Tutorial 7 Questions Page 1 of 8Question 1 Direct Labor Variances SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company's products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 4,000 of these meals using 960 direct labor-hours. The company paid these direct labor workers a total of $9,600 for this work, or $10.00 per hour. According to the standard cost card for this meal, it should require 0.25 direct labor-hours at a cost of $9.75 per hour. Requirement 1: (a) What direct labor cost should have been incurred to prepare 4,000 meals? (b) How much does this differ from the actual direct labor cost? (Indicate the effect of each variance by "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Tutorial 7 Questions Page 2 of 8 Question 2 Victoria Chocolates, Ltd., makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company's products, the Empire Truffle. This product is made with the finest white chocolate and various fillings. The data below pertain only to the white chocolate used in the product (the currency is stated in pounds denoted here as £): Material requirements, kilograms of white chocolate per dozen truffles Allowance for waste, kilograms of white chocolate per dozen truffles Allowance for rejects, kilograms of white chocolate per dozen truffles Purchase price, finest grade white chocolate Purchase discount, finest grade white chocolate Shipping cost incurred to ship chocolate from the supplier in Belgium Receiving and handling cost to prepare the chocolate for production 0.70 kilograms 0.03 kilograms 0.02 kilograms £7.50 per kilogram 8% of purchase price £0.30 per kilogram £0.04 per kilogram Requirement 1: Determine the standard price to acquire a kilogram of white chocolate. (Round your answer to 2 decimal places.) Requirement 2: Determine the standard quantity of white chocolate needed for a dozen truffles. (Round your answer to 2 decimal places.) Requirement 3: Determine the standard cost of the white chocolate in a dozen truffles. (Round your answer to 2 decimal places.) Tutorial 7 Questions Page 3 of 8 Question 3 Direct Material and Direct Labor Variances Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: Direct materials: 6 microns per toy at $0.50 per micron Direct labor: 1.3 hours per toy at $8 per hour During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow: Direct materials: 25,000 microns were purchased at a cost of $0.48 per micron. 5,000 of these microns were still in inventory at the end of the month. There are no beginning inventory. Direct labor: 4,000 direct labor-hours were worked at a cost of $36,000. Requirement 1: Compute the direct materials price and quantity variances for July. (Indicate the effect of each variance by "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance) Requirement 2: Compute the direct labor rate and efficiency variances for July. (Indicate the effect of each variance by "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Tutorial 7 Questions Page 4 of 8 Question 4 The Silent Door Company manufactures soundproof doors. Each door requires two pieces of 16gauge sheet steel measuring 94 inches by 50 inches. The standard cost of each piece of steel is $150. During the month of July, 2,040 doors were started and completed, and there were no beginning or ending work in process inventories. Accounting records revealed that 4,200 pieces of sheet steel were purchased during July at a cost of $623,700. All 4,200 pieces were used during the month. Required: Compute the direct materials price and direct materials quantity variances for July production, assuming the price variance is isolated at the time of purchase. Note whether the variances are favorable or unfavorable. Round to the nearest dollar. Tutorial 7 Questions Page 5 of 8 Question 5 Powerhorse, Inc., manufactures steel hitches for horse trailers. The company's direct labor rates have been set by the terms of the current labor contract. Direct labor rate standards have been assigned for each job classification. In July 20xx, a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes. A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in July. Standard time for the same work output is 34 hours. The apprentice earned $6.80 per hour in July. The standard direct labor rate for machine operators working on turret lathes is $9.50 per hour. Required: a. From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a regular machine operator during the training period.) b. Did the company benefit financially from the situation? Why or why not? (Show calculations.) Tutorial 7 Questions Page 6 of 8 Question 6 Direct Materials and Direct Labor Variances; Computations from Incomplete Data Sharp Company manufactures a product for which the following standards have been set: Standard Quantity Direct materials Direct labor 3 feet ? hours Standard Price or Rate $5 Per foot ? Per hour During March, the company purchased direct materials at a cost of $55,650, all of which were used in the production of 3,200 units of product. In addition, 4,900 hours of direct labor time were worked on the product during the month. The cost of this labor time was $36,750. The following variances have been computed for the month: Direct materials quantity variance Total direct