Manufacturing Overhead Control 960
Fixed Manufacturing Overhead Spending Variance 300
To record fixed overhead variances for March 2013
199 Chapter 7
38. Budgeted FOH per month = $250,800 ÷ 12 = $20,900
Standard FOH rate = $250,800 ÷ 264,000 = $0.95 per MH
Standard VOH rate = $2.90 – $0.95 = $1.95 per MH
Standard hours = 11,960 × 2 = 23,920
Actual Budget at Actual Budget at Standard Applied

$47,100 $1.95 × 24,700 = $48,165 $1.95 × 23,920 = $46,644 $2.90 × 23,920
+ 20,000 + 20,900 + 20,900 $69,368
$67,100 $69,065 $67,544
$1,965 F $1.521 U $1,824 F
39. a. The $20 combined OH rate minus the $8 VOH rate (from the flexible budget
formula) gives a fixed overhead rate of $12 per DLH. Budgeted annual capacity
= $360,000 budgeted FOH ÷ $12 FOH rate = 30,000 direct labor hours.
Dividing the volume variance of $24,000 by the $12 FOH rate gives 2,000
hours, which is the difference between standard hours and the budgeted annual
capacity in hours. Since the volume variance was unfavorable, standard hours
are lower than expected annual capacity or 30,000 – 2,000 = 28,000 standard
hours.
Actual Budget at Actual
Budget at Standard Applied
($8 × 28,000) + $360,000 $20 × 28,000
$580,000 $596,000 $584,000 $560,000
$16,000 F $12,000 U $24,000 U
b. Actual – (Budget at actual hours) = Spending variance $580,000 –
$596,000 = $16,000 F
Budget at actual hours = (Budgeted VOH at actual hours) + Budgeted FOH
$596,000 = ($8 × actual hours) + $360,000
$236,000 = $8 × actual hours
Actual hours = $236,000 ÷ $8
Actual hours = 29,500
40. a. 5,100 × 12 = 61,200 standard hours
b. 59,400 MHs × $50 × 0.70 fixed = $ 2,079,000 budgeted monthly FOH
c. Actual OH for month $ 2,927,000
Chapter 7 200
Budget at output (61,200 × $50 × 0.3) + $2,079,000 (2,997,000)

Controllable OH variance $ 70,000 F
d. Budget per month for FOH $ 2,079,000
Applied FOH (61,200 × $50 × 0.70) (2,142,000)

Noncontrollable variance $ 63,000 F
41. Material Price Variance ($14,500 U):

Balances % of Total Allocation
Raw Material $ 73,200 5 $ 725.00
Work in Process 87,840 6 870.00
Finished Goods 131,760 9 1,305.00
Cost of Goods Sold 1,171,200
80
11,600.00

Total $1,464,000 100 $14,500.00
Raw Material Inventory 725.00
Work in Process Inventory 870.00
Finished Goods Inventory 1,305.00
Cost of Goods Sold 11,600.00
To dispose of the material price variance
All other variances ($15,350 F):
Balances % of Total Allocation
Work in Process $ 87,840 6.3 $ 967.05
Finished Goods 131,760 9.5 1,458.25
84.2
12,924.70

Total $1,390,800 100.0 $15,350.00
.
Labor Rate Variance 2,200.00
Labor Efficiency Variance 8,780.00
Work in Process Inventory 967.05
To dispose of the remaining material and
labor variances
201 Chapter 7
42. a Variable conversion rate = $170,000 ÷ 10,000 MHs = $17 per MH
Fixed conversion rate = $76,000 ÷ 10,000 MHs = $7.60 per MH
Standard quantity per unit = 10,000 MHs ÷ 5,000 units = 2 MHs
Standard hours production = 4,800 units × 2 MHs = 9,600 MHs
Actual Fixed Conv. Budgeted Fixed Conv. Applied Fixed Conv.

($7.60 × 9,600)
$78,000 $76,000 $72,960
$2,000 U $3,040 U
Spending Variance Volume Variance
$5,040 U
Total Fixed Conv. Variance
Actual Var. Conv. Budgeted Var. Conv. Applied Var. Conv.

($17 × 9,000) ($17 × 9,600)
$150,000 $153,000 $163,200
$3,000 F $10,200 F
Spending Variance Efficiency Variance
$13,200 F
Total Var. Conv. Variance
b. The overall cost performance was very favorable. The total variance ($3,000 +
$10,200 – $2,000 – $3,040) or $8,160 F. Although cost control of fixed
conversion costs was relatively poor, cost control of variable conversion costs
was excellent. Furthermore the large, favorable efficiency variance for variable
conversion indicates the firm was very efficient in use of the cost driver for
variable conversion, machine hours. Last, the firm failed to make the expected
number of rotors as indicated by the unfavorable volume variance. Even so, on
balance, the cost control management was commendable.
43. a. 1,008,600 MHs ÷ 12 months = 84,050 machine hours per month
84,050 MHs ÷ 4.1 MHs per unit = 20,500 units per month
b. Variable conversion rate = $22.50 – $16.00 = $6.50 per MH
Standard MHs = 21,000 units × 4.1 MHs = 86,100 MHs
Chapter 7 202
Actual Var. Budgeted Var. Conv. Costs Applied Var.

