Solutions Solution Manual10

CHAPTER 10
Standard Costing and Performance Measures for

Todays Manufacturing Environment
ANSWERS TO REVIEW !ESTIONS
10-1 Management by exception is a managerial technique in which only significant
deviations from expected performance are investigated.
10-2 Any control system has three basic parts a predetermined or standard performance
level! a measure of actual performance! and a comparison between standard and
actual performance. "he system wor#s by ma#ing the comparison between actual
and standard performance and then ta#ing action to bring about a desired
consequence.
10-$ %ne method of setting standards is the analysis of historical data. &istorical cost
data provide an indicator of future costs. "he methods for analy'ing cost behavior
described in (hapter ) are used to predict future costs on the basis of historical
costs. "hese predictions then form the basis for setting standards. Another method
for setting standards is tas# analysis! which is the analysis of a production process
to determine what it should cost to produce a product or service. "he emphasis
shifts from what the product did cost in the past to what it should cost in the future.
An example of tas# analysis is a time-and-motion study conducted to determine how
long each step performed by direct laborers should require.
10-* A perfection +or ideal, standard is the cost expected under perfect or ideal operating
conditions. A practical +or attainable, standard is the cost expected under normal
operating conditions. Many behavioral scientists question the effectiveness of
perfection standards. "hey feel that employees are more li#ely to perform well when
they strive to achieve an attainable standard than when they strive! often
unsuccessfully! to achieve a perfection standard.
10-- A ban# could use standards to specify the required amount of time to process a loan
application or process a ban# transaction.
10-. /tandard material prices include the purchase price of the material and any
transportation costs incurred to obtain the material. "he standard quantity of
material is the amount required to be included in the finished product plus an
allowance for normal waste expected in the production process.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 10- "
10-) An unfavorable direct-material price variance means that a higher price was paid for
the material than was expected when the standard was set. A favorable variance has
the opposite interpretation.
10-0 "he manager in the best position to influence the direct-material price variance is the
purchasing manager.
10-1 An unfavorable direct-material quantity variance means that a larger amount of
material was used in the production process than should have been used in
accordance with the standard. A favorable variance has the opposite interpretation.
10-10 "he manager in the best position to influence the direct-material quantity variance
usually is the production manager.
10-11 "he direct-material price variance is based on the quantity purchased +23,.
4eviations between the actual and standard price! which are highlighted by the price
variance! relate to the purchasing function in the firm. "imely action to follow up a
significant price variance is facilitated by calculating this variance as soon as
possible after the material is purchased.
"he direct-material quantity variance is based on the amount of material used in
production +A3,. "he quantity variance highlights deviations between the quantity of
material actually used +A3, and the standard quantity allowed +/3,. "herefore! it
ma#es sense to compute this variance at the time the material is used in production.
10-12 An unfavorable direct-labor rate variance means that a higher labor rate was paid
than was anticipated when the standard was set. %ne possible cause is that labor
rate raises granted were above those anticipated in setting the standards. Another
possible cause is that more highly s#illed wor#ers were used to perform tas#s than
were required or were anticipated at the time the standards were set. A favorable
variance has the opposite interpretation.
10-1$ 5n some cases! the manager in the best position to influence the direct-labor rate
variance is the production manager. 5n other cases! the personnel manager or union
negotiator would have greater influence.
10-1* "he interpretation of an unfavorable direct-labor efficiency variance is that more
labor was used to accomplish a given tas# than was required in accordance with the
standards. A favorable variance has the opposite interpretation.
10-1- "he manager in the best position to influence the direct-labor efficiency variance
usually is the production manager.
Inc.
10#$ Solutions Manual
10-1. "he issue of quantity purchased versus quantity used does not arise in the context
of direct labor! because direct labor is purchased and used at the same time. 6nli#e
direct material! direct labor cannot be purchased and inventoried for later use.
10-1) /everal factors that managers often consider when determining the significance of a
variance are as follows si'e of variance! extent to which the variances are recurring!
trends in the variances! controllability of the variances! and the perceived costs and
benefits of investigating the variances.
10-10 /everal ways in which standard-costing should be adapted in the new manufacturing
environment are as follows
+a, 7educed importance of labor standards and variances As direct labor occupies
a diminished role in the new manufacturing environment! the standards and
variances used to control labor costs also decline in importance.
+b, 8mphasis on material and overhead costs As labor diminishes in its importance!
material and overhead costs ta#e on greater significance.
+c, (ost drivers 5dentification of the factors that drive production costs ta#es on
greater importance in the cost management system.
