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Exercise 23-21 Name: Section: Enter the appropriate amount or item in the shaded cells. An asterisk (*) will appear beside an incorrect entry in the outlined cells. Date June 30 JOURNAL Description Err:511 Err:511 Err:511 Err:511 Debit Credit Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Print | Accounting 12/20/12 8:12 PM PRINTED BY: Ginette27@Gmail.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 10. Would the use of standards be appropriate in a nonmanufacturing setting, such as a fast-food restaurant? 11. a. Describe the two variances between the actual costs and the standard costs for factory overhead. b. What is a factory overhead cost variance report? 12. What are budgeted fixed costs at normal volume? 13. If variances are recorded in the accounts at the time the manufacturing costs are incurred, what does a debit balance in Direct Materials Price Variance represent? 14. If variances are recorded in the accounts at the time the manufacturing costs are incurred, what does a credit balance in Direct Materials Quantity Variance represent? 15. Briefly explain why firms might use nonfinancial performance measures. Practice Exercises PE 23-1A Direct materials variances Norris Company produces a product that requires six standard pounds per unit. The standard price is $1.25 per pound. If 500 units required 2,900 pounds, which were purchased at $1.30 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? obj. 3 EE 23-1 p. 1051 PE 23-1B Direct materials variances McLean Company produces a product that requires three standard gallons per unit. The standard price is $18.50 per gallon. If 2,500 units required 8,000 gallons, which were purchased at $18.00 per gallon, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? obj. 3 EE 23-1 p. 1051 PE 23-2A Direct labor variances Norris Company produces a product that requires 3.5 standard hours per unit at a standard hourly rate of $12 per hour. If 500 units required 1,500 hours at an hourly rate of $11.50 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? obj. 3 EE 23-2 p. 1053 PE 23-2B Direct labor variances McLean Company produces a product that requires two standard hours per unit at a standard hourly rate of $18 per hour. If 2,500 units required 5,500 hours at an hourly rate of $19 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? obj. 3 EE 23-2 p. 1053 PE 23-3A Factory overhead controllable variance Norris Company produced 500 units of product that required 3.5 standard hours per unit. The standard variable overhead cost per unit is $0.70 per http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 1 of 12 Print | Accounting 12/20/12 8:12 PM hour. The actual variable factory overhead was $1,200. Determine the variable factory overhead controllable variance. obj. 4 EE 23-3 p. 1056 PE 23-3B Factory overhead controllable variance McLean Company produced 2,500 units of product that required two standard hours per unit. The standard variable overhead cost per unit is $2.50 per hour. The actual variable factory overhead was $12,900. Determine the variable factory overhead controllable variance. obj. 4 EE 23-3 p. 1056 PE 23-4A Factory overhead volume variance Norris Company produced 500 units of product that required 3.5 standard hours per unit. The standard fixed overhead cost per unit is $0.30 per hour at 1,800 hours, which is 100% of normal capacity. Determine the fixed factory overhead volume variance. obj. 4 EE 23-4 p. 1058 PE 23-4B Factory overhead volume variance McLean Company produced 2,500 units of product that required two standard hours per unit. The standard fixed overhead cost per unit is $1.30 per hour at 4,600 hours, which is 100% of normal capacity. Determine the fixed factory overhead volume variance. obj. 4 EE 23-4 p. 1058 PE 23-5A Standard cost journal entries Norris Company produced 500 units that require six standard pounds per unit at $1.25 standard price per pound. The company actually used 2,900 pounds in production. Journalize the entry to record the standard direct materials used in production. obj. 5 EE 23-5 p. 1061 PE 23-5B Standard cost journal entries McLean Company produced 2,500 units that require three standard gallons per unit at $18.50 standard price per gallon. The company actually used 8,000 gallons in production. Journalize the entry to record the standard direct materials used in production. obj. 5 EE 23-5 p. 1061 PE 23-6A Income statement with variances Prepare an income statement through gross profit for Norris Company using the variance data in Practice Exercises 23-1A, 23-2A, 23-3A, and 234A. Assume Norris sold 500 units at $105 per unit. obj. 5 EE 23-6 p. 1063 PE 23-6B Income statement with variances Prepare an income statement through gross profit for McLean Company using the variance data in Practice Exercises 23-1B, 23-2B, 23-3B, and 234B. Assume McLean sold 2,500 units at $214 per unit. obj. 5 http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 2 of 12 Print | Accounting 12/20/12 8:12 PM EE 23-6 p. 1063 PE 23-7A Activity inputs and outputs The following are inputs and outputs to the cooking process of a restaurant: Percent of meals prepared on time Number of unexpected cook absences Number of times ingredients are missing Number of server order mistakes Number of hours kitchen equipment is down for repairs Number of customer