Chapter 10 Standard Costs and the Balanced Scorecard True/False F Easy Standard costs should generally be based on the actual costs of prior periods F Easy The standard direct labor rate should not include fringe benefits F Medium From a standpoint of cost control, the most effective time to recognize material price variances is when the materials are placed into production F Medium The material quantity variance is computed based on the quantity of all materials purchased during the period F Medium Purchase of poor quality materials will generally result in a favorable materials price variance and an unfavorable labor rate variance T Easy A balanced scorecard is an integrated set of performance measures that support management's strategy throughout the organization F Medium The performance measures on a balanced scorecard tend to fall into four groups: financial measures, customer measures, internal business process measures, and external business process measures T Easy The emphasis in the balanced scorecard is on improvement rather than meeting a preset standard F Medium A balanced scorecard should contain every performance measure that can be expected to influence a company's profits 10 T Easy Process Time is the only value-added component of Throughput Time Managerial Accounting, 9/e 102 11 T Medium (Appendix) A favorable labor efficiency variance would result in a credit balance in the labor efficiency variance account 12 T Easy Management by exception means that a manager's attention is directed toward those parts of the organization where things are not proceeding according to plans 13 T Easy The production manager is usually held responsible for the labor efficiency variance 14 T Easy Quantity standards indicate how much of an input should be used for manufacturing a unit of product or in providing a unit of service 15 F Easy All cost variances should be considered exceptions that require the attention of management Multiple Choice 16 C Easy The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as: a normal standards b practical standards c ideal standards d budgeted standards 17 C Medium CPA adapted To measure controllable production inefficiencies, which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product? a Average historical performance for the last several years b Engineering estimates based on ideal performance c Engineering estimates based on attainable performance d The hours per unit that would be required for the present workforce to satisfy expected demand over the long run 18 C Easy CMA adapted Which of the following statements concerning practical standards is incorrect? a Practical standards can be used for product costing and cash budgeting b Practical standards can be attained by the average worker c When practical standards are used, there is no reason to adjust standards if an old machine is replaced by a newer, faster machine d Under practical standards, large variances are less likely than under ideal standards 19 B Easy CPA adapted If a company follows a practice of isolating variances at the earliest point in time, what would be the appropriate time to isolate and recognize a direct material price variance? a When material is issued b When material is purchased c When material is used in production d When production is completed 20 C Medium CPA adapted An unfavorable labor efficiency variance indicates that: a The actual labor rate was higher than the standard labor rate b The labor rate variance must also be unfavorable c Actual labor hours worked exceeded standard labor hours for the production level achieved d Overtime labor was used during the period 103Managerial Accounting, 9/e 21 D Easy A favorable labor rate variance indicates that a actual hours exceed standard hours b standard hours exceed actual hours c the actual rate exceeds the standard rate d the standard rate exceeds the actual rate 22 B Hard CPA adapted (Appendix) What does a credit balance in a direct labor efficiency variance account indicate? a the average wage rate paid to direct labor employees was less than the standard rate b the standard hours allowed for the units produced were greater than actual direct labor hours used c actual total direct labor costs incurred were less than standard direct labor costs allowed for the units produced d the number of units produced was less than the number of units budgeted