+d, /hifting cost structure Advanced manufacturing systems require large outlays
for production equipment! which entail a shift in the cost structure from variable
costs toward fixed costs. %verhead cost control becomes especially critical.
+e, &igh quality and no defects "otal quality control programs that typically
accompany a 95" approach strive for very high quality levels for both raw
materials and finished products. %ne result should be very low material price and
quantity variances and low costs of rewor#.
+f, :on-value-added costs A #ey ob;ective of a cost management system is the
elimination of non-value-added costs. As these costs are reduced or eliminated!
standards must be revised frequently to provide accurate benchmar#s for cost
control.
+g, :ew measures and standards 5n the new manufacturing environment! new
measures must be developed to control #ey aspects of the production process.
As new measures are developed! standards should be established as
benchmar#s for performance. An example is the manufacturing cycle efficiency
measure! which is defined as processing time divided by the sum of processing
time! inspection time! waiting time! and move time.
Inc.
Managerial Accounting, 5/e 10- %
+h, 7eal-time information systems A computer-integrated manufacturing system
enables the managerial accountant to collect operating data as production ta#es
place and to report relevant performance measures to management on a real-
time basis. "his enables managers to eliminate the causes of unfavorable
variances more quic#ly.
10-11 6nder a standard-costing system! standard costs are used for product-costing
purposes as well as for control purposes. "he costs entered into <or#-in-2rocess
5nventory are standard costs. =rom that point forward! standard costs flow through
all the manufacturing accounts. <hen goods are finished! the standard cost of the
finished goods is removed from the <or#-in-2rocess 5nventory account and
transferred to the =inished->oods 5nventory account. <hen goods are sold! the
standard cost of the goods sold is transferred from the =inished->oods 5nventory
account to (ost of >oods /old.
10-20 Advantages of a standard-costing system include the following
+a, /tandard costs provide a basis for sensible cost comparisons. /tandard costs
enable the managerial accountant to compute the standard allowed cost! given
actual output! which then serves as a sensible benchmar# to compare with the
actual cost incurred.
+b, (omputation of standard costs and cost variances enables managers to employ
management by exception.
+c, ?ariances provide a means of performance evaluation and rewards for
employees.
+d, /ince the variances are used in performance evaluation! they provide motivation
for employees to adhere to standards.
+e, 6se of standard costs in product costing results in more stable product costs
than if actual production costs were used.
+f, A standard-costing system usually is less expensive than an actual- or normal-
costing system.
10-21 /even areas in which operational performance measures are being used are as
follows
+a, 7aw material and scrap
+b, 5nventory
+c, Machinery
Inc.
10#& Solutions Manual
+d, 2roduct quality
+e, 2roduction and delivery
+f, 2roductivity
+g, 5nnovation and learning
10-22 Manufacturing cycle efficiency +M(8, is defined as processing time divided by the
sum of the following four items processing time! inspection time! waiting time! and
move time.
10-2$ 8xamples of customer-acceptance measures include the number of customer
complaints! the number of warranty claims! the number of products returned and the
cost of repairing returned products.
10-2* An aggregate productivity measure is defined as total output divided by total input.
/uch a measure is limited because it is expressed in dollars! rather than in physical
attributes of the production process! and it is too highly aggregated. A preferable
approach to productivity measurement is to record multiple physical measures that
capture the most important determinants of a company@s productivity.
10-2- 8ight criticisms of standard costing in an advanced manufacturing setting are the
following
+a, ?ariances are too aggregate and too late to be useful.
+b, ?ariances are not tied to specific product lines! production batches! or =M/ cells.
+c, /tandard-costing systems focus too much on direct labor.
+d, =requent switching among products in an =M/ cell ma#es cost standards less
appropriate.
+e, /horter product life cycles mean that individual standards are soon outmoded.
+f, "raditional standard costs are not defined broadly enough to include important
costs! such as the total cost of ownership.
+g, "raditional standard-costing systems tend to focus too much on cost
minimi'ation! rather than increasing product quality or customer service.
+h, Automated manufacturing processes are highly reliable in meeting production
specifications. As a result variances from standards tend to be very small or
nonexistent.
Inc.
Managerial Accounting, 5/e 10- '
10-2. 7esponses will vary widely on this question. &ere are some possibilities for a ban#
A =inancial +a, profitB +b, cost of bac#-office +i.e.! administrative, operations.
A 5nternal operations +a, number of transaction errorsB +b, employee retention and
advancement.
A (ustomer +a, local mar#et shareB +b, number of repeat customers.
A 5nnovation and learning +a, new financial productsB +b, employee suggestions
received and implemented.
