Solutions Solution Manual10

CHAPTER 10 Standard Costing and Performance Measures for Today’s Manufacturing EnvironmentANSWERS TO REVIEW QUESTIONS 10-1 Management by exception is a managerial technique in which only significant deviations from expected performance are investigated. 10-2 Any control system has three basic parts: a predetermined or standard performance level, a measure of actual performance, and a comparison between standard and actual performance. The system works by making the comparison between actual and standard performance and then taking action to bring about a desired consequence. 10-3 One method of setting standards is the analysis of historical data. Historical cost data provide an indicator of future costs. The methods for analyzing cost behavior described in Chapter 7 are used to predict future costs on the basis of historical costs. These predictions then form the basis for setting standards. Another method for setting standards is task analysis, which is the analysis of a production process to determine what it should cost to produce a product or service. The emphasis shifts from what the product did cost in the past to what it should cost in the future. An example of task analysis is a timeand-motion study conducted to determine how long each step performed by direct laborers should require. 10-4 A perfection (or ideal) standard is the cost expected under perfect or ideal operating conditions. A practical (or attainable) standard is the cost expected under normal operating conditions. Many behavioral scientists question the effectiveness of perfection standards. They feel that employees are more likely to perform well when they strive to achieve an attainable standard than when they McGraw-Hill/Irwin Inc. Managerial Accounting, 5/e © 2002 The McGraw-Hill Companies, 10-1 strive, often unsuccessfully, to achieve a perfection standard. 10-5 A bank could use standards to specify the required amount of time to process a loan application or process a bank transaction. 10-6 Standard material prices include the purchase price of the material and any transportation costs incurred to obtain the material. The standard quantity of material is the amount required to be included in the finished product plus an allowance for normal waste expected in the production process. 10-7 An unfavorable direct-material price variance means that a higher price was paid for the material than was expected when the standard was set. A favorable variance has the opposite interpretation. 10-8 The manager in the best position to influence the directmaterial price variance is the purchasing manager. 10-9 An unfavorable direct-material quantity variance means that a larger amount of material was used in the production process than should have been used in accordance with the standard. A favorable variance has the opposite interpretation. 10-10 The manager in the best position to influence the direct-material quantity variance usually is the production manager. 10-11 The direct-material price variance is based on the quantity purchased (PQ). Deviations between the actual and standard price, which are highlighted by the price variance, relate to the purchasing function in the firm. Timely action to follow up a significant price variance is facilitated by calculating this variance as soon as possible after the material is purchased. The direct-material quantity variance is based on the amount of material used in production (AQ). The quantity variance highlights deviations between the quantity of material actually used (AQ) and the standard quantity McGraw-Hill/Irwin Inc. 10-2 © 2002 The McGraw-Hill Companies, Solutions Manual allowed (SQ). Therefore, it makes sense to compute this variance at the time the material is used in production. 10-12 An unfavorable direct-labor rate variance means that a higher labor rate was paid than was anticipated when the standard was set. One possible cause is that labor rate raises granted were above those anticipated in setting the standards. Another possible cause is that more highly skilled workers were used to perform tasks than were required or were anticipated at the time the standards were set. A favorable variance has the opposite interpretation. 10-13 In some cases, the manager in the best position to influence the direct-labor rate variance is the production manager. In other cases, the personnel manager or union negotiator would have greater influence. 10-14 The interpretation of an unfavorable direct-labor efficiency variance is that more labor was used to accomplish a given task than was required in accordance with the standards. A favorable variance has the opposite interpretation. 10-15 The manager in the best position to influence the direct-labor efficiency variance usually is the production manager. 10-16 The issue of quantity purchased versus quantity used does not arise in the context of direct labor, because direct labor is purchased and used at the same time. Unlike direct material, direct labor cannot be purchased and inventoried for later use. 10-17 Several factors that managers often consider when determining the significance of a variance are as follows: size of variance, extent to which the variances are recurring, trends in the variances, controllability of the variances, and the perceived costs and benefits of investigating the variances. 10-18 Several ways in which standard-costing should be adapted in the new manufacturing environment are as follows: McGraw-Hill/Irwin Inc. Managerial Accounting, 5/e © 2002 The McGraw-Hill Companies, 10-3 Overhead cost control becomes especially critical.(a) Reduced importance of labor standards and variances: As direct labor occupies a diminished role in the new manufacturing environment. standards should be established as benchmarks for performance. waiting time. material and overhead costs take on greater significance. and move time. (g) New measures and standards: In the new manufacturing environment. (f)Non-value-added costs: A key objective of a cost management system is the elimination of non-valueadded costs. One result should be very low material price and quantity variances and low costs of rework. (d) Shifting cost structure: Advanced manufacturing systems require large outlays for production equipment. (b) Emphasis on material and overhead costs: As labor diminishes in its importance. As new measures are developed. (e) High quality and no defects: Total quality control programs that typically accompany a JIT approach strive for very high quality levels for both raw materials and finished products. Solutions Manual . which entail a shift in the cost structure from variable costs toward fixed costs. (c) Cost drivers: Identification of the factors that drive production costs takes on greater importance in the cost management system. standards must be revised frequently to provide accurate benchmarks for cost control. 10-4 © 2002 The McGraw-Hill Companies. An example is the manufacturing cycle efficiency measure. As these costs are reduced or eliminated. which is defined as processing time divided by the sum of processing time. McGraw-Hill/Irwin Inc. the standards and variances used to control labor costs also decline in importance. new measures must be developed to control key aspects of the production process. inspection time. the standard cost of the goods sold is transferred from the FinishedGoods Inventory account to Cost of Goods Sold. they provide motivation for employees to adhere to standards. McGraw-Hill/Irwin Inc. which then serves as a sensible benchmark to compare with the actual cost incurred. performance (d) Since the variances are used in performance evaluation. From that point forward. (b) Computation of standard costs and cost variances enables managers to employ management by exception. 5/e © 2002 The McGraw-Hill Companies. Managerial Accounting. This enables managers to eliminate the causes of unfavorable variances more quickly.(h) Real-time information systems: A computerintegrated manufacturing system enables the managerial accountant to collect operating data as production takes place and to report relevant performance measures to management on a real-time basis. When goods are sold. Standard costs enable the managerial accountant to compute the standard allowed cost. standard costs flow through all the manufacturing accounts. the standard cost of the finished goods is removed from the Work-in-Process Inventory account and transferred to the Finished-Goods Inventory account. When goods are finished. The costs entered into Work-in-Process Inventory are standard costs. standard costs are used for product-costing purposes as well as for control purposes. (c) Variances provide a means of evaluation and rewards for employees. 10-19 Under a standard-costing system. 10-20 Advantages of a standard-costing system include the following: (a) Standard costs provide a basis for sensible cost comparisons. 10-5 . (e) Use of standard costs in product costing results in more stable product costs than if actual production costs were used. given actual output. or normal-costing system. Solutions Manual . waiting time. and it is too highly aggregated. the number of products returned and the cost of repairing returned products. 10-24 An aggregate productivity measure is defined as total output divided by total input. and move time. Such a measure is limited because it is expressed in dollars. inspection time. A preferable approach to productivity measurement is to record multiple physical measures that capture the most important determinants of a company's productivity. 10-25 Eight criticisms of standard costing in an advanced manufacturing setting are the following: (a) Variances are too aggregate and too late to be useful. 10-21 Seven areas in which operational measures are being used are as follows: (a) (b) (c) (d) (e) Raw material and scrap Inventory Machinery Product quality Production and delivery performance (f)Productivity (g) Innovation and learning 10-22 Manufacturing cycle efficiency (MCE) is defined as processing time divided by the sum of the following four items: processing time. 10-23 Examples of customer-acceptance measures include the number of customer complaints. 