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Principles of Accounting, Volume 2: Managerial Accounting

Exercise Set B

Principles of Accounting, Volume 2: Managerial AccountingExercise Set B
EB 1.

LO 8.1Bristol is developing material standards for her company. The operations manager wants grade A plastic tops 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. Bristol calls several suppliers to get prices for the plastic top. All are within $0.10 of each other. Since the company will use millions of the plastic tops, she decides that the $0.10 difference is important. The supplier who has the lowest price is known for delivering late and low-quality materials. Bristol decides to use the supplier who is $0.04 more but delivers on time and at the right quality. This supplier charges $0.52 per plastic top. Each unit of product requires six plastic tops. What is the standard cost per unit for plastic tops?

EB 2.

LO 8.1Salley is developing material and labor standards for her company. She finds that it costs $0.55 per pound of material per widget. Each widget requires 6 pounds of material per widget. Salley is also working with the operations manager to determine what the standard labor cost is for a widget. Upon observation, Salley notes that it takes 3 hours in the assembly department and 1 hour in the finishing department to complete one widget. All employees are paid $10.50 per hour.

  1. What is the standard materials cost per unit for a widget?
  2. What is the standard labor cost per unit for a widget?
EB 3.

LO 8.1Use the following information to create a standard cost card for production of one photography drone from Drone Experts.

To make one drone it takes 2 pounds of plastic material. The material can usually be purchased for $25.00 per pound. The labor necessary to build a drone consists of two types. The first type of labor is assembly, which takes 10.5 hours. These workers are paid $21.00 per hour. The second type of labor is finishing, which takes 7 hours. These workers are paid $25.00 per hour. Overhead is applied using labor hours. The variable overhead rate is $14.00 per labor hour. The fixed overhead rate is $16.00 per hour.

EB 4.

LO 8.1Mateo makes gizmos. He would like to set up a system to help him manage his business. The gizmos are made in a standard process. There is a certain amount of material and labor that goes into each gizmo. The only difference between the gizmo is the color of the material. What information should Mateo collect, how should he format it, and what kind of reports should he prepare to help him run his business?

EB 5.

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

Standard Quantity times Standard Price equals Standard Cost. Direct materials, 5 pounds, $2.60 per pound, $18.00. Direct labor, 1.25 hours, $12.00 per hour, $15.00. Total cost, -, -, $33.00.

Smith Industries made 3,000 baskets in July and used 15,500 pounds of material to make these units. Smith Industries paid $39,370 for the 15,500 pounds of material.

  1. What was the direct materials price variance for July?
  2. What was the direct materials quantity variance for July?
  3. What is the total direct materials cost variance?
  4. If Smith Industries used 15,750 pounds to make the baskets, what would be the direct materials quantity variance?
EB 6.

LO 8.2Lizbeth, Inc., makes ice cream. The toffee coffee ice cream takes 4 quarts of cream, 3 cups of sugar, 2 tablespoons of toffee flavoring, and 1.5 tablespoons of coffee flavoring per gallon. The standard prices are $2.00 per quart of cream, $0.40 per cup of sugar, $0.50 per tablespoon of toffee flavoring, and $0.75 per tablespoon of coffee flavoring.

  1. What is the standard material cost for a gallon of toffee coffee ice cream?
  2. If Lizbeth makes 35 gallons of toffee coffee ice cream, how much of each of the ingredients should she use?
  3. If Lizbeth uses 105 quarts of cream to make 25 gallons of ice cream, what would be the cream (direct materials) quantity variance?
  4. If Lizbeth uses 45 tablespoons of toffee flavoring to make 25 gallons of ice cream, what would be the toffee flavoring (direct materials) quantity variance?
EB 7.

LO 8.2Woodpecker manufactures sawmill equipment. They use a standard costing system and recognize material price variance at the time of material purchases. They use carbide to make the teeth on their band-saw blades. They received an order for 250 band-saw blades, but they did not have any carbide in stock. They purchased 3,500 pounds of carbide for $14,875 but should have spent $16,275. Each saw blade has a standard carbide direct materials quantity of 7.8 pounds.

  1. If they used 8 pounds per blade, what would be the direct materials quantity variance?
  2. If they used 7.5 pounds per blade, what would be the direct materials quantity variance?
  3. Compute the direct materials price variance based on 7.5 pounds of carbide per blade actually used.
EB 8.

LO 8.3Case made 24,500 units during June, using 32,000 direct labor hours. They expected to use 31,450 hours per the standard cost card. Their employees were paid $15.75 per hour for the month of June. The standard cost card uses $15.50 as the standard hourly rate.

  1. Compute the direct labor rate and time variances for the month of June, and also calculate the total direct labor variance.
  2. If the standard rate per hour was $16.00, what would change?
EB 9.

LO 8.3Eagle Inc. uses a standard cost system. During the most recent period, the company manufactured 115,000 units. The standard cost sheet indicates that the standard direct labor cost per unit is $1.50. The performance report for the period includes an unfavorable direct labor rate variance of $3,700 and a favorable direct labor time variance of $10,275.
What was the total actual cost of direct labor incurred during the period?

EB 10.

LO 8.4A manufacturer planned to use $45 of variable overhead per unit produced, but in the most recent period, it actually used $47 of variable overhead per unit produced. During this same period, the company planned to produce 200 units but actually produced 220 units. What is the variable overhead spending variance?

EB 11.

LO 8.4Fitzgerald Company manufactures sewing machines, and they produced 2,500 this past month. The standard variable manufacturing overhead (MOH) rate used by the company is $6.75 per machine hour. Each sewing machine requires 13.5 machine hours. Actual machine hours used last month were 33,500, and the actual variable MOH rate last month was $7.00.

Calculate the variable overhead rate variance and the variable overhead efficiency variance.

EB 12.

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 90. Actual labor rate per hour $15. Standard labor rate per hour $14. Actual hours 200. Standard hours for units produced 190.
  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.
EB 13.

LO 8.5Acme Inc. has the following information available:

Actual price paid for material $1.00. Standard price for material $1.10. 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 190.
  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.
EB 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 90. 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.
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