10-2) An airline could measure the frequency and cost of customer complaints about lost
or damaged luggage. After reducing the number of such incidents! the cost savings
could be shared with the relevant employees +e.g.! front-counter tic#et agents and
baggage-handling personnel,.
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10#( Solutions Manual
SO)!TIONS TO E*ERCISES
8C87(5/8 10-20 +1- M5:6"8/,
4irect-material price variance D PQ(AP SP)
D 2*0!000+E.01 F E.00,
D E2!*00 6nfavorable
4irect-material quantity variance D SP(AQ SQ)
D E.00+210!000 F 200!000G,
D E0!000 6nfavorable
GSQ D 200!000 #ilograms D -0!000 units * #ilograms per unit
4irect-labor rate variance D AH(AR SR)
D 1$!000+E1..$0G F E1..00,
D E$!100 6nfavorable
GAR D E211!100 1$!000 hours
4irect-labor efficiency variance D SR(AH SH)
D E1..00+1$!000 F 12!-00G,
GSH D 12!-00 hours D -0!000 units .2- hours per unit
Inc.
Managerial Accounting, 5/e 10- +
8C87(5/8 10-21 +$0 M5:6"8/,
4578("-MA"875AH 275(8 A:4 36A:"5"I ?A75A:(8/
A("6AH MA"875AH (%/" /"A:4A74 MA"875AH (%/"
Actual
3uantity
Actual
2rice
Actual
3uantity
/tandard
2rice
/tandard
3uantity
/tandard
2rice
2*0!000
#ilograms
purchased
E.01
per
#ilogram
2*0!000
#ilograms
purchased
E.00
per
#ilogram
200!000
#ilograms
allowed
E.00
per
#ilogram
E11*!*00 E112!000 E1.0!000
E2!*00 6nfavorable
4irect-material
price variance
210!000
#ilograms
used
E.00
per
#ilogram
E1.0!000
E0!000
6nfavorable
4irect-material
quantity
variance
Inc.
10#, Solutions Manual
8C87(5/8 10-21 +(%:"5:684,
4578("-HAJ%7 7A"8 A:4 8==5(58:(I ?A75A:(8/
A("6AH HAJ%7 (%/" /"A:4A74 HAJ%7 (%/"
Actual
&ours
Actual
7ate
Actual
&ours
/tandard
7ate
/tandard
&ours
/tandard
7ate
1$!000
hours
used
E1..$0
per
hour
1$!000
hours
used
E1..00
per
hour
12!-00
hours
allowed
E1..00
per
hour
E211!100 E200!000 E200!000
E$!100 6nfavorable E0!000 6nfavorable
4irect-labor
rate variance
4irect-labor
efficiency variance
E11!100 6nfavorable
4irect-labor variance
8C87(5/8 10-$0 +10 M5:6"8/,
Answers will vary widely! depending on the company and the product. "ypically! new
products present challenges in setting standards! particularly if they involve new
production processes or materials. Managerial accountants and engineers often loo#
to other similar products or other products manufactured using similar processes to
get an idea as to what the standard cost of a new product should be.
8C87(5/8 10-$1 +10 M5:6"8/,
/tandard quantity
&ardwood in finished product............................................. 0 board feet
Allowance for normal scrap................................................ 2 board feet
"otal standard quantity required per box........................... 10 board feet
/tandard price
2urchase price per board foot of hardwood...................... E *.00
"ransportation cost per board foot.................................... 1.-0
"otal standard price per board foot.................................... E -.-0
Inc.
Managerial Accounting, 5/e 10- -
8C87(5/8 10-$1 +(%:"5:684,
/tandard direct-material cost of a ;ewelry box
/tandard quantity................................................................. 10 board feet
2rice per board foot............................................................. E -.-0
/tandard direct-material cost.............................................. E--.00
8C87(5/8 10-$2 +1- M5:6"8/,
4irect-material price variance D PQ(AP SP)
D .!000+E).$0 F E).00,
4irect-material quantity variance D SP(AQ SQ)
D E).00+*!200G F *!000
K
,
D E1!*00 6nfavorable
GAQ D *!200 pounds D E$0!..0 E).$0 per pound
K
SQ D *!000 pounds D 2!000 units 2 pounds per unit
D .!*-0G+E10.10 F E10.00,
D E.*- 6nfavorable
GAH D .!*-0 hours D E11.!)*- E10.10 per hour
4irect-labor efficiency variance D SR(AH SH)
D E10+.!*-0 F .!000,G
GSH D .!000 hours D 2!000 units $ hours per unit
Inc.