10-6 © 2002 The McGraw-Hill Companies. McGraw-Hill/Irwin Inc. the number of warranty claims. rather than in physical attributes of the production process.(f)A standard-costing system usually is less expensive than an actual. Here are some possibilities for a bank: • Financial: (a) profit. 10-7 . (d) Frequent switching among products in an FMS cell makes cost standards less appropriate. (c) Standard-costing systems focus too much on direct labor. or FMS cells.(b) Variances are not tied to specific product lines. rather than increasing product quality or customer service. (b) employee suggestions received and implemented. 10-27 An airline could measure the frequency and cost of customer complaints about lost or damaged luggage. (b) employee retention and advancement. • Innovation and learning: (a) new financial products. (g) Traditional standard-costing systems tend to focus too much on cost minimization. (f)Traditional standard costs are not defined broadly enough to include important costs. (h) Automated manufacturing processes are highly reliable in meeting production specifications.e. (e) Shorter product life cycles mean that individual standards are soon outmoded. After reducing the number of such incidents. such as the total cost of ownership. • Internal operations: (a) number of transaction errors. 5/e © 2002 The McGraw-Hill Companies.. As a result variances from standards tend to be very small or nonexistent. • Customer: (a) local market share. Managerial Accounting. 10-26 Responses will vary widely on this question. production batches. (b) administrative) operations. cost of back-office (i. the cost savings could be shared with the relevant employees McGraw-Hill/Irwin Inc. (b) number of repeat customers. . McGraw-Hill/Irwin Inc.(e. 10-8 © 2002 The McGraw-Hill Companies. front-counter ticket agents and baggage-handling personnel).g. Solutions Manual . 000 Unfavorable *SH = 12.500*) = $8.000 – 12.000 units × .25 hours per unit McGraw-Hill/Irwin Inc.000 units × 4 kilograms per unit Direct-labor rate = AH(AR – SR) variance = 13.80) = $2.80(210.400 Unfavorable Direct-material = SP(AQ – SQ) quantity variance = $.000*) = $8.00(13. 10-9 . Managerial Accounting.900 ÷ 13.000 hours Direct-labor efficiency = SR(AH – SH) variance = $16.00) = $3.000 – 200.000($.000 kilograms = 50. 5/e © 2002 The McGraw-Hill Companies.000($16.500 hours = 50.SOLUTIONS TO EXERCISES EXERCISE 10-28 (15 MINUTES) Direct-material price = PQ(AP – SP) variance = 240.81 – $.30* – $16.000 Unfavorable *SQ = 200.900 Unfavorable *AR = $211. 81 0 per × kilogra kilogr ms am purcha sed $194.00 $.80 kilogram × per s allowed kilogra m Actual Standa Quantit × rd y Price 240.000 Unfavora ble Directmaterial quantity variance McGraw-Hill/Irwin Inc. 10-10 © 2002 The McGraw-Hill Companies.80 kilogra × per ms kilogram used $168.000 $.400 Unfavorable Direct-material price variance 210.000 $8.80 0 per × kilogra kilogra ms m purcha sed $192.400 STANDARD MATERIAL COST Standard Standa Quantity × rd Price 200.000 $2.000 $.00 $.000 $160. Solutions Manual .EXERCISE 10-29 (30 MINUTES) DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES ACTUAL MATERIAL COST Actual Actual Quantit × Price y 240. . new products present challenges in setting standards...000 $3..EXERCISE 10-29 (CONTINUED) DIRECT-LABOR RATE AND EFFICIENCY VARIANCES ACTUAL LABOR COST Actual Actual Hours × Rate 13...000 hours used Standa rd × Rate $16.00 per × hour Actual Hours 13. Typically. Managerial Accounting... EXERCISE 10-31 (10 MINUTES) Standard quantity: Hardwood in finished product. particularly if they involve new production processes or materials. Total standard quantity required per McGraw-Hill/Irwin Inc. 10-11 ........900 Unfavorable Direct-labor variance EXERCISE 10-30 (10 MINUTES) Answers will vary widely.00 per × hour $211.30 per × hour STANDARD LABOR COST Standard Standa Hours × rd Rate 12.500 hours allowed $16.... depending on the company and the product.900 Unfavorable Direct-labor rate variance $8. Managerial accountants and engineers often look to other similar products or other products manufactured using similar processes to get an idea as to what the standard cost of a new product should be.000 hours used $16.... 5/e 8 board feet  2 board feet 10 board © 2002 The McGraw-Hill Companies.000 $200.900 $208.000 Unfavorable Direct-labor efficiency variance $11. Allowance for normal scrap........ .............. 10-12 © 2002 The McGraw-Hill Companies. Solutions Manual ...... $ 4...00   1...........box............................50 $ 5....... Standard price: Purchase price per board foot of hardwood......................... Total standard price per board foot......... Transportation cost per board foot..50 feet McGraw-Hill/Irwin Inc...... 400 Unfavorable *AQ = 4... Price per board foot.. Managerial Accounting..... 10 board feet × $ 5.100 Unfavorable *SH = 6......000†) = $1......450 hours = $116..000($7.660 ÷ $7.. 5/e ..30 – $7..450*($18.000 units × 2 pounds per unit Direct-labor rate variance = AH(AR – SR) = 6..10 per hour Direct-labor efficiency = SR(AH – SH) variance = $18(6.00) = $1.00) = $645 Unfavorable *AH = 6......000 pounds = 2..800 Unfavorable Direct-material quantity = SP(AQ – SQ) variance = $7.000)* = $8...30 per pound † SQ = 4...00(4...745 ÷ $18.. 10-13 McGraw-Hill/Irwin Inc..50 $55..................00 EXERCISE 10-32 (15 MINUTES) Direct-material price variance = PQ(AP – SP) = 6....000 units × 3 hours per unit © 2002 The McGraw-Hill Companies.200 pounds = $30......200* – 4....EXERCISE 10-31 (CONTINUED) Standard direct-material cost of a jewelry box: Standard quantity...000 hours = 2. Standard direct-material cost..10 – $18.450 – 6.... EXERCISE 10-33 (30 MINUTES) DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES ACTUAL MATERIAL COST Actual × Actual Quantit Price y 6.00 per pound $29.200 pounds used × $7.400 $1.000 $7.30 pounds × per purcha pound sed $43.00 per × pound Actual × Standa Quantit rd y Price 6.000 $7.000 $28.800 Unfavorable Direct-material price variance 4.000 $1.000 pounds allowed $7.00 pounds × per purcha pound sed $42. Solutions Manual . 10-14 © 2002 The McGraw-Hill Companies.400 Unfavora ble Directmaterial quantity variance McGraw-Hill/Irwin Inc.800 STANDARD MATERIAL COST Standard × Standa Quantity rd Price 4. 100 Unfavorable Direct-labor efficiency variance $8.EXERCISE 10-33 (CONTINUED) DIRECT-LABOR RATE AND EFFICIENCY VARIANCES ACTUAL LABOR COST Actual × Actual Hours Rate 6.10 per × hour STANDARD LABOR COST Standard × Standa Hours rd Rate 6.100 $108.000 $645 Unfavorable Direct-labor rate variance $8. 5/e © 2002 The McGraw-Hill Companies. Managerial Accounting. 10-15 .745 $116.00 per × hour Actual Hours 6.450 hours used × Standa rd Rate $18.745 Unfavorable Direct-labor variance McGraw-Hill/Irwin Inc.450 hours used $18.00 per × hour $116.000 hours allowed $18. McGraw-Hill/Irwin Inc.(a) Statistical control chart with variance data plotted: Favorable variances $1.EXERCISE 10-34 (25 MINUTES) 1. $950. since they are the only ones that exceed 1 standard deviation. 10-16 © 2002 The McGraw-Hill Companies. Solutions Manual .000 • • • • Unfavorable variances 1 standard deviation (b) Only the variances in May and June would be investigated.000 1 standard deviation $500 • 0 Time January Februar y March April May June $500 • $1. ......200 pounds = 4.......EXERCISE 10-34 (CONTINUED) 2. is equal to or greater than the cutoff value...... 5/e © 2002 The McGraw-Hill Companies.............. It would be reasonable to conclude that the consistent stream of relatively large unfavorable variances should be investigated before May.875 × input Good output = standard allowed input .....140 Only the June variance... Cutoff value for investigation.... EXERCISE 10-35 (5 MINUTES) Good output = (7/8) × input = .................. only June's variance would be investigated.800 pounds..... and there is no right or wrong answer..875 The standard allowed input quantity in May was 4.... The three variances for February....... $1... McGraw-Hill/Irwin Inc. Rule of thumb: Standard cost..... and April would be cause for concern. This is a judgment call......... Cutoff percentage..... $19......... March.... (U denotes unfavorable. Thus..875 4....) 3..........200 U..000 × 6% $ 1.... Managerial Accounting...800 pounds of input . 10-17 ...... ......................... Solutions Manual .. $ 65.......000 units F Ub F $30.......000 lbs Actual quantity used = quantity purchased AQ = PQ = 30....... Direct-material price = PQ(AP – SP) variance $30............... Actual price or rate per unit of input.......... — — $ 35.....................000 Ud $100.............................000 units Direct-material price variance..000 lbs Actual quantity per unit = 10. Direct-labor efficiency variance.....000 $10.. 10........ Standard quantity per unit of output Actual quantity used per unit of output........5 hrs Direct Material $8 per lb 2. Total of direct-material variances..000 $20.........000 nits = 3lbsperunit u of output McGraw-Hill/Irwin Inc.000 F Explanatory notes: a..... 10-18 3 ......EXERCISE 10-36 (30 MINUTES) Direct Labor $20 per hre 4 hrs per unitf 3.000 — — — Standard price or rate per unit of input..75 lbs per unitc 3 lbs per unita $7 per lb 10.......... — Direct-material quantity variance... Direct-labor rate variance.........000 F Total of direct-labor variances..0 0 s 0 0 lb © 2002 The McGraw-Hill Companies.000 F = PQ($7 – $8) PQ = 30. $21 per hr Actual output. 500 lbs lb Standard quantity per = 10. Total direct-labor = rate variance + efficiency variance variance $65.5 0 s 7 0 lb EXERCISE 10-36 (CONTINUED) d. AH = 10.75 sperunit u unit 2 .000 – SH) SH = 40.000 F = rate variance + $100.000 hrs hrs per unit Direct-labor rate = AH(AR – SR) variance $35.000 – SQ) SQ = 27.000 F = $20 (35.000 U e. Managerial Accounting. Direct-material quantity = SP(AQ – SQ) variance $20.000 hrs Standard hrs per unit = 40.000 F Rate variance = $35.5 = 35.b.000 U c. Total direct-material = price variance + quantity variance variance $10. Direct-labor efficiency = SR(AH – SH) variance $100.000 F = $30.000 U = 35.000 units × 3.000($21 – SR) SR = $20 f.000 U = $8(30. 