Conv. Costs at Actual MHs Conv. Costs
$6.50 × 83,000 $6.50 × 86,100
$551,230 $539,500 $559,650
$11,730 U $20,150 F
Var. Conv. Spending Variance Var. Conv. Efficiency Variance
$8,420 F
Total Variable Conversion Variance
Expected annual fixed conversion costs = $16.00 × 1,008,600 = $16,137,600
Expected monthly fixed conversion costs = $16,137,600 ÷ 12 = $1,344,800
Actual Fixed Budgeted Fixed Conv. Costs Applied Fixed

Conv. Costs Conv. Costs
$16 × 86,100
$1,330,000 $1,344,800 $1,377,600
$14,800 F $32,800 F
Fixed Conv. Spending Variance Fixed Conv. Efficiency Variance
$47,600 F
Total Fixed Conversion Variance
Actual Conv. Costs Budget @ Actual Budget @ Std. Applied

$551,230 + $1,330,000 $539,500 + $1,344,800 $559,650 + $1,344,800 $559,650 + $1,377,600
$1,881,230 $1,884,300 $1,904,450 $1,937,250
$3,070 F $20,150 F $32,800 F
OH Spending Var. OH Efficiency Var. Volume Var.
$56,020
Total OH Variance
44. a. Standard mix = 50% pecans and 50% cashews
Total pounds used = 15,554 + 12,726 = 28,280
Actual mix = 15,554 ÷ 28,280 or 55% pecans; thus, 45% cashews
Standard quantity = (36,000 cans × 12 oz.) ÷ 16 oz. = 27,000 lbs.
Actual price of pecans = 15,554 × $5.80 = $90,213.20
Actual price of cashews = 12,726 × $8.50 = $108,171.00
Standard price; actual mix & quantity of pecans = $6 × 15,554 = $93,324
Standard price; actual mix & quantity of cashews = $8 × 12,726 = $101,808
Standard price & mix; actual quantity of pecans = $6.00 × 0.50 × 28,280 =
$84,840
Standard price & mix; actual quantity of cashews = $8.00 × 0.50 × 28,280 =
$113,120
203 Chapter 7
Standard for pecans = $6.00 × 0.50 × 27,000 = $81,000
Standard for cashews = $8.00 × 0.50 × 27,000 = $108,000
Chapter 7 204
AM × AQ × AP AM × AQ × SP SM × AQ × SP SM × SQ × SP

P $ 90,213.20 $ 93,324 $ 84,840 $ 81,000
C 108,171.00 101,808
113,120
108,000

$198,384.20 $195,132 $197,960 $189,000
$3,252.20 U $2,828 F $8,960 U
Material Price Var. Material Mix Var. Material Yield Var.
45. Let E represent engineers, and D represent draftspeople
Total time = 400 + 600 = 1,000; E = 40% and D = 60%
Actual mix = 50% E and 50% D
Standard quantity (hours allowed) = 1,000 hrs.
Actual cost of E = $65 × 500 = $32,500
Actual cost of D = $32 × 500 = $16,000
Standard rate; actual mix & quantity of E = $60 × 500 = $30,000
Standard rate; actual mix & quantity of D = $30 × 500 = $15,000
Standard rate & mix; actual quantity of E = $60 × 0.4 × 1,000 = $24,000
Standard rate & mix; actual quantity of D = $30 × 0.6 × 1,000 = $18,000
Standard for E = $60 × 0.4 × 1,000 = $24,000
Standard for D = $30 × 0.6 × 1,000 = $18,000
AM × AQ × AP AM × AQ × SP SM × AQ × SP SM × SQ × SP

E $32,500 $30,000 $24,000 $24,000
D 16,000 15,000
18,000
18,000

$48,500 $45,000 $42,000 $42,000
$3,500 U $3,000 U $0
Labor Rate Var. Labor Mix Var. Labor Yield Var.
46. a. Total actual hours = 900 + 2,520 + 1,500 = 4,920
Standard hours = 1,008 + 2,772 + 1,260 = 5,040
Standard rate; actual mix & hours:
Admin. assistant ($30 × 900) $ 27,000
Paralegal ($60 × 2,520) 151,200
Attorney ($125 × 1,500) 187,500

$365,700
Standard rate & mix; actual hours:
Admin. assistant ($30 × 0.2 × 4,920) $ 29,520
Paralegal ($60 × 0.55 × 4,920) 162,360
205 Chapter 7
Attorney ($125 × 0.25 × 4,920) 153,750

$345,630
Standard rate, mix, & hours:
Admin. assistant ($30 × 1,008) $ 30,240
Paralegal ($60 × 2,772) 166,320
Attorney ($125 × 1,260) 157,500

$354,060
AM × AH × SR SM × AH × SR SM × SH × SR

$365,700 $345,630 $354,060
$20,070 U $8,430 F
Labor Mix Variance Labor Yield Variance
(1) (2)
c. Management used an inefficient mix of labor. The total variance for labor
efficiency is ($20,070) + $8,430 = $11,640 U. Total actual hours were less than
the standard allows, resulting in a favorable yield variance of $8,430. This was
offset by the fact that too many hours were worked by attorneys and too few
hours were worked by administrative assistants and paralegals, resulting in an
unfavorable labor mix variance of $20,070. The actual labor content of
administrative assistants and paralegals (combined) was 69.5 percent; at
standard, the administrative assistant and paralegal labor content should be 75
percent.
(CMA
adapted)
Chapter 7 206
PROBLEMS
47. a. Standard quantity of material = 48,000 × 1.85 = 88,800 pounds
Standard quantity of labor time = 48,000 × 0.04 = 1,920 hours
b. AP × AQp SP × AQp
$3.15 × 100,000 $3.50 × 100,000
$315,000 $350,000
$35,000 F
Mat. Purch. Price Variance
SP × AQu SP × SQ
$3.50 × 95,000 $3.50 × 88,800
$332,500 $310,800
$21,700 U
Material Quantity Variance