for the period 23 C Easy If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur? a Favorable labor efficiency variance b Favorable labor rate variance c Unfavorable labor efficiency variance d Unfavorable labor rate variance Managerial Accounting, 9/e 104 24 A Medium CPA adapted Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance? a The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid, experienced individuals b The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid, unskilled workers c Because of the production schedule, workers from other production areas were assigned to assist this particular process d Defective materials caused more labor to be used in order to produce a standard unit 25 D Easy CPA adapted Which department is usually held responsible for an unfavorable materials quantity variance? a Marketing b Purchasing c Engineering d Production 26 B Easy CMA adapted A favorable material price variance coupled with an unfavorable material usage variance would MOST likely result from: a problems with processing machines b the purchase of low quality materials c problems with labor efficiency d changes in the product mix 27 C Medium CMA adapted Tower Company planned to produce 3,000 units of its single product, Titactium, during November The standards for one unit of Titactium specify six pounds of materials at P0.30 per pound Actual production in November was 3,100 units of Titactium There was a favorable materials price variance of P380 and an unfavorable materials quantity variance of P120 Based on these variances, one could conclude that: a more materials were purchased than were used b more materials were used than were purchased c the actual cost per pound for materials was less than the standard cost per pound d the actual usage of materials was less than the standard allowed 28 B Medium A labor efficiency variance resulting from the use of poor quality materials should be charged to: a the production manager b the purchasing agent c manufacturing overhead d the engineering department 29 D Easy Which of the following represents value-added time in the manufacturing cycle? a Inspection time b Queue time c Move time d Process time 30 D Medium Throughput time consists of: a Process time b Inspection time and move time c Process time, inspection time, and move time d Process time, inspection time, move time, and queue time 31 C Easy Manufacturing Cycle Efficiency (MCE) is computed as: a Throughput Time ÷ Delivery Cycle Time b Process Time ÷ Delivery Cycle Time c Value-Added Time ÷ Throughput Time d Value-Added Time ÷ Delivery-Cycle Time 105Managerial Accounting, 9/e 32 D Medium (Appendix) Drake Company purchased materials on account The entry to record the purchase of materials having a standard cost of P1.50 per pound from a supplier at P1.60 per pound would include a: a credit to Raw Materials Inventory b debit to Work in Process c credit to Materials Price Variance d debit to Materials Price Variance 33 A Medium (Appendix) Which of the following entries would correctly record the charging of direct labor costs to Work in Process given an unfavorable labor efficiency variance and a favorable labor rate variance? a Work in Process Labor Efficiency Variance Labor Rate Variance Wages Payable b Work in Process Wages Payable c Work in Process Labor Efficiency Variance Labor Rate Variance Wages Payable d Work in Process Labor Rate Variance Labor Efficiency Variance Wages Payable Managerial Accounting, 9/e 106 34 C Easy CMA adapted Under a standard cost system, the material price variances are usually the responsibility of the: a production manager b sales manager c purchasing manager d engineering manager 35 C Medium The terms "standard quantity allowed" or "standard hours allowed" mean: a the actual output in units multiplied by the standard output allowed b the actual input in units multiplied by the standard output allowed c the actual output in units multiplied by the standard input allowed d the standard output in units multiplied by the standard input allowed 36 D Medium CPA adapted Dahl Company, a clothing manufacturer, uses a standard costing system Each unit of a finished product contains yards of cloth However, there is unavoidable waste of 20%, calculated on input quantities, when the cloth is cut for assembly The cost of the cloth is P3 per yard The standard direct material cost for cloth