5/e © 2002 The McGraw-Hill Companies.000 F + quantity variance Quantity variance = $20.000 nits = 2.000 units = 4 hrs per unit McGraw-Hill/Irwin Inc.000 hrs/10. 10-19 . 6 (ro n e ) /2 3 % u d d 3d y +1 d y +1 d y +2 d y as . Manufacturing cycle = efficiency p r o c e s t im g s in e p r o c e s t im g s p e ct imn s in e + in t io e + w a it t im e o v e e in g m t im + 8.5 + hour .5 a s 5 as . Manufacturing cycle time = total production e batch tim per units batch per 10 hours = 20 units batch per = .5 + hour = 85% 2. Solutions Manual .5 hours . p ce in tim ro ss g e p ce in tim +in e ro ss g e sp ctio tim + w itin tim +m v tim n e a g e o e e 3d y as = 3 2 = 1 . Velocity = total production per time batch 20 units = 2units hour per = 10 hours units batch per EXERCISE 10-38 (10 MINUTES) 1.5 hours = 8. In this case the delivery cycle time is 22 days. 10-20 © 2002 The McGraw-Hill Companies.5 a s Delivery cycle time is the average time between receipt of the customer's order until delivery of the goods.EXERCISE 10-37 (10 MINUTES) 1.5 + hour . McGraw-Hill/Irwin Inc. Manufacturing cycle efficiency (MCE): MCE = = 2.5 hour (or 30 minutes) per unit 3. Customers per day e. A preferable approach would be to record multiple physical measures that capture the most important determinants of the bank's productivity. Checks miscoded per 1. Clerk time per bank window customer b. Errors per 1.2 = $ . Square feet of space in bank per 1. Average time to process a loan application McGraw-Hill/Irwin Inc.000 checks processed d.0 0 $ 0 0 . 5/e © 2002 The McGraw-Hill Companies. Customers per employee f.0 0 0 = 1 5 8 0 .000 transactions handled c.000 customers g. This summary financial measure does not convey much information to management or other users of the data.0 0 0 2.EXERCISE 10-39 (15 MINUTES) 1. Examples include the following: a. Aggregate (or total) productivity = total input total output . 10-21 . Managerial Accounting.0 1 . ..............000 168. Direct-Material Quantity Variance....300 McGraw-Hill/Irwin Inc........000 194....400 Direct-Material Quantity Variance 8.. EXERCISE 10-41 (15 MINUTES) Raw-Material Inventory 192.....000 8....400 8.............400 160........000 © 2002 The McGraw-Hill Companies.......000 200.......... Direct-Material Quantity Variance.......000 211.....400 2.. Raw-Material Inventory.......900 Direct-Material Price Variance 2.. Wages Payable........ Direct-Labor Efficiency Variance.... 10-22 192............................000 Accounts Payable 194..000 8...........000 3.... Direct-Labor Rate Variance..... Direct-Material Price Variance..900 Direct-Labor Efficiency Variance 8...... Solutions Manual ...... Direct-Material Price Variance......000 2..900 22.......... Direct-Labor Rate Variance.... Accounts Payable.....000 200...000 Work-in-Process Inventory 160. Direct-Labor Efficiency Variance................................400 168...............900 8...900 8. Work-in-Process Inventory....000 Direct-Labor Rate Variance 3........ Work-in-Process Inventory...300 2........... Cost of Goods Sold.................EXERCISE 10-40 (15 MINUTES) Raw-Material Inventory.....000 3....900 3.....................000 Cost of Goods Sold 22.....400 Wages Payable 211.000 8....... Managerial Accounting. 5/e © 2002 The McGraw-Hill Companies. 10-23 .McGraw-Hill/Irwin Inc. . × $15... Direct-labor rate variance = (AH × AR) – (AH × SR) = (40..60) – (40.....800 UNITS FOR THE MONTH OF JANUARY Standar d Costs $ 58...100 × $14.100 × McGraw-Hill/Irwin Inc. Direct-material quantity variance = (AQ × SP) – (SQ × SP) = (23..00 0 $643.800 units × 5 hrs.... per unit = 23..SOLUTIONS TO PROBLEMS PROBLEM 10-42 (35 MINUTES) 1 ...500 585. Direct-material price = (PQ × AP) – (PQ × SP) variance = (25..500 Unfavorable b.......800 units × 3 lbs.50) = $750 Favorable *7... Solutions Manual .....400* × $2.. c.60) – (25. Schedule of standard production costs: NEW JERSEY VALVE COMPANY CAMDEN PLANT SCHEDULE OF STANDARD PRODUCTION COSTS BASED ON 7. × $2..50 0 Direct material.......100 × $2...50) = $2. 10-24 © 2002 The McGraw-Hill Companies. 7....50 Direct labor.50) – (23... Variances: a.. 7..00 Total standard production costs 2...400 lb.800 units × 3 lbs.....000 × $2.000 × $2. 00) – (39...040 Favorable d.....38) – (18.35) = $24......................45rea l    1..... Direct-material price variance = (PQ × AP) – (PQ × SP) = (18.....80rea l    2..40re al    17....840 – $24..... 10-25 Initial Mix 12  kg 9.... 5/e ...000 hr.........6 ltr 5  kg Unit Cost 1. The real is Brazil’s national currency....000* × $15............... PROBLEM 10-43 (15 MINUTES) Direct Material Nyclyn................00) = $16....300 = $540 Unfavorable 2... Standard material cost for each 10-liter container...100 × $15......000 × $1.00r eal    46.000 × $1..$15.. Protet.... Salex. Managerial Accounting. Direct-labor efficiency variance = (AH × SR) – (SH × SR) = (40.....00) = $16. Direct-material quantity variance = (AQ × SP) – (SQ × SP) © 2002 The McGraw-Hill Companies...28re al    12....68re al    McGraw-Hill/Irwin Inc......500 Unfavorable *7.800 units × 5 hours per unit = 39.40rea l    Standar d Material Cost 17.... PROBLEM 10-44 (25 MINUTES) 1... 500 × $1.000* × $1.000 yards 3.15) – (2. 10-26 © 2002 The McGraw-Hill Companies.900 = $315 Unfavorable McGraw-Hill/Irwin Inc. Direct-labor rate variance = (AH × AR) – (AH × SR) = (2.35) = $675 Favorable *500 units × 20 yards per unit = 10. Solutions Manual .00) = $19.100 × $9.35) – (10.= (9.100 × $9.215 – $18. Direct-material quantity $ 350 variance…………………… Favorable McGraw-Hill/Irwin Inc. Direct-labor efficiency variance = (AH × SR) – (SH × SR) = (2.700 pounds x $ .200 50…………………………….650 53……………………………… Actual quantity purchased x standard price 5.000* × $9.100 × $9. $1. 5/e © 2002 The McGraw-Hill Companies. 2. Unfavorable Quantity variance: Actual quantity used x standard price 3.00) – (2.400 pounds* x $ .000 pounds x $ .850 50……………………………… Standard quantity allowed x standard price 4.00) = $18..500 50……………………………… Direct-material price $ 150 variance………………………. Type I fertilizer: Price variance: Actual quantity purchased x actual price 5. 2. $2.900 – $18.000 pounds x $ .000 hours PROBLEM 10-45 (35 MINUTES) 1.000 = $900 Unfavorable *500 units × 4 hours per unit = 2. 10-27 .PROBLEM 10-44 (CONTINUED) 4. Managerial Accounting. Actual quantity purchased x standard price 10. 4.000 pounds x $ . $4. Solutions Manual . 10-28 © 2002 The McGraw-Hill Companies.200 42…………………………….000 40…………………………….000 pounds x $ . Direct-material price $ 200 variance……………………….* 40 pounds applications x 55 clients x 2 Type II fertilizer: Price variance: Actual quantity purchased x actual price 10. Favorable McGraw-Hill/Irwin Inc. Direct-material quantity $ 420 variance…………………… Favorable * 40 pounds applications 2..800 pounds* x $ .485.696 42…………………………….50 $11.276 42……………………………… Standard quantity allowed x standard price 8.800 pounds x $ .00 $9. Favorable McGraw-Hill/Irwin Inc..00……………………… Direct-labor rate $ 412.00 variance………….PROBLEM 10-45 (CONTINUED) Quantity variance: Actual quantity used x standard price 7. 5/e © 2002 The McGraw-Hill Companies. Standard hours allowed x standard rate 220 hours* x 1. Direct-labor efficiency $ 495...485. x 55 clients x 4 Direct-labor variances: Rate variance: Actual hours used x actual rate 165 hours x $1. Managerial Accounting.897.00……………………….00…………………….00 $9.50…………………….980. 10-29 .00 $9.50 variance………………… Unfavorable Efficiency variance: Actual hours used x standard rate 165 hours x $1. 3. Actual hours used x standard rate 165 hours x 1. $3. 50. With costs of $6. 10-30 © 2002 The McGraw-Hill Companies. Type II fertilizer: Actual quantity used x actual price (7.97 8. generating revenue of $13.700 pounds x $ . Amato charged clients $40 per application.221.800 pounds x $ .00 3.* 2/3 hours x 55 clients x 6 applications 3. Actual cost of applications: Type I fertilizer: Actual quantity used x actual price (3. the fertilization service produced a profit of $6. Solutions Manual .50)……….96 1. $1..50.200 (55 clients x 6 applications x $40).12 0. the service was a financial success. Total actual cost…………………………………………………………..53)….00 1.978.50 $6.40)…. McGraw-Hill/Irwin Inc. Direct labor: Actual hours used x actual rate (165 hours x $11.50 Yes.89 7. 00 Favorable $902. each of the three cost components (Type I fertilizer. This inflated rate is attributable to the tight labor market. especially given the fact that this is a new service. (a) Yes. This © 2002 The McGraw-Hill Companies. Amato did have a sizable unfavorable labor-rate variance as a result of his having to pay $11.50 Unfavorable 495. In addition. 10-31 McGraw-Hill/Irwin Inc. Quantity variance……………………………… Type II fertilizer: Price variance………………………………….00 per hour. . several of the favorable variances may have come back to haunt Amato. Note: Part of the variance may have been caused by a standard rate that was set too low. The favorable labor efficiency variance means that less time is being spent on the job than originally anticipated. the service was a success. . Type I fertilizer: Price variance…………………………………. Quantity variance……………………………… Direct labor: Rate variance………………………………… … Efficiency variance…………………………… Total material and labor variances (b) $150.00 Favorable 412. which is beyond his control. and direct labor) produced a net favorable variance. Type II fertilizer.50.00 Unfavorable 350.50 per hour when a more typical wage rate would have been $9. 5/e . Managerial Accounting.PROBLEM 10-45 (CONTINUED) 4. Overall costs were controlled as indicated by a total favorable variance of $902.00 Favorable 200.50 Favorable In this case.00 Favorable 420. one cannot get a totally clear picture of performance. by simply reporting total variances for material and labor. Also. No. with each being less than 2% of budgeted cost amounts ($350. This is a management judgment for Amato to make. The variances are favorable and small. less fertilizer used than budgeted (i. quantity. McGraw-Hill/Irwin Inc. rate.000). Price. If the service is continued. Solutions Manual .e. 10-32 © 2002 The McGraw-Hill Companies. However. and efficiency variances should be calculated for further insight. 