complaints Identify whether each is an input or output to the cooking process. obj. 6 EE 23-7 p. 1064 PE 23-7B Activity inputs and outputs The following are inputs and outputs to the copying process of a copy shop: Percent jobs done on time Number of times paper supply runs out Number of pages copied per hour Number of employee errors Number of customer complaints Copy machine downtime (broken) Identify whether each is an input or output to the copying process. obj. 6 EE 23-7 p. 1064 Exercises EX 23-1 Standard direct materials cost per unit Bavarian Chocolate Company produces chocolate bars. The primary materials used in producing chocolate bars are cocoa, sugar, and milk. The standard costs for a batch of chocolate (5,000 bars) are as follows: IngredientQuantity Price Cocoa 510 lbs. $0.40 per lb. Sugar 150 lbs. $0.64 per lb. Milk 120 gal. $1.25 per gal. Determine the standard direct materials cost per bar of chocolate. obj. 2 EX 23-2 Standard product cost http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 3 of 12 Print | Accounting 12/20/12 8:12 PM Hickory Furniture Company manufactures unfinished oak furniture. Hickory uses a standard cost system. The direct labor, direct materials, and factory overhead standards for an unfinished dining room table are as follows: Direct labor: standard rate $18.00 per hr. standard time per unit2.5 hrs. Direct materials (oak): standard price $9.50 per bd. ft. standard quantity 18 bd. ft. Variable factory overhead:standard rate $2.80 per direct labor hr. Fixed factory overhead: $1.20 per direct labor hr. standard rate Determine the standard cost per dining room table. obj. 2 EX 23-3 Budget performance report Warwick Bottle Company (WBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $1.32 Direct materials 5.34 Factory overhead 0.34 Total $7.00 At the beginning of July, WBC management planned to produce 650,000 bottles. The actual number of bottles produced for July was 700,000 bottles. The actual costs for July of the current year were as follows: Cost Category Actual Cost for the Month Ended July 31, 2010 Direct labor $ 9,400 Direct materials 36,500 Factory overhead 2,400 Total $48,300 a. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for WBC, assuming planned production. b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July. c. Interpret the budget performance report. obj. 2 http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 4 of 12 Print | Accounting 12/20/12 8:12 PM b. Direct labor cost variance, $160 U EX 23-4 Direct materials variances The following data relate to the direct materials cost for the production of 2,000 automobile tires: Actual: 54,600 lbs. at $1.80$98,280 Standard:53,400 lbs. at $1.85$98,790 a. Determine the price variance, quantity variance, and total direct materials cost variance. b. To whom should the variances be reported for analysis and control? obj. 3 a. Price variance, $2,730 F EX 23-5 Direct materials variances I-Time, Inc., produces electronic timepieces. The company uses mini-LCD displays for its products. Each timepiece uses one display. The company produced 550 timepieces during March. However, due to LCD defects, the company actually used 570 LCD displays during March. Each display has a standard cost of $9.20. Six hundred LCD displays were purchased for March production at a cost of $6,000. Determine the price variance, quantity variance, and total direct materials cost variance for March. obj. 3 Quantity variance, $184 U EX 23-6 Standard direct materials cost per unit from variance data The following data relating to direct materials cost for March of the current year are taken from the records of Play Tyme Inc., a manufacturer of plastic toys: Quantity of direct materials used 5,000 lbs. Actual unit price of direct materials $2.40 per lb. Units of finished product manufactured 1,200 units Standard direct materials per unit of finished product4 lbs. Direct materials quantity varianceunfavorable $500 Direct materials price variancefavorable $500 Determine the standard direct materials cost per unit of finished product, assuming that there was no inventory of work in process at either the beginning or the end of the month. objs. 2, 3 EX 23-7 Standard product cost, direct materials variance http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 5 of 12 Print | Accounting 12/20/12 8:12 PM H.J. Heinz Company uses standards to control its materials costs. Assume that a batch of ketchup (1,500 pounds) has the following standards: Standard QuantityStandard Price Whole tomatoes2,500 lbs. $ 0.45 per lb. Vinegar 140 gal. 2.75 per gal. Corn syrup 12 gal. 10.00 per gal. Salt 56 lbs. 2.50 per lb. The actual materials in a batch may vary from the standard due to tomato characteristics. Assume that the actual quantities of materials for batch K103 were as follows: 2,600 lbs. of tomatoes 135 gal. of vinegar 13 gal. of corn syrup 55 lbs. of salt a. Determine the standard unit materials cost per pound for a standard batch. b. Determine the direct materials quantity variance for batch K103. objs. 2, 3 EX 23-8 Direct labor variances The following data relate to labor cost for production of 5,500 cellular telephones: Actual: 3,650 hrs. at $15.20$55,480 Standard:3,710 hrs. at $15.00$55,650 a. Determine the rate variance, time variance, and total direct labor cost variance. b. Discuss what might have caused