labor variance Direct labor efficiency variance Requirement 1: For direct materials: (a) Compute the actual cost per foot for direct materials for March. (Round your answer to 2 decimal places.) (b) Compute the direct materials price variance and a total variance for direct materials. (Indicate the effect of each variance by "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Requirement 2: For direct labor: (a) Compute the standard direct labor rate per hour. (Round your answer to 2 decimal places.) (b) Compute the standard hours allowed for the month's production. (Round your answer to the nearest whole number.) (c) Compute the standard hours allowed per unit of product. (Round your answer to 1 decimal place.) $4,500 U $1,650 F $800 U Tutorial 7 Questions Page 7 of 8 Question 7 Developing Standard Costs ColdKing Company is a small producer of fruit-flavored frozen desserts. For many years, ColdKing’s products have had strong regional sales on the basis of brand recognition; however, other companies have begun marketing similar products in the area, and price competition has become increasingly intense. John Wakefield, the company’s controller, is planning to implement a standard cost system for ColdKing and has gathered considerable information from his co-workers on production and material requirements for Cold King’s products. Wakefield believes that the use of standard costing will allow ColdKing to improve cost control and make better pricing decisions. ColdKing’s most popular product is raspberry sherbet. The sherbet is produced in 10-gallon batches, and each batch requires 6 quarts of good raspberries. The fresh raspberries are sorted by hand before they enter the production process. Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 4 quarts of acceptable berries. Three minutes is the standard direct labor time for the sorting that is required to obtain 1 quart of acceptable raspberries. The acceptable raspberries are then blended with the other ingredients; blending requires 12 minutes of direct labor time per batch. After blending, the sherbet is packaged in quart containers. Wakefield has gathered the following standard cost information: a. ColdKing purchases raspberries at a cost of $0.80 per quart. All other ingredients cost a total of $0.45 per gallon of sherbet. b. Direct labor is paid at the rate of $9.00 per hour. c. The total cost of direct material and direct labor required to package the sherbet is $1.52 per gallon. Required: 1. Develop the standard cost for the direct cost components (materials, labor, and packaging) of a 10-gallon batch of raspberry sherbet. The standard cost should identify the standard quantity, standard rate, and standard cost per batch for each direct cost component of a batch of raspberry sherbet. (Round your answer to 2 decimal places.) 2. As part of the implementation of a standard cost system at ColdKing, John Waefield plans to train those responsible for maintaining the standards on how to use variance analysis. Wakefield particularly is concerned with the causes of unfavourable variances. a. Discuss possible causes of unfavourable direct material price variances and identify the individual(s) who should be held responsible for these variances. b. Discuss possible causes of unfavourable direct labour efficiency variances and identify the individual(s) who should be held responsible for these variances. Tutorial 7 Questions Page 8 of 8 Question 8 Camping for Fun, Inc., produces a variety of camping products on a year-round basis. The bestselling item is a compact portable camping stove made from sheets of rust-free aluminum. Production of this stove requires two main operations: cutting/assembly and coating. The basic direct materials used are aluminum sheeting, a polyurethane base coating, and a gas jet assembly. Quantity, time, and cost standards for the camping stove are as follows: Direct materials consist of sheet aluminum (two 2-by-3-meter sheets per stove at $1.15 per sheet), 1.2 liters of coating materials per stove at $0.80 per liter, and a gas jet assembly purchased at $11.30. Direct labor in the Cutting/Assembly Department is expected to produce 50 stoves per hour at $9.50 per hour. Direct labor in the Coating Department can handle 32 stoves per hour at $8 per hour. Normal capacity is 126,000 stoves per year. The firm actually produced 120,000 units during the year, and the production records contain the following information: For direct materials, the firm used 241,200 sheets of aluminum at $1.10 per sheet, 148,500 liters of coating at $0.77 per liter, and 120,100 gas jet assemblies costing a total of $1,369,140. Direct labor in the Cutting/Assembly Department amounted to 2,800 hours at $9.25 per hour; in the Coating Department, it amounted to 3,560 hours at $7.50 per hour. Required: Using the information provided, determine the following (remember to indicate whether the variance is favorable or unfavorable): a. Standard hours allowed for the Cutting/Assembly and Coating Departments for the year (by department) b. Direct materials price variances (by material) c. Direct materials quantity variances (by material) d. Direct labor rate variances (by department) e. Direct labor efficiency variances (by department)