5. PROBLEM 10-46 (30 MINUTES) 1. favorable quantity variances for both Type I and Type II) would likely give rise to an increased occurrence of weeds as well as a lack of greening in the lawn. Amato should consider hiring a fulltime employee and insisting on the standard amount of fertilizer being applied to each lawn..may indicate that the part-time employee is rushing and doing sloppy work. Favorable Quantity variance: Actual quantity used x standard price 45.00………………….000 pounds x $346.80…………………………….600 $14. McGraw-Hill/Irwin Inc.500 variance………………………. Direct-material quantity $ 44. Direct-material price $ 49.70…………………………….000 pounds x $396.80…………………………… Standard quantity allowed x standard price 39. Direct-material variances: Price variance: Actual quantity purchased x actual price 45. Actual quantity purchased x standard price 45.880U = $4.625 $16.000 $8.2 pounds Total direct-material variance: $49.500F + $44.900 pounds* x 351.900 hours x $339. 5/e © 2002 The McGraw-Hill Companies. 10-33 .000 pounds x 396.000 $8.620F Direct-labor variances: Rate variance: Actual hours used x actual rate 20.900 hours x 292. Actual hours used x standard rate 20.80………………………….500 $7.880 variance…………………… Unfavorable * 9.25………………….. Managerial Accounting.500 units x 4.PROBLEM 10-46 (CONTINUED) 2.120 $8. Solutions Manual .900 hours x $292.6 hours Total direct-labor variance: $47. 10-34 © 2002 The McGraw-Hill Companies.175F McGraw-Hill/Irwin Inc. Favorable * 9.025 Unfavorable Efficiency variance: Actual hours used x standard rate 20.Direct-labor variance………………… rate $ 47.025U + $53.600 $14.200F = $6.00………………….500 units x 2.200 variance…………... Direct-labor efficiency $ 53.700 hours* x 345. Standard hours allowed x standard rate 24.00……………….800 $14. offsetting variances (all in excess of 12% of budgeted cost amounts). as a contented. No. A variance investigation should be undertaken if the likely benefits of the investigation appear to exceed the costs. That is. 4. laborers may be rushing through their jobs and using more material than the standards allow. things are not going as smoothly as the vice-president believes. ability to deliver quality goods. The prices paid for materials and the quality of material acquired are normally the responsibility of the purchasing manager. 5. Yes. Although the combined variances are small. As a side note. With regard to the new supplier. a more detailed analysis reveals the presence of sizable. which would likely be uncontrollable from Schmidt’s perspective. Finally. 10-35 . Turning to direct labor. However. The change to the new supplier may introduce problems of dealing with the unknown—the supplier’s reliability. as indicated by the unfavorable quantity variance and increased usage. McGraw-Hill/Irwin Inc. etc. direct-labor wage rates are often a function of market conditions. Managerial Accounting. Yes. another plausible explanation could be that Santa Rosa is paying premium wages (as indicated by the unfavorable rate variance) to hire laborers with above-average skill levels. Santa Rosa is paying less than expected for direct materials.PROBLEM 10-46 (CONTINUED) 3. However. well-trained work force tends to be more efficient. 5/e © 2002 The McGraw-Hill Companies. Schmidt is the production supervisor. the quality may be poor. the favorable efficiency variance means that the company is producing units by consuming fewer hours than expected. the favorable direct-labor efficiency variance may partially explain the unfavorable material quantity variance. This may be the result of the team-building/morale-boosting exercises. ..255 1...994 6...5 x 4 = 662 b... October....................... a............659 8...158 869 McGraw-Hill/Irwin Inc.......... 10-36 © 2002 The McGraw-Hill Companies. June..... *Rounded......997 1.. 3..................PROBLEM 10-47 (35 MINUTES) 1.......158 1....................... February...................056 9..................................... September..343 b....799 1..343 F 2.....050 33...273 5..... March.......................930 2..... July......... Solutions Manual .. 20% of the Standard DirectLabor Cost* $1................... August.......210 6.................08 = $4... April. May........ $ 9....791 4.... The variances for all of the months except August and September exceed 20% of the standard direct-labor cost and would therefore be investigated.. Machine hours x 4 = standard direct-labor hours 165........ a......................297 43.651 13......791 5.......................611 1.983 6................ Direct-labor efficiency variance = (AH−SH)SR = (374−662)$15...... Standard DirectLabor Cost* January.... Managerial Accounting. 5/e © 2002 The McGraw-Hill Companies.4. Statistical control Fa b vora le v ria ce a n s (int ou n s) h sa d $5 2 chart for direct-labor efficiency $0 2 $5 1 $0 1 1st n a a d rd dv t e ia ion $ 5 $ 0 Tim e Ja n Fe b Mr a Ap r My a Ju e n Ju ly Au g Se t p O ct $ 5 1st n a a d rd dv t e ia ion $0 1 $5 1 $0 2 $5 2 U fa ora le n v b va n s ria ce (int ou n s) h sa d McGraw-Hill/Irwin Inc. 10-37 . 10-38 © 2002 The McGraw-Hill Companies. Direct-labor efficiency variance = SR(AH – SH) = $8.000 units × 8 lbs.variances: PROBLEM 10-47 (CONTINUED) 5. and June will be investigated.75) = $304. 6.625 Favorable *Standard quantity allowed = 19.750*) = $2.000 – (160.000 = $37. The variances for March.000 Unfavorable *19. Solutions Manual .00) = $2. The production volume was much greater in March.000 units × .000 × $8.000 – 4.500 – 152.000*) = $16.750 hours McGraw-Hill/Irwin Inc.000 Unfavorable 2.000 × $1.200 Favorable *90% × $42. Direct-labor rate variance = (AH × AR) – (AH × SR) = $37. Direct-material price variance = (PQ × AP) – (PQ × SP) = $304.000 lbs. Direct-material quantity variance = SP(AQ – SQ) = $1.25 hour per unit = 4. 3. April.75(142.000 – $280.800 4. and June.800* – (5. per unit = 152. since they exceed one standard deviation. April.00(5. PROBLEM 10-48 (25 MINUTES) 1.000 = $24. Managerial Accounting. 10-39 . 5/e © 2002 The McGraw-Hill Companies.McGraw-Hill/Irwin Inc. • Past records on raw-material cost. Labor: The personnel manager or payroll manager would be involved in setting standard labor rates. Responsibility for setting standards: Materials: The development of standard prices for material is primarily the responsibility of the materials manager. and Factors in establishing labor standards: • Engineering studies of the time required to complete various tasks. and market conditions. b. 10-40 © 2002 The McGraw-Hill Companies. waste. Solutions Manual . a.PROBLEM 10-49 (30 MINUTES) 1. scrap. Operating department managers with input from production supervisors and engineers would be involved in setting standards for labor usage. • Expected wage rates. including expected general economic conditions. demand materials. • Learning. drawings. industry prospects. for the • Product specifications from descriptions. The factors that should be considered in establishing material standards include the following: • Price studies. Operating departmental managers and engineers should be involved in setting standards for material quantities. and blueprints. McGraw-Hill/Irwin Inc. usage. • Expected labor mix (e.g.. 5/e © 2002 The McGraw-Hill Companies. McGraw-Hill/Irwin Inc. skilled versus unskilled). 10-41 . Managerial Accounting. PROBLEM 10-49 (CONTINUED) 2. The basis for assignment of responsibility under a standard-costing system is controllability. Judgments about whether departments or department managers are performing efficiently should not be affected by items over which they have no control. The responsibility for a variance should be assigned to the department or individual that has the greatest responsibility for deciding whether a specific cost should be incurred. Some variances, however, are interdependent and responsibility must be shared. PROBLEM 10-50 (30 MINUTES) 1 . Variances (U denotes unfavorable; F denotes favorable): a. Direct-labor rate variance for each labor class: Actual Rate $17.2 0 15.00 10.80 Standard Differenc Rate e in Rates $16.00 $1.20 14.00 10.00 1.00 .80 Actual Hours 550 650 375 Rate Variance $   660 U 650 U    300 U $1,610 U Labor Class III II I Total b. Direct-labor efficiency variance for each labor class: Labor Class III II I Actual Hours 550 650 375 Standar d Hours* 500 500 500 Differen ce in Hours 50 150 (125) Standar d Rate $16.00 14.00 10.00 Efficien cy Varianc e $   800 U 2,100 U (1,250) F McGraw-Hill/Irwin Inc. 10-42 © 2002 The McGraw-Hill Companies, Solutions Manual Total *Given April's output of production. $1,65 0U McGraw-Hill/Irwin Inc. Managerial Accounting, 5/e © 2002 The McGraw-Hill Companies, 10-43 PROBLEM 10-50 (CONTINUED) 2. The advantages of not changing the labor rate would include (1) comparison of actual operating results to a fixed base which was previously approved by management, and (2) the clerical or computer cost savings of not implementing the change. If labor standards are not changed during the year to incorporate significant changes in labor costs, a noncontrollable variance is created. This variance may mask actual operating variances. In addition, when reporting operating variances that contain a significant noncontrollable variance, a credibility gap may be created. PROBLEM 10-51 (35 MINUTES) 1. Standard cost per cutting board: Direct material: Lumber (1.5 board ft.* × $3.00 per board ft.)............................................ Footpads (4 pads × $.05 per pad). . . Direct labor: Prepare and cut (14.4†/60 hr. × $8.00 per hr.)............................................... Assemble and finish (15/60 hr. × $8.00 per hr.)..................................... Total standard unit cost...................... $4.50   .20 $1.92  2.00  3.92 $8.62 $4.70 * 1.25 board × ft. † (5 1) + = 1.5 board ft. 5 (5+1 ) = 1 .4 in 4 m . 