Problem 10-13 (45 minutes)
1. a.
Actual Quantity of
Inputs, at
Actual Price
(AQ _ AP)
25,000 kilograms _
$2.95 per kilogram
= $73,750
↑
Actual Quantity of
Inputs, at
Standard Price
(AQ _ SP)
25,000 kilograms _
$2.50 per kilogram
= $62,500
Standard Quantity
Allowed for Output,
at Standard Price
(SQ _ SP)
20,000 kilograms* _
$2.50 per kilogram
= $50,000
↑
Price Variance,
$11,250 U
19,800 kilograms _ $2.50 per kilogram
= $49,500
↑
Quantity Variance,
$500 F
↑
*5,000 ingots _ 4.0 kilograms per ingot = 20,000 kilograms
Alternatively:
Materials Price Variance = AQ (AP – SP)
25,000 kilograms ($2.95 per kilogram – $2.50 per kilogram) =
$11,250 U
Materials Quantity Variance = SP (AQ – SQ)
$2.50 per kilogram (19,800 kilograms – 20,000 kilograms) = $500 F
Problem 10-13 (continued)
b.
Actual Hours of
Input, at the
Actual Rate
(AH _ AR)
3,600 hours _
$8.70 per hour
= $31,320
Actual Hours of
Input, at the
Standard Rate
(AH _ SR)
3,600 hours _
$9.00 per hour
= $32,400
↑
↑
Rate Variance,
$1,080 F
Standard Hours
Allowed for Output,
at the Standard Rate
(SH _ SR)
3,000 hours* _
$9.00 per hour
= $27,000
Efficiency Variance,
$5,400 U
↑
Total Variance, $4,320 U
*5,000 ingots _ 0.6 hour per ingot = 3,000 hours
Alternatively:
Labour Rate Variance = AH (AR – SR)
3,600 hours ($8.70 per hour – $9.00 per hour) = $1,080 F
Labour Efficiency Variance = SR (AH – SH)
$9.00 per hour (3,600 hours – 3,000 hours) = $5,400 U
Problem 10-13 (continued)
c.
Actual Hours of
Input, at the
Actual Rate
(AH _ AR)
$4,320
Actual Hours of
Input, at the
Standard Rate
(AH _ SR)
1,800 hours _
$2.00 per hour
= $3,600
↑
↑
Spending Variance,
$720 U
Standard Hours
Allowed for Output,
at the Standard Rate
(SH _ SR)
1,500 hours* _
$2.00 per hour
= $3,000
Efficiency Variance,
$600 U
↑
Total Variance, $1,320 U
*5,000 ingots _ 0.3 hours per ingot = 1,500 hours
Alternatively:
Variable Overhead Spending Variance = AH (AR – SR)
1,800 hours ($2.40 per hour* – $2.00 per hour) = $720 U
*$4,320 ÷ 1,800 hours = $2.40 per hour
Variable Overhead Efficiency Variance = SR (AH – SH)
$2.00 per hour (1,800 hours – 1,500 hours) = $600 U
Problem 10-13 (continued)
2. Summary of variances:
Material price variance............................. $11,250 U
Material quantity variance ........................
500 F
Labour rate variance................................
1,080 F
Labour efficiency variance........................
5,400 U
Variable overhead spending variance.........
720 U
Variable overhead efficiency variance ........
600 U
Net variance ........................................... $16,390 U
The net unfavourable variance of $16,390 for the month caused the
plant’s variable cost of goods sold to increase from the budgeted level of
$80,000 to $96,390:
Budgeted cost of goods sold at $16 per ingot......... $80,000
Add the net unfavourable variance (as above)........ 16,390
Actual cost of goods sold ..................................... $96,390
This $16,390 net unfavourable variance also accounts for the difference
between the budgeted net operating income and the actual net loss for
the month.
Budgeted net operating income ............................ $15,000
Deduct the net unfavourable variance added to
cost of goods sold for the month ........................ 16,390
Net operating loss ............................................... $(1,390)
3. The two most significant variances are the materials price variance and
the labour efficiency variance. Possible causes of the variances include:
Materials Price Variance:
Outdated standards, uneconomical
quantity purchased, higher quality
materials, high-cost method of
transport.
Labour Efficiency
Variance:
Poorly trained workers, poor quality
materials, faulty equipment, work
interruptions, inaccurate standards,
insufficient demand.
Problem 10-20 (60 minutes)
a. Total standard costs for swimsuits produced during June:
1,500 x $63...................................................... $94,500
Less standard costs of labour and overhead:
Direct labour .................................................... (24,000)
Variable overhead ............................................. (4,800)
Standard cost of materials used during June ........... $65,700
b. Standard cost of materials used during June ........... $65,700
Number of swimsuits produced...........................
1,500
Standard materials cost per swimsuit
(65,700÷1,500) ............................................. $43,80
Standard metres of direct materials per
swimsuit ($43.80÷$8) ...................................