these variances. obj. 3 a. Rate variance, $730 U EX 23-9 Direct labor variances Alpine Bicycle Company manufactures mountain bikes. The following data for May of the current year are available: Quantity of direct labor used 600 hrs. Actual rate for direct labor $12.50 per hr. http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 6 of 12 Print | Accounting 12/20/12 8:12 PM Bicycles completed in May 280 Standard direct labor per bicycle2 hrs. Standard rate for direct labor $12.75 per hr. Planned bicycles for May 310 a. Determine the direct labor rate and time variances. b. How much direct labor should be debited to Work in Process? objs. 3, 5 a. Time variance, $510 U EX 23-10 Direct labor variances The Freedom Clothes Company produced 18,000 units during June of the current year. The Cutting Department used 3,500 direct labor hours at an actual rate of $12.10 per hour. The Sewing Department used 5,800 direct labor hours at an actual rate of $11.80 per hour. Assume there were no work in process inventories in either department at the beginning or end of the month. The standard labor rate is $12.00. The standard labor time for the Cutting and Sewing departments is 0.20 hour and 0.30 hour per unit, respectively. obj. 3 a. Cutting Department rate variance, $350 unfavorable a. Determine the direct labor rate and time variance for the (1) Cutting Department and (2) Sewing Department. b. Interpret your results. EX 23-11 Direct labor standards for nonmanufacturing expenses St. Luke Hospital began using standards to evaluate its Admissions Department. The standard was broken into two types of admissions as follows: Type of Admission Standard Time to Complete Admission Record Unscheduled admission40 min. Scheduled admission 10 min. The unscheduled admission took longer, since name, address, and insurance information needed to be determined at the time of admission. Information was collected on scheduled admissions prior to the admissions, which was less time consuming. The Admissions Department employs two full-time people (40 productive hours per week, with no overtime) at $18 per hour. For the most recent week, the department handled 66 unscheduled and 240 scheduled admissions. a. How much was actually spent on labor for the week? b. What are the standard hours for the actual volume for the week? c. Calculate a time variance, and report how well the department performed for the week. obj. 3 a. $1,440 EX 23-12 Direct labor standards for nonmanufacturing operations One of the operations in the U.S. Post Office is a mechanical mail sorting operation. In this operation, letter mail is sorted at a rate of one letter per second. The letter is mechanically sorted from a three-digit code input by an operator sitting at a keyboard. The manager of the mechanical sorting operation wishes to determine the number of temporary employees to hire for December. The manager estimates that there will be an additional 34,560,000 pieces of mail in December, due to the upcoming holiday season. Assume that the sorting operators are temporary employees. The union contract requires that temporary employees be hired for one month at a time. http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 7 of 12 Print | Accounting 12/20/12 8:12 PM Each temporary employee is hired to work 150 hours in the month. a. How many temporary employees should the manager hire for December? b. If each employee earns a standard $18 per hour, what would be the labor time variance if the actual number of letters sorted in December was 33,840,000? objs. 2, 3 EX 23-13 Direct materials and direct labor variances At the beginning of October, Cornerstone Printers Company budgeted 16,000 books to be printed in October at standard direct materials and direct labor costs as follows: Direct materials$24,000 Direct labor Total 8,000 $32,000 The standard materials price is $0.60 per pound. The standard direct labor rate is $10 per hour. At the end of October, the actual direct materials and direct labor costs were as follows: Actual direct materials$21,600 Actual direct labor Total 7,200 $28,800 There were no direct materials price or direct labor rate variances for October. In addition, assume no changes in the direct materials inventory balances in October. Cornerstone Printers Company actually produced 14,000 units during October. Determine the direct materials quantity and direct labor time variances. objs. 2, 3 Direct materials quantity variance, $600 U EX 23-14 Flexible overhead budget Western Wood Products Company prepared the following factory overhead cost budget for the Press Department for February 2010, during which it expected to require 10,000 hours of productive capacity in the department: Variable overhead cost: Indirect factory labor $27,500 Power and light 3,600 Indirect materials 23,000 Total variable cost $ 54,100 Fixed overhead cost: http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 8 of 12 Print | Accounting Supervisory salaries 12/20/12 8:12 PM $42,000 Depreciation of plant and equipment40,000 Insurance and property taxes 12,000 Total fixed cost 94,000 Total factory overhead cost $148,100 Assuming that the estimated costs for March are the same as for February, prepare a flexible factory overhead cost budget for the Press Department for March for 8,000, 10,000, and 12,000 hours of production. obj. 4 Total factory overhead, 