PROBLEMS

Prob 61 – SM 47:

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

AP × AQ SP × AQ SP × SQ
$12.10 × 2,200 $12.00 × 2,200 $12.00 × 1,920
$26,620 $26,400 $23,040
$220 U $3,360 U
Labor Rate Variance Labor Efficiency Variance
$3,580 U Total
Labor Variance
c. Raw Material Inventory 350,000
Material Price Variance 35,000
Accounts Payable 315,000
Work in Process Inventory 310,800
Material Quantity Variance 21,700
Raw Material Inventory 332,500
Work in Process 23,040
Labor Rate Variance 220
Labor Efficiency Variance 3,360
Wages Payable 26,620
 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, the company
may have to worry about potential future product returns, higherthannormal
warranty work on products, and customer dissatisfaction with the product.

Prob 59 – SM 48:
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.
Material quantity variance = (SP × AQu) – (SP × SQ)
= ($3 × 24,800) – ($3 × 25,000)
= $3 × (–200)
= –$600 or $600 F
Standard hours = 100,000 × 1/20 hour = 5,000 hours
AP × AQ SP × AQ SP × SQ
$8.80 × 5,320 $9.00 × 5,320 $9.00 × 5,000
$46,816 $47,880 $45,000
$1,064 F $2,880 U
Labor Rate Variance Labor Efficiency Variance
$1,816 U
Total Labor Variance

b. Raw Material Inventory 180,000

Material Price Variance 4,800
Accounts Payable 184,800
To record raw material purchased in
October at standard cost
Work in Process Inventory 74,400
Material Quantity Variance 600
Raw Material Inventory 75,000
To record issuance of raw material at
standard cost during October

Work in Process Inventory 45,000

Labor Efficiency Variance 2,880
Labor Rate Variance 1,064
Cash (Salaries/Wages Payable) 46,816
 To record October direct labor payroll and
variances

Prob 57 – SM 49:
49. a. Material 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
Paint (4 quarts = 1 gallon)
Price variance = (AP × AQp) – (SP × AQp)
= ($55.50 × 1,000) – ($60 × 1,000)
= $4.50 × 1,000
= $4,500 F

Quantity variance = (SP × AQu) – (SP × SQ)

= ($60 × 924) – ($60 × 900)
= $60 × 24
= $1,440 U
Trim:
Price variance = (AP × AQp) – (SP × AQp)
= ($205 × 640) – ($200 × 640)
= $5 × 640
= $3,200 U

Quantity variance = (SP × AQu) – (SP × SQ)

= ($200 × 608) – ($200 × 600)
= $200 × 8
= $1,600 U
SH for labor = 600 boats × 40 hours = 24,000 DLHs
Labor
AP × AQ SP × AQ SP × SQ
$23.50 × 23,850 $25.00 × 23,850 $25.00 × 24,000
$560,475 $596,250 $600,000
$35,775 F $3,750 F
Labor Rate Variance Labor Efficiency Variance
 $39,525 F
Total Labor Variance

Prob 55 – SM 50:

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. = AQ u of material

(3) Actual quantity purchased: 256,800 + 2,500 = 259,300 sq. ft.
(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
Raw Material Inventory 207,440
Material Price Variance 5,186
Accounts Payable 212,626
Work in Process Inventory 204,000
 Material Quantity Variance 1,440
Raw Material Inventory 205,440
Work in Process 4,500
Labor Rate Variance 63
Labor Efficiency Variance 225
Wages Payable 4,788

Prob 49 – SM 51:

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

Material quantity variance = (SP × AQu) – (SP × SQ)

= ($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
Labor Rate Variance Labor Efficiency Variance
$294 U
Total Labor Variance
e. Raw Material Inventory 55,000
Material Price Variance 2,500
Accounts Payable 52,500
To record purchases for September

Work in Process Inventory 54,560

Raw Material Inventory 53,460
Material Quantity Variance 1,100
To record issuances of direct material for
 September
Work in Process Inventory 39,200
Labor Efficiency Variance 294
Cash (Salaries/Wages Payable) 39,494
To record direct labor payroll and the variance
accounts for September