10#". Solutions Manual
8C87(5/8 10-$$ +$0 M5:6"8/,
4578("-MA"875AH 275(8 A:4 36A:"5"I ?A75A:(8/
A("6AH MA"875AH (%/" /"A:4A74 MA"875AH (%/"
Actual
3uantity
Actual
2rice
Actual
3uantity
/tandard
2rice
/tandard
3uantity
/tandard
2rice
.!000
pounds
purchased
E).$0
per
pound
.!000
pounds
purchased
E).00
per
pound
*!000
pounds
allowed
E).00
per
pound
E*$!000 E*2!000 E20!000
E1!000 6nfavorable
4irect-material
price variance
*!200
pounds
used
E).00
per
pound
E21!*00
E1!*00
6nfavorable
4irect-material
quantity
variance
Inc.
Managerial Accounting, 5/e 10- ""
8C87(5/8 10-$$ +(%:"5:684,
4578("-HAJ%7 7A"8 A:4 8==5(58:(I ?A75A:(8/
A("6AH HAJ%7 (%/" /"A:4A74 HAJ%7 (%/"
Actual
&ours
Actual
7ate
Actual
&ours
/tandard
7ate
/tandard
&ours
/tandard
7ate
.!*-0
hours
used
E10.10
per
hour
.!*-0
hours
used
E10.00
per
hour
.!000
hours
allowed
E10.00
per
hour
E11.!)*- E11.!100 E100!000
E.*- 6nfavorable E0!100 6nfavorable
4irect-labor
rate variance
4irect-labor
efficiency variance
E0!)*- 6nfavorable
Inc.
10#"$ Solutions Manual
8C87(5/8 10-$* +2- M5:6"8/,
1. +a, /tatistical control chart with variance data plotted
+b, %nly the variances in May and 9une would be investigated! since they are the only
ones that exceed 1 standard deviation! E1-0.
Inc.
Managerial Accounting, 5/e 10- "%
=avorable variances
1 standard deviation
9anuary =ebruary March April May 9une
"ime
E1!000
E-00
0
E-00
E1!000
6nfavorable variances
8C87(5/8 10-$* +(%:"5:684,

2. 7ule of thumb
/tandard cost............................................................................................... E11!000
(utoff percentage......................................................................................... .L
(utoff value for investigation...................................................................... E 1!1*0
%nly the 9une variance! E1!200 6! is equal to or greater than the cutoff value. "hus!
only 9une@s variance would be investigated. +6 denotes unfavorable.,
$. "his is a ;udgment call! and there is no right or wrong answer. 5t would be reasonable
to conclude that the consistent stream of relatively large unfavorable variances
should be investigated before May. "he three variances for =ebruary! March! and April
would be cause for concern.
8C87(5/8 10-$- +- M5:6"8/,
>ood output D +)M0, input D .0)- input
.0)-
output >ood
D standard allowed input
.0)-
pounds *!200
D *!000 pounds of input
"he standard allowed input quantity in May was *!000 pounds.
Inc.
10#"& Solutions Manual
8C87(5/8 10-$. +$0 M5:6"8/,
4irect
Habor
4irect
Material
/tandard price or rate per unit of input.......................... E20 per hr
e
E0 per lb
/tandard quantity per unit of output.............................. * hrs per unit
f
2.)- lbs per unit
c
Actual quantity used per unit of output......................... $.- hrs $ lbs per unit
a
Actual price or rate per unit of input.............................. E21 per hr E) per lb
Actual output.................................................................... 10!000 units 10!000 units
4irect-material price variance......................................... N E$0!000 =
4irect-material quantity variance.................................... N E20!000 6
b
"otal of direct-material variances................................... N E10!000 =
4irect-labor rate variance................................................ E $-!000 6
d
N
4irect-labor efficiency variance...................................... E100!000 = N
"otal of direct-labor variances........................................ E .-!000 = N
8xplanatory notes
a. 4irect-material price variance D PQ(AP SP)
E$0!000 = D PQ+E) F E0,
PQ D $0!000 lbs
Actual quantity used D quantity purchased
AQ D PQ = $0!000 lbs
Actual quantity per unit of output D
unit per lbs $
units 10!000
lbs $0!000
=
b. "otal direct-material variance D price variance O quantity variance
E10!000 = D E$0!000 = O quantity variance
3uantity variance D E20!000 6
c. 4irect-material quantity variance D SP(AQ SQ)
E20!000 6 D E0+$0!000 F SQ,
SQ D 2)!-00 lbs
/tandard quantity per unit D
unit per lbs 2.)-
units 10!000
lbs 2)!-00
=
Inc.