$12.10 × 2,200 $12.00 × 2,200 $12.00 × 1,920
$26,620 $26,400 $23,040
$220 U $3,360 U
$3,580 U
c. Raw Material Inventory 350,000
Material Quantity Variance 21,700
Work in Process 23,040
d. It doesn’t seem that the purchasing agent made such a “great deal” because
there was substantial excess material and labor usage during July. It is possible
that the material was defective in some way, and even though there is still a
very large net favorable variance because of the substantially discounted price,
207 Chapter 7
the company may have to worry about potential future product returns, higher
thannormal warranty work on products, and customer dissatisfaction with the
product.
48. a. Material price variance = (AP × AQp) – (SP × AQp)
= ($3.08 × 60,000) – ($3.00 × 60,000)
= $0.08 × 60,000
= $4,800 U
Standard quantity = 100,000 × 0.25 = 25,000 lbs.
= ($3 × 24,800) – ($3 × 25,000)
= $3 × (–200)
= –$600 or $600 F
Standard hours = 100,000 × 1/20 hour = 5,000 hours
$8.80 × 5,320 $9.00 × 5,320 $9.00 × 5,000
$46,816 $47,880 $45,000
$1,064 F $2,880 U
$1,816 U
b. Raw Material Inventory 180,000
To record raw material purchased in
October at standard cost
Material Quantity Variance 600
To record issuance of raw material at
standard cost during October
Cash (Salaries/Wages Payable) 46,816
To record October direct labor payroll
and variances
49. a. Material
Chapter 7 208
Fiberglass:
Price variance = (AP × AQp) – (SP × AQp)
= ($1.83 × 2,100,000) – ($1.80 × 2,100,000)
= $0.03 × 2,100,000
= $63,000 U
Quantity variance = (SP × AQu) – (SP × SQ)
= ($1.80 × 1,380,000) – ($1.80 × 1,200,000)
= $1.80 × 180,000
= $324,000 U
209 Chapter 7
Paint (4 quarts = 1 gallon)
= ($55.50 × 1,000) – ($60 × 1,000)
= $4.50 × 1,000
= $4,500 F
= ($60 × 924) – ($60 × 900)
= $60 × 24
= $1,440 U
Trim:
= ($205 × 640) – ($200 × 640)
= $5 × 640
= $3,200 U
= ($200 × 608) – ($200 × 600)
= $200 × 8
= $1,600 U
SH for labor = 600 boats × 40 hours = 24,000 DLHs
Labor
$23.50 × 23,850 $25.00 × 23,850 $25.00 × 24,000
$560,475 $596,250 $600,000
$35,775 F $3,750 F
$39,525 F
50. a. (1) Standard quantity of material: 300,000 × 0.85 = 255,000 sq. ft.
(2) AQ of material used:
SQ × Standard price (255,000 × $0.80) $204,000
Material quantity variance
1,440 U
(Actual quantity used × Standard price) $205,440
$205,440 ÷ $0.80 = 256,800 sq. ft. = AQu of material
(3) Actual quantity purchased: 256,800 + 2,500 = 259,300 sq. ft.
Chapter 7 210
(4) Actual price of material:
(Actual quantity purchased)(Actual – Standard price) = MPV
(259,300)(AP – $0.80) = $5,186
259,300 (AP) – $207,440 = $5,186
259,300 (AP) = $212,626
AP = $212,626 ÷ 259,300
AP = $0.82 per foot
(5) SH = 300,000 ÷ 1,000 = 300 hours
(6) Labor efficiency variance = $15 × (315 – 300)
= $225 U
(7) Labor rate variance:
Total labor variance = Labor rate variance + Labor efficiency variance
$288 U = Labor rate variance + $225 U LEV
$63 U = Labor rate variance
(8) Standard labor rate $15.00
Labor rate variance ($63 ÷ 315)
(0.20)
Actual labor rate $15.20
b. Actual wages payable = 315 DLHs × $15.20 = $4,788
Labor Efficiency Variance 225
Wages Payable 4,788
51. a. 49,600 ÷ 3.1 = 16,000 units produced in September
b. Material price variance = (AP × AQp) – (SP × AQp)
= ($1.05 × 50,000) – ($1.10 × 50,000)
= $2,500 F
211 Chapter 7
= ($1.10 × 48,600) – ($1.10 × 49,600)
= $1,100 F
c. 4,030 actual hours – 30 above standard = 4,000 standard hours
4,000 ÷ 16,000 = 0.25 standard hour per unit
.
d. AP × AQ SP × AQ SP × SQ

$9.80 × 4,030 $9.80 × 4,030 $9.80 × 4,000
$39,494 $39,494 $39,200
$0 $294 U
$294 U
e. Raw Material Inventory 55,000
To record purchases for September
To record issuances of direct material for
September
Labor Efficiency Variance 294
Cash (Salaries/Wages Payable) 39,494
To record direct labor payroll and the
variance accounts for September
52. a. Material price variance = (AP × AQ) – (SP × AQ)
= ($4.90 × 50,000) – ($4.00 × 50,000)
= $45,000 U
= ($4 × 50,000) – ($4 × 51,600*)
= $6,400 F
*Standard quantity = 17,200 × 3 = 51,600
Chapter 7 212
Labor rate variance = (AP × AQ) – (SP × AQ)
= ($9.05 × 17,800) – ($6 × 17,800)
= $54,290 U
= ($6 × 17,800) – ($6 × 25,800*)
= $48,000 F
*Standard quantity = 17,200 × 1.5 = 25,800
b. Material price standard: 4% price increases for six years
2007: $4.00 × 1.04 = $4.16
2008: $4.16 × 1.04 = $4.33
2009: $4.33 × 1.04 = $4.50
2010: $4.50 × 1.04 = $4.68
2011: $4.68 × 1.04 = $4.87
2012: $4.87 × 1.04 = $5.06
Purchased at a 5% volume discount, $5.06 × 0.95 = $4.81 per yard
Material quantity standard: 3 yards – 1/8 yard = 2
⅞ yards
Labor rate standard: 7% (COLA) for six years
2007: $6.00 × 1.07 = $6.42
2008: $6.42 × 1.07 = $6.87
2009: $6.87 × 1.07 = $7.35
2010: $7.35 × 1.07 = $7.86
2011: $7.86 × 1.07 = $8.41
2012: $8.41 × 1.07 = $9.00 per hour
Labor time standard: time reduced by 1/3; 1/3 of 1.5 hrs is 0.5 hr; new standard
is 1 hour per muumuu
c. Material price variance = (AP × AQ) – (SP × AQ)
= ($4.90 × 50,000) – ($4.81 × 50,000)
= $4,500 U
= ($4.81 × 50,000) – ($4.81 × 49,450*)
= $2,645.50 U
*
Standard quantity = 17,200 × 2⅞ = 49,450
Labor rate variance = (AP × AQ) – (SP × AQ)
= ($9.05 × 17,800) – ($9.00 × 17,800)
= $890 U
213 Chapter 7
= ($9.00 × 17,800) – ($9.00 × 17,200*)
= $5,400 U
*
Standard quantity = 17,200 × 1 = 17,200
53. a. Actual OH cost [($48,165 + $140,220) ÷ 5,700] $ 33.05

