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Chapter Assignments
Exercises: Set B
LO 1
Uses of Standard Costs
E1B. Accounting Connection ▶ Summer Diaz has just assumed the duties of controller for Market Research Company. She is concerned that the company’s methods of
cost planning and control do not accurately track the operations of the business. She
plans to suggest to Sydney Tyson, the company’s president, that the company start
using standard costing for budgeting and cost control. The new method could be incorporated into the existing accounting system. The anticipated cost of adopting it and
training managers is around $7,500. Prepare a memo from Diaz to Tyson that defines
standard costing and outlines its uses and benefits.
LO 2
Computing Standard Costs
E2B. Normal Corporation uses standard costing and is in the process of updating its
direct materials and direct labor standards for Product 20B. The following data have
been accumulated:
Direct materials: In the previous period, 20,500 units were produced, and 32,800
square yards of direct materials at a cost of $122,344 were used to produce them.
Direct labor: During the previous period, 57,400 direct labor hours were
worked—34,850 hours on machine H and 22,550 hours on machine K. Machine H
operators earned $9.40 per hour, and machine K operators earned $9.20 per hour
last period. A new labor union contract calls for a 10 percent increase in labor rates
for the coming period.
Using this information as the basis for the new standards, compute the direct materials quantity and price standards and the direct labor time and rate standards for each
machine for the coming accounting period.
LO 2
Computing a Standard Unit Cost
E3B. Weather Aerodynamics, Inc., makes electronically equipped weather-detecting balloons for university meteorology departments. Because of recent nationwide inflation,
the company’s management has ordered that standard costs be recomputed. New direct
materials price standards are $700 per set for electronic components and $14 per square
meter for heavy-duty canvas. Direct materials quantity standards include one set of electronic components and 100 square meters of heavy-duty canvas per balloon. Direct labor
time standards are 26 hours per balloon for the Electronics Department and 21 hours
per balloon for the Assembly Department. Direct labor rate standards are $21 per hour
for the Electronics Department and $18 per hour for the Assembly Department. Standard overhead rates are $16 per direct labor hour for the standard variable overhead rate
and $12 per direct labor hour for the standard fixed overhead rate. Compute the standard unit cost of one weather balloon.
LO 3
Direct Materials Price and Quantity Variances
E4B. Natural Sweep Company produces organic twig brooms. Each broom calls for 2
pounds of wood; the wood should cost $0.10 per pound. In July, the division manufactured and sold 300,000 brooms. During the month, it used 600,100 pounds of wood;
the total cost of the material was $72,012. Normal monthly capacity was set at 580,000
brooms. Calculate Natural Sweep’s material price and quantity variances for wood for
the month.
LO 3
Direct Materials Price and Quantity Variances
E5B. SITO Elevator Company manufactures small hydroelectric elevators with a maximum capacity of ten passengers. One of the direct materials used is heavy-duty carpeting for the floor of the elevator. The direct materials quantity standard for April was 8
square yards per elevator. During April, the purchasing agent purchased this carpeting at
$11 per square yard; the standard price for the period was $12. Ninety elevators were
(Continued)
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Chapter 24: Standard Costing and Variance Analysis
completed and sold during the month; the Production Department used an average of
8.5 square yards of carpet per elevator. Calculate the company’s direct materials price
and quantity variances for carpeting for April.
LO 3
Direct Materials Variances
E6B. Diekow Productions manufactured and sold 1,000 products at $11,000 each during the past year. At the beginning of the year, production had been set at 1,200 products, and direct materials standards had been set at 100 pounds of direct materials at $2
per pound for each product produced. During the year, the company purchased and
used 98,000 pounds of direct materials with a cost of $2.04 per pound. Calculate the
company’s direct materials price and quantity variances for the year.
LO 4
Direct Labor Variances
E7B. At the beginning of last year, Diekow Productions set direct labor standards of 20
hours at $15 per hour for each product produced. During the year, 20,500 direct labor
hours were actually worked at an average cost of $16 per hour. Using this information
and the applicable information in E6B, calculate the company’s direct labor rate and
efficiency variances for the year.
LO 4
Direct Labor Rate and Efficiency Variances
E8B. NEO Foundry, Inc., manufactures castings that other companies use in the production of machinery. For the past two years, NEO’s best-selling product has been a casting
for an eight-cylinder engine block. Standard direct labor hours per engine block are 1.8
hours. A labor union contract requires that the company pay all direct labor employees
$14 per hour. During June, NEO produced 16,500 engine blocks. Actual direct labor
hours and costs for the month were 29,900 hours and $433,550, respectively.
1. Compute the direct labor rate variance for eight-cylinder engine blocks during June.
2. Using the same data, compute the direct labor efficiency variance for eight-cylinder
engine blocks during June. Check your answer, assuming that the total direct labor
cost variance is $17,750 (U).
LO 5
Variable Overhead Variances
E9B. At the beginning of last year, Diekow Productions set variable overhead standards
of 10 machine hours at a rate of $10 per hour for each product produced. During the
year, 10,800 machine hours were used at a cost of $10.20 per hour. Using this information and the applicable information in E6B, calculate the company’s variable overhead
spending and efficiency variances for the year.
LO 5
Fixed Overhead Variances
E10B. At the beginning of last year, Diekow Productions set budgeted fixed overhead
costs at $456,000. During the year, actual fixed overhead costs were $500,000. Using
this information and the applicable information in E6B, calculate the company’s fixed
overhead budget and volume variances for the year. Assume that fixed overhead is
applied based on units of product.
LO 5
Variable Overhead Variances for a Service Business
E11B. Design Architects, LLP, billed clients for 6,000 hours of design work for the
month. Actual variable overhead costs for the month were $315,000, and 6,250 hours
were worked. At the beginning of the year, a variable overhead standard of $50 per
design hour had been developed based on a budget of 5,000 design hours each month.
Calculate the company’s variable overhead spending and efficiency variances for the
month.
LO 5
Fixed Overhead Variances for a Service Business
E12B. Engineering Associates billed clients for 11,000 hours of engineering work for
the month. Actual fixed overhead costs for the month were $435,000. At the beginning
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Chapter Assignments
of the year, a fixed overhead standard of $40 per engineering hour had been developed
based on a budget of 10,000 engineering hours each month. Calculate the company’s
fixed overhead budget and volume variances for the month.
LO 5
Overhead Variances
E13B. Cedar Key Company produces handmade clamming buckets and sells them to
distributors along Florida’s Gulf Coast. 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 0.2 direct labor hour per clamming bucket. Compute (a) the variable overhead spending and efficiency variances and (b) the fixed overhead budget and
volume variances for May.
LO 5
Overhead Variances
E14B. 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 (a) the underor overapplied overhead during December and (b) the variable overhead spending and
efficiency variances and the fixed overhead budget and volume variances.
LO 6
Evaluating Managerial Performance
E15B. Business Application ▶ 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?
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