Prob 51 – SM 52:
52. a. Material price variance = (AP × AQ) – (SP × AQ)
= ($4.90 × 50,000) – ($4.00 × 50,000)
= $45,000 U
Material quantity variance = (SP × AQ) – (SP × SQ)
= ($4 × 50,000) – ($4 × 51,600*)
= $6,400 F
*Standard quantity = 17,200 × 3 = 51,600
Labor rate variance = (AP × AQ) – (SP × AQ)
= ($9.05 × 17,800) – ($6 × 17,800)
= $54,290 U
Labor efficiency variance = (SP × AQ) – (SP × SQ)
= ($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 = 2⅞ 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
Material quantity variance = (SP × AQ) – (SP × SQ)
= ($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
Labor efficiency variance = (SP × AQ) – (SP × SQ)
= ($9.00 × 17,800) – ($9.00 × 17,200*)
= $5,400 U
*
Standard quantity = 17,200 × 1 = 17,200

Prob 53 – SM 53:
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:
Actual Budget Applied
$8 × 6,000 $8 × 5,700
$48,165 $48,000 $45,600
$165 U $2,400 U
VOH Spending Variance VOH Efficiency Variance
Fixed Overhead:
Actual Budget Applied
$16 × 9,000 $16 × 5,700
$140,220 $144,000 $91,200
$3,780 F $52,800 U
FOH Spending Variance Volume Variance
 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.

Prob 47- SM 54:

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
VOH Spending Variance VOH Efficiency Variance
$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
FOH Spending Variance Volume Variance
$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
Work in Process Inventory 15,720
Variable Manufacturing Overhead Control 10,480
Fixed Manufacturing Overhead Control 5,240
To record applied OH costs for March
 VOH Spending Variance 1,680
VOH Efficiency Variance 640
FOH Volume Variance 760
FOH Spending Variance 100
Variable Manufacturing Overhead Control 2,320
Fixed Manufacturing Overhead Control 660
To record OH variances for March

FOH Spending Variance 100

Cost of Goods Sold 2,980
VOH Spending Variance 1,680
VOH Efficiency Variance 640
FOH Volume Variance 760
To close OH variances for March
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.

Prob 48 - SM 55:
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*
Labor Rate Variance Labor Efficiency Variance

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 × 8k) = $128,000
 FOH 84,000* ($16 × 9k) = $144,000 ($16 × 8k) = $128,000 ($9 × 8k) 72,000
$246,000 90,000 90,000 $200,000
$234,000 $218,000 $18,000 U
$12,000 U $16,000 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
$442,650
Prob 50 – SM 56:
56. a. Actual OH ($265,400 + $177,250)
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

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
Budget Variance Volume Variance
$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

Prob 60 – SM 57:

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
VOH Spending Variance VOH Efficiency Variance
$300 F
Total VOH Variance

Monthly budgeted FOH = 4,000 MHs × $9.35 = $37,400

Actual FOH Budgeted FOH Applied FOH
$41,400 $37,400 $9.35 × 4,200 = $39,270
$4,000 U $1,870 F
FOH Spending Variance Volume Variance
$2,130 U
Total VOH Variance
b. Actual OH Budget at Input Budget at Output Applied
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

Prob 58 – SM 58:
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
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

Aluminum Material Price Variance 800
Accounts Payable 15,200

Copper Material Inventory 24,000

Copper Material Price Variance 1,200
Accounts Payable 25,200

Work in Process Inventory 13,600

Aluminum Material Quantity Variance 400
Aluminum Material Inventory 14,000
Work in Process Inventory 20,400
Copper Material Quantity Variance 400
Copper Material Inventory 20,800
Work in Process 95,200
Labor Rate Variance 900
Labor Efficiency Variance 2,400
Wages Payable 98,500
Work in Process 25,500
Variable OH Spending Variance 1,750
Variable OH Efficiency Variance 450
Variable OH Control 23,300
 Work in Process 17,000
Volume Variance 7,000
Fixed OH Spending Variance 5,150 Fixed OH Control 18,850