per unit of finished product is: a P4.80 b P6.00 c P7.00 d P7.50 37 C Hard Cox Company's direct material costs for the month of January were as follows: Actual quantity purchased 18,000 kilograms Actual unit purchase price P 3.60 per kilogram Materials price variance-unfavorable (based on purchases) P 3,600 Standard quantity allowed for actual production 16,000 kilograms Actual quantity used 15,000 kilograms For January there was a favorable direct material quantity variance of: a P3,360 b P3,375 c P3,400 d P3,800 38 C Hard The Porter Company has a standard cost system In July the company purchased and used 22,500 pounds of direct material at an actual cost of P53,000; the materials quantity variance was P1,875 Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds The materials price variance for July was: a P2,725 F b P2,725 U c P3,250 F d P3,250 U 39 C Medium CPA adapted Information on Fleming Company's direct material costs follows: Actual amount of direct materials used 20,000 pounds Actual direct material costs P40,000 Standard price of direct materials P2.10 per pound Direct material efficiency variance favorable P3,000 What was the company's direct material price variance? a P1,000 favorable b P1,000 unfavorable c P2,000 favorable d P2,000 unfavorable 107Managerial Accounting, 9/e 40 C Easy Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used If the actual purchase price per pound was P0.50 more than the standard purchase price per pound, then the material price variance was: a P2,000 F b P37,500 F c P37,500 U d P35,500 U 41 A Medium CPA adapted During March, Younger Company's direct material costs for product T were as follows: Actual unit purchase price P6.50 per meter Standard quantity allowed for actual production 2,100 meters Quantity purchased and used for actual production 2,300 meters Standard unit price P6.25 per meter Younger's material quantity variance for March was: a P1,250 unfavorable b P1,250 favorable c P1,300 unfavorable d P1,300 favorable Managerial Accounting, 9/e 108 42 B Easy The following materials standards have been established for a particular product: Standard quantity per unit of output 1.7 meters Standard price P19.80 per meter The following data pertain to operations concerning the product for the last month: Actual materials purchased 5,800 meters Actual cost of materials purchased P113,680 Actual materials used in production 5,100 meters Actual output 3,200 units What is the materials quantity variance for the month? a P13,720 U b P6,732 F c P13,860 U d P6,664 F 43 A Easy The following materials standards have been established for a particular product: Standard quantity per unit of output 8.3 grams Standard price P19.15 per gram The following data pertain to operations concerning the product for the last month: Actual materials purchased 7,500 grams Actual cost of materials purchased P141,375 Actual materials used in production 7,100 grams Actual output 700 units What is the materials price variance for the month? a P2,250 F b P7,540 U c P24,317 U d P7,660 U 109Managerial Accounting, 9/e 44 C Hard CPA adapted Information on Kennedy Company's direct material costs follows: Standard price per pound of raw materials P3.60 Actual quantity of raw materials purchased 1,600 pounds Standard quantity allowed for actual production 1,450 pounds Materials purchase price variance favorable P 240 What was the actual purchase price per unit, rounded to the nearest penny? a P3.06 b P3.11 c P3.45 d P3.75 45 B Hard The Fletcher Company uses standard costing The following data are available for October: Actual quantity of direct materials used 23,500 pounds Standard price of direct materials P2 per pound Material quantity variance P1,000 favorable The standard quantity of material allowed for October production is: a 23,000 lbs b 24,000 lbs c 24,500 lbs d 25,000 lbs 46 B Easy CPA adapted Yola Company manufactures a product with standards for direct labor of direct labor-hours per unit at a cost of P12.00 per direct labor-hour During June, 1,000 units were produced using 4,100 hours at P12.20 per hour The direct labor efficiency variance was: a P1,200 favorable b P1,200 unfavorable c P2,020 favorable d P2,020 unfavorable 47 D Easy The following labor standards have been established for a particular product: Standard labor hours per unit of output 8.3 hours Standard labor rate P12.10 