Chapter 24:
Brief Exercise 24.6, page 1057
Actual wage rate per hour
Standard wage rate = $8.25
Direct labor cost = $24,464
Direct labor hours = 2,780 labor hours
Actual production = 4,000 vases
Actual Direct labor rate = Actual Direct Labor Cost / Actual Direct labor hours
Actual Direct labor rate = $24,464 / $2,780
Actual Direct Labor rate = $8.80 per hour
Labor rate and efficiency variances
Labor efficiency variance = standard hourly rate * (Standard hours – Actual hours)
Labor efficiency variance = $8.25 * ((0.75 hrs/vase * 4,000 vases) – 2,780 hours)
Labor efficiency variance = $1,815 Favorable
Labor rate variance = Actual Labor Hours * (Standard Rate – Actual Rate)
Labor rate variance = 2,780 hours * ($8.25 - $8.80)
Labor rate variance = $1,529 Unfavorable
Loring appears to have hired workers that were more efficient since 2,780 hours instead of 3,000 hours. The favorable efficiency variance of $1,815 was able to offset the unfavorable rate variance of $1,529.
Brief Exercise 24.8, page 1058
The given information is summarized as:
Standard cost of the chocolate candy = $2 per pound
Actual production = 20,800
Total Direct materials cost = $42,640
Standard Quantity = 20,000
Materials Price Variance = Actual Quantity Used * (Standard Price – Actual Price)
Standard Price = $2 per pound
Actual price = Total direct material cost / actual production
Actual price = $42,640/20,800
Actual price = $2.05
Materials price variance = 20,800 * (2 - $2.05)
Materials price variance = $1,040 unfavorable
Materials quantity variance = Standard price * (Standard quantity – Actual quantity)
Materials quantity variance = $2 * (20,000 – 20,800)
Materials quantity variance = $1,600 unfavorable
Exercise 24.1, page 1058
Standard costs
Labor efficiency variance
Volume variance
Materials quantity variance
Spending variance
Materials price variance
Labor rate variance
Exercise 24.3, page 1059
Computing Blue’s materials price variance:
Materials price variance = actual quantity used * (Standard price – Actual price)
Actual quantity used = (Actual kilograms purchased and used during the year * Number of grams per kilogram)
Delegate your assignment to our experts and they will do the rest.
Actual quantity used = (100 kilograms * 1,000 grams)
Actual quantity used = 100,000 grams
Standard price per gram of material = $60
Actual price per gram of material = Actual cost of materials purchased during the period / Actual quantity used
Actual price per gram of material = ($6,000,000/ 100,000 grams)
Actual price per gram of material = $60
Material price variance = 100,000 grams * ($60 - $60)
Material price variance = $0
Given Blue’s materials price variance equals the materials quantity variance, both variance will be equal to zero. The standard quality of material that will be allowed in a batch of Allegro will be equal to 100,000 grams / 25 batches = 4,000 grams that have been actually used.
Materials usage within the pharmaceutical industry should be ensured that they are extremely precise and accurate. One may thus not expect to observe a significant materials quantity variance.
Exercise 24.9, page 1060
Overhead Spending Variance = Total Actual Variable Overhead - Budgeted Variable Overhead for actual quantity
= [$383,800 - ($300,000+ ($5 x 18,000units))] = $6,200
Overhead volume variance = (Units produced - budgeted production) x budgeted overhead rate
= (18,000 - 20,000) x $15
= $30,000
Problem 24.4A, page 1063
Calculate direct material price variance
Material price variance = Actual quantity used * (Standard price – Actual price)
Material price variance = 148,450 * ($4.2 - $4)
Material price variance = $29,690 Favorable
Calculate direct material quantity variance:
Material quantity variance = Standard price * (Standard quantity – Actual quantity)
Material quantity variance = $4.20 * (1,020 * 147) – 148,450)
Material quantity variance = $6,258 Favorable
Labor rate variance
Labor rate variance = Actual labor hours * (Standard rate – Actual rate)
Labor rate variance = 2,200 * [($8,50 per hour) – ($17,600/2,200 hours)]
Labor rate variance = $1,100 Favorable
Labor efficiency variance:
Labor efficiency variance = Standard hourly rate * (Standard hours – Actual hours)
Labor efficiency variance = $8.50 * [(14 *147)-2,200]
Labor efficiency variance = $1,207 Unfavorable
Manufacturing overhead spending variance
| Standard overhead costs allowed at 148,450 pounds of production | Amount $ | Amount $ |
| Fixed overhead costs | 2,800 | |
| Variable overhead (140 units *$90 | 1,260 | |
| 4,060 | ||
| Actual overhead costs incurred | ||
| Fixed | 2,450 | |
| Variable | 1,175 | |
| 3,625 | ||
| Overhead spending variance – favorable (Unfavorable) | 435 |
Calculation of volume variance
| Details | Amount $ |
| Overhead applied to work in progress using $29 standard rate | 4,263 |
| Budgeted overhead: | |
| Fixed overhead costs | 2,800 |
| Variable overhead ($9 per batch) | 1,260 |
| Total | 4,060 |
| Volume variance favorable (unfavorable) | 203 |
Record the journal entry to charge materials (at standard cost) to work in process:
| Date | Charge Materials (at standard cost) | Post ref. | Debit $ | Credit $ |