5 1 m .p rb a × 2 in e o rd McGraw-Hill/Irwin Inc. 10-44 © 2002 The McGraw-Hill Companies, Solutions Manual shrinkage. determining if the company should take advantage of price reductions available through economic order size. 10-45 . The role of the purchasing manager in the development of standards includes establishing the standard cost for material required by the bill of materials. Managerial Accounting. The role of the industrial engineer in the development of standards includes preparing the bill of materials that specifies the types and quantities of material required. establishing. establishing the labor rate standards based on the type of labor required. The role of the managerial accountant in the development of standards includes reviewing all information regarding material and labor standards received from other departments. b. a. and obtaining data regarding the availability of materials. 5/e © 2002 The McGraw-Hill Companies. any allowances for scrap. and participating in time studies and test runs to facilitate the establishment of time standards. and waste. and converting physical standards such as hours and quantities to monetary equivalents. determining application rates for indirect costs such as material handling and manufacturing overhead.PROBLEM 10-51 (CONTINUED) 2. c. in conjunction with the production supervisor. McGraw-Hill/Irwin Inc. It was clear that the material was not wellsuited for Ogwood's product. © 2002 The McGraw-Hill Companies. 10-46 . The production manager was a logical choice. Preferably. Rivkin. and recommendations presented. or Wilcox. • Disclose fully all relevant information that could reasonably be expected to influence an intended user's understanding of the reports. Smith placed his own annual bonus above the best interests of the company. When the controller failed to get a clear answer from the purchasing manager. The purchasing manager. the controller. Ogwood may be able to cancel its order with the new supplier. The controller should raise the entire issue with an individual in the company who is at a high enough level to take appropriate action. noticed the large. When Rivkin. even if it means paying some sort of penalty. this should be someone on a higher level in the organization than Smith. acted very unethically in purchasing off-standard material for the cutting boards. d. disclose what he knows about this unfortunate situation. he acted ethically and responsibly in raising the issue with another qualified individual. Solutions Manual McGraw-Hill/Irwin Inc. These standards are as follows: • Communicate information fairly and objectively. Ethical issues: a.PROBLEM 10-51 (CONTINUED) 3. c. Smith. b. favorable price variance for the wood. he acted ethically and responsibly to check out the circumstances. The managerial accountant's ethical standards for objectivity require that the controller. since she would be familiar with the type of materials necessary for the production process. Rivkin. comments. 5/e © 2002 The McGraw-Hill Companies. 10-47 . Managerial Accounting.McGraw-Hill/Irwin Inc. .. the purchasing manager is held responsible for unfavorable material price variances..* × $... The standard cost per 10-gallon batch of strawberry jam is determined as follows: Strawberries (7. Integrity.... × $. × $9. 10-48 © 2002 The McGraw-Hill Companies. In general..00) Blending labor (12/60 hr... Solutions Manual . Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives... Total standard cost per 10-gallon batch $ 6. Causes of these variances include the following: • Failure to forecast price increases correctly...80 15... × 10 gal.00  4.. per gal. McGraw-Hill/Irwin Inc.. † 4 qt. Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflicts. Packaging (40 qt.20 *6 quarts × 5/4 = 7... • Purchasing nonstandard or uneconomical lots. Communicate information fairly and objectively..† × $...70 1.. a..5 qt... = 40 qt..80). 3.. Refrain from engaging in or supporting any activity that would discredit the profession.. Joe Adams’ behavior regarding the cost information is unethical because it violates the following ethical standards: Competence...45).20 $30.38).PROBLEM 10-52 (40 MINUTES) 1. × $9.00)... Sorting labor (3/60 hr.5 qts. Other ingredients (10 gal..... 2. Objectivity. Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.. × 6 qt. needed to produce 6 good quarts.50  2... • Purchasing from suppliers other than those offering the most favorable terms. 5/e © 2002 The McGraw-Hill Companies. McGraw-Hill/Irwin Inc. 10-49 . Managerial Accounting. .. when the unfavorable months and the variance threshold value...40 % 42.... 10-50 © 2002 The McGraw-Hill Companies.. Efficiency. In general.. Efficiency.... September. Solutions Manual . the variances gradually increase to unfavorable variances of $60...... October. the production manager is held responsible for unfavorable labor efficiency variances..40 % 60..... Efficiency....000 in November and December. 12. PROBLEM 10-53 (40 MINUTES) 1...4 0% 2... 7...0 0% 52. When to investigate the judgment call..... Variances to be investigated using rule of thumb: Variance Type Efficiency..PROBLEM 10-52 (CONTINUED) b. November......000 and $52.. • Substandard material. The company's direct-labor efficiency variances exhibit a consistent unfavorable trend throughout the year.. ..... trend in the variances is a investigation point would be trend has persisted for six is just under the $30...000 U.000 U. Month August... Percentage of Amount Standard Cost 38.000 McGraw-Hill/Irwin Inc.... 8.........60 % 37........ 7.. respectively.. December...... A reasonable July....000..000 U. .000 U. • Substandard or inefficient equipment... Efficiency..... Beginning in January with an unfavorable variance of $5. Causes of these variances include the following: • Poorly trained labor.... 10.....000 U.... Management should learn about such a development and may wish to implement the method elsewhere in the company.It would also be reasonable to investigate the directlabor rate variance. 10-51 . A consistent pattern of favorable variances. or a large favorable variance may indicate that employees have discovered a more efficient production method. 3. McGraw-Hill/Irwin Inc. Managerial Accounting. Once again. Although the variances are relatively small. a favorable trend. It is important to follow up on favorable variances. 5/e © 2002 The McGraw-Hill Companies. they remain consistently favorable over the eightmonth period from May through December. this is a judgment call. 10-52 © 2002 The McGraw-Hill Companies. Solutions Manual .PROBLEM 10-53 (CONTINUED) McGraw-Hill/Irwin Inc. Statistical control chart: investigate August and October Fa vora leva n s b ria ce $ .0 0 3 0 • • • • • • • • 0 Tim e • • $ .0 0 3 0 $ . 5/e © 2002 The McGraw-Hill Companies.4.0 0 6 0 1st n a d via ion a d rd e t • • $ . Managerial Accounting. 10-53 .0 0 6 0 1st n a d via ion a d rd e t U fa n vora leva n s b ria ce Ja n Fe b Mr a Ap r My a Ju n Ju l Au Se t g p O ct N ov Dc e McGraw-Hill/Irwin Inc. McGraw-Hill/Irwin Inc.variances. 10-54 © 2002 The McGraw-Hill Companies. Solutions Manual . Consistent with this observation is the reduction in setup time from 70 to 62 hours (average of 65. Student Performance of North Hills Plant The North Hills Plant's performance for the period January through June is summarized as follows: a. 10-55 . Today President.PROBLEM 10-54 (40 MINUTES) Memorandum Date: To: From: Subje ct: 1. the plant's manufacturing cycle efficiency has declined through the period. indicating that too much time is being spent on inspection time. Production processing and productivity: The plant's cycle time (or throughput time) has improved over the period from 20 hours to 17 hours (average of 18. The number of defective units in finished goods declined dramatically. relative to actual processing time. and move time. Overtime hours have increased due to higher demand late in the period. Effort should be devoted in the future to the reduction of the inprocess defective rate. Pittsburgh Plastics Corporation I. and no products were returned. Product quality and customer acceptance: The plant's quality control program appears to be paying off. Managerial Accounting. This is the result of the plant's inspectors more effectively identifying defective units while still in process. 5/e © 2002 The McGraw-Hill Companies. b. Power consumption has remained stable. However.5). M. McGraw-Hill/Irwin Inc. This indicates that the efficiency of the actual processing of products has improved. waiting time.8 hours). but only an average of 95 percent of the orders were filled on time in May and June. as evidenced by the increase in overtime hours.c. This probably reflects the increased demand. Solutions Manual . but could be improved. McGraw-Hill/Irwin Inc. 10-56 © 2002 The McGraw-Hill Companies. All orders were filled. Delivery performance: Delivery performance is good. Also. Machine maintenance: Machine downtime improved during the period from 30 hours to 10 hours (average of 21. 2.PROBLEM 10-54 (CONTINUED) d. Investigate the reasons behind the decline in manufacturing-cycle efficiency. unscheduled machine maintenance calls were up in May and June. Recommended actions: a. particularly in May. This is probably as low as can reasonably be expected in this industry. c. Investigate causes of bottleneck downtime and correct the situation. e.7 hours). but bottleneck machine downtime was too high. machine McGraw-Hill/Irwin Inc.8 percent of sales. Try to reduce the in-process defective rate by emphasizing the importance of quality to the work force. The purchasing team is doing a good job by ensuring delivery of high-quality raw materials. b. 10-57 . Concentrate on the elimination of non-value-added activities. such as move time and wait time. Managerial Accounting. 5/e © 2002 The McGraw-Hill Companies. Raw material. Maintain inspections in process. scrap and inventory: The rate of defective raw materials has declined to zero. Inventory value has been steady through the period with an average of 4. ................ Categories of measures: Area of Manufacturing Performance a b a c c b....... Customer complaints...... Machine downtime (minutes). Unresolved complaints...... Number of defective finished products..................e f f g.. Average setup time (minutes)..... 