Managerial Accounting, 5/e 10- "'
8C87(5/8 10-$. +(%:"5:684,
d. "otal direct-labor variance D rate variance O efficiency variance
E.-!000 = D rate variance O E100!000 =
7ate variance D E$-!000 6
e. AH D 10!000 units $.- hrs per unit D $-!000 hrs
E$-!000 6 D $-!000+E21 F SR,
SR D E20
f. 4irect-labor efficiency variance D SR(AH SH)
E100!000 = D E20 +$-!000 F /&,
SH D *0!000 hrs
/tandard hrs per unit D *0!000 hrsM10!000 units
D * hrs per unit
Inc.
10#"( Solutions Manual
8C87(5/8 10-$) +10 M5:6"8/,
1.
Manufacturing cycle efficiency D
time move time waiting
time inspection time processing
time processing
+ +
+
D
hour .- hour .- hour .- hours 0.-
hours 0.-
+ + +
D 0-L
2.
Manufacturing cycle time D
batch per units
batch per time production total
D
batch per units 20
hours 10
D .- hour +or $0 minutes, per unit
$.
?elocity D
batch per time production total
batch per units
D
hour per units 2
hours 10
units 20
=
8C87(5/8 10-$0 +10 M5:6"8/,
1. Manufacturing cycle efficiency +M(8,
M(8 D
time move time waiting time inspection time processing
time processing
+ + +
D
+rounded, 1$..L $M22
days 2.- days 1- days 1.- days $
days $
= =
+ + +
2. 4elivery cycle time is the average time between receipt of the customer@s order until
delivery of the goods. 5n this case the delivery cycle time is 22 days.
Inc.
Managerial Accounting, 5/e 10- "+
8C87(5/8 10-$1 +1- M5:6"8/,
1.
Aggregate +or total, productivity D
input total
output total
D
1.2-
E0!000!000
0 E10!000!00
=
2. "his summary financial measure does not convey much information to management
or other users of the data. A preferable approach would be to record multiple physical
measures that capture the most important determinants of the ban#@s productivity.
8xamples include the following
a. (ler# time per ban# window customer
b. 8rrors per 1!000 transactions handled
c. (hec#s miscoded per 1!000 chec#s processed
d. (ustomers per day
e. (ustomers per employee
f. /quare feet of space in ban# per 1!000 customers
g. Average time to process a loan application
Inc.
10#", Solutions Manual
8C87(5/8 10-*0 +1- M5:6"8/,
7aw-Material 5nventory.................................................................. 112!000
4irect-Material 2rice ?ariance............................................. 2!*00
Accounts 2ayable................................................................ 11*!*00
<or#-in-2rocess 5nventory........................................................... 1.0!000
4irect-Material 3uantity ?ariance................................................. 0!000
7aw-Material 5nventory........................................................ 1.0!000
<or#-in-2rocess 5nventory........................................................... 200!000
4irect-Habor 7ate ?ariance........................................................... $!100
4irect-Habor 8fficiency ?ariance.................................................. 0!000
<ages 2ayable..................................................................... 211!100
(ost of >oods /old....................................................................... 22!$00
4irect-Material 2rice ?ariance............................................. 2!*00
4irect-Material 3uantity ?ariance....................................... 0!000
4irect-Habor 7ate ?ariance................................................. $!100
4irect-Habor 8fficiency ?ariance........................................ 0!000
8C87(5/8 10-*1 +1- M5:6"8/,
7aw-Material 5nventory
4irect-Material
2rice ?ariance
112!000 1.0!000 2!*00 2!*00
<or#-in-2rocess 5nventory
4irect-Material
3uantity ?ariance
1.0!000 0!000 0!000
200!000
Accounts 2ayable
4irect-Habor
7ate ?ariance
11*!*00 $!100 $!100
<ages 2ayable
4irect-Habor
8fficiency ?ariance
211!100 0!000 0!000
(ost of >oods /old
22!$00
Inc.