Expected OH cost ($8 + $16) (24 .00)
Cost difference per unit $ 9 .05
b. Variable Overhead:
$8 × 6,000 $8 × 5,700
$48,165 $48,000 $45,600
$165 U $2,400 U
Fixed Overhead:
$16 × 9,000 $16 × 5,700
$140,220 $144,000 $91,200
$3,780 F $52,800 U
c. The $52,800 unfavorable volume variance exists because the company based its
standard fixed overhead rate on an expected capacity of 9,000 units (and, thus,
9,000 direct labor hours). When only 5,700 units (a standard of 5,700 DLHs)
were produced during August, the company was unable to apply $16 of FOH on
3,300 units (or hours) . . . amounting to the $52,800 U volume variance.
54. a. Total standard hours:
Tables (100 × 10) 1,000
Swings (400 × 3) 1,200
Benches (60 × 7) 420
2,620
Actual VOH Budget VOH Applied VOH

VOH Rate × AH VOH Rate × SH
$12,800 $4 × 2,780 = $11,120 $4 × 2,620 = $10,480
$1,680 U $640 U
Chapter 7 214
$2,320 U
Total VOH Variance
36,000 DLHs per year ÷ 12 months = 3,000 DLHs per month

Actual FOH Budget FOH Applied FOH
$2 × 3,000 FOH Rate × SH
$5,900 $6,000 $2 × 2,620 = $5,240
$100 F $760 U
$660 U
Total FOH Variance
b. Variable Manufacturing Overhead Control 12,800
Fixed Overhead 5,900
Various accounts 18,700
To record actual OH costs for March
To record applied OH costs for March
VOH Spending Variance 1,680
VOH Efficiency Variance 640
FOH Volume Variance 760
FOH Spending Variance 100
Fixed Manufacturing Overhead Control 660
To record OH variances for March
FOH Spending Variance 100
VOH Efficiency Variance 640
FOH Volume Variance 760
To close OH variances for March
215 Chapter 7
c. Managers generated net unfavorable controllable variances in the amount of

$2,220 ($1,680 + $640 – $100). In addition, because the production level was
below expectations, an unfavorable volume variance was generated in the
amount of $760. Together these variances suggest that management was
ineffective in controlling costs during this period. However, upperlevel
managers should pursue explanations of the causes of the variances in
evaluating production managers.
55. (The items marked with an * were given.)
Actual Labor Cost Budget Labor Cost Applied Labor Cost

SR × AH SR × SH
$12 × 9,000 $12 × 8,000*
$112,500 $108,000 $96,000
$4,500 U* $12,000 U*
Budgeted FOH = 10,000 DLHs expected capacity × $9 FOH rate = $90,000 (The
hours below are in thousands.)
Actual Overhead Budget at Actual Budget at Standard Applied Overhead

Labor Hours Labor Hours
VOH $162,000* ($16 × 9k) = $144,000 ($16 × 8k) = $128,000 ($16 × 8k) = $128,000
FOH 84,000*
90,000 90,000 ($9 × 8k)
72,000
$246,000 $234,000 $218,000 $200,000
$12,000 U $16,000 U $18,000 U
Spending Variance Efficiency Variance Volume Variance
a. Number of units manufactured = 8,000 ÷ 4 = 2,000
b. Total applied overhead = $200,000
c. Volume variance = $18,000 U
d. VOH spending variance = $162,000 – $144,000 = $18,000 U
e. VOH efficiency variance = $16,000 U
f. Total actual overhead = $246,000
56. a. Actual OH ($265,400 + $177,250) $442,650
Applied OH ($15 × 31,000) 465,000

Total OH variance $ 22,350 F
b. Budgeted FOH = $6 × 30,000 = $180,000
Combined OH rate = $9 + $6 = $15
Standard hours = 62,000 × 1/2 = 31,000
Chapter 7 216
Actual Budget at Output Applied

VOH $265,400 $9 × 31,000 = $279,000
FOH 177,250

180,000
$442,650 $459,000 $15 × 31,000 = $465,000
$16,350 F $6,000 F
$22,350 F
Total OH Variance
c. The volume variance is the same under the threevariance approach as under the
twovariance approach: $6,000 F. The total OH variance is the same as under
the one and twovariance approaches, $22,350 F.
Actual Budget at Input Budget at Output

VOH $265,400 $9 × 33,300 = $299,700 $9 × 31,000 = $279,000
FOH 177,250

180,000
180,000
$442,650 $479,700 $459,000
$37,050 F $20,700 U
Total OH Spending Variance VOH Efficiency Variance
57. a. Standard MHs = 3,360 × 1.25 = 4,200 MHs
Actual VOH Budgeted VOH Applied VOH

$27,000 $6.50 × 4,100 = $26,650 $6.50 × 4,200 = $27,300
$350 U $650 F
$300 F
Total VOH Variance
Monthly budgeted FOH = 4,000 MHs × $9.35 = $37,400

$41,400 $37,400 $9.35 × 4,200 = $39,270
$4,000 U $1,870 F
$2,130 U
Total VOH Variance
b. Actual OH Budget at Input Budget at Output Applied
217 Chapter 7
VOH $27,000 $6.50 × 4,100 = $26,650 $6.50 × 4,200 = $27,300 $27,300
FOH 41,400 37,400
37,400
39,270
$68,400 $64,050 $64,700 $66,570
$4,350 U $650 F $1,870 F
OH Spending Var. OH Efficiency Variance Volume Var.
$1,830 U
Total OH Variance
c. Actual OH Budget at Output Applied

VOH $27,000 $6.50 × 4,200 = $27,300 $27,300
FOH 41,400
37,400 39,270

$68,400 $64,700 $66,570
$3,700 U $1,870 F
OH Budget Variance Volume Variance
$1,830 U
Total OH Variance
d. Actual OH Applied OH
VOH $27,000 $27,300
FOH 41,400 39,270

