Problem Set A

LO 8.1The comptroller wants to set the standards according to a study done by a consulting firm for a company. The consulting firm used the following assumptions: The machines never break down. Workers never take a break. The material used is perfect. The material arrives on time. No one takes a day off. Workers are well trained. Workers do not make defective units. What kinds of standards are these? Will the workers be motivated to achieve these standards?

LO 8.1Stan is opening a coffee shop next to Big State University. He knows that controlling his costs will be important to the success of the shop. He will not be able to work all the hours the shop is open, so the employees will need some guidelines to perform their jobs correctly. After talking to an accounting professor, he decides he needs a standard cost system for his shop. Describe the process Stan should follow in setting his standards for materials and labor.

LO 8.1What makes a variance favorable? Give an example of a favorable variance involving materials. What makes a variance unfavorable? Give an example of an unfavorable variance involving labor.

LO 8.2April Industries employs a standard costing system in the manufacturing of its sole product, a park bench. They purchased 60,000 feet of raw material for $300,000, and it takes 5 feet of raw materials to produce one park bench. In August, the company produced 10,000 park benches. The standard cost for material output was $100,000, and there was an unfavorable direct materials quantity variance of $6,000.

1. What is April Industries’ standard price for one unit of material?
2. What was the total number of units of material used to produce the August output?
3. What was the direct materials price variance for August?

LO 8.2Ed Co. manufactures two types of O rings, large and small. Both rings use the same material but require different amounts. Standard materials for both are shown.

At the beginning of the month, Ed Co. bought 25,000 feet of rubber for $6,875. The company made 3,000 large O rings and 4,000 small O rings. The company used 14,500 feet of rubber.

1. What are the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance?
2. If they bought 10,000 connectors costing $310, what would the direct materials price variance be for the connectors?
3. If there was an unfavorable direct materials price variance of $125, how much did they pay per foot for the rubber?

LO 8.2The Whizbang Company makes a special type of toy. Each toy takes 6 ounces of a special material that costs $3 per ounce. Whizbang bought 4,000 ounces of the material at a cost of $11,300. They used 3,400 ounces to make 534 toys. Compute the direct materials price variance, the direct materials quantity variance, and the total direct materials quantity variance.

LO 8.3Ellis Company’s labor information for September is as follows:

1. Compute the standard direct labor rate per hour.
2. Compute the direct labor time variance.
3. Compute the standard direct labor rate if the direct labor rate variance was $2,712.50 (unfavorable).

LO 8.3Breakaway Company’s labor information for May is as follows:

1. What is the actual direct labor rate per hour?
2. What is the standard direct labor rate per hour?
3. What was the total standard direct labor cost for May?
4. What was the direct labor rate variance for May?

LO 8.3Power Co.’s labor information for June is as follows:

1. What was the actual labor rate per hour?
2. What was the standard labor rate per hour?
3. What was the total standard labor cost for units produced in June?
4. What was the direct labor time variance for June?

LO 8.4Prepare a flexible budget for overhead based on the following data:

LO 8.4Reddy Corporation has collected the following data for the month of June:

What is the variable overhead efficiency variance?

LO 8.4ABC Inc. spent a total of $48,000 on factory overhead. Of this, $28,000 was fixed overhead. ABC Inc. had budgeted $27,000 for fixed overhead. Actual machine hours were 5,000. Standard hours for units made were 4,800. The standard variable overhead rate was $4.10. What is the variable overhead rate variance?

LO 8.5Recompute the variances from the second Acme Inc. exercise using $0.0725 as the standard cost of the material and $14 as the standard labor cost per hour. How has your explanation of the variances changed?