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Principles of Accounting, Volume 2: Managerial Accounting

Exercise Set A

Principles of Accounting, Volume 2: Managerial AccountingExercise Set A
EA 1.

LO 8.1Moisha is developing material standards for her company. The operations manager wants grade A widgets because they are the easiest to work with and are the quality the customers want. Grade B will not work because customers do not want the lower grade, and it takes more time to assemble the product than with grade A materials. Moisha calls several suppliers to get prices for the widget. All are within $0.05 of each other. Since they will use millions of widgets, she decides that the $0.05 difference is important. The supplier who has the lowest price is known for delivering late and low-quality materials. Moisha decides to use the supplier who is $0.02 more but delivers on time and at the right quality. This supplier charges $0.48 per widget. Each unit of product requires four widgets. What is the standard cost per unit for widgets?

EA 2.

LO 8.1Rene is working with the operations manager to determine what the standard labor cost is for a spice chest. He has watched the process from start to finish and taken detailed notes on what each employee does. The first employee selects and mills the wood, so it is smooth on all four sides. This takes the employee 1 hour for each chest. The next employee takes the wood and cuts it to the proper size. This takes 30 minutes. The next employee assembles and sands the chest. Assembly takes 2 hours. The chest then goes to the finishing department. It takes 1.5 hours to finish the chest. All employees are cross-trained so they are all paid the same amount per hour, $17.50.

  1. What are the standard hours per chest?
  2. What is the standard cost per chest for labor?
EA 3.

LO 8.1Fiona cleans offices. She is allowed 5 seconds per square foot. She cleans building A, which is 3,000 square feet, and building B, which is 2,460 square feet. Will she finish these two buildings in an 8-hour shift? Will she have time for a break?

EA 4.

LO 8.1Use the information provided to create a standard cost card for production of one glove box switch. To make one switch it takes 16 feet of plastic-coated copper wire and 0.5 pounds of plastic material. The plastic material can usually be purchased for $20.00 per pound, and the wire costs $2.50 per foot. The labor necessary to assemble a switch consists of two types. The first type of labor is assembly, which takes 3.5 hours. These workers are paid $27.00 per hour. The second type of labor is finishing, which takes 2 hours. These workers are paid $29.00 per hour. Overhead is applied using labor hours. The variable overhead rate is $14.90 per labor hour. The fixed overhead rate is $15.60 per hour.

EA 5.

LO 8.2Sitka Industries uses a cost system that carries direct materials inventory at a standard cost. The controller has established these standards for one ladder (unit):

Standard Quantity times Standard Price equals Standard Cost. Direct materials, 3 pounds, $4.50 per pound, $13.50. Direct labor, 2.00 hours, $12.00 per hour, $24.00. Total cost, -, -, $37.50.

Sitka Industries made 3,000 ladders in July and used 8,800 pounds of material to make these units. Sitka Industries bought 15,500 pounds of material in the current period. There was a $250 unfavorable direct materials price variance.

  1. How much in total did Sitka pay for the 15,500 pounds?
  2. What is the direct materials quantity variance?
  3. What is the total direct material cost variance?
  4. What if 9,500 pounds were used to make these ladders, what would be the direct materials quantity variance?
  5. If there was a $340 favorable direct materials price variance, how much did Sitka pay for the 15,500 pounds of material?
EA 6.

LO 8.2Use the information provided to answer the questions.

Actual price paid per pound of material $14.50, Total standard pounds for units produced this period 12,500, Pounds of material used 13,250, Direct materials price variance favorable $4,637.50.

All material purchased was used in production.

  1. What is the standard price for materials?
  2. What is the direct materials quantity variance?
  3. What is the total direct materials cost variance?
  4. If the direct materials price variance was unfavorable, what would be the standard price?
EA 7.

LO 8.2Dog Bone Bakery, which bakes dog treats, makes a special biscuit for dogs. Each biscuit uses 0.75 cup of pure semolina flour. They buy 4,000 cups of flour at $0.55 per cup. They use 3,550 cups of flour to make 4,750 biscuits. The standard cost per cup of flour is $0.53.

  1. What are the direct materials price variance, the direct materials quantity variances, and the total direct materials cost variance?
  2. What is the standard cost per biscuit for the semolina flour?
EA 8.

LO 8.3Queen Industries uses a standard costing system in the manufacturing of its single product. It requires 2 hours of labor to produce 1 unit of final product. In February, Queen Industries produced 12,000 units. The standard cost for labor allowed for the output was $90,000, and there was an unfavorable direct labor time variance of $5,520.

  1. What was the standard cost per hour?
  2. How many actual hours were worked?
  3. If the workers were paid $3.90 per hour, what was the direct labor rate variance?
EA 9.

LO 8.3Penny Company manufactures only one product and uses a standard cost system. The following information is from Penny’s records for May:

Direct labor rate variance $15,000 favorable. Direct labor time variance $25,000 unfavorable. Standard hours per unit produced 2.5. Standard rate per hour $25.

During May, the company used 12.5% more hours than the standard allowed.

  1. What were the total standard hours allowed for the units manufactured during the month?
  2. What were the actual hours worked?
  3. How many actual units were produced during May?
EA 10.

LO 8.4ThingOne Company has the following information available for the past year. They use machine hours to allocate overhead.

Actual total overhead $75,000. Actual fixed overhead $32,500. Actual machine hours 10,000. Standard hours for the units produced 9,500. Standard variable overhead rate $4.50.

What is the variable overhead efficiency variance?

EA 11.

LO 8.4A manufacturer planned to use $78 of variable overhead per unit produced, but in the most recent period, it actually used $76 of variable overhead per unit produced. During this same period, the company planned to produce 500 units but actually produced 540 units. What is the variable overhead spending variance?

EA 12.

LO 8.5Acme Inc. has the following information available:

Actual price paid for material $1.00. Standard price for material $1.20. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $16. Actual hours 200. Standard hours for units produced 220.
  1. Compute the material price and quantity, and the labor rate and efficiency variances.
  2. Describe the possible causes for this combination of favorable and unfavorable variances.
EA 13.

LO 8.5Acme Inc. has the following information available:

Actual price paid for material $1.00. Standard price for material $0.90. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $16. Actual hours 200. Standard hours for units produced 220.
  1. Compute the material price and quantity, and the labor rate and efficiency variances.
  2. Describe the possible causes for this combination of favorable and unfavorable variances.
EA 14.

LO 8.5Acme Inc. has the following information available:

Actual price paid for material $1.00. Standard price for material $0.90. Actual quantity purchased and used in production 100. Standard quantity for units produced 110. Actual labor rate per hour $15. Standard labor rate per hour $14. Actual hours 200. Standard hours for units produced 220.
  1. Compute the material price and quantity, and the labor rate and efficiency variances.
  2. Describe the possible causes for this combination of favorable and unfavorable variances.
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