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 6,100 hours Actual total labor cost P71,370 Actual output 900 units What is the labor efficiency variance for the month? a P19,017 F b P19,017 U c P16,029 F d P16,577 F Managerial Accounting, 9/e 110 48 A Easy The following labor standards have been established for a particular product: Standard labor hours per unit of output 1.7 hours Standard labor rate P14.05 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 3,700 hours Actual total labor cost P50,690 Actual output 2,300 units What is the labor rate variance for the month? a P1,295 F b P2,877 F c P4,246 F d P4,246 U 49 D Hard CPA adapted Lab Corp uses a standard cost system Direct labor information for Product CER for the month of October follows: Standard direct labor rate P6.00 per hour Actual direct labor rate paid P6.10 per hour Standard hours allowed for actual production 1,500 hours Labor efficiency variance unfavorable P600 What are the actual hours worked? a 1,400 b 1,402 c 1,598 d 1,600 50 D Hard The standards for direct labor for a product are 2.5 hours at P8 per hour Last month, 9,000 units of the product were made and the labor efficiency variance was P8,000 F The actual number of hours worked during the past period was: a 23,500 b 22,500 c 20,500 d 21,500 51 C Hard In a certain standard costing system the following results occurred last period: labor rate variance, P1,000 U; labor efficiency variance, P2,800 F; and the actual labor rate was P0.20 more per hour than the standard labor rate The number of actual direct labor hours used last period was: a 9,000 b 5,400 c 5,000 d 4,800 52 A Hard The Reedy Company uses a standard costing system The following data are available for November: Actual direct labor hours worked 5,800 hours Standard direct labor rate P9 per hour Labor rate variance P1,160 favorable The actual direct labor rate for November is: a P8.80 b P8.90 c P9.00 d P9.20 111Managerial Accounting, 9/e 91 A Easy Refer To: 10-10 92 D Easy Refer To: 10-10 What is the labor rate variance for the month? a P1,920 F b P240 U c P1,920 U d P240 F What is the labor efficiency variance for the month? a P7,230 U b P9,030 U c P7,230 F d P9,150 U Reference: 10-11 The Clark Company makes a single product and uses standard costing Some data concerning this product for the month of May follow: Labor rate variance: P 7,000 F Labor efficiency variance: P12,000 F Variable overhead efficiency variance: P 4,000 F Number of units produced: 10,000 Standard labor rate per direct labor hour: P12 Standard variable overhead rate per direct labor hour: P Actual labor hours used: 14,000 Actual variable manufacturing overhead costs: P58,290 93 B Medium Refer To: 10-11 94 D Hard Refer To: 10-11 95 B Hard Refer To: 10-11 96 C Hard Refer To: 10-11 97 C Hard Refer To: 10-11 The variable overhead spending variance for May was: a P2,290 F b P2,290 U c P1,710 F d P1,710 U The actual direct labor rate for May in Pesos per hour was: a P12.50 b P12.00 c P11.75 d P11.50 The total standard cost for direct labor for May was: a P168,000 b P180,000 c P120,000 d P161,000 The total standard cost for variable overhead for May was: a P56,000 b P40,000 c P60,000 d P50,000 The standard hours allowed to make one unit of finished product are: a 1.0 b 1.2 c 1.5 d 2.0 Reference: 10-12 The following standards for variable manufacturing overhead have been established for a company that makes only one product: Standard hours per unit of output 1.6 hours Standard variable overhead rate P11.55 per hour The following data pertain to operations for the last month: Actual hours 4,900 hours Actual total variable overhead cost P58,310 Actual output 3,000 units Managerial Accounting, 9/e 122 98 C Hard Refer To: 10-11 99 C Easy Refer To: 10-12 What is the variable overhead spending variance for the month? a P2,870 U b P2,870 F c P1,715 U d P1,715 F What is the variable overhead efficiency variance for the month? a P1,680 F b P1,190 U c P1,155 U d P1,190 F Reference: 10-13 The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labor hours Data for the month of February include the following: • Variable manufacturing overhead cost incurred: P48,700 • Total variable overhead variance: P300 F • Standard hours allowed for actual production: 7,000 • Actual direct labor hours worked: 6,840 100 C Hard Refer To: 10-13 The standard variable overhead rate per direct labor hour is: a P6.91 b P6.95 c P7.00 d P7.12 123Managerial Accounting, 9/e 101 B Hard Refer To: 10-13 102 C Hard Refer To: 10-13 The variable overhead spending variance is: a P820 F b P820 U c P740 F d P740 U The variable overhead efficiency variance is: a P430 U b P740 F c P1,120 F d P950 U Reference: 10-14 Ricric Corporation has provided the following data for one of its products: Process time days Queue time days Inspection time 0.7 days Move time 0.3 days Wait time days 103 A Easy Refer To: 10-14 104 B Easy Refer To: 10-14 105 A Medium Refer To: 10-14 The throughput time for this operation would be: a days b days c 17 days d 7.7 days The delivery cycle time for this operation would be: a days b 17 days c 9.3 days d 7.7 days The manufacturing cycle efficiency for this operation would be closest to: a 0.375 b 0.45 c 0.18 d 0.33 Managerial Accounting, 9/e 124 Essay 106 Hard (Appendix) Albert Manufacturing Company manufactures a single product The standard cost of one unit of this product is: Direct materials: feet at P1.50 P 9.00 Direct labor: hour at P6.75 6.75 Variable overhead: hour at P4.50 4.50 Total standard variable cost per unit P20.25 During the month of October, 6,000 units were produced Selected cost data relating to the month's production follow: Material purchased: 60,000 feet at P1.43 P85,800 Material used in production: 38,000 feet Direct labor: ? hours at P ? per hr P41,925 Variable overhead cost incurred P30,713 Variable overhead efficiency variance P 2,250 There was no beginning inventory of raw materials The variable overhead rate is based on direct laborhours Required: a For direct materials, compute the price and quantity variances for the month, and prepare journal entries to record activity for the month b For direct labor, compute the rate and efficiency variances for the month, and prepare a journal entry to record labor activity for the month c For variable overhead, compute the spending variance for the month, and prove the efficiency variance given above 125Managerial Accounting, 9/e Answer: a Materials Price Variance: Actual Quantity of Inputs, at Actual Price: 60,000 feet @ P1.43 per foot P85,800 Actual Quantity of Inputs, at Standard Price: 60,000 feet @ P1.50 90,000 Materials Price Variance P 4,200 F Materials Quantity Variance: Actual Quantity of Inputs, at Standard Price: 38,000 feet @ P1.50 per foot P57,000 Standard Quantity of Inputs, at Standard Price: 6,000 units @ feet per unit x P1.50 per ft 54,000 Materials Quantity Variance P 3,000 U Journal entries: Raw Materials (60,000 feet @ P1.50) 90,000 Materials Price Variance (60,000 feet @ P.07 F) 4,200 Accounts Payable (60,000 feet @ P1.43) 85,800 Work in Process (36,000 feet @ P1.50) 54,000 Materials Quantity Variance (2,000 feet U @ P1.50) 3,000 Raw Materials (38,000 feet @ P1.50) 57,000 b The actual hours worked during the period can be computed efficiency variance, as follows: through the variable overhead SR(AH - SH) = Variable Overhead Efficiency Variance P4.50(AH - (6,000 units @ hr per unit)= P2,250 U P4.50AH - P27,000 = P2,250 U P4.50AH = P29,250 AH = 6,500 hours Labor Rate Variance: Actual Hours of Input, at the Actual Rate: 6,500 hours @ P6.45 P49,056 Actual Hours of Input, at the Standard Rate: 6,500 hours @ P6.75 per hour 43,875 Labor Rate Variance P 1,950 F Labor Efficiency Variance: Actual Hours of Input, at the Standard Rate: 6,500 hours @ P6.75 per hour P43,875 Standard Hours of Input, at the Standard Rate: 6,000 @ hour per unit @ P6.75 per hour 40,500 Labor Efficiency Variance P 3,375 U Journal entry: Work in Process (6,00 hours @ P6.75) 40,500 Labor Efficiency Variance (500 hrs U @ P6.75) 3,696 Labor Rate Variance (6,500 hrs @ P0.30 F) 6,480 Wages Payable (6,500 hrs @ P6.45) 41,925 Managerial Accounting, 9/e 126 c Variable Overhead Spending Variance: Actual Hours of Input, at the Actual Rate P30,713 Actual Hours of Input, at the Standard Rate: 6,500 hours @ P4.50 per hour 29,250 Variable Overhead Spending Variance P 1,463 U Variable Overhead Efficiency Variance: Actual Hours of Input, at the Standard Rate: 6,500 hours @ P4.50 per hour P 29,250 Standard Hours of Input, at the Standard Rate: 6,000 hours @ P4.50 per hour 27,000 Labor Efficiency Variance P 2,250 U 107 Hard (Appendix) Vernon Mills, Inc is a large producer of men's and women's clothing The company uses standard costs for all of its products The standard costs and actual