Managerial Accounting, 5/e 10- "-
SO)!TIONS TO PRO/)EMS
27%JH8M 10-*2 +$- M5:6"8/,
1. /chedule of standard production costs
NEW 0ERSE1 VA)VE COMPAN1
CAM2EN P)ANT
SC3E2!)E O4 STAN2AR2 PRO2!CTION COSTS
/ASE2 ON +5,.. !NITS
4OR T3E MONT3 O4 0AN!AR1
/tandard
(osts
4irect material...................................................... )!000 units $ lbs. E2.-0 E -0!-00
4irect labor........................................................... )!000 units - hrs. E1-.00 -0-!000
"otal standard production costs........................ E.*$!-00
2. ?ariances
a. 4irect-material price variance D (PQ AP) F (PQ SP)
D +2-!000 E2..0, F +2-!000 E2.-0,
D E2!-00 6nfavorable
b. 4irect-material quantity variance D (AQ SP) F (SQ SP)
D +2$!100 E2.-0, F +2$!*00G E2.-0,
D E)-0 =avorable
G)!000 units $ lbs. per unit D 2$!*00 lb.
c. 4irect-labor rate variance D (AH AR) F (AH SR)
D +*0!100 E1*..0, F +*0!100 E1-.00,
D E1.!0*0 =avorable
d. 4irect-labor efficiency variance D (AH SR) F (SH SR)
D +*0!100 E1-.00, F +$1!000G E1-.00,
D E1.!-00 6nfavorable
Inc.
10#$. Solutions Manual
G)!000 units - hours per unit D $1!000 hr.
27%JH8M 10-*$ +1- M5:6"8/,
4irect
Material
5nitial
Mix
6nit
(ost
/tandard
Material
(ost
:yclyn..................................................................... 12 #g 1.*-real 1).*0real

/alex....................................................................... 1.. ltr 1.00real 1).20real

2rotet...................................................................... - #g 2.*0real 12.00 real

/tandard material cost
for each 10-liter container.................................. *...0 real

"he real is Jra'ilPs national currency.
27%JH8M 10-** +2- M5:6"8/,
1. 4irect-material price variance D (PQ AP) F (PQ SP)
D +10!000 E1.$0, F +10!000 E1.$-,
D E2*!0*0 F E2*!$00
D E-*0 6nfavorable
2. 4irect-material quantity variance D (AQ SP) F (SQ SP)
D +1!-00 E1.$-, F +10!000G E1.$-,
D E.)- =avorable
G-00 units 20 yards per unit D 10!000 yards
$. 4irect-labor rate variance D (AH AR) F (AH SR)
D +2!100 E1.1-, F +2!100 E1.00,
D E11!21- F E10!100
D E$1- 6nfavorable
Inc.
Managerial Accounting, 5/e 10- $"
27%JH8M 10-** +(%:"5:684,
*. 4irect-labor efficiency variance D (AH SR) F (SH SR)
D +2!100 E1.00, F +2!000G E1.00,
D E10!100 F E10!000
D E100 6nfavorable
G-00 units * hours per unit D 2!000 hours
27%JH8M 10-*- +$- M5:6"8/,
1. "ype 5 fertili'er
2rice variance
Actual quantity purchased x actual price
-!000 pounds x E .-$QQQQQQQQQQQQ E2!.-0
Actual quantity purchased x standard price
-!000 pounds x E .-0QQQQQQQQQQQQ 2!-00
4irect-material price varianceQQQQQQQQQ. E 1-0 6nfavorable
3uantity variance
Actual quantity used x standard price
$!)00 pounds x E .-0QQQQQQQQQQQQ E1!0-0
/tandard quantity allowed x standard price
*!*00 poundsG x E .-0QQQQQQQQQQQ.. 2!200
4irect-material quantity varianceQQQQQQQQ E $-0 =avorable
G *0 pounds x -- clients x 2 applications
"ype 55 fertili'er
2rice variance
10!000 pounds x E .*0QQQQQQQQQQQ. E*!000
10!000 pounds x E .*2QQQQQQQQQQQ. *!200
4irect-material price varianceQQQQQQQQQ. E 200 =avorable
Inc.
10#$$ Solutions Manual
27%JH8M 10-*- +(%:"5:684,
3uantity variance
)!000 pounds x E .*2QQQQQQQQQQQQ E$!2).
0!000 poundsG x E .*2QQQQQQQQQQQ.. $!.1.
