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by authors Powers, Needles, and Crosson with the following
Chapter 26 Problems and Alternate Problems.
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1158
CHAPTER 26
Standard Costing and Variance Analysis
LO6
Overhead Variances
E 13. Cedar Key Company produces handmade clamming buckets and sells them
to distributors along the Gulf Coast of Florida. The company incurred $9,400 of
actual overhead costs ($8,000 variable; $1,400 fixed) in May. Budgeted standard
overhead costs for May were $4 of variable overhead costs per direct labor hour
and $1,500 of fixed overhead costs. Normal capacity was set at 2,000 direct labor
hours per month. In May, the company produced 10,100 clamming buckets by
working 1,900 direct labor hours. The time standard is .2 direct labor hour per
clamming bucket. Compute (1) the variable overhead spending and efficiency
variances and (2) the fixed overhead budget and volume variances for May.
LO6
Overhead Variances
E 14. Suncoast Industries uses standard costing and a flexible budget for cost
planning and control. Its monthly budget for overhead costs is $200,000 of fixed
costs plus $5.20 per machine hour. Monthly normal capacity of 100,000 machine
hours is used to compute the standard fixed overhead rate. During December,
employees worked 105,000 machine hours. Only 98,500 standard machine hours
were allowed for good units produced during the month. Actual overhead costs
incurred during December totaled $441,000 of variable costs and $204,500 of
fixed costs. Compute (1) the under- or overapplied overhead during December
and (2) the variable overhead spending and efficiency variances and the fixed
overhead budget and volume variances.
LO7
Evaluating Managerial Performance
E 15. Ron LaTulip oversees projects for ACE Construction Company. Recently,
the company’s controller sent him a performance report regarding the construction of the Campus Highlands Apartment Complex, a project that LaTulip supervised. Included in the report was an unfavorable direct labor efficiency variance
of $1,900 for roof structures. What types of information does LaTulip need to
analyze before he can respond to this report?
Problems
LO2
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Computing and Using Standard Costs
P 1. Prefabricated houses are the specialty of Affordable Homes, Inc., of Corsicana, Texas. Although Affordable Homes produces many models, the company’s
best-selling model is the Welcome Home, a three-bedroom, 1,400-square-foot
house with an impressive front entrance. Last year, the standard costs for the six
basic direct materials used in manufacturing the entrance were as follows: wood
framing materials, $2,140; deluxe front door, $480; door hardware, $260; exterior
siding, $710; electrical materials, $580; and interior finishing materials, $1,520.
Three types of direct labor are used to build the entrance: carpenter, 30 hours at
$12 per hour; door specialist, 4 hours at $14 per hour; and electrician, 8 hours at
$16 per hour. Last year, the company used an overhead rate of 40 percent of total
direct materials cost.
This year, the cost of wood framing materials is expected to increase by
20 percent, and a deluxe front door will cost $496. The cost of the door hardware will increase by 10 percent, and the cost of electrical materials will increase
by 20 percent. Exterior siding cost should decrease by $16 per unit. The cost of
interior finishing materials is expected to remain the same. The carpenter’s wages
will increase by $1 per hour, and the door specialist’s wages should remain the
same. The electrician’s wages will increase by $.50 per hour. Finally, the overhead
rate will decrease to 25 percent of total direct materials cost.
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Chapter Assignments
1159
Required
1. Compute the total standard cost of direct materials per entrance for last year.
2. Using your answer to item 1, compute the total standard unit cost per
entrance for last year.
3. Compute the total standard unit cost per entrance for this year.
LO3
Preparing a Flexible Budget and Evaluating Performance
P 2. Home Products Company manufactures a complete line of kitchen glassware. The Beverage Division specializes in 12-ounce drinking glasses. Erin Fisher,
the superintendent of the Beverage Division, asked the controller to prepare a
report of her division’s performance in April. The following report was handed to
her a few days later:
Cost Category
(Variable Unit Cost)
Direct materials ($.10)
Direct labor ($.12)
Variable overhead
Indirect labor ($.03)
Supplies ($.02)
Heat and power ($.03)
Other ($.05)
Fixed overhead
Heat and power
Depreciation
Insurance and taxes
Other
Totals
Budgeted
Costs*
Actual
Costs
Difference Under
(Over) Budget
$ 5,000
6,000
$ 4,975
5,850
$ 25
150
1,500
1,000
1,500
2,500
1,290
960
1,325
2,340
210
40
175
160
3,500
4,200
1,200
1,600
$28,000
3,500
4,200
1,200
1,600
$27,240
—
—
—
—
$760
*Based on normal capacity of 50,000 units.