$68,400 $66,570
$1,830 U
Total OH Variance
58. a. Material price variance:
Aluminum: AQp × (AP – SP) = 4,000 × ($3.80 – $4.00) = $ 800 F
Copper: AQp × (AP – SP) = 3,000 × ($8.40 – $8.00) = 1,200 U
Total $ 400 U
b. Material usage variance
Standard quantity of aluminum = 850 × 4 = 3,400
Standard quantity of copper = 850 × 3 = 2,550
Aluminum: SP × (AQu – SQ) = $4 × (3,500 – 3,400) = $400 U
Copper: SP × (AQu – SQ) = $8 × (2,600 – 2,550) =
400 U
Total $800 U
c. Total actual labor cost = ($16 × 5,200) + ($17.00 × 900)
= $83,200 + $15,300 = $98,500
Standard labor cost = $16 × 6,100 = 97,600
Chapter 7 218
Labor rate variance $ 900 U
d. Standard hours = 850 × 7 = 5,950
Labor efficiency variance = (SR × AH) – (SR × SH)
= ($16 × 6,100) – ($16 × 5,950)
= $97,600 – $95,200
= $2,400 U
e. VOH spending variance = Actual VOH – (Budgeted VOH at AHs)
= $23,300 – ($6 × 4,175)
= $23,300 – $25,050
= $1,750 F
f. VOH efficiency variance = (Budget at actual hours) – (Budget at SHs)
= $25,050 – ($6 × 4,250)
= $25,050 – $25,500
= $450 F
g. Budgeted FOH = 6,000 MHs × $4 = $24,000
FOH spending variance = Actual FOH – Budgeted FOH
= $18,850 – $24,000
= $5,150 F
h. FOH volume variance = Budgeted FOH – Applied FOH
= $24,000 – ($4 × 4,250)
= $24,000 – $17,000
= $7,000 U
i. Budget variance = Actual OH – (Budgeted OH at standard hrs.)
= ($18,850 + $23,300) – [($6 × 4,250) + $24,000]
= $42,150 – ($25,500 + $24,000)
= $42,150 – $49,500
= $7,350 F
Or
Budget variance = VOH spending + VOH efficiency + FOH spending
= $1,750 F + $450 F + $5,150 F
= $7,350 F
Aluminum Material Inventory 16,000
219 Chapter 7
Aluminum Material Price Variance 800
Copper Material Inventory 24,000
Copper Material Price Variance 1,200
Aluminum Material Quantity Variance 400
Aluminum Material Inventory 14,000
Copper Material Quantity Variance 400
Copper Material Inventory 20,800
Variable OH Spending Variance 1,750
Variable OH Efficiency Variance 450
Variable OH Control 23,300
Fixed OH Spending Variance 5,150
Fixed OH Control 18,850
59. a. Actual SP × AQ SP × SQ

$18 × 450 $18 × (6,000 ÷ 12)
$8,300 $8,100 $9,000
$200 U $900 F
Material Price Variance Material Quantity Variance
$700 F
Total Material Variance
b. Actual SR × AH SH × SR

$8 × 1,475 $8 × (6,000 ÷ 4)
$12,242.50 $11,800 $12,000
$442.50 U $200 F
$242.50 U
Chapter 7 220
c. Actual VOH SR × AQ SR × SQ

$2.40 × 1,475 $2.40 × 1,500
$3,480 $3,540 $3,600
$60 F $60 F
$120 F
Total VOH Variance
Actual FOH Budget SR × SH

$1.25 × 6,000
$7,720 $7,500 $7,500
$220 U $0
$220 U
Total FOH Variance
d. Actual Budget @ Input Budget @ Output Applied

VOH $ 3,480 $ 3,540 $ 3,600 $ 3,600
FOH 7,720 7,500 7,500 7,500
$11,200 $11,040 $11,100 $11,100
$160 U $60 F $0
e. Actual Budget Applied

VOH $ 3,480 $ 3,600 $ 3,600
FOH 7,720 7,500 7,500
$11,200 $11,100 $11,100
$100 U $0
f. Actual Applied

VOH $ 3,480 $ 3,600
FOH 7,720 7,500
$11,200 $11,100
$100 U
221 Chapter 7
Underapplied OH
OH spending variance $160 U
OH efficiency variance 60 F
Budget variance $100 U
Volume variance 0 U
Total OH variance $100 U
g. Cost drivers: number of jobs worked per month; distance from job site
to business office; number of rooms painted; number of colors painted; number
of brush cleanings; number of hours worked; number of hours of operation for
paint sprayers.
60. a. Material price variance $23,400 U
Material quantity variance 24,900 F
Labor rate variance 5,250 F
Labor efficiency variance 36,900 U
VOH spending variance 3,000 U
VOH efficiency variance 1,800 F
FOH spending variance 6,600 F
FOH volume variance
16,800 U
Total $41,550 U
VOH Efficiency Variance 1,800
VOH Control 1,200
VOH Control 1,200
FOH Spending Variance 6,600
FOH Control 10,200
FOH Volume Variance 16,800
FOH Control 10,200
Chapter 7 222
b. Original balance of CGS $2,702,200
Add net unfavorable variances 41,550
Adjusted balance of CGS $2,743,750
c. Material price variance allocation: Total Percent

Raw Material Inventory $ 320,600 7
Work in Process Inventory 916,000 20
Finished Goods Inventory 641,200 14
59

Total $4,580,000 100
Allocation of material price variance:
Raw Material Inventory ($23,400 × 0.07) $ 1,638
Work in Process Inventory ($23,400 × 0.20) 4,680
Finished Goods Inventory ($23,400 × 0.14) 3,276
Cost of Goods Sold ($23,400 × 0.59) 13,806

Total $23,400
Raw Material Inventory 1,638.00
To allocate material price variance to
appropriate accounts
Allocation of all other variances = ($41,550 – $23,400) = $18,150
Total Percent *
Work in Process Inventory $ 916,000 22
Finished Goods Inventory 641,200 15
63