4irect-material quantity varianceQQQQQQQQ E *20 =avorable
G *0 pounds x -- clients x * applications
2. 4irect-labor variances
7ate variance
Actual hours used x actual rate
1.- hours x E11.-0QQQQQQQQ.. E1!01).-0
Actual hours used x standard rate
1.- hours x E1.00QQQQQQQQQ 1!*0-.00
4irect-labor rate varianceQQQQQQQ E *12.-0 6nfavorable
8fficiency variance
1.- hours x E1.00QQQQQQQQQ. E1!*0-.00
/tandard hours allowed x standard rate
220 hoursG x E1.00QQQQQQQQ... 1!100.00
4irect-labor efficiency varianceQQQQ. E *1-.00 =avorable
G 2M$ hours x -- clients x . applications
$. Actual cost of applications
"ype 5 fertili'er
Actual quantity used x actual price +$!)00 pounds x E .-$,Q. E1!1.1.00
"ype 55 fertili'er
Actual quantity used x actual price +)!000 pounds x E .*0,Q. $!120.00
4irect labor
Actual hours used x actual rate +1.- hours x E11.-0,QQQ... 1!01).-0
"otal actual costQQQQQQQQQQQQQQQQQQQQQQ. E.!1)0.-0
Ies! the service was a financial success. Amato charged clients E*0 per application!
generating revenue of E1$!200 +-- clients x . applications x E*0,. <ith costs of
E.!1)0.-0! the fertili'ation service produced a profit of E.!221.-0.
Inc.
Managerial Accounting, 5/e 10- $%
27%JH8M 10-*- +(%:"5:684,
*. +a, Ies! the service was a success. %verall costs were controlled as indicated by
a total favorable variance of E102.-0. 5n addition! each of the three cost
components +"ype 5 fertili'er! "ype 55 fertili'er! and direct labor, produced a
net favorable variance. Amato did have a si'able unfavorable labor-rate
variance as a result of his having to pay E11.-0 per hour when a more typical
wage rate would have been E1.00 per hour. "his inflated rate is attributable to
the tight labor mar#et! which is beyond his control. :ote 2art of the variance
may have been caused by a standard rate that was set too low! especially
given the fact that this is a new service.
"ype 5 fertili'er
2rice varianceQQQQQQQQQQQQQ.. E1-0.00 6nfavorable
3uantity varianceQQQQQQQQQQQQ $-0.00 =avorable
"ype 55 fertili'er
2rice varianceQQQQQQQQQQQQQ.. 200.00 =avorable
3uantity varianceQQQQQQQQQQQQ *20.00 =avorable
4irect labor
7ate varianceQQQQQQQQQQQQQQ *12.-0 6nfavorable
8fficiency varianceQQQQQQQQQQQ *1-.00 =avorable
"otal material and labor variances E102.-0 =avorable
+b, 5n this case! several of the favorable variances may have come bac# to haunt
Amato. "he favorable labor efficiency variance means that less time is being
spent on the ;ob than originally anticipated. "his may indicate that the part-
time employee is rushing and doing sloppy wor#. Also! less fertili'er used
than budgeted +i.e.! favorable quantity variances for both "ype 5 and "ype 55,
would li#ely give rise to an increased occurrence of weeds as well as a lac# of
greening in the lawn.
-. "his is a management ;udgment for Amato to ma#e. 5f the service is continued!
Amato should consider hiring a full-time employee and insisting on the standard
amount of fertili'er being applied to each lawn.
27%JH8M 10-*. +$0 M5:6"8/,
1. :o. "he variances are favorable and small! with each being less than 2L of
budgeted cost amounts +E$-0!000,. &owever! by simply reporting total variances for
material and labor! one cannot get a totally clear picture of performance. 2rice!
quantity! rate! and efficiency variances should be calculated for further insight.
Inc.
10#$& Solutions Manual
27%JH8M 10-*. +(%:"5:684,
2. 4irect-material variances
2rice variance
*-!000 pounds x E).)0QQQQQQQQQQQ. E$*.!-00
*-!000 pounds x E0.00QQQQQQQQQQQ. $1.!000
4irect-material price varianceQQQQQQQQQ. E *1!-00 =avorable
3uantity variance
*-!000 pounds x E0.00QQQQQQQQQQQ E$1.!000
$1!100 poundsG x E0.00QQQQQQQQQQ.. $-1!120
4irect-material quantity varianceQQQQQQQQ E **!000 6nfavorable
G 1!-00 units x *.2 pounds
"otal direct-material variance
E*1!-00= O E**!0006 D E*!.20=
4irect-labor variances
7ate variance
Actual hours used x actual rate
20!100 hours x E1..2-QQQQQQQ. E$$1!.2-
20!100 hours x E1*.00QQQQQQQ. 212!.00
4irect-labor rate varianceQQQQQQQ E *)!02- 6nfavorable
8fficiency variance
20!100 hours x E1*.00QQQQQQQ. E212!.00
/tandard hours allowed x standard rate
2*!)00 hoursG x E1*.00QQQQQQ... $*-!000
4irect-labor efficiency varianceQQQQ. E -$!200 =avorable
G 1!-00 units x 2.. hours
"otal direct-labor variance
E*)!02-6 O E-$!200= D E.!1)-=
Inc.