5.475
metres
c. Actual cost of materials used................................. $65,000
Standard costs of materials used ........................... 65,700
Total variance...................................................
$700
F
Total materials variance........................................
Materials quantity variance ...................................
Materials price variance
d. Standard
Standard
Standard
Standard
$700
1,200
$1,900
variable overhead cost for June ........................
variable overhead rate per direct labour hour .....
direct labour hours for June (4,800÷3)..............
direct labour rate per hour ($24,000÷1,600)......
F
U
F
$4,800
$3
1,600
$15
OR
Standard
Standard
Standard
Standard
labour cost/unit
variable overhead/unit
labour hours/unit
labour rate/hour
=
=
=
=
$24,000÷1,500
$63 – ($43.80+$16)
$3.20÷$3
$16÷1.0667
=
$16
=
$3.20
= $1.0667
=
$15
Problem 10-20 (continued)
e. Actual cost per swimsuit produced
($63.00+$.42) ............................................
Number of swimsuits produced........................
Total actual costs of production .......................
Less: Actual cost of materials ......................... $65,000
Actual cost of variable overhead .............
4,860
Actual cost of direct labour .............................
f.
Labour rate variance
g. Efficiency variance
=
=
=
=
(AH x AR) – (AH x SR)
$25,270 – (1,700 x $15)
$25,270 – 25,500
$230 F
=
=
=
(AH x SR) – (SH x SR)
(1,700 x $15) - $24,000
$1,500 U
$
63.42
x 1,500.00
$95,130.00
69,860.00
$25,270.00
h. Variable overhead efficiency variance
= (SH x SR) – (AH x SR)
= $4,800 – (1,700 X $3)
= $300 U or $3 (1,700 – 1,600)
i.
= (AH x SR) – (AH x AR)
= $5,100 - $4,860
= $240 F
j.
Variable overhead spending variance
Standard
Standard
Quantity or
Price
Hours
or Rate
Direct materials ...................5.475 metres $ 8/metre
Direct labour .......................1.067 hours $15/hour
Variable overhead ................1.067 hours $ 3/hour
Total standard cost per
swimsuit...........................
Standard
Cost
$ 43.80
16.00
3.20
$ 63.00
Problem 10-22 (25 minutes)
Direct Material Variances:
Price Variance= (Actual quantity) (Standard price – Actual price)
Amak
7,500($2.40 – $2.40)
=
Brill
4,050 ($4.20 – $4.20) =
Comad
1,100 ($5.15 – $5.15)
=
Total material price variance
$-0-0-0$-0-
Usage Variance= (Standard price) (Flexible budget quantity –
Actual quantity)
Amak $2.40(6,840*–7,500) = $2.40 _ –660 = –$1,584 U
Brill
$4.20(4,560*–4,050) = $4.20 _ 510 =
2,142 F
Comad $5.15(1,140*–1,100) = $1.15 _
40 =
206 F
Total material usage variance
$ 764 F
*Flexible budget quantity = Standard quantity allowed for actual output =
(output quantity) (standard quantity per unit of output):
Amak
11,400kg _ .6 = 6,840
Brill
11,400kg _ .4 = 4,560
Comad 11,400kg _ .1 = 1,140
Mix variance=(Standard price) (Actual input at standard mix – Actual
input at actual mix)
Amak
$2.40(6,900*–7,500)=$2.40 _–660 =
Brill
$4.20(4,660*–4,050)=$4.20 _ 550 =
Comad $5.15(1,150*–1,100)=$5.15 _ 50
Total material mix variance
*Actual input at standard mix is calculated as follows:
Amak
12,650 kg _ 6/11 = 6,900
Brill
12,650 kg _ 4/11 = 4,600
Comad 12,650 kg _ 1/11 = 1,150
=
–$1,440 U
2,310 F
258 F
$ 1,128 F
Problem 10-22 (continued)
Yield Variance=(Standard price)(Flexible budget quantity — Actual
input at standard mix)
Amak
Brill
$2.40(6,840*–6,900)=$2.40 _ –60 =
$4.20(4,560*–4,600)=$4.20 _ –40 =
Comad $5.15(1,140*–1,150)=$5.15 _ –10 =
Total material yield variance
– $144 U
– 168 U
–
52 U
– $364 U
Direct Labour Variances:
Rate Variance =(Actual quantity)(Standard rate – Actual rate)
= 12,650 _ ($5.60 – $5.60)
= -0-
Usage Variance = (Standard price)(Flexible budget quantity –
Actual quantity)
= $5.60 _ (12,540* – 12,650)
= $5.60 _ –110
= –$616 U
*Flexible budget quantity = standard quantity allowed for actual output = output quantity X
Standard quantity per unit of output = 11,400kg _ 1.1kg = 12,540kg.
The production process operated efficiently in April, except for labour. Sticky Division used
more labour than the standard allowed to achieve the actual production volume.
(SMAC Solution, adapted)