In discussing the report with the controller, Fisher stated, “Profits have been
decreasing in recent months, but this report indicates that our production process
is operating efficiently.”
Manager insight LO4 LO5
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Required
1. Prepare a flexible budget for the Beverage Division using production levels of
45,000 units, 50,000 units, and 55,000 units.
2. What is the flexible budget formula?
3. Assume that the Beverage Division produced 46,560 units in April and that
all fixed costs remained constant. Prepare a revised performance report similar to the one above, using actual production in units as a basis for the budget
column.
4. Which report is more meaningful for performance evaluation, the original
one above or the revised one? Why?
Direct Materials and Direct Labor Variances
P 3. Winners Trophy Company produces a variety of athletic awards, most of
them in the form of trophies. Its deluxe trophy stands three feet tall above the
base. The company’s direct materials standards for the deluxe trophy include
one pound of metal and eight ounces of wood for the base. Standard prices for
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CHAPTER 26
Standard Costing and Variance Analysis
the year were $3.30 per pound of metal and $.45 per ounce of wood. Direct
labor standards for the deluxe trophy specify .2 hour of direct labor in the Molding Department and .4 hour in the Trimming/Finishing Department. Standard
direct labor rates are $10.75 per hour in the Molding Department and $12.00
per hour in the Trimming/Finishing Department.
During January, the company made 16,400 deluxe trophies. Actual production data are as follows:
Direct materials
Metal
Wood
Direct labor
Molding
Trimming/Finishing
16,640 pounds @ $3.25 per pound
131,400 ounces @ $.48 per ounce
3,400 hours @ $10.60 per hour
6,540 hours @ $12.10 per hour
Required
1. Compute the direct materials price and quantity variances for metal and wood.
2. Compute the direct labor rate and efficiency variances for the Molding and
the Trimming/Finishing Departments.
LO4
LO5
LO6
Manager insight Direct Materials, Direct Labor, and Overhead Variances
P 4. The Doormat Division of Clean Sweep Company produces all-vinyl mats.
Each doormat calls for .4 meter of vinyl material; the material should cost $3.10
per meter. Standard direct labor hours and labor cost per doormat are .2 hour
and $1.84 (.2 hour $9.20 per hour), respectively. Currently, the division’s
standard variable overhead rate is $1.50 per direct labor hour, and its standard
fixed overhead rate is $.80 per direct labor hour.
In August, the division manufactured and sold 60,000 doormats. During
the month, it used 25,200 meters of vinyl material; the total cost of the material was $73,080. The total actual overhead costs for August were $28,200, of
which $18,200 was variable. The total number of direct labor hours worked was
10,800, and the factory payroll for direct labor for the month was $95,040. Budgeted fixed overhead for August was $9,280. Normal monthly capacity for the
year was set at 58,000 doormats.
Required
1. Compute for August the (a) direct materials price variance, (b) direct materials quantity variance, (c) direct labor rate variance, (d) direct labor efficiency
variance, (e) variable overhead spending variance, (f) variable overhead efficiency variance, (g) fixed overhead budget variance, and (h) fixed overhead
volume variance.
2. Prepare a performance report based on your variance analysis and suggest
possible causes for each variance.
Overhead Variances
LO6
P 5. Celine Corporation’s accountant left for vacation before completing the
monthly cost variance report. George Celine, the corporation’s president, has
asked you to complete the report. The following data are available to you (capacities are expressed in machine hours):
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Chapter Assignments
Actual machine hours
Standard machine hours allowed
Actual variable overhead
Standard variable overhead rate
Variable overhead spending variance
Variable overhead efficiency variance
Actual fixed overhead
Budgeted fixed overhead
Fixed overhead budget variance
Fixed overhead volume variance
Normal capacity in machine hours
Standard fixed overhead rate
Fixed overhead applied
1161
17,100
17,500
a
$2.50
$250 (F)
b
c
$153,000
$1,300 (U)
$4,500 (F)
d
e
f
Required
Analyze the data and fill in the missing amounts. (Hint: Use the structure of Figures 5 and 6 in this chapter to guide your analysis.)
