FMGT 2294
Solutions to Practice Questions
Final Exam
1.
a. Materials price variance = (AQ AP) – (AQ SP)
= $119,625 – (5,500 $21.00) = $4,125 U
b. Materials quantity variance = SP(AQ – SQ*)
= $21.00(4,680 – 4,669) = $231 U
*SQ = Standard quantity per unit Actual output
= 2.3 2,030 = 4,669
c. Journal entries to record the purchase and use of the raw material:
Record the purchase of the raw material:
Raw Materials
Materials Price Variance
Accounts Payable
115,500
4,125
119,625
Record the use of the raw material:
Work In Process
Materials Quantity Variance
Raw Materials
2.
98,049
231
98,280
a. Labor rate variance = (AH AR) – (AH SR)
= $10,050 – (1,010 $10.10) = $151 F
b. Labor efficiency variance = SR(AH – SH*)
= $10.10 (1,010 – 1,280) = $2,727 F
*SH = Standard hours per unit Actual output
= 3.2 400= 1,280
c. Journal entries to record the direct labor costs:
Work In Process
Labor Rate Variance
Labor Effiiency Variance
Wages Payable (or Cash)
12,928
151
2,727
10,050
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3. a.
b.
c.
Total overhead at the denominator level of activity
Predetermined overhead rate
Denominator level of activity
$18,500
÷ $3.70/DLH
5,000 DLHs
Actual output
Standard DLH per unit
Standard DLHs allowed
Spending variance = (AH AR) - (AH SR)
= ($14,100) - (6,400 $2.50*) = $1,900 F
* $12,500 ÷ 5,000 DLHs = $2.50 per DLH
3,000 units
2 DLHs per unit
6,000 DLHs
d.
Efficiency variance = (AH SR) - (SH SR)
= (6,400 $2.50) - (6,000* $2.50) = $1,000 U
* 2 DLHs per unit 3,000 units = 6,000 DLHs
e.
Budget variance = Actual fixed overhead - Budgeted Fixed overhead
= $6,300 - $6,000 = $300 U
f.
Volume variance = Fixed portion of predetermined overhead rate (Denominator
hours - Standard hours allowed)
= $1.20* (5,000 - 6,000) = $1,200 F
*$6,000 ÷ 5,000 DLH = $1.20 per DLH
4. a. Materials price variance = $156,880 - (7,900 $20.00) = $1,120 F
b. Materials quantity variance = (5,395 $20.00) - (7,300 0.75 $20.00)
= $1,600 F
c. Labor rate variance = $99,580 - (7,500 $13.00) = $2,080 U
d. Variable overhead spending variance = $13,580 - (7,500 $2.00) = $1,420 F
e. Variable overhead efficiency variance =
(7,500 $2.00) - (7,300 1.0 $2.00) = $400 U
f. Fixed overhead budget variance = $27,500 - (7,000 $4.00) = $500 F
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5. a) Operating assets do not include investments in other companies or in undeveloped land.
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6.
Sales
Less variable expenses:
Materials
Labor
Manufacturing overhead
Selling expense
Total variable expenses
Contribution margin
Less fixed expenses:
Manufacturing overhead
Segment margin
Less common expense:
Administrative expense
Net operating income
Total
$360,000
RIPS
$180,000
PITS
$180,000
41,000
103,000
46,100
25,200
215,300
144,700
18,000
54,000
35,100
16,200
123,300
56,700
23,000
49,000
11,000
9,000
92,000
88,000
107,100
37,600
35,100
$ 21,600
72,000
$ 16,000
30,000
$ 7,600
7. a) Relevant cost per unit:
Direct Materials
Direct Labour
Variable Manufacturing Overhead
Fixed Manufacturing Overhead ($13.40 - $5.10)
Relevant Manufacturing Cost
b) Net advantage (disadvantage):
Manufacturing Cost Savings ($51.60 x 20,000)
Additional Contribution Margin
Cost of Purchasing the Part ($51.80 x 20,000)
Net Advantage (Disadvantage)
c) Maximum acceptable purchase price:
Manufacturing Cost Savings
Additional Contribution Margin
Total Benefit
Number of Units
Benefit per Unit
$24.70
$16.30
$ 2.30
$ 8.30
$51.60
$ 1,032,000
$
44,000
($1,036,000)
$
40,000
$1,032,000
$ 44,000
$1,076,000
20,000
$
53.80
8.
Products P and R should be processed beyond the split-off point. Product Q should be sold at
split-off. Joint production costs are not relevant to the decision to sell at split-off or to process
further.
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9. a) Demand on the mixing machine:
Total time required for all products: 26,700 minutes
b) Optimal production plan:
c) The company should be willing to pay up to the contribution margin per minute for the
marginal job, which is $5.15.
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