| Work in process inventory (at standard cost) | 629,748 | |||
| Material quantity variance (favorable) | 6,258 | |||
| Material price variance (favorable) | 29,690 | |||
| Direct material inventory | 593,800 | |||
| (To record the cost of direct material used) |
Record the journal entry to charge direct labor (at standard cost) to work in process
| Date | Charge direct labor (at standard cost) | Post ref. | Debit $ | Credit $ |
| Work in process inventory (at standard cost) | 17,493 | |||
| Labor efficiency variance (unfavorable) | 1,207 | |||
| Labor rate variance (favorable) | 1,100 | |||
| Direct labor (at actual cost) | 17,600 | |||
| (To record the cost of direct labor charged) |
Record the journal entry to charge manufacturing overhead (at standard cost) to work in process
| Date | Charge Manufacturing overhead (at standard cost) | Post ref. | Debit $ | Credit $ |
| Work in process inventory (at standard cost) | 4,263 | |||
| Overhead volume variance (favorable) | 203 | |||
| Overhead spending variance (favorable) | 435 | |||
| Manufacturing overhead (at actual cost) | 3,625 | |||
| (To record the cost of manufacturing overhead charged) |
Record the journal entry to transfer the work in process goods to finished goods:
| Date | Transfer the work in process goods to finished goods | Post ref. | Debit $ | Credit $ |
|
Finished goods inventory (147 batches) ($4,263 + $17,493 + $629,748) |
651,504 | |||
| Work in process inventory (147 batches) | 651,504 | |||
| (To record completion of finished goods) |
Record the journal entry to close any over or under applied overhead:
There is no over and under applied variance. There is thus no journal entry that would be needed to record the transaction.
Problem 24.7A, pages 1064–1065
Compute the following cost variances for the month of July
Material price variance = Actual quantity used * (Standard price – Actual price)
Material price variance = 800 units *110 ft. * ($1.3/ft - $1.20ft.)
Material price variance = $8,800 (Favorable)
Material quantity variance = Standard price * (Standard quantity – Actual quantity)
Material quantity variance = $1.30/ft * ((800 units * 100 ft.) – 88,000 ft.)
Material quantity variance = -$10,400 = $10,400 unfavorable
Labor rate variance = Actual labor hours * (Standard rate – Actual rate)
Labor rate variance = (800 units* 5.5 hrs) * ($8.00/ hr – $7.80 / hr)
Labor rate variance = $ 880 Favorable
Labor efficiency variance = Standard hourly rate * (Standard hours – Actual hours)
Labor efficiency variance = $8.00 * [(800 *5) - (800 * 5.5)]
Labor efficiency variance = - $3,200 = $3,200 unfavorable
Overhead spending variance = Fixed + Variable – Actual overhead for the month
Overhead spending variance = 15,000 + 5,600 – 18480
Overhead spending variance = 2,120
Volume variance = Standard cost – variable costs
Volume variance = (800 * $22) – 20,600
Volume variance = - 3,000 unfavorable
Journals preparation
| Date | Charge Materials (at standard cost) | Post ref. | Debit $ | Credit $ |
| Work in process inventory (at standard cost) | 104,000 | |||
| Material quantity variance (favorable) | 10,400 | 10,400 | ||
| Material price variance (favorable) | 8,800 | |||
| Materials inventory (at actual) | 105,600 | |||
| (To record the cost of direct material used during July) |
| Date | Charge direct labor (at standard cost) | Post ref. | Debit $ | Credit $ |
| Work in process inventory (at standard cost) | 32,000 | |||
| Labor efficiency variance (unfavorable) | 3,200 | |||
| Labor rate variance (favorable) | 880 | |||
| Direct labor (at actual cost) | 35,320 | |||
| To charge July production with direct labor cost |
| Date | Charge Manufacturing overhead (at standard cost) | Post ref. | Debit $ | Credit $ |
| Work in process inventory (at standard cost) | 17,600 | |||
| Volume variance | 3,000 | |||
| Overhead spending variance (favorable) | 2,120 | |||
| Manufacturing overhead (at actual cost) | 18,480 | |||
| (To charge overhead to production at standard cost) |
Comment on cost variance.
The company appears to have problems in two sections. The company shows two significant favorable variances; the materials price variance and overhead spending variance. The favorable materials price variance that is at $8,800 could indicate that the purchasing department is doing a good job of securing materials at good prices. The overhead spending variance could also indicate that the production manager is doing well in controlling overhead prices. However, the favorable variances could be closely linked to the company’s problems in areas of labor efficiency and materials used.
The favorable materials price variance could mean that the purchasing department is purchasing lower-grade materials compared to normal and perhaps contributing to the large unfavorable materials quantity variance. This is because some materials can be somewhat unusable. The favorable overhead spending variance could result from unfilled supervisory positions, that could contribute the inefficient use of materials and the low productivity of direct workers. The management may have to investigate the causes of these cost variances.