Prob 52 – SM 59:
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
Labor Rate Variance Labor Efficiency Variance
$242.50 U
Total Labor Variance

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
VOH Spending Variance VOH Efficiency Variance $120 F
Total VOH Variance
Actual FOH Budget SR × SH
$1.25 × 6,000
$7,720 $7,500 $7,500
$220 U $0
FOH Spending Variance Volume Variance
$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 $160 U $11,040 $60 F $11,100 $0 $11,100
 OH Spending Var. OH Efficiency Var. Volume Variance
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
Budget Variance Volume Variance

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

Underapplied OH
OH spending variance $160 U
OH efficiency variance 60 F
Budget variance $100 U
Volume variance 0U
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.
$23,400 U

Prob 54 – SM 60:
60. a. Material price variance
Material quantity 24,900 F
variance
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
Material Quantity 24,900
Variance
Labor Rate Variance 5,250
Cost of Goods Sold 30,150
Material Price 23,400
Variance
Labor Efficiency 36,900
Variance
VOH Efficiency Variance 1,800
VOH Control 1,200
VOH Spending 3,000
Variance
Cost of Goods Sold 1,200
VOH Control 1,200
FOH Spending Variance 6,600
FOH Control 10,200
FOH Volume Variance 16,800
Cost of Goods Sold 10,200
FOH Control 10,200

b. Original balance of CGS $2,702,200

Add net unfavorable 41,550
variances
Adjusted balance of CGS $2,743,750
c. Material price variance
allocation: Total Percent
Raw Material Inventory $ 320,600 7
Work in Process 916,000 20
Inventory
Finished Goods Inventory 641,200 14
 Cost of Goods Sold 2,702,200 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 × 4,680
0.20)
Finished Goods Inventory ($23,400 × 3,276
0.14)
Cost of Goods Sold ($23,400 × 0.59) 13,806
Total $23,400
Raw Material Inventory 1,638.00
Work in Process Inventory 4,680.00
Finished Goods Inventory 3,276.00
Cost of Goods Sold 13,806.00
Material Price Variance
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
Cost of Goods Sold 2,702,200 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
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

Work in Process Inventory 3,993.00

Finished Goods Inventory 2,722.50
Cost of Goods Sold 11,434.50
Material Quantity Variance 24,900.00
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.
15,600 sq. ft.
Prob 56 - SM 61:
61. a. (1) Material quantity purchased
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.
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.
 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 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) Supplies— $2,100
oil
Oil used 18,000 gal.
Standard quantity for 15,000 units output 15,000 gal.
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)

Prob 62 - SM 62:

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 cost-
volumeprofit 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 wellknown
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.

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)

Prob 64 - SM 63:
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
Spending Variance Efficiency Variance

Actual Fixed Budgeted Fixed Standard Machine Hours ×

Conversion Costs Conversion Costs Standard Fixed Rate
$374,500 $360,000 72,000 × $5 = $360,000
$0 $14,500 U
Fixed Conversion Volume Variance Spending Variance

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
Spending Variance Efficiency Variance Volume Variance
$63,300 U
Total Conversion Cost Variance
Prob 63 - SM 64:

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
Spending Variance Efficiency Variance
$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
Spending Variance Efficiency Variance Volume Variance
$5,170 U
Total Conversion Cost Variance
Standard Mix Actual Mix

Prob 66 – SM 65:
65. a.
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:
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 Mix Variance Labor Yield Variance
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 Variance5,070

Raw Material—Onions 12,800

Raw Material—Olives 67,200
Raw Material—Mushrooms 64,000
To record the material mix and yield variances

Work in Process Inventory 86,400

Labor Mix Variance 4,072 Labor Yield Variance
3,928
Wages Payable 94,400
To record the labor mix and yield variances
SM × SQ × SP
Prob 65 – SM 66:
66. a. AM × AQ × SP SM × AQ × 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

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
 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 Mix Variance Labor Yield Variance

Labor efficiency variance = $152 F + $672 U = $520 U