IBARRA, Joanna Mida S.
2A16
12. LO.1 (Standard setting; team project) As a three-person team, choose an activity that is
commonly performed every day, such as taking a shower/bath, preparing a meal, or doing
homework. Have each team member time him- or herself performing that activity for two days and
then develop a standard time for the team. Now have the team members time themselves
performing the same activity for the next five days.
a. Using an assumed hourly wage rate of $12, calculate the labor efficiency variance for your
team.
b. Prepare a list of reasons for the variance.
c. How could some of the variance have been avoided?
13. LO.1 (Developing standard cost card; discussion) One of Sure-Bet Sherbet’s best-selling
products is raspberry sherbet, which is manufactured in 10-gallon batches. Each batch requires
6 quarts of raspberries. Th e raspberries are sorted by hand before entering the production
process and, because of imperfections, 1 quart of berries is discarded for every 4 quarts of
acceptable berries. Th e standard direct labor sorting time to obtain 1 quart of acceptable
raspberries is 3 minutes. After sorting, raspberries are blended with other ingredients; blending
requires 12 minutes of direct labor time per batch. During the blending process, some sherbet is
lost because it adheres to the blending vats. After blending, the sherbet is packaged in quart
containers. The following cost information is relevant:
•
•
•
•
Raspberries are purchased for $0.80 per quart.
All other ingredients cost a total of $0.45 per gallon.
Direct labor is paid $9.00 per hour.
The total cost of material and labor required to package the sherbet is $0.38 per quart.
a. Develop the standard cost for the direct cost components of a 10-gallon batch of raspberry
sherbet. Th e standard cost should identify standard quantity, standard price/rate, and
standard cost per batch for each direct cost component.
b. Discuss the possible causes of unfavorable material price variances and identify the
individual(s) who should be held responsible for these variances.
c. Discuss the possible causes of unfavorable labor efficiency variances and identify the
individual(s) who should be held responsible for these variances.
a.
Direct Material
Raspberries (7.5 qts.* × $0.80 per qt.)
Other ingredients (10 gal. × $0.45 per gal.)
Direct labor
Sorting [(3 min. × 6 qts.) ÷ 60 min.) × $9.00]
Blending [(12 min. ÷ 60) × $9.00 per hr.]
Packaging (40 qts.** × $0.38 per qt.)
Standard cost per 10-gallon batch
$6.00
4.50
$2.70
1.80
$10.50
4.50
15.20
$30.20
b. In general, the purchasing manager is held responsible for unfavorable material price
variances. Causes of these variances include the following:
• Failure to correctly forecast price increases.
• Purchasing nonstandard or uneconomical lots.
• Purchasing from suppliers other than those offering the most favorable terms.
c. In general, the production manager or foreperson is held responsible for unfavorable labor
efficiency variances. Causes of these variances include the following:
• Poorly trained labor
• Substandard or inefficient equipment
• Inadequate supervision
14. LO.2 (DM variances) 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
Standard unit price
Standard quantity for good production
Actual quantity purchased during November
Actual quantity used in November
$0.13 per page
$0.14 per page
97,900 pages
115,000 pages
100,000 pages
a. Calculate the total cost of purchases for November.
Total Purchases = AP x AQp = $14,950
$0.13
115,000
$14,950
b. Compute the material price variance (based on quantity purchased).
Material price variance = (AP × AQp) – (SP × AQp)
= $14,950 – ($0.14 x 115,000)
= 14,950 – 16,100
= $1,150 F
c. Calculate the material quantity variance.
Material quantity variance = (SP × AQu) – (SP × SQ)
= ($0.14 x 100,000) – ($0.14 x 97,900)
= 14,000 – 13,706
= $294 U
15. LO.2 (DM variances) Cave Company produces a product called Lem. Th e 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.
$10,080 / 4,200 = $2.40 per quart
SQ = 1,000 units x 4 quarts = 4,000
AQ × AP
AQ × SP
SQ × SP
4,200 × $2.40
4,200 ×
$2.50
4,000 × $2.50
$10,080
$10,500
$10,000
$420 F
$500 U
Material Price Variance
Material Usage Variance
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.
• The price variance would be based on the quantity of material purchased, while
the usage variance would be based on the quantity of material used in production.
Because the usage variance is based on the same quantities as in (a), it does not
change.
AQp × AP
AQp × SP
6,000 × $2.40
6,000 ×
$2.50
$14,400
$15,000
$600 F
Material Price Variance
c. Which managers at Cave Company would most likely assume responsibility for control of
the variance computed in requirement (b)?
• The purchasing agent would have responsibility for the price variance and the
production manager would have responsibility for the usage variance.
16. LO.2 (DM variances) Ayesha Inc. manufactures a product that requires 5 pounds of material.
Th e purchasing agent has an opportunity to purchase the necessary material at a vendor’s
bankruptcy sale at $1.40 per pound rather than the standard cost of $2.10 per pound. Th e
purchasing agent purchases 100,000 pounds of material on May 31. During the next four months,
the company’s production and material usage was as follows:
June
July
August
September
Production
3,000
3,400
2,900
2,500
Quantity Used
16,400 lb.
17,540 lb.
14,950 lb.
13,200 lb.
a. What is the material price variance for this purchase?
Material purchase price variance = ($2.10 – $1.40) = $0.70 F variance per pound; $0.70 × 100,000
lbs. = $70,000 F
b. What is the material quantity variance for each month for this material?
June
3,000 × 5 = 15,000 SQ; $2.10 × (16,400 – 15,000) = $2,940 U
July
3,400 × 5 = 17,000 SQ; $2.10 × (17,640 – 17,000) = $1,344 U
Aug.
2,900 × 5 = 14,500 SQ; $2.10 × (14,950 – 14,500) = $ 945 U
Sept. 2,500 × 5 = 12,500 SQ; $2.10 × (13,100 – 12,500) = $1,260 U
c. What might be the cause of the unfavorable material quantity variances?
• It is possible that the material purchased had been damaged in some way or
became tainted for use while being stored at the bankrupt vendor’s location. (Bell
Inc. should carefully assess the effect of this material’s usage on labor efficiency
to see if there is an unfavorable variance there.)
17. LO.2 (DM variances) 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.
A and B answers:
Purchasing agent’s responsibility:
Material price variance = (AP × AQp) – (SP × AQp)
= ($0.64 × 25,600) – ($0.70 × 25,600)
= $16,384 – $17,920
= $1,536 F