Standard Costing: Setting

Chspter
18 >
Standards and Analyzing
s Costs
QI8-3 Discuss the role of the
Variances
following
(a) The accounting department departments in establishing
18-33
(h)The department having its standard costs:
performance
(c) The industrial engineering department. measure!

Q18-9 What is indicated by a factory overhead

(1CMA adapted)
variable efficiency variance?
(Used by permission of
'CMA Canaia')
o18-10 What is indicated by a factory overhead spending variance?
018-11 What is indicated by a factory overhead volume variance?
(Used by permission of CMA
Canada' )
018.12 In astandard cost system, the computation of
follow?
variances is a first step. What stens shotld

Q18-13 (a) Describe the features of tolerance limits.

(b) Discuss potential benefits of tolerance limits to at: organizatior.
(c) Identify and discuss potential behavioral problems that can occur
its are used.
when tolerance lim

(ICMA adapted)
Q18-14 Standard cost variance reporting is a useful management control tool;
however, too much
emphasis on meeting standards can result in inefficiencies and lost opportunities for
improvement. Explain how this can occur.

Exercises
E18-1 Materials Variance Analysis. Ulysses Company's standard cost per unit of
materia! M
12is $13.50per pound. During the month, 4,500pounds of M-12 were purchased
cost of $60,300. In addition, 4,000 pounds of M-12 were used during the month; at a tetaj
the standard quantity allowed for actual production is 3,800 pounds. however,
ons in
eration
Required:Compute the materials purchase price variance, price usage variance, and quan
tity variance, indicating whether the variances are favorable or unfavorable.
E18-2 Materials Variance Analysis. Because it is concerned about high inventory carrying
set. costs, Carlton Company follows the just-in-time inventory philosophy and treats increases
apted) in materials inventorý as unfavorable variances and decreases as favorable variances. The
company uses a standard cost system and inventories its materials at standard cost. The
ds are standard cost per unit of part R-33 is $22.50. During the current month, 5,000 units of R
33 were purchased at a total cost of $110,000.In addition, 4,400 units of part R-33 were
nada') issued to production during the month; however, the standard quantity allowed for actual
production is 4,300 units.
incor
Required: Compute the materials purchase price variance, materials inventory variance, and
favorable or unfavorable.
materials quantity variance, indicating whether the variances are
apied)
18-34 Part 4 > Budgeting and Standards Costs

E18-3 Materials Price Variance Analysis. Bracey Company standard cost per unit of compo
nent part K-45 is $4. During the tmonth, 6,0 ums were purchased at a total o
of $25.200, In addition, 7,100 units of K-45 were6,900
Used units.
during the month: however, the
is
standard quantity allowed for actual production
Required:
the materials quantity yariance
) Conmpute the materials purchase price Variance andunfavorable
favorable or
and indicate whether the variances arc
(2) Assumc matcrials are inventoricd at actual cost and the beginning inventory of K-45
usage vari.
contained 2.000 units at a total cost of $8,240.Compute the materials price
for materials inventory.
ance assuming the averagecost mnethod is used
(3) Assume the facts from requirement 2, except the company uses the fifo method for
variance.
materials inventory. Compute the materials price usage
the lifo method for
(4) Assume the facts from requirement 2, except the company uses
materials inventory. Compute the materials price usage variance.
E18-4 Labor Variance Analysis. During the month, 1,200 units of Topo were produced. Actual
direct labor required was 650 direct labor hours at an actual total cost of $6,370. According
to the standard cost card for Topo, half an hour of labor should be required per unit of Topo
produced, at a standard cost of $10 per labor hour.

Required: Compute the labor rate and efficiency variances, indicating whether the vari
ances are favorable or unfavorable.