Alternate Problems
LO2
Manager insight 56594_28_ch26_p1120-1167.indd 1161
Computing Standard Costs for Direct Materials
P 6. TickTock, Ltd., assembles clock movements for grandfather clocks. Each
movement has four components: the clock facing, the clock hands, the time
movement, and the spring assembly. For the current year, the company used the
following standard costs: clock facing, $15.90; clock hands, $12.70; time movement, $66.10; and spring assembly, $52.50.
Prices of materials are expected to change next year. TickTock will purchase
60 percent of the facings from Company A at $18.50 each and the other 40 percent from Company B at $18.80 each. The clock hands, which are produced for
TickTock by Hardware, Inc., will cost $15.50 per set next year. TickTock will
purchase 30 percent of the time movements from Company Q at $68.50 each,
20 percent from Company R at $69.50 each, and 50 percent from Company S at
$71.90 each. The manufacturer that supplies TickTock with spring assemblies has
announced that it will increase its prices by 20 percent.
Required
1. Determine the total standard direct materials cost per unit for next year.
2. Suppose that because TickTock has guaranteed Hardware, Inc., that it will purchase 2,500 sets of clock hands next year, the cost of a set of clock hands has
been reduced by 20 percent. Find the standard direct materials cost per clock.
3. Suppose that to avoid the increase in the cost of spring assemblies, TickTock
purchased substandard ones from a different manufacturer at $50 each; 20 percent of them turned out to be unusable and could not be returned. Assuming
that all other data remain the same, compute the standard direct materials unit
cost. Spread the cost of the defective materials over the good units produced.
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CHAPTER 26
Standard Costing and Variance Analysis
LO4
LO5
Direct Materials and Direct Labor Variances
P 7. Fruit Packaging Company makes plastic baskets for food wholesalers. Each
basket requires .8 gram of liquid plastic and .6 gram of an additive that includes
color and hardening agents. The standard prices are $.15 per gram of liquid plastic
and $.09 per gram of additive. Two kinds of direct labor—molding and trimming/
packing—are required to make the baskets. The direct labor time and rate standards for a batch of 100 baskets are as follows: molding, 1.0 hour per batch at an
hourly rate of $12; and trimming/packing, 1.2 hours per batch at $10 per hour.
During the year, the company produced 48,000 baskets. It used 38,600 grams
of liquid plastic at a total cost of $5,404 and 28,950 grams of additive at $2,895.
Actual direct labor included 480 hours for molding at a total cost of $5,664 and
560 hours for trimming/packing at $5,656.
Required
1. Compute the direct materials price and quantity variances for both the liquid
plastic and the additive.
2. Compute the direct labor rate and efficiency variances for the molding and
trimming/packing processes.
LO4
LO5
LO6
Manager insight 56594_28_ch26_p1120-1167.indd 1162
Computing Variances and Evaluating Performance
P 8. Last year, Biomed Laboratories, Inc., researched and perfected a cure for the
common cold. Called Cold-Gone, the product sells for $28.00 per package, each
of which contains five tablets. Standard unit costs for this product were developed
late last year for use this year. Per package, the standard unit costs were as follows: chemical ingredients, 6 ounces at $1.00 per ounce; packaging, $1.20; direct
labor, .8 hour at $14.00 per hour; standard variable overhead, $4.00 per direct
labor hour; and standard fixed overhead, $6.40 per direct labor hour. Normal
capacity is 46,875 units per week.
In the first quarter of this year, demand for the new product rose well beyond
the expectations of management. During those three months, the peak season
for colds, the company produced and sold over 500,000 packages of Cold-Gone.
During the first week in April, it produced 50,000 packages but used materials
for 50,200 packages costing $60,240. It also used 305,000 ounces of chemical ingredients costing $292,800. The total cost of direct labor for the week
was $579,600; direct labor hours totaled 40,250. Total variable overhead was
$161,100, and total fixed overhead was $242,000. Budgeted fixed overhead for
the week was $240,000.
Required
1. Compute for the first week of April (a) all direct materials price variances,
(b) all direct materials quantity variances, (c) the direct labor rate variance,
(d) the direct labor efficiency variance, (e) the variable overhead spending
variance, (f) the variable overhead efficiency variance, (g) the fixed overhead
budget variance, and (h) the fixed overhead volume variance.
2. Prepare a performance report based on your variance analysis and suggest
possible causes for each significant variance.
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