10-58 © 2002 The McGraw-Hill Companies............c d a...................... Solutions Manual ...............................e a..................... Manufacturing-cycle efficiency...........................................h i i a.. McGraw-Hill/Irwin Inc.... Bottleneck machine downtime (minutes)..... Percentage of orders filled...........................c b... Percentage of on-time deliveries.. Warranty claims......................... In-process products rejected. Number of units produced per day per employee....................e a Cycle time (days)................. Aggregate productivity....... Overtime (minutes) per employee..PROBLEM 10-55 (45 MINUTES) 1..... Products returned.......................................... Inventory value/sales revenue................................ All three measures suggest excellent performance in quality control. d. Performance in this area is very high. MedTech. Production processing: Cycle time. In-process quality control: The number of products rejected in process has McGraw-Hill/Irwin Inc. Managerial Accounting. b. favorable trends. Both cycle time and manufacturing-cycle efficiency exhibit slight. number of products returned. The number of unresolved complaints improved during the period from 2 to 0. I. manufacturing-cycle efficiency. 5/e © 2002 The McGraw-Hill Companies. and warranty claims all show improvement over the period. c. but there is a little room for improvement. Date: To: From: Subje ct: Today Management. Customer acceptance: Customer complaints are steady with an average of 6. M. Product quality: The number of defective finished products. Student Performance of Harrisburg plant during 1st quarter Memorandum The performance of the Harrisburg plant is evaluated in nine key areas: a. Inc. and productivity measures all point to consistency and high-level performance throughout the measurement period.PROBLEM 10-55 (CONTINUED) 2.5 complaints during a two-week period. 10-59 . McGraw-Hill/Irwin Inc. Solutions Manual . The cause of these defective inprocess units should be investigated and corrected. 10-60 © 2002 The McGraw-Hill Companies. This speaks well for the in-process inspection effort.increased. Bottleneck machine downtime was low except in period 5. favorable trend. Delivery performance: Both performance measures (percentages of on-time deliveries and orders filled) were very high through the period. g. The cause of that incident should be investigated. Overall evaluation: The Harrisburg plant has performed at a very high level of efficiency in virtually every phase of its operations during the 1st quarter. i.83 percent). McGraw-Hill/Irwin Inc. finishing at 100 percent in period 6.PROBLEM 10-55 (CONTINUED) e. Machine maintenance: Machine downtime was low through the period (average of 84 minutes each two-week period). Raw material and scrap. Productivity: Both the aggregate productivity measure and the number of units produced per day per employee remained relatively steady throughout the period. f. 5/e © 2002 The McGraw-Hill Companies. 10-61 . & h. The latter of these two measures exhibited a slight. inventory: Inventory value/sales revenue remained consistently low through the period (average of 1. Managerial Accounting. ..600 The employees of the Charter Division are likely to be frustrated by the new plan.015 × $4...........02 × $440... Semiannual installment.000).....600 $ 9...000)...02 × $462......... Semiannual installment. .... Sales returns {[(........600 $6..... January–June: Profitability (......... Sales returns {[(... both on-time deliveries and sales returns © 2002 The McGraw-Hill Companies.... since the division bonus is more than $20......000 (2......240 (2.500 ) $ (3........ ... Rework [(..... On-time delivery (96%–98%).........000 less than that of the previous year...........000] × 50%}.......... Second installment.02 × $462.000) – $84.. $ 8.260) -0(10.....200.000) – $11.......520) $0 6.. Rework [(.000] × 50%}.....02 × $440.000) – $11.... On-time delivery (no bonus— under 96%)... a... .. The semiannual installments and total bonus for the Charter Division are calculated as follows: CHARTER DIVISION GAIN-SHARING BONUS CALCULATION FOR THE YEAR ENDED DECEMBER 31....015 × $4....... However....... First semiannual bonus awarded......... Solutions Manual McGraw-Hill/Irwin Inc.......PROBLEM 10-56 (45 MINUTES) 1...400.000].. 10-62 .... when sales and operating income were similar............000) – $70....200) 2. Second semiannual bonus awarded Total bonus awarded for the year..... b.. July–December: Profitability (.000) $ 6.......... 20X1 First installment..800 (2....500]... If the division continues to improve at the same rate.improved in the second half of the year. while rework costs were relatively even. 10-63 . 5/e © 2002 The McGraw-Hill Companies. The only open question is whether the employees have sufficient motivation to effect improvement. McGraw-Hill/Irwin Inc. Managerial Accounting. the Charter Division bonus will approximate or exceed what it was under the old plan. ..........02 × $406.. $8...850.000]............... First semiannual bonus awarded... 10-64 © 2002 The McGraw-Hill Companies....015 × $2...... Rework [(.... since sales returns are less than 1... Sales returns {[(...840       $10...02 × $342...000) – $8... Sales returns {[(...900.840     11.......02 × $406... Rework [(.000) – $42....... July-December: Profitability (.5 percent of sales.. McGraw-Hill/Irwin Inc....... Second semiannual bonus awarded Total bonus awarded for the year.. The semiannual installments and total bonus for the Mesa Division are calculated as follows: MESA DIVISION GAIN-SHARING BONUS CALCULATION FOR THE YEAR ENDED DECEMBER 31.015 × $2. January–June: Profitability (.....000)..... 20X1 First installment.960 *Rework costs not in excess of 2 percent of operating income........ On-time delivery (no bonus— under 96%).. ..000) $10. .000   (1..........000) – $44.PROBLEM 10-56 (CONTINUED) 2. † $3.... Semiannual installment. a........750] × 50%}............ Second installment.000) – $6......000† $11............000..000)....... ......120   -0-* -0-     3........ On-time delivery (over 98%)..... Solutions Manual ...120 $6. Semiannual installment..02 × $342....................000]...840   -0-* 5..120 $21...........500] × 50%}.......... or they could frustrate employees and undermine their motivation. because the bonus was almost equivalent. Therefore. However. the bonus situation may not be as favorable in the future. on-time deliveries declined considerably in the second half of the year. Decreased bonuses could motivate the employees to improve. McGraw-Hill/Irwin Inc. Managerial Accounting.b. 10-65 . in fact. The employees of the Mesa Division should be as satisfied with the new plan as with the old plan. there is no sign of improvements in this division. 5/e © 2002 The McGraw-Hill Companies. and then giving rewards for McGraw-Hill/Irwin Inc. The effects of the revised plan at MedLine Equipment Corporation have been offset by the following: • Increase of 2 percent in operating income percentage of sales (from 12 to 14 percent) as a • Decrease of 3. improvements over prior continuous improvement. operating income as a percentage of sales has decreased from 11 to 10 percent. The bonus plan should carry forward the negative amounts for one sixmonth period into the next six-month period. The Mesa Division's bonus has remained at the status quo. Solutions Manual .6 percent in on-time deliveries • $2. periods and encouraging • Developing benchmarks.9 percent in on-time deliveries • $500 reduction in rework costs • $14. Harrington's revised bonus plan for the Charter Division fostered improvements including the following: • Increase of 1. incorporating the entire year when calculating a bonus.PROBLEM 10-56 (CONTINUED) 3.250 decrease in sales returns These results suggest that the gain-sharing bonus plan needs revisions.000 increase in rework costs • $2. Suggestions include the following: • Creating a reward structure for rework costs that are below 2 percent of operating income encourage employees to drive costs lower.000 reduction in sales returns However. that would • Reviewing the whole year in total. 10-66 © 2002 The McGraw-Hill Companies. Managerial Accounting.McGraw-Hill/Irwin Inc. 10-67 . 5/e © 2002 The McGraw-Hill Companies. Partially completed units.200* × $5. . Total standard hours allowed.500 51... Actual quantity of material used: Direct-material quantity variance = (AQ × SP) – (SQ × SP) = (AQ × $5.500 × $8.... 10-68 5..20) – (37. a.....740 Favorable *Standard allowed direct-labor hours: Completed units.PROBLEM 10-57 (50 MINUTES) 1.200 hours © 2002 The McGraw-Hill Companies...200 = 300 McGraw-Hill/Irwin Inc..760 ÷ 36.600 units × 6 hours per unit 800 units × 75% × 6 hours per unit 33.500 × $8.460 Unfavorable *$300.500 Unfavorable Therefore: $5(AQ – = $1..24*) – (36.00) – (51.20) = $1.500 hours b..500 × $8.200* × $8.600 hours 3. Solutions Manual .200) AQ – 51. Direct-labor rate variance = (AH × AR) – (AH × SR) = (36.600 hours 37.00) = $1. . c..20) = $5. . Direct-labor efficiency variance = (AH × SR) – (SH × SR) = (36. ..400 kilograms 51...200 kilograms McGraw-Hill/Irwin Inc.... 10-69 .... Partially completed units..600 units × 8 kilograms 800 units × 8 kilograms 44.500 kilograms *Standard quantity of material allowed: Completed units.. Total standard quantity allowed.. 5/e © 2002 The McGraw-Hill Companies.800 kilograms  6.AQ = 51. 5... Managerial Accounting....... .......20 Total cost in ending Work-in-Process Inventory...... Total cost transferred....520 $499....00 0 275.600 units × $40 5.... 5.. Solutions Manual ... f. $61.......985 per kilogram e..........520 Direct-material and direct-labor cost in November 30 balance of Work-in-Process Inventory: Direct material..... Direct-material and direct-labor cost transferred to finished goods: Direct-material cost transferred..600 units × $49.. 10-70 © 2002 The McGraw-Hill Companies..20 $224. Direct-labor cost transferred.....520 McGraw-Hill/Irwin Inc.......52 0 × $49..000 = $4..........250/50......... Actual price paid per kilogram of direct material: Actual price = $249. 800 units × $40 $32..0 00 per unit Direct labor.. 800 units × 75% 29......PROBLEM 10-57 (CONTINUED) d........ ......... Direct-Labor Efficiency Variance.. Direct-Material Price Variance..00) = $750 Favorable To record the purchase of raw material and the directmaterial price variance....250    256.. Accounts Payable..500 × $5..985 – $5....00 = $256..PROBLEM 10-57 (CONTINUED) 2............ Work-in-Process Inventory....... Managerial Accounting.....740 300. and recognize the actual direct-labor cost. 10-71 .....200 × $8... 5/e © 2002 The McGraw-Hill Companies... Direct-Labor Rate Variance.......040 * 1........... Wages Payable...... 305. Work-in-Process Inventory...00 0* 1... Raw-Material Inventory.........000($4.. Raw-Material Inventory.............. *37...500 To add the direct-material cost to work in process and record the direct-material quantity variance........ *51.... ......500† 51..00 = $257....20 = $305.....040 To add the direct-labor cost to work-in-process.. .. *Direct-material price variance = PQ(AP – SP) = 50........460   5. record the direct-labor rate and efficiency variances..200 × $5.760 McGraw-Hill/Irwin Inc..... Direct-Material Quantity Variance..........000 † 250...00 0 750* 249...500   257... .. 800 ($7......... *$6...250 – 1......40* – $6)................ $8 (720 – 720†).... per tent McGraw-Hill/Irwin Inc..... ... 10-72 © 2002 The McGraw-Hill Companies.440 ÷ 2..... Direct-material price variance.....100 ($6..320 ÷ 800 0 (b ) Direct-material quantity variance = SP(AQ – SQ) Product Calculation     SP(AQ – SQ)     Quantit y Varianc e $300 U     -0$300 U Standard tent.......100 $7............ Price Varianc e $840 U   80 F $760 U Deluxe tent............PROBLEM 10-58 (25 MINUTES) 1......... Solutions Manual . (a ) Direct-material price variance = PQ(AP – SP) Product Standard tent...... ... 40 † = $13.... Direct-material quantity variance................ *1..... ......200 = 100 tents × 12 lbs.. Deluxe tent.200*).. per tent † 720 = 120 tents × 6 lbs......90† – $8)..9 = $6......   Calculation   PQ(AP – SP) 2.... $6 (1......... .. To record purchase of tent fabrics......) † 19....... Raw-Material Inventory.200 lbs..260 = (1....000 = (2.) + (800 lbs... Managerial Accounting.. × $6 per lb.960 = (1..960* 300   13. × $6 per lb. Direct-Material Quantity Variance........... .. 5/e © 2002 The McGraw-Hill Companies.... × $8 per lb. *$12... *$19..... Direct-Material Price Variance. × $8 per lb.PROBLEM 10-58 (CONTINUED) 2... × $6 per lb.) + (720 lbs.....) $13..) Work-in-Process Inventory.760   12. To record use of direct material.250 lbs.100 lbs.. Raw-Material Inventory..000* 760   19.......... Accounts Payable..... × $8 per lb.260† McGraw-Hill/Irwin Inc. 10-73 ...) + (720 lbs. .......... Standard price: Direct material and parts: Veneered wood... Total standard cost of direct material in July......... Total standard quantity per guitar.....000 — $15 per set 1 set × $15 per set $15 per guitar × 500 guitars $7...................... Standard direct-material cost: Standard quantity...... 10-74 6 hrs 3 hrs Solutions Manual © 2002 The McGraw-Hill Companies.. McGraw-Hill/Irwin Inc....................... .................................... Bridge and strings................... Standard cost per guitar............ Allowance for normal waste.. 7 lbs — 1 lb 8 lbs — 1 set — 1 set $12 per lb — 8 lbs ×  $12 per lb $96 per guitar × 500 guitars $48.... Standard price......... Bridge and strings............ Standard cost schedule: DIRECT MATERIAL Constructio Finishing n Department Department Standard quantity Direct material and parts in finished product: Veneered wood..500 DIRECT LABOR Constructio Finishing n Department Department Standard direct-labor cost: Standard quantity..............PROBLEM 10-59 (60 MINUTES) 1..... Actual output in July....... ×    $ 20        $120 × 500 guitars $60....................... Standard cost per guitar...Standard rate.... 5/e © 2002 The McGraw-Hill Companies..500 McGraw-Hill/Irwin Inc.... 10-75 ....000 ×     $15        $45        × 500 guitars $22........... Managerial Accounting. Actual output in July.................... Total standard cost of direct labor in July....... 00 per pound $54. Solutions Manual .00 per × pound Actual Standa Quantit × rd y Price 6.000 $48.500 pounds used × $12.50 pounds × per purcha pound sed $75.000 $3.000 Unfavora ble Directmaterial quantity variance McGraw-Hill/Irwin Inc. (a Construction Department: ) DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES ACTUAL MATERIAL COST Actual Actual Quantit × Price y 6.PROBLEM 10-59 (CONTINUED) 2.00 pounds × per purcha pound sed $72.000 $6.000 pounds allowed $12.000 STANDARD MATERIAL COST Standard Standa Quantity × rd Price 4.000 Unfavorable Direct-material price variance 4. 10-76 © 2002 The McGraw-Hill Companies.000 $12.000 $12. 000 hours allowed × $20 per hour Actual Hours 2.000 $60. 10-77 .050 Unfavorable Direct-labor efficiency variance © 2002 The McGraw-Hill Companies. Managerial Accounting.850 hours used Standa rd × Rate $20 per × hour $54.500 $1.150 $57.120 $23.850 Favorable Direct-labor rate variance $3.570 hours used × $16 per hour STANDARD LABOR COST Standard Standa Hours × rd Rate 1.000 Favorable Direct-labor efficiency variance $5.500 hours allowed × $15 per hour Actual Hours 1.570 Unfavorable Direct-labor rate variance McGraw-Hill/Irwin Inc.550 $22.850 Favorable Direct-labor variance (b Finishing Department: ) DIRECT-LABOR RATE AND EFFICIENCY VARIANCES ACTUAL LABOR COST Actual Actual Hours × Rate 1.850 hours used × $19 per hour STANDARD LABOR COST Standard Standa Hours × rd Rate 3.000 $2.570 hours used Standa rd × Rate $15 per × hour $25. 5/e $1.PROBLEM 10-59 (CONTINUED) DIRECT-LABOR RATE AND EFFICIENCY VARIANCES ACTUAL LABOR COST Actual Actual Hours × Rate 2. 620 Unfavorable Direct-labor variance McGraw-Hill/Irwin Inc.$2. 10-78 © 2002 The McGraw-Hill Companies. Solutions Manual . — Finishing Department Percentag Amoun e of t Standard Cost $ 7. Cost variance report: SPRINGSTEEN COMPANY COST VARIANCE REPORT FOR THE MONTH OF JULY Construction Department Percenta Amoun ge of t Standard Cost Direct material: Standard cost. .98% 4.50% -0-0- $60.PROBLEM 10-59 (CONTINUED) 3......75% 5. Direct-material price variance....570 U 1.000 U 6...67% McGraw-Hill/Irwin Inc. Direct labor: Standard cost. Direct-labor rate variance Direct-labor efficiency variance.00% $22.050 U — 6....850 F 3. Managerial Accounting..50 0 1..000 U 6. 10-79 . Direct-material quantity variance..000 F — 4......500 -0-0— $48.00 0 2.. given actual output..25% 12... 5/e © 2002 The McGraw-Hill Companies..00 0 3. given actual output.. . ...... Work-in-Process Inventory.. Direct-Labor Rate Variance..050 25.570 1................000 2.................................000 6. ............. Work-in-Process Inventory............500 1.... Accounts Payable..... ........000 54.120 To record Finishing Department direct-labor costs and variances......... Wages Payable.................. 10-80 © 2002 The McGraw-Hill Companies.000 To record Construction Department direct-labor costs and variances....000 54... Work-in-Process Inventory..000 3.......... Direct-Labor Efficiency Variance................. Direct-Labor Efficiency Variance............. To record purchase of bridges and strings..... Raw-Material Inventory........ Direct-Material Quantity Variance....................500 7. Accounts Payable. Wages Payable.......500 48... Direct-Material Price Variance......000 75....000 72......... 60........ Raw-Material Inventory.. Raw-material Inventory. Solutions Manual ....................000 9..... To record usage of bridges and strings.. 22.......850 3. Direct-Labor Rate Variance.150 7...........PROBLEM 10-60 (45 MINUTES) 1...... To record usage of veneered wood..... To record purchase of veneered wood.......... Journal entries: Raw-Material Inventory...... Work-in-Process Inventory........... McGraw-Hill/Irwin Inc.000 9..... .. 5/e © 2002 The McGraw-Hill Companies......... Direct-Material Price Variance.......... 10-81 ....280 F = $2......570 U Sum of direct-labor efficiency variances: $1...... 138....... Direct-Labor Efficiency Variance.800 120.......850 F + $1...........000 To record sale of 300 guitars at a price of $400 each and a standard cost of $276 each...... Direct-Material Quantity Variance....950† 3. Accounts Receivable.. Sales Revenue.. To close variances into Cost of Goods Sold...........000 82...800 82.. Cost of Goods Sold Finished-Goods Inventory...........PROBLEM 10-60 (CONTINUED) Finished-Goods Inventory.. Direct-Labor Rate Variance.. Cost of Goods Sold... Work-in-Process Inventory..............000 6..000 To record completion of 500 guitars at a standard cost of $276 each ($276 = $96 + $15 + $120 + $45)......280* 1.770   1.000 F + $1..000 138....... 120......000 McGraw-Hill/Irwin Inc.. Managerial Accounting.950 F = $3.......... *Sum of direct-labor rate variances: $1....050 U † 5...................... 000 54.800 5.000  7. Solutions Manual .950 McGraw-Hill/Irwin Inc.PROBLEM 10-60 (CONTINUED) 2.000 Wages Payable 54.000  9.000 Accounts Payable 75.570 2.000 22.000 Direct-Material Quantity Variance 6.000 3.500 Finished-Goods Inventory 138.850 1.050 3.000 Direct-Labor Rate Variance 1.000 82.000 138.000 9.000 6.500 Work-in-Process Inventory 48.000 7.150 25.120 Sales Revenue 120. Posting of journal entries: Raw-Material Inventory 72.500 60.770 Direct-Material Price Variance 3. 10-82 © 2002 The McGraw-Hill Companies.280 Direct-Labor Efficiency Variance 1.000 Accounts Receivable 120.000 1.800 Cost of Goods Sold 82. ........ $106..........................700 106..... 2..... Variances (U denotes unfavorable..... Managerial Accounting..126 Lot 22.50   0 1... STANDARD COST OF PRODUCTION FOR NOVEMBER Standa Total Quantit rd Cost Standar y per Box d Cost (boxes) 1.... Standard cost of materials purchased (95...................40 + (80%)($44.......... 23.....SOLUTIONS TO CASES CASE 10-61 (60 MINUTES) 1........ 500 $  U 1. Direct-material price variance...... and 24: EUROPEAN STYLES...00).... 10-83 . Standard cost of production *Standard material cost plus 80 percent of standard cost of labor and overhead: $26...10 + $36.. F denotes favorable): EUROPEAN STYLES......... 23...10).......... Standard cost of lots 22.....000 $106...... 24......... 400 104.. INC.......200 90.............. INC.... DIRECT-MATERIAL PRICE VARIANCE FOR NOVEMBER Actual cost of materials purchased.........000 × $1.......050 1......900 McGraw-Hill/Irwin Inc..... 5/e © 2002 The McGraw-Hill Companies...48* 108.50  $106...576 $396.......50   181............ .700 ×     24 40.. Total standard quantity. INC......44 0 (360) × $1. Standard hours per lot..365 (235) ×  $1....... F 110 (396) 50 50) *Parentheses denote favorable variance....000 × 100%    1......20 0 ×    24 28. Variance in yards*.. Solutions Manual ... 10 1.200 ×    3 3... Percentage of completion.000 ×    3 3.... McGraw-Hill/Irwin Inc.......8 00 28..10 1......... Actual yards used.. U $(258.....CASE 10-61 (CONTINUED) EUROPEAN STYLES...... 10 3........80 0 40. 23 24 Total      1..00 0 ×    24 24. DIRECT-MATERIAL AND DIRECT-LABOR VARIANCES FOR NOVEMBER 22 Direct-material quantity variance: Standard yards: Units in lot. 10-84 Lot no. Direct-material quantity variance.....600 93. Standard price........... Total............. Lot no.900 ×    24 93..100 × 100%   1...600 ×  80%   © 2002 The McGraw-Hill Companies.. 23 24 Total 1.0 00 24......10 $  U $  F $27.......1 00 100 × $1..700 ×    3 5. 22 Direct-labor efficiency variance: Standard hours: Units in lot. Standard yards per lot.........8 25 25 × $1. .70 $14 U 7 10... 10-85 ........980 (20) × $14. Variance in hours*...100 5..... Actual hours worked.......130 30 × $14 . 70 $ F (294) 5.000 2..Total standard hours.. 5/e © 2002 The McGraw-Hill Companies.70 $44 U 1 2... ....98 0 11.... Direct-labor efficiency variance..00 0 20 × $14.. ...... 3..... Standard rate..89 0 10 × $14 .................... Managerial Accounting. 70 $29 U 4 *Parentheses denote favorable variance...880 2. McGraw-Hill/Irwin Inc... Solutions Manual ...400 102.........000 × $1.......500 *    1.. *93.. Raw-Material Inventory. 23 24 5.. Work-in-Process Inventory......... *95..00 – $14......... ×$ ................960 * 258.....130 2..... Direct-Material Price Variance.. 10-86 Lot no............ Wages Payable..30 30 30 $ U $1.....701 ..70).......000 2....300 104.......... 3........ Variance....... Direct-Labor Efficiency Variance..50 161..900 106..........50 102.890 Total     11. Direct-Labor Rate Variance..53 U $ 867 U $ U 894 9 3.........98 0 ×$ ×$ ×$ .. McGraw-Hill/Irwin Inc.. Accounts Payable. Work-in-Process Inventory..........10 = $102...........300 294   165.....600 × $1.10 = $104....960 To add direct-material cost to work-in-process inventory and record the direct-material quantity variance...000 © 2002 The McGraw-Hill Companies.CASE 10-61 (CONTINUED) 22 Direct-labor rate variance: Actual hours worked Rate paid in excess of standard ($15...500 To record the purchase of raw material. Journal entries: Raw-material Inventory.30 .........406 *    3... Direct-Material Quantity Variance. ........ 10-87 . McGraw-Hill/Irwin Inc. record the direct-labor variances.980 × $14. Managerial Accounting. and record the incurrence of direct-labor cost.70 = $161. 5/e © 2002 The McGraw-Hill Companies.*10.406 To add direct-labor cost to work-in-process inventory. CASE 10-62 (75 MINUTES) The completed list is shown below. Begin by filling in the facts you know. The reasoning used to reduce the remaining data is explained after the list of answers. 1. Actual output (in drums) = = 2. Direct material a. Standard quantity per drum........... b. Standard price............................... c. Standard cost per drum................. d. Standard quantity allowed, given actual output................................. e. Actual quantity purchased............. f. Actual price................................... A 10 lb. $5.00/lb . $50.00c 10,000 lb. 12,000 lb. $4.50/lb . 10,500 lb.e $6,000 Ff $2,500 U B 5 gal.a $3.00/g al.b $15.00 5,000 gal. 6,000 gal. $3.20/g al.d 4,800 gal. $1,200 U $600 Fg standard quantity direct aterial allow given of m A ed, actual output standard quanity direct aterial perdrum of m A 1 ,0 0 . 0 0 lb = 1 0d m ,0 0 ru s 1 lb p rd m 0 . e ru g. Actual quantity used...................... h. Price variance................................ i. a Quantity variance.......................... Standard quantity of direct material B per drum standard quantity direct aterial allow given of m B ed, actual outpu t = actual outpu t 5 0 g l. ,0 0 a a = 1 0 d m = 5g l. ,0 0 ru s Standard price of direct material B b = standard uantity llow d erdrum q a ep sta d rd sto m te Bp rd m n a co f a ria e ru l McGraw-Hill/Irwin Inc. 10-88 © 2002 The McGraw-Hill Companies, Solutions Manual = 5g l.p rd m a e ru $ 5 0e d m 1 .0 p r ru = $ .0 p rg l. 3 0e a McGraw-Hill/Irwin Inc. Managerial Accounting, 5/e © 2002 The McGraw-Hill Companies, 10-89 CASE 10-62 (CONTINUED) Standard cost of direct material A per drum = 10 lbs. × $5.00 per lb. = $50.00. c The reasoning for the actual price of direct material B is as follows, where the subscripts denote materials A and B: d Increase in accounts payable = actual cost of material purchases = (PQA × APA) + (PQB × APB) $73,200 = (12,000 × $4.50 ) + (6,000 × APB) APB = $3.20 per gallon This conclusion comes from the following formula for the quantity variance: e Quantity = SP(AQ – SQ) variance (A) $2,500 U = (AQ – 10,000) $5.00 AQ = 10,500 lb. Direct material A price variance f = PQ (AP – SP) = 12,000 ($4.50 – $5.00) = $6,000 F Direct material B quantity variance g = SP(AQ – SQ) = $3.00 (s4,800 – 5,000) = $600 F McGraw-Hill/Irwin Inc. 10-90 © 2002 The McGraw-Hill Companies, Solutions Manual . Direct labor: a...... Standard hours per drum.00 2.90 4.......00b $48.g $410 Fh $1...... b..... f..... Efficiency variance.. per drum McGraw-Hill/Irwin Inc.... Direct labor type II.....100 hr.................. given actual output c = 1.. per drum = 2. $12.... standard rate per hour = = standard ofdirect cost labor type perdrum II standard hours drum per $48.... d...00 drum per =$12.....00 hr.. I (mixers ) 2 hr........ 10-91 ........000 hrf $600 U -0-i II (packer s) 4 hr..a $15......... h............000 hr. Standard cost per drum.000 drums × 2 hr....d $11......c $15. given actual output.00 $30. 5/e © 2002 The McGraw-Hill Companies......000 hr. Rate variance....000 hr...... Standard rate per hour...CASE 10-62 (CONTINUED) 3 .. Actual rate per hour...... Standard quantity allowed..... c... a Standard hours of direct labor type I per drum = = b standard ofdirect cost laborper I drum standard per rate hour $30...... Managerial Accounting.00 drum per = 2hr .000 drums × 4 hr.. standard quantity allowed given actual output d = 1... per Direct labor type II.... perdrum Direct labor type I...... $15.200 U g.00 4hr..... Actual hours. e.................... standard quantity allowed................30e 2.00 4... 000 hr. Solutions Manual .= 4. 10-92 © 2002 The McGraw-Hill Companies. McGraw-Hill/Irwin Inc. actual hours and standard hours are equal.200 U = $12. actual hours = 2.00) = $410 F McGraw-Hill/Irwin Inc. as follows: g Direct-labor (II) efficiency = SR (AH – SH) variance $1.00) AR = $15.100 hr. h Direct-labor type II.100 ($11. actual hours = 4. Use the formula for the direct-labor efficiency variance. Managerial Accounting.30.30 Direct labor type I.000) AH = 4. 5/e © 2002 The McGraw-Hill Companies.100 hr.90 – $12. 10-93 . Since there was no labor type I efficiency variance.CASE 10-62 (CONTINUED) Direct labor type I. Use the formula for the direct-labor rate variance as follows: e Direct-labor rate variance = AH(AR – SR) $600 U = 2. actual rate per hour = $15. f Direct labor type II. rate = AH (AR – SR) variance = 4.000 (AR – $15.00 (AH – 4.000 hr. 510 – $6............. II: Efficiency variance.510 F (favorable because of credit to Cost of Goods Sold)............200 = 0 4............. II: Rate variance................ Direct-labor variances: I: Rate variance.........................200 600 F U U F 600 U ? 410 F 1...................................... Just fill in the remaining variance in the following tabulation: Direct-material variances: A: Price variance....................................... the direct-labor type I efficiency variance = $1...500 1...................00 0 2...................... A: Quantity variance...... B: Quantity variance.......................... Total of all variances for the month: $1............... 10-94 © 2002 The McGraw-Hill Companies...............................200 – $600 + $600 – $410 + $1...............CASE 10-62 (CONTINUED) i Direct labor type I..20 U 0 $1.......51 F 0 Therefore........... Total (favorable variance because of credit to cost of Goods Sold)..................000 + $2........................ $6......... Solutions Manual .. I: Efficiency variance.... B: Price variance.............. McGraw-Hill/Irwin Inc............. efficiency variance = zero....500 + $1. " THE WALL STREET JOURNAL." THE WALL STREET JOURNAL. an auction. Manufacturers generally try to find aspects of the new product (and the processes needed to produce it) that are similar to products and processes with which they have experience. Managerial Accounting. OCTOBER 16. Management could use the balanced scorecard to put a spotlight on this area of critical importance to the company. JEFFREY BALL. 3. 10-95 2. Yahoo is an online business that provides many free services. 1. Hybrids boost fuel economy by adding an electric motor to a traditional internal combustion engine. © 2002 The McGraw-Hill Companies. 5/e . chat rooms. Also. Initial standards then can be inferred from these more familiar products and processes. using a target price analysis would allow auto makers to determine what price consumers would pay for a hybrid vehicle. The auto makers could then work backwards toward reducing their costs in order to make an economically viable product. McGraw-Hill/Irwin Inc. Innovation and learning is one of the four major areas covered by the balanced scorecard.S AUTO MAKERS TO REV UP OUTPUT OF 'HYBRID' VEHICLES. 2. OCTOBER 24. travel information. photos. 2000. Developing standards for a radically new product is difficult at best. classifieds. clubs and a myriad of other services. 2000. 1.CURRENT ISSUES IN MANAGERIAL ACCOUNTING ISSUE 10-63 "U. ISSUE 10-64 "CAN YAHOO! THRIVE IN A HARSH CLIMATE. The article questions whether Yahoo will be innovative enough to be competitive as the Internet business environment evolves over time. Yahoo offers search capabilities. mail. Solutions Manual .McGraw-Hill/Irwin Inc. 10-96 © 2002 The McGraw-Hill Companies.