Total $4,259,400 100
*
rounded
Allocation:
Work in Process Inventory ($18,150 × 0.22) $ 3,993.00
Finished Goods Inventory ($18,150 × 0.15) 2,722.50
Cost of Goods Sold ($18,150 × 0.63) 11,434.50

Total $18,150.00
223 Chapter 7
VOH Efficiency Variance 1,800.00
VOH Control 1,200.00
VOH Spending Variance 3,000.00
FOH Spending Variance 6,600.00
FOH Control 10,200.00
FOH Volume Variance 16,800.00
Labor Rate Variance 5,250.00
Labor Efficiency Variance 36,900.00
VOH Control 1,200.00
FOH Control 10,200.00
To allocate remaining variance to
appropriate accounts
d.Raw Material Inventory ($320,600.00 + $1,638.00) $ 322,238.00
Work in Process Inventory ($916,000.00 + $4,680.00 +
$3,993.00) 924,673.00
Finished Goods Inventory ($641,200.00 + $3,276.00 +
$2,722.50) 647,198.50
Cost of Goods Sold ($2,702,200.00 + $13,806.00 +
$11,434.50) 2,727,440.50
Note that the total difference in Cost of Goods Sold from (b) and (d) is
($2,743,750 – $2,727,440.50) or $16,309.50. This amount is only 6/10 of 1
percent of the original balance . . . probably not significant enough to warrant
individual account allocation.
61. a. (1) Material quantity purchased 15,600 sq. ft.

Unfavorable unit price ($2.00 – $2.10)  $0.10
Unfavorable purchase price variance $ 1,560
(2) Material quantity used 15,900 sq. ft.

Material quantity required at standard for 15,000
units (15,000 × 1 sq. ft.) 15,000 sq. ft.
Chapter 7 224
Unfavorable quantity 900 sq. ft.

Standard price per sq. ft.  $2
Unfavorable material quantity variance $1,800
(3) Direct labor used 24,600 hrs.

Unfavorable hourly rate ($9.00 – $9.10)  $0.10
Unfavorable labor rate variance $ 2,460
(4) Direct labor used 24,600 hrs.

Direct labor required at standard for 15,000 units
(15,000 × 1.6 hrs.) 24,000 hrs.
Unfavorable direct labor usage 600 hrs.
Standard wage rate per hour  $9
Unfavorable labor efficiency variance $5,400
(5) The OH included in the standard unit cost is related to DLHs.
The OH budget is based on output.
225 Chapter 7
OH Budget for
One Month Period
OH and 15,000 (Under)
Charged Units of Output Overbudget
Indirect labor $51,120 $52,500 $(1,380)

Supplies—oil 9,900 7,500 2,400
Allocated support dept.
VOH costs 9,600 7,500 2,100
Total VOH $70,620 $67,500 $ 3,120
Supervision $ 7,425 $ 6,750 $ 675

Depreciation 11,250 11,250 0
Other 3,750 3,750 0
Total FOH $22,425 $21,750 $ 675
Total OH $93,045 $89,250
OH budget variance $ 3,795
b. Clearly indicating where the responsibilities for price and quantity
variances lie and charging the variances to the departments with initial
responsibility reduces the conflict but does not eliminate it.
The specific cause(s) of the variance needs to be determined before there can
be certainty that the proper department was charged. For example, if
materials were purchased at higher than standard prices because the
manufacturing department required a rush order, then the price variance is
the responsibility of the manufacturing department. If the materials provided
by the purchasing department were of slightly lower quality than
specifications required, due to careless purchasing, the excess quantity used
by manufacturing is the responsibility of the purchasing department.
Even if the variances are properly charged to the two departments, it can be
argued that the purchasing department’s variance is influenced by the excess
quantity required by manufacturing. In this problem the extra 300 sq. ft. will
increase the purchasing department’s variance (accumulated over several
periods) by $30 (300 sq. ft. × $0.10). The $30 is the joint responsibility of
the two departments.
c. The Manufacturing Department manager cannot control the price of
the overhead items. Therefore, the prices should not influence the data in her
report. Further, the allocation method for service department costs is not
sufficiently explained to identify what part, if any, of this variation can be
Chapter 7 226
identified with the department. The fixed overhead items listed in this
problem normally are outside the control of a department manager. Supplies
and indirect labor are left.
Control can be exercised at the departmental level over the amount of things
used; therefore, emphasis should be placed on the quantities within the
variances with little or no emphasis on the dollar values. The major use of
the dollar values would be to establish the quantity level of each variance that
would be economically worth management attention.
To: Department Manager—Manufacturing
From: Performance Analysis
Subject: Controllable Overhead Performance—November
Controllable Overhead Items
% Compared
Quantity to Standard
(1) Indirect labor *
Favorable indirect labor use
(dollar value $2,100) 300 hrs. 4%
(2) Oil*
Unfavorable oil use
(dollar value $1,500) 3,000 gal. 20%
Commentary:
The dollar value of the oil variation and its large percentage require that the
cause be identified and control procedures be applied.
The indirect labor variation, although favorable, should be investigated to be
sure that it does not represent unaccomplished activities that affect other
aspects of the operations.
*
Calculations for Memorandum
Indirect labor hours used 7,200
SHs for 15,000 units output (15,000 × 0.5 hrs.) 7,500

