Solution to chapter 9
1. Standard costs are essentially budgeted
amounts on a per-unit basis. Unit standards serve as inputs in building budgets.
2. Unit standards are used to build flexible budgets. Unit standards for
variable costs are the variable cost component of a flexible budgeting formula.
3. The quantity decision is determining how much input should be used per
unit of out- put. The pricing decision determines how much should be paid for the
quantity of input used.
4. Historical experience is often a poor choice for establishing standards because
the his- torical amounts may include more inefficiency than is desired.
5. Engineering studies can serve as an important input to standard setting. Many
feel that this approach by itself may produce standards that are too rigorous.
6. Idealstandards are perfection standards, representing the best possible
outcomes. Currently attainable standards are standards that are challenging but allow
some waste. Currently attainable standards are often chosen because many feel
they tend to motivate rather than frustrate.
7. Standard costing systems improve planning and control and facilitate product
costing.
8. By identifying standards and assessing deviations from the standards,
managers can locate areas where change or corrective behavior is needed.
9. Actual costing assigns actual manufacturing costs to products. Normal costing
assigns actual prime costs and estimated overhead costs to products. Standard
costing assigns estimated manufacturing costs to products.
10.
A standard cost sheet presents the standard amount of inputs and the price
for each in- put and uses this information to calculate the unit standard cost.
11.
Managers generally tend to have more
control over the quantity of an input used rather than the price paid per unit of
input.
12.
A standard cost variance should be investigated if the variance is material
and if the benefit of investigating and correcting the deviation is greater than the
cost.
13.
Control limits indicate how large a variance must be before it is judged to
be material and the process is out of control. Control limits are usually set by
judgment although statistical approaches are
occasionally used.
14.
The materials price variance is often computed at the point of purchase
rather than issuance because it provides control information sooner. When this is
done, the variance may be called the materials purchase price variance, and it is the
responsibility of the purchasing manager rather than the production manager.
15.
Disagree. A materials usage variance can be caused by factors beyond the
control of the production manager, e.g., purchase of a lower-quality material than
normal.
16.
Disagree. Using higher-priced workers to perform lower-skilled tasks is an
example of an event that will create a rate variance that is controllable.
17.
Some possible causes of an unfavorable labor efficiency variance are
inefficient labor, machine downtime, and poor quality materials.
18.
Part of a variable overhead spending variance can be caused by
inefficient use of overhead resources.
19.
Agree. This variance, assuming that variable overhead costs increase as labor
usage in- creases, is caused by the efficiency or inefficiency of labor usage. Also
labor may not be a good driver for variable overhead
20.
Fixed overhead costs are either committed
or discretionary. The committed costs will not differ by their very nature.
Discretionary costs can vary, but the level the company wants to spend on these
items is decided at the beginning and usually will be met unless there is a conscious
decision to change the predetermined levels.
21.
The volume variance is caused by the actual volume differing from the
expected volume used to compute the predetermined standard fixed overhead
rate. If the actual volume is different from the expected, then the
company has either lost or earned a contribution margin. The volume variance
signals this outcome, and if the variance is large, then the loss or gain is large
since the volume variance understates the effect.
22.
The spending variance is more important. This variance is computed by
comparing actual expenditures with budgeted expenditures. The volume
variance simply tells whether the actual volume is different from the expected
volume
9–3
1.
SH = 1.5 × 1,700 = 2,550 hours
2.
SQ = 4 × 1,700 = 6,800 components
9–6
1.
Cases needing investigation:
Week 1: Exceeds the 2,100 rule and the 5% rule. Week 4: Exceeds the
$2,100 rule and the 5% rule.
2.
The installation and repair manager. If the new workers are
now properly trained, no corrective action is required. If they are not,
further training will be required to return to the direct labor hours
normally used.
9–8
1.
MPV = (AP – SP)AQ
= ($0.047 – $0.046)6,420,000 = $6,420 U
MUV = (AQ – SQ)SP
= (6,420,000 – 6,656,000*)$0.046 = $10,856 F
* SQ = 52,000 × 128 = 6,656,000
2.