costs per unit of product for a recent period are given below for one of the company's product lines: Standard Actual Cost Cost Standard: 4.0 yards at P5.40 per yard P21.60 Actual: 4.4 yards at P5.05 per yard P22.22 Direct labor: Standard: 1.6 hours at P6.75 per hour P10.80 Actual: 1.4 hours at P7.30 per hour P10.22 Variable overhead: Standard: 1.6 hours at P2.70 per hour P 4.32 Actual: 1.4 hours at P3.25 per hour P 4.55 Total cost per unit P36.72 P36.99 127Managerial Accounting, 9/e During this period, the company produced 4,800 units of this product A comparison of standard and actual costs for the period on a total cost basis is given below: Actual costs: 4,800 units at P36.99 P177,552 Standard costs: 4,800 units at P36.72 176,256 Difference in cost unfavorable P 1,296 There was no inventory of materials on hand at the beginning of the period During the period, 21,120 yards of materials were purchased, all of which were used in production Required: a For direct materials, compute the price and quantity variances for the period and prepare journal entries to record all activity relating to direct materials for the period b For direct labor, compute the rate and efficiency variances and prepare a journal entry to record the incurrence of direct labor cost for the period c For variable overhead, compute the spending and efficiency variances Answer: a Materials Price Variance: Actual Quantity of Inputs, at Actual Price: 4,800 units, 4.4 yards per unit, P5.05 per yard = P106,656 Actual Quantity of Inputs, at Standard Price: 4,800 units, 4.4 yards per unit, P5.40 per yard = 114,048 Materials Price Variance P 7,392 F Materials Quantity Variance: Actual Quantity of Inputs, at Standard Price: 4,800 units, 4.4 yards per unit, P5.40 per yard = P114,048 Standard Quantity of Inputs, at Standard Price: 4,800 units, 4.0 yards per unit, P5.40 per yard = 103,680 Materials Quantity Variance P 10,368 U Journal entries: Raw Materials (21,120 yards @ P5.40) 114,048 Materials Price Variance (21,120 yards @ P0.35 F) 7,392 Accounts Payable (21,120 yards @ P5.05) 106,656 Work in Process (19,200 yards @ P5.40) 103,680 Materials Quantity Variance (1,920 yards @ P5.40) 10,368 Raw Materials (21,120 yards @ P5.40) 114,048 Managerial Accounting, 9/e 128 b Labor Rate Variance: Actual Hours of Input, at the Actual Rate: 4,800 units, 1.4 hours, P7.30 per hour P49,056 Actual Hours of Input, at the Standard Rate: 4,800 units, 1.4 hours, P6.75 per hour 45,360 Labor Rate Variance P 3,696 U Labor Efficiency Variance: Actual Hours of Input, at the Standard Rate: 4,800 units, 1.4 hours, P6.75 per hour P45,360 Standard Hours of Input, at the Standard Rate: 4,800 units, 1.6 hours, P6.75 per hour 51,840 Labor Efficiency Variance P 6,480 F Journal entry: Work in Process (7,600 hours @ P6.75) 51,840 Labor Rate Variance (6,720 @ P0.55 U) 3,696 Labor Efficiency Variance (960 hrs F @ P6.75) 6,480 Wages Payable (6,720 hrs @ P7.30) 49,056 c Variable Overhead Spending Variance: Actual Hours of Input, at the Actual Rate: 4,800 units, 1.4 hours, P3.25 per hour P 21,840 Actual Hours of Input, at the Standard Rate: 4,800 units, 1.4 hours, P2.70 per hour 18,144 Variable Overhead Spending Variance P 3,696 U Variable Overhead Efficiency Variance: Actual Hours of Input, at the Standard Rate: 4,800 units, 1.4 hours, P2.70 per hour P 18,144 Standard Hours of Input, at the Standard Rate: 4,800 units, 1.6 hours, P2.70 per hour 20,736 Labor Efficiency Variance P 2,592 F 108 Medium Lido Company’s standard and actual costs per unit for the most recent period, during which 400 units were actually produced, are given below: Standard Actual Materials: Standard: ft at P1.50 per ft P 3.00 Actual: 2.1 ft at P1.60 per ft P 3.36 Direct labor: Standard: 1.5 hrs at P6.00 per hr 9.00 Actual: 1.4 hrs at P6.50 per hr 9.10 Variable overhead: Standard: 1.5 hrs at P3.40 per hr 5.10 Actual: 1.4 hrs at P3.10 per hr 4.34 Total unit cost P17.10 P16.80 Required: From the foregoing information, compute the following variances Show whether the variance is favorable (F) or unfavorable (U): a Material price variance b Material quantity variance c Direct labor rate variance d Direct labor efficiency variance e Variable overhead spending variance f Variable overhead efficiency variance 129Managerial Accounting, 9/e Answer: a Material price variance = AQ(AP-SP) = (2.1x400)x(P1.60-P1.50) = P84 U b Material quantity