Favorable indirect labor usage 300 hrs.
Dollar value at standard prices ($7 per hour) $2,100
Supplies—oil
Oil used 18,000 gal.
Standard quantity for 15,000 units output 15,000 gal.
227 Chapter 7
Unfavorable oil usage 3,000 gal.
Dollar value at standard cost of $0.50 per gallon $1,500
d. The immediate reaction might be to dismiss the department manager.
However, careful thought would require analysis of the situation to determine
(1) if, on an overall basis, the department is being operated economically (if so,
then dismissal may be undesirable); and (2) if the cause of such behavior is
due to management’s reaction to unfavorable variances without regard to size
or to undue emphasis by management on individual variances to the exclusion
of measurement of overall performance.
If it is assumed that the manager is performing satisfactorily on an overall
basis and should not be dismissed, then two possible solutions can be
considered: (1) revise reporting methods so as to emphasize overall
performance; or (2) revise reporting on labor to combine direct and indirect
labor into a single item for performance evaluation.
[Note on this question: The calculations for overhead were based on output
measures. The problem does not specifically indicate the basis for overhead
budget development. It seems reasonable that variances based on input values
(e.g., labor hours) would be acceptable answers.]
(CMA adapted)
62. a. (1) Revising the standards immediately would facilitate their use in a master

budget. Use of revised standards would minimize production coordination
problems and facilitate cash planning. Revised standards would facilitate
more meaningful costvolumeprofit analysis and result in simpler, more
meaningful variance analysis. Standards are often used in decision analysis
such as makeorbuy, product pricing, or product discontinuance. Use of
obsolete standards would impair such analyses.
(2) Standard costs are carried through the accounts in a standard cost system.
Retaining the current standards and expanding the analysis of variances
would eliminate the need to make changes in the accounting system.
Changing standards could have an adverse psychological impact on the

people using them. Retaining the current standards would preserve the well
known benchmarks and allow for consistency in reporting variances
throughout the year. Variances are often computed and ignored. Retaining
the current standards and expanding the analysis of variances would force a
diagnosis of the costs and would increase the likelihood that significant
variances would be investigated.
Chapter 7 228
b. (1) Changes in prime costs per unit due to the use of new direct material:
 Changes due to direct material price
(New material price – Old material price) × New material quantity ($7.77
– $7.00) × 1 lb. = $0.77 U
 Changes due to the effect of direct material
quality on direct material usage
(Old material quantity – New material quantity) × Old material price
(1.25 lbs. – 1.00) × $7.00 = $1.75 F
 Changes due to the effect of direct material
quality on direct labor usage
(Old labor time – New labor time) × Old labor rate
[(24 ÷ 60) – (22 ÷ 60)] × $12.60 = $0.42 F
Total changes in prime costs per unit due to the use of new direct material
= $1.40 F
(2) Changes in prime costs per unit due to the new labor contract (New labor
rate – Old labor rate) × New labor time
($14.40 – $12.60) × (22 ÷ 60) = $0.66 U
Reduction of prime costs per unit
$13.79 – $13.05 = $0.74 F
(CMA
adapted)
63. a. Actual Variable Actual Machine Hrs × Standard Machine Hours ×

Conversion Costs Standard Var. Rate Standard Var. Rate
$1,128,800 76,000 × $15 = $1,140,000 72,000 × $15 = $1,080,000
$11,200 F $60,000 U
Variable Conversion Variable Conversion
Actual Fixed Budgeted Fixed Standard Machine Hours ×

Conversion Costs Conversion Costs Standard Fixed Rate
$374,500 $360,000 72,000 × $5 = $360,000
$14,500 U $0
Fixed Conversion Volume Variance
Spending Variance
229 Chapter 7
b. Actual Machine Budget at Actual Budget at Applied Conversion

Hours Machine Hours Standard Costs
(76,000 × $15) + (72,000 × $15) +
$360,000 = $360,000 = 72,000 × $20 =
$1,503,300 $1,500,000 $1,440,000 $1,440,000
$3,300 U $60,000 U $0
$63,300 U
Total Conversion Cost Variance
64. a. 60,000 budgeted DLHs ÷ 3 DLHs per suit = 20,000 suits
b. FOH rate = $72,000 ÷ 60,000 DLHs = $1.20 per DLH
c. 1,800 suits × 3 DLHs per suit = 5,400
d. Actual Variable Actual DLHs × Standard DLHs

Conversion Costs Standard Var. Rate × Standard Var. Rate
$103,100 5,490 × $18 = $98,820 5,400 × $18 = $97,200
$4,280 U $1,620 U
Variable Conversion Variable Conversion
$5,900 U
Total Variable Conversion Cost Variance
Actual Variable Budgeted Fixed Standard DLHs

Conversion Costs Conversion Cost × Standard Var. Rate
$5,750 $72,000 ÷ 12 = $6,000 5,400 × $1.20 = $6,480
$250 F $480 F
Fixed Conversion Volume Variance
Spending Variance
$730 F
Total Fixed Conversion Cost Variance
Actual Budget at Actual Budget at Standard Applied

DLHs DLHs
$103,100 (5,490 × $18) = $ 98,820 (5,400 × $18) = $ 97,200
+ 5,750
+ 6,000
+ 6,000 5,400 × $19.20 =
$108,850 $104,820 $103,200 $103,680
$4,030 U $1,620 U $480 F
Chapter 7 230
$5,170 U
Total Conversion Cost Variance
65. a. Standard Mix Actual Mix

Onions 1/3 2/7
Olives 1/3 3/7
Mushrooms 1/3 2/7
Standard quantity = (48,000 units × 9 ozs.) ÷ 16 oz. per lb. = 27,000 lbs.
Actual quantity = 8,000 + 12,000 + 8,000 = 28,000 lbs.
Standard cost; actual quantity & mix
Onions (8,000 × $1.60) $ 12,800
Olives (12,000 × $5.60) 67,200
Mushrooms (8,000 × $8.00) 64,000
$144,000
Standard cost & mix; actual quantity (rounded)
Onions (1/3 × 28,000 = 9,333 × $1.60) $ 14,933
Olives (1/3 × 28,000 = 9,333 × $5.60) 52,265
Mushrooms (1/3 × 28,000 = 9,334 × $8.00) 74,672
$141,870
Standard cost, quantity, mix
Onions (1/3 × 27,000 × $1.60) $ 14,400
Olives (1/3 × 27,000 × $5.60) 50,400
Mushrooms (1/3 × 27,000 × $8.00) 72,000
$136,800
AM × AQ × SP SM × AQ × SP SM × SQ × SP

$144,000 $141,870 $136,800
$2,130 U $5,070 U
Material Mix Variance Material Yield Variance
Material Quantity Variance = $2,130 + $5,070 = $7,200 U
b. Standard Mix Actual Mix
Labor 1 5/11 13/23
Labor 2 6/11 10/23
Standard hours = (48,000 × 11 minutes) ÷ 60 minutes per hour = 8,800 hours
Standard rate; actual mix & hours:
231 Chapter 7
Category #1 (5,200 × $12) $62,400
Category #2 (4,000 × $8) 32,000