E18-5 Materials and Labor Variance Analysis. The following data pertain to the first week of
Ferris Company's operationsduring June:
Materials:
Actual purchases 1,500 units at $3.80 per unit
Actual usage 1,350 units
Standard usage 1,020 units at $4.00 per unit
Direct labor:
Actual hours 310 hours at $12.30 per hour
Standard hours 340 hours at $12.00 per hour

Required: Compute the following variances, indicating whether each one is favorable or
unfavorable:
(1) Materials purchase price variance, price usage variance, and quantity
(2) Labor rate and efficicncy variances. variance.

E18-6 Factory Overhead Variance Analysis, Two-Variance Method. The

Howard Company's Assembly Department is 12,000 machine hours pernormal capacity of
capacity, the standard factory overhcad rate is $12.50 per machine hour, month.
based
At nomal
on $96,000
of budgeted fixed cost per month and a variable cost rate of
$4.50 per machine hour.
During April, the depariment operated at 12,500 machine hours, with
head of $166,000. The number of standard machine actual factory over
hours allowed for the production actu
ally attained is 11,000.

Required: Compute the overall factory overhead

ance down into the controllable variance and the variance
and then break the overall varl
volume variance, Indicate whether the
variances are favorable or unfavorable.
 Standard
Costing: Setting Standards and
18 >
Chypter
Analyzing Variances 18-35
E18.7 Factory Overhead
Laurel Corporation's
Variance Analysis, Two-Variance Method. The
Department 3is 6,000 direct labor hours per normal capacity of
capacity,the standard factory overhead rate is $22 per dircct labor nonth. Af normal
hudoeted fixed cost per month and avariable hour. bascd on S96.000
lovember, the department operated at 5.600 dircctratelabor
of $6 pcr direct iabor hour.
During
Laad of hours, with actual
$I30.000. The number of standard direct labor hours factory over
actually attaincd is S,700. allowed for the productio:
Required: Compute the overall factory
.oriances, Indicate whether the variancesoverhcad variance and the controllablc and volune
are favorable or unfavorable.
E18-8 Factory Overhead Variance Analysis, Three-Variance Method. The norrmal
McDougall Company's Die Cutting Department is 4.500 machine hours per capacity month.
oi
Át
normal capacity. the standard factory
overhead rate is $24.80 per machine hour.
hudgeted fixed factory overhead of S85,500 per month and a variable ovcrheadbased
on
rale of
$5.80 per machine hour. During July. the. department operated at 4.600 machine hours,
with actual factory overheadof $121,000. The number of standard machine hours allowed
for the production actually attained is 4.200.
Required: Compute the overall factory overhead variance and the spending variance. vari
able efficiency variance, and the volume variance. Indicate whether the variances are
favorablc or unfavorable.

E18-9 Factory Overhead Variance ¢nalysis, Three-Variance Method. Standard direet labor
hours budgcted by Turner Company for February production were 2,000. Factory overhe:d
at that level was budgeted at $10,000, of which $3,000 is variable. Actual direct iat
Februarv pro
hours for the month were 1,900. The standard labor hours allowed for actual
$10,500.
duction are 2.050. Actual factory overhead for the month was
and the spending variance. thc
Required: Compute the overall factory overhcad variance
variane. Indicate whether the variances are
variable cfficicncy variance, and thc volume
favorable or unfavorablec.
develped the
Sieverville Machinc Company hasDepartment
Overhead Variance Analysis. 6.
EI8-10 Factory costs for cach SX unit asscmbled in
following standard factory ovcrhead
80,000dircct labor hours:
based on amonthly capacity of hour = 12
2 hours al $6 per
=
Variable overhead. 2hours at $3 per hour
Fixed overhead.
per unit of SX.
Department 6 factory overhead
actually produced. Actual direet Labor hours d
units of SX were
During August, 38,000 overhead toaled $700,000.
ng
and actual factorv
totaled 77.500. each of the
overhead variance and analyze it wth tavor
ed
Detcrmine the overall factory whether the varianesCOmputod are
Aequired: indcating
variance analysis methods,
t1oWing variances.
ablc or unfavorable. controllable and volune and volu
variances.
Imethod, for
(1) Two-variance method, for spcnding, variable cfficicncy,
(2) Thrce-variance