Chapter 4

Exercises 1
In November 2010, DayTime Publishing Company’s costs
and quantities of paper consumed in manufacturing its 2011 Executive Planner and
Calendar were as follows:
Actual unit purchase price $0.13 per page
Standard unit price $0.14 per page
Standard quantity for good production 97,900 pages
Actual quantity purchased during November 115,000 pages
Actual quantity used in November 100,000 pages
a. Calculate the total cost of purchases for November.
b. Compute the material price variance (based on quantity purchased).
c. Calculate the material quantity variance.

Exercises 2
Cave Company produces a product called Lem. The standard
direct material cost to produce one unit of Lem is 4 quarts of raw material at $2.50
per quart. During May 2010, 4,200 quarts of raw material were purchased at a cost of
$10,080. All the purchased material was used to produce 1,000 units of Lem.
a. Compute the actual cost per quart and the material price variance for May 2010.
b. Assume the same facts except that Cave Company purchased 5,000 quarts of material at the
previously calculated cost per quart, but used only 4,200 quarts. Compute
the material price variance and material usage variance for May 2010, assuming that
Cave identifies variances at the earliest possible time.
c. Which managers at Cave Company would most likely assume responsibility for
control of the variance computed in requirement (b)?

Exercises 3
A&G makes wrought iron table and chair sets. During April, the
purchasing agent bought 25,600 pounds of scrap iron at $1.94 per pound. During the
month, 21,400 pounds of scrap iron were used to produce 600 table and chair sets. Each
set requires a standard quantity of 35 pounds at a standard cost of $1.90 per pound.
a. For April, compute the direct material price variance (based on the quantity purchased) and the
direct material quantity variance (based on quantity used).
b. Identify the titles of individuals in the firm who would be responsible for each of the
variances.
c. Provide some possible explanations for the variances computed in part (a)

Exercises 4
Heath Construction builds standard prefabricated wooden
frames for walls. Each frame requires 10 direct labor hours and the standard hourly
direct labor rate is $18. During July, the company produced 670 frames and worked
6,800 direct labor hours. Payroll records indicate that workers earned $127,500.
a. What were the standard hours for July construction?
b. Calculate the direct labor variances.
c. What was the actual hourly wage rate?

Exercises 5
Madzinga’s Draperies manufactures curtains. Curtain
#4571 requires the following:
Direct material standard 10 square yards at $5 per yard
Direct labor standard 5 hours at $10 per hour
During the second quarter, the company purchased 17,000 square yards at a cost of
$83,300 and used 16,500 square yards to produce 1,500 Curtain #4571s. Direct labor
totaled 7,600 hours for $79,800.
a. Compute the material price and usage variances.
b. Prepare the journal entries for the purchase and use of direct material.
c. Compute labor rate and labor efficiency variances.
d. Prepare the journal entry to accrue direct labor cost and record the labor variances for
the quarter.
e. Comment on the above variances. Identify possible causes and relationships among
the variances that you computed.

Exercises 6
Edina Co. manufactures a product that requires 3.5 machine
hours per unit. The variable and fixed overhead rates were computed using expected
capacity of 144,000 units (produced evenly throughout the year) and expected variable and fixed
overhead costs, respectively, of $2,016,000 and $3,528,000. In October,
Edina manufactured 11,800 units using 40,800 machine hours. October variable overhead costs
were $171,000; fixed overhead costs were $284,500.
a. What are the standard variable and fixed overhead rates?
b. Compute the variable overhead variances.
c. Compute the fixed overhead variances.
d. Explain the volume variance computed in part (c)

Exercises 7
FUN Inc. has a fully automated production facility in which
almost 97 percent of overhead costs are driven by machine hours. As the company’s
cost accountant, you have computed the following overhead variances for May:
Variable overhead spending variance $34,000 F
Variable overhead efficiency variance 41,200 F
Fixed overhead spending variance 28,000 U
Fixed overhead volume variance 20,000 U
The company’s president is concerned about the variance amounts and has asked you
to show her how the variances were computed and to answer several questions. Budgeted fixed
overhead for the month is $1,000,000; the predetermined variable and fixed
overhead rates are, respectively, $20 and $40 per machine hour. Budgeted capacity is
20,000 units.
a. Using the four-variance approach, prepare an overhead analysis in as much detail as
possible.
b. What is the standard number of machine hours allowed for each unit of output?
c. How many actual hours were worked in May?
d. What is the total spending variance?
e. What additional information about the manufacturing overhead variances is gained
by inserting detailed computations into the variable and fixed manufacturing overhead variance
analysis?