$94,400
Standard rate & mix; actual hours (rounded)
Category #1 (5/11 × 9,200 = 4,182 × $12) $50,184
Category #2 (6/11 × 9,200 = 5,018 × $8) 40,144

$90,328
Standard rate, mix, hours
Category #1 = 5/11 × 8,800 × $12 = $48,000
Category #2 = 6/11 × 8,800 × $8 = 38,400

$86,400
AM × AH × SR SM × AH × SR SM × SH × SR

$94,400 $90,328 $86,400
$4,072 U $3,928 U
Labor efficiency variance = $4,072 U + $3,928 U = $8,000 U
c. Work in Process Inventory 136,800
Material Mix Variance 2,130
Material Yield Variance 5,070
Raw Material—Onions 12,800
Raw Material—Olives 67,200
Raw Material—Mushrooms 64,000
To record the material mix and yield variances
Labor Mix Variance 4,072
Labor Yield Variance 3,928
To record the labor mix and yield variances
66. a. AM × AQ × SP SM × AQ × SP SM × SQ × SP

18,000 × $0.22 = $3,960 17,500 × $0.20 = $3,500 15,000 × $0.20 = $3,000
14,000 × $0.11 = 1,540 17,500 × $0.10 = 1,750 15,000 × $0.10 = 1,500
10,000 × $0.07 = 700 7,000 × $0.05 = 350 6,000 × $0.05 = 300
$6,200 $5,600 $4,800
$600 U $800 U
Material Mix Variance Material Yield Variance
Chapter 7 232
Supporting calculations: Standard mix, actual quantity:
Wheat: 42,000 × (25 ÷ 60) = 17,500
Barley: 42,000 × (25 ÷ 60) = 17,500
Corn: 42,000 × (10 ÷ 60) = 7,000
Material quantity variance = $600 U + $800 U = $1,400 U
233 Chapter 7
b. AM × AH × SR SM × AH × SR SM × SH × SR

400 × $12.25 = $4,900 660 × 0.8 × $12 = $6,336 600 × 0.8 × $12 = $5,760
260 × $ 9.00 = 2,340 660 × 0.2 × $ 8 = 1,056 600 × 0.2 × $ 8 = 960
$7,240 $7,392 $6,720
$152 F $672 U
Labor efficiency variance = $152 F + $672 U = $520 U

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178 Chapter 7

STANDARD COSTING AND VARIANCE ANALYSIS

A standard cost system is a useful tool in a management by exception

The quantities shown on a bill of materials are not always the same as those

11. Managers view capacity utilization as a measure of productivity. In addition,

16. a. The actual­to­budget comparison is totally inappropriate since the levels of

Actual Budget at Act. Qty. Variance

b. In general, the purchasing manager is held responsible for

c. In general, the production manager or foreperson is held

AQ × AP AQ × SP SQ × SP

c. Explanations offered should consider the pattern of the

c. AP × AQ SP × AQ SP × SQ

AP × AQ SP × AQ SP × SQ

29. Case A Case B Case C Case D

($9.02 × 1,290) ($9.00 × 1,290) ($9.00 × 1,300)

e. The material price variance is favorable. The purchasing

AP × AQ SP × AQ SP × SQ

d. The favorable labor rate variance is coupled with an unfavorable labor

Actual VOH VOH Rate × Actual Hours Applied VOH

Actual FOH Budgeted FOH Applied FOH

d. The company expected to produce 12,000 units per

Actual FOH Budgeted FOH Applied FOH

Actual VOH VOH Rate × Actual Hours Applied VOH

b. Actual Budget at Actual Budget at Standard Applied

c. Actual Budget Applied

Actual VOH Budgeted VOH Applied VOH

Actual FOH Budgeted FOH Applied FOH

Actual Budget at Actual Budget at Standard Applied

41. Material Price Variance ($14,500 U):

Actual Fixed Conv. Budgeted Fixed Conv. Applied Fixed Conv.

Actual Var. Conv. Budgeted Var. Conv. Applied Var. Conv.

Actual Var. Budgeted Var. Conv. Costs Applied Var.

Actual Fixed Budgeted Fixed Conv. Costs Applied Fixed

Actual Conv. Costs Budget @ Actual Budget @ Std. Applied

AM × AQ × AP AM × AQ × SP SM × AQ × SP SM × SQ × SP

AM × AQ × AP AM × AQ × SP SM × AQ × SP SM × SQ × SP

AM × AH × SR SM × AH × SR SM × SH × SR

AP × AQ SP × AQ SP × SQ

50. a. (1) Standard quantity of material: 300,000 × 0.85 = 255,000 sq. ft.

d. AP × AQ SP × AQ SP × SQ

53. a. Actual OH cost [($48,165 + $140,220) ÷ 5,700] $ 33.05

Actual VOH Budget VOH Applied VOH

36,000 DLHs per year ÷ 12 months = 3,000 DLHs per month

c. Managers generated net unfavorable controllable variances in the amount of

Actual Labor Cost Budget Labor Cost Applied Labor Cost

Actual Overhead Budget at Actual Budget at Standard Applied Overhead

Actual Budget at Output Applied

Actual Budget at Input Budget at Output

Actual VOH Budgeted VOH Applied VOH

Actual FOH Budgeted FOH Applied FOH

b. Actual OH Budget at Input Budget at Output Applied

c. Actual OH Budget at Output Applied

59. a. Actual SP × AQ SP × SQ

b. Actual SR × AH SH × SR

c. Actual VOH SR × AQ SR × SQ

Actual FOH Budget SR × SH

d. Actual Budget @ Input Budget @ Output Applied

e. Actual Budget Applied

f. Actual Applied

c. Material price variance allocation: Total Percent

61. a. (1) Material quantity purchased 15,600 sq. ft.

(2) Material quantity used 15,900 sq. ft.

Unfavorable quantity 900 sq. ft.

16. a. The actualtobudget comparison is totally inappropriate since the levels of