variance = SP(AQ-SQ) = P1.50(2.1x400 - 2.0x400) = P60 U c Direct labor rate variance = AH(AR-SR) = (1.4x400)x(P6.50-P6.00) = P280 U d Direct labor efficiency variance = SR(AH-SH) = P6.00(1.4x400 - 1.5x400) = P240 F e Variable overhead spending variance = AH(AR-SR) = (1.4x400)x(P3.10-P3.40) = P168 F f Variable overhead efficiency variance = SR(AH-SH) = P3.40 (1.4x400 - 1.5x400) = P136 F 109 Medium (Appendix) The Lahn Company produces and sells a single product Standards have been established for the product as follows: Direct materials lbs @ P3.50/lb = P17.50/unit Direct labor hrs @ P5.50/hr = P16.50/unit Actual cost and usage figures for the past month follow: Units produced 750 Direct materials used 4,000 lbs Direct materials purchased P14,400 (4,500 lbs.) Direct labor cost P11,200 (2,000 hrs.) Managerial Accounting, 9/e 130 Required: Prepare journal entries to record: a The purchase of raw materials b The usage of raw materials in production c The incurrence of direct labor cost Answer: a Raw materials inventory 15,750* Materials price variance 1,350** Accounts payable 14,400 * P3.50 per lb x 4,500 lbs = P15,750 ** AQ(AP - SP) = 4,500((P14,400/4,500 lbs) - P3.50) = P1,350 F b Work in process 13,125* Materials quantity variance 875** Raw materials inventory 14,000*** * P3.50 per lb x lbs per unit x 750 units = P13,125 ** SP(AQ - SQ) = P3.50(4,000 - (5 x 750)) = P875 U *** P3.50 x 4,000 = P14,000 c Work in process 12,375* Labor rate variance 200** Labor efficiency variance 1,375*** Accrued wages payable 11,200 * P5.50 per hr x hrs per unit x 750 units = P12,375 ** AH(AR - SR) = 2,000((P11,200/2,000) - P5.50) = P200 U *** SR(AH - SH) = P5.50(2,000 - (3 x 750)) = P1,375 F 110 Easy The following materials standards have been established for a particular product: Standard quantity per unit of output 9.2 grams Standard price P14.70 per gram The following data pertain to operations concerning the product for the last month: Actual materials purchased 5,500 grams Actual cost of materials purchased P76,450 Actual materials used in production 5,100 grams Actual output 540 units Required: a What is the materials price variance for the month? b What is the materials quantity variance for the month? 131Managerial Accounting, 9/e Answer: Solution: Materials price variance = (AQ x AP) - (AQ x SP) = P76,450 – (5,500 x P14.70) = P4,400 F SQ = Standard quantity per unit x Actual output = 9.2 x 540 = 4,968 Materials quantity variance = SP(AQ - SQ) = P14.70 (5,100 – 4,968) = P1,940 U 111 Easy The following materials standards have been established for a particular product: Standard quantity per unit of output 9.4 pounds Standard price P16.90 per pound The following data pertain to operations concerning the product for the last month: Actual materials purchased 7,300 pounds Actual cost of materials purchased P116,435 Actual materials used in production 7,100 pounds Actual output 740 units Required: a What is the materials price variance for the month? b What is the materials quantity variance for the month? Answer: Materials price variance = (AQ x AP) - (AQ x SP) = P116,435 – (7,300 x P16.90) = P6,935 F SQ = Standard quantity per unit x Actual output = 9.4 x 740 = 6,956 Materials quantity variance = SP(AQ - SQ) = P16.90(7,100 – 6,956) = P2,434 U 112 Easy The following materials standards have been established for a particular product: Standard quantity per unit of output 3.6 feet Standard price P10.20 per feet The following data pertain to operations concerning the product for the last month: Actual materials purchased 7,100 feet Actual cost of materials purchased P68,515 Actual materials used in production 6,600 feet Actual output 1,780 units Managerial Accounting, 9/e 132 Required: a What is the materials price variance for the month? b What is the materials quantity variance for the month? Answer: Materials price variance = (AQ x AP) - (AQ x SP) = P68,515 – (7,100 x P10.20) = P3,905 F SQ = Standard quantity per unit x Actual output = 3.6 x 1,780 = 6,408 Materials quantity variance = SP(AQ - SQ) = P10.20(6,600 – 6,408) = P1,958 U 113 Hard Dodge Company produces a single product The company has set the following standards for materials and labor: Direct Materials Direct Labor Standard quantity or hours per unit ? pounds hours Standard price or rate ? per pound P15 per hour Standard cost per unit ? P45 During the past month, the company