LRV = (AR – SR)AH
= ($12.50 – $12.00)2,000 = $1,000 U
LEV = (AH – SH)SR
= (2,000 – 1,976*)$12.00 = $288 U
* SH = 52,000 × 0.038 = 1,976
9–9
1.
Variable overhead analysis:
Actual VOH
$160,000
Budgeted VOH
$3.00 × 52,000
$4,000 U
Spending
Applied VOH
$3.00 × 54,750*
$8,250 F
Efficiency
* SH for direct labor = 73,000 × 0.75 = 54,750
2.
Fixed overhead analysis:
Actual FOH
$710,000
Budgeted FOH
$14 × 50,000
$10,000 U
Spending
Applied FOH
$14 × 54,750
$66,500 U
Volume
9–10
1.
Materials: $35 × 34,000 = $1,190,000
Labor:
$21 × 34,000 = $714,000
2.
Materials
Labor
Actual Cost*
$1,183,270
687,150
Budgeted Cost
$1,190,000
714,000
Variance
$ 6,730 F
26,850 F
*$173,500 × $6.82; 50,900 × $13.50
3.
MPV = (AP – SP)AQ
= ($6.82 – $7.00)173,500 = $31,230 F
MUV = (AQ – SQ)SP
= (173,500 – 170,000)$7 = $24,500 U
AP × AQ
$6.82 × 173,500
SP × AQ
$7 × 173,500
$31,230 F
Price
4.
$24,500 U
Usage
LRV
= (AR – SR)AH
= ($13.50 – $14.00)50,900 = $25,450 F
LEV
= (AH – SH)SR
= (50,900 – 51,000)$14 = $1,400 F
AR × AH
$13.50 × 50,900
SP × SQ
$7 × 170,000
SR × AH
$14 × 50,900
$25,450 F
Rate
SR × SH
$14 × 51,000
$1,400 F
Efficiency
9–12
1. Fixed overhead rate = $0.55/(1/2 hr. per unit) = $1.10 per DLH
SH = 786,000 × 0.5 = 393,000
Applied FOH = $1.10 × 393,000 = $432,300
2. Fixed overhead analysis:
Actual FOH
$430,300
Budgeted FOH
$1.10 × 400,000*
Applied FOH
$1.10 × 393,000
$9,700 F
Spending
$7,700 U
Volume
*400,000 expected hours = 0.5 hour × 800,000 units)
3. Variable OH rate = ($1,120,000 – $440,000)/400,000
= $1.70 per DLH
4. Variable overhead analysis:
Actual VOH
$695,000
Budgeted VOH
$1.70 × 390,000
$32,000 U
Spending
Applied VOH
$1.70 × 393,000
$5,100 F
Efficiency
9–14
1. MPV = (AP – SP)AQ
= ($6.60 – $6.40)1,684,700
= $336,940 U
MUV = (AQ – SQ)SP
= (1,684,000 – 1,680,000)$6.40
= $25,600 U
Note: There is no three-pronged analysis for materials because materials purchased is different from the materials used. (MPV uses materials purchased
and MUV uses materials used.)
2. LRV = (AR – SR)AH
= ($18.10 – $18.00)515,000
= $51,500 U
LEV = (AH – SH)SR
= [515,000 – (1.8 × 280,000 units)]$18.00
= $198,000 U
AR × AH
$18.10 × 515,000
SR × AH
$18 × 515,000
$51,500 U
Rate
SR × SH
$18 × 504,000
$198,000 U
Efficiency
3. Fixed overhead analysis:
Actual FOH
$4,140,200
Budgeted FOH
$8 × 518,400
$7,000 F
Spending
Applied FOH
$8 × 504,000
$115,200 U
Volume
Note: Practical volume in hours = 1.8 × 288,000 = 518,400 hours
4. Variable overhead analysis:
Actual VOH
$872,000
Budgeted VOH
$1.50 × 515,000
$99,500 U
Spending
Applied VOH
$1.50 × 504,000
$16,500 U
Efficiency