12,000 hrs. $158,920 EX 23-15 Flexible overhead budget Colliers Company has determined that the variable overhead rate is $2.90 per direct labor hour in the Fabrication Department. The normal production capacity for the Fabrication Department is 14,000 hours for the month. Fixed costs are budgeted at $65,800 for the month. a. Prepare a monthly factory overhead flexible budget for 13,000, 14,000, and 15,000 hours of production. b. How much overhead would be applied to production if 15,000 hours were used in the department during the month? obj. 4 EX 23-16 Factory overhead cost variances The following data relate to factory overhead cost for the production of 5,000 computers: Actual: Variable factory overhead$125,000 Fixed factory overhead Standard:5,000 hrs. at $30 34,000 150,000 If productive capacity of 100% was 8,000 hours and the factory overhead cost budgeted at the level of 5,000 standard hours was $162,750, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $4.25 per hour. obj. 4 Volume variance, $12,750 U EX 23-17 Factory overhead cost variances Perma Weave Textiles Corporation began January with a budget for 30,000 hours of production in the Weaving Department. The department has a http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 9 of 12 Print | Accounting 12/20/12 8:12 PM full capacity of 40,000 hours under normal business conditions. The budgeted overhead at the planned volumes at the beginning of January was as follows: Variable overhead$ 75,000 Fixed overhead Total 52,000 $127,000 The actual factory overhead was $128,500 for January. The actual fixed factory overhead was as budgeted. During January, the Weaving Department had standard hours at actual production volume of 31,000 hours. a. Determine the variable factory overhead controllable variance. b. Determine the fixed factory overhead volume variance. obj. 4 a. $1,000 F EX 23-18 Factory overhead variance corrections The data related to Acclaim Sporting Goods Company's factory overhead cost for the production of 50,000 units of product are as follows: Actual: Variable factory overhead $269,000 Fixed factory overhead 180,000 Standard:76,000 hrs. at $6.00 ($3.60 for variable factory overhead)456,000 Productive capacity at 100% of normal was 75,000 hours, and the factory overhead cost budgeted at the level of 76,000 standard hours was $456,000. Based on these data, the chief cost accountant prepared the following variance analysis: Variable factory overhead controllable variance: Actual variable factory overhead cost incurred $269,000 Budgeted variable factory overhead for 76,000 hours273,600 Variancefavorable $4,600 Fixed factory overhead volume variance: Normal productive capacity at 100% 75,000 hrs. Standard for amount produced 76,000 Productive capacity not used 1,000 hrs. Standard variable factory overhead rate $6.00 Varianceunfavorable Total factory overhead cost varianceunfavorable 6,000 $1,400 http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 10 of 12 Print | Accounting 12/20/12 8:12 PM Identify the errors in the factory overhead cost variance analysis. obj. 4 EX 23-19 Factory overhead cost variance report Scientific Molded Products Inc. prepared the following factory overhead cost budget for the Trim Department for August 2010, during which it expected to use 10,000 hours for production: Variable overhead cost: Indirect factory labor $24,000 Power and light 4,000 Indirect materials 12,000 Total variable cost $ 40,000 Fixed overhead cost: Supervisory salaries $30,000 Depreciation of plant and equipment23,400 Insurance and property taxes 21,600 Total fixed cost 75,000 Total factory overhead cost $115,000 Scientific Molded Products has available 15,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During August, the Trim Department actually used 11,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for August was as follows: Actual variable factory overhead cost: Indirect factory labor $27,000 Power and light 4,000 Indirect materials 13,500 Total variable cost $44,500 Construct a factory overhead cost variance report for the Trim Department for August. obj. 4 Net controllable variance, $500 U EX 23-20 Recording standards in accounts Orion Manufacturing Company incorporates standards in its accounts and identifies variances at the time the manufacturing costs are incurred. Journalize the entries to record the following transactions: a. Purchased 1,700 units of copper tubing on account at $54.50 per unit. The standard price is $56.00 per unit. b. Used 1,000 units of copper tubing in the process of manufacturing 120 air conditioners. Eight units of copper tubing are required, at standard, to produce one air conditioner. http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 11 of 12 Print | Accounting 12/20/12 8:12 PM obj. 5 EX 23-21 Recording standards in accounts The Assembly Department produced 2,000 units of product during June. Each unit required 1.5 standard direct labor hours. There were 3,200 actual hours used in the Assembly Department during June at an actual rate of $14.00 per hour. The standard direct labor rate is $15 per hour. Assuming direct labor for a month is paid on the fifth day of the following month, journalize the direct labor in the Assembly Department on June 30. obj. 5 http://online.vitalsource.com/books/1285276310/print?from=1069&to=1075&skip_desktop=true Page 12 of 12