purchased 7,000 pounds of direct materials at a cost of P26,250 All of this material was used in the production of 1,300 units of product Direct labor cost totaled P55,125 for the month The following variances have been computed: Materials price variance P1,750 F Total materials variance P250 U Labor efficiency variance P6,000 F Required: a For direct materials, compute the standard price per pound, the standard quantity allowed for materials in total for the month's production, and the standard quantity per unit of product b For direct labor, compute the actual direct labor cost per hour for the month and the labor rate variance Answer: a The actual cost of material per pound for the month was: P26,500  7,000 pounds = P3.75 per pound AQ (AP - SP) = Materials Price Variance 7,000 pounds (P3.75 - SP) = P1,750 F P26,250 - 7,000 SP = P1,750 F 7,000 SP = P28,000 SP = P4.00 SP (AQ - SQ) = Materials Quantity Variance P4.00(7,000 lbs - SQ) = P2,000 U P28,000 - P4.00 SQ = P2,000 U P4.00 SQ = P26,000 SQ = 6,500 lbs 6,500 lbs  1,300 units = lbs per unit 133Managerial Accounting, 9/e b SR (AH - SH) = Labor Efficiency Variance P15 (AH - ((1,300 units x hours)) = P6,000 F P15 AH - P58,500 = P6,000 F P15 AH = P52,500 AH = 3,500 hours Therefore, P55,125 total actual labor cost  3,500 hours = P15.75 per hour AH (AR - SR) = Labor Rate Variance 3,500 hours (P15.75 - P15.00) = P2,625 U 114 Hard The supervisor of the cost department has just conferred with you concerning the variance analysis of direct labor for the month just ended As she talked, you wrote feverishly, but you weren't able to record all the information she gave you before she dashed off muttering something about "another brush fire to put out." Your efforts are shown below: 4,800 hours x P7.20 hours x P hours x P _ | | | | | | | | | | | Efficiency variance | | | P2,250 U | | | | _ Total variance, P810 U _ Required: a To redeem yourself, complete the form above, adding numbers SH, AR, SR, etc., may be used where appropriate.) b If you know that 18 minutes of labor is standard per unit of produced? and labels (The usual notations, AH, production, how many units were Answer: a AH X AR AH X SR SH X SR 4,800 hours X P7.20 4,800 hours X P7.50 4,500 hours X P7.50 P34,560 P36,000 P33,750 Rate variance, P1,440 F Efficiency variance, P2,250 U Total variance, P810 U Computations in this order: Rate variance = Total variance - Efficiency variance = P810U - P2,250U = P810 - P2,250 = -P1,440 = P1,440F AH X AR = 4,800 x P7.20 = P34,560 AH X SR = AH X AR - Rate variance = P34,560 - P1,440F = P34,560 - (-P1,440) = P36,000 Managerial Accounting, 9/e 134 SR = (AH X SR) ÷ AH = P36,000 ÷ 4,800 = P7.50 SH X SR = AH X SR - Efficiency variance = P36,000 - P2,250U = P36,000 - P2,250 = P33,750 SH = (SH X SR) ÷ SR = P33,750 ÷ P7.50 = 4,500 b Standard hours allowed for units produced 4,500 Divide by fraction of hour allowed per unit 18/60 Actual units 15,000 115 Easy The following labor standards have been established for a particular product: Standard labor hours per unit of output 2.8 hours Standard labor rate P11.50 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 6,900 hours Actual total labor cost P80,385 Actual output 2,300 units Required: a What is the labor rate variance for the month? b What is the labor efficiency variance for the month? Answer: Labor rate variance = (AH x AR) - (AH x SR) = P80,385 – (6,900 x P11.50) = P1,035 U SH = Standard hours per unit x Actual output = 2.8 x 2,300 = 6,440 Labor efficiency variance = SR(AH - SH) = P11.50(6,900 – 6,440) = P5,290 U 116 Easy The following standards for variable manufacturing overhead have been established for a company that makes only one product: Standard hours per unit of output 6.9 hours Standard variable overhead rate P15.80 per hour The following data pertain to operations for the last month: Actual hours 6,100 hours Actual total variable overhead cost P97,600 Actual output 800 units 135Managerial Accounting, 9/e Required: a What is the variable overhead spending variance for the month? b What is the variable overhead efficiency variance for the month? Answer: Variable overhead spending variance = (AH x AR) - (AH x SR) = P97,600 – (6,100 x P15.80) = P1,220 U SH = Standard hours per unit x Actual output = 6.9 x 800 = 5,520 Variable overhead efficiency variance = SR(AH - SH) = P15.80(6,100 – 5,520) = P9,164 U Managerial Accounting, 9/e 136