Managerial Accounting, 5/e 10- $'
27%JH8M 10-*. +(%:"5:684,
$. Ies. Although the combined variances are small! a more detailed analysis reveals
the presence of si'able! offsetting variances +all in excess of 12L of budgeted cost
amounts,. A variance investigation should be underta#en if the li#ely benefits of the
investigation appear to exceed the costs.
*. :o! things are not going as smoothly as the vice-president believes. <ith regard to
the new supplier! /anta 7osa is paying less than expected for direct materials.
&owever! the quality may be poor! as indicated by the unfavorable quantity variance
and increased usage.
"urning to direct labor! the favorable efficiency variance means that the
company is producing units by consuming fewer hours than expected. "his may be
the result of the team-buildingMmorale-boosting exercises! as a contented! well-
trained wor# force tends to be more efficient. &owever! another plausible
explanation could be that /anta 7osa is paying premium wages +as indicated by the
unfavorable rate variance, to hire laborers with above-average s#ill levels.
As a side note! the favorable direct-labor efficiency variance may partially
explain the unfavorable material quantity variance. "hat is! laborers may be rushing
through their ;obs and using more material than the standards allow.
-. Ies. /chmidt is the production supervisor. "he prices paid for materials and the
quality of material acquired are normally the responsibility of the purchasing
manager. "he change to the new supplier may introduce problems of dealing with
the un#nownNthe supplierPs reliability! ability to deliver quality goods! etc. =inally!
direct-labor wage rates are often a function of mar#et conditions! which would li#ely
be uncontrollable from /chmidtPs perspective.
Inc.
10#$( Solutions Manual
27%JH8M 10-*) +$- M5:6"8/,
1. a. Machine hours x * D standard direct-labor hours
1.-.- x * D ..2
b. 4irect-labor efficiency variance D +A&/&,/7
D +$)*..2,E1-.00
D E*!$*$ =
2.
a. /tandard
4irect-Habor
(ostG
b. 20L of the
/tandard 4irect-
Habor (ostG
9anuary............................................................. E 1!10$ E1!11)
=ebruary........................................................... .!0-0 1!210
March................................................................ $$!21) .!.-1
April.................................................................. *$!0-. 0!.11
May.................................................................... 1!.-1 1!1$0
9une.................................................................. 1$!11* 2!)11
9uly................................................................... .!2)$ 1!2--
August.............................................................. -!)11 1!1-0
/eptember........................................................ -!)11 1!1-0
%ctober............................................................. *!$*$ 0.1
G7ounded.
$. "he variances for all of the months except August and /eptember exceed 20L of the
standard direct-labor cost and would therefore be investigated.
Inc.
Managerial Accounting, 5/e 10- $+
*. /tatistical control chart for direct-labor efficiency variances
Inc.
10#$, Solutions Manual
E0
E-
E10
E1-
E20
E2-
=avorable
variances
+in thousands,
1 standard
deviation
1 standard
deviation
E2-
E20
E1-
E10
E-
9an =eb Mar Apr May 9une 9uly Aug /ept %ct
"ime
6nfavorable
variances
+in thousands,
27%JH8M 10-*) +(%:"5:684,
-. "he variances for March! April! and 9une will be investigated! since they exceed one
standard deviation.
6. "he production volume was much greater in March! April! and 9une.
27%JH8M 10-*0 +2- M5:6"8/,
1. 4irect-material price variance D (PQ AP) F (PQ SP)
D E$0*!000 F +1.0!000 E1.)-,
D E$0*!000 F E200!000
D E2*!000 6nfavorable
2. 4irect-material quantity variance D SP(AQ SQ)
D E1.)-+1*2!-00 F 1-2!000G,
D E1.!.2- =avorable
G/tandard quantity allowed D 11!000 units 0 lbs. per unit D 1-2!000 lbs.
$. 4irect-labor rate variance D (AH AR) F (AH SR)
D E$)!000G F +-!000 E0.00,
D E2!200 =avorable
G10L E*2!000 D E$)!000
*. 4irect-labor efficiency variance D SR(AH SH)
D E0.00+-!000 F *!)-0G,
G11!000 units .2- hour per unit D *!)-0 hours
Inc.
Managerial Accounting, 5/e 10- $-
27%JH8M 10-*1 +$0 M5:6"8/,
1. a. 7esponsibility for setting standards
Materials:
"he development of standard prices for material is primarily the responsibility of
the materials manager.
%perating departmental managers and engineers should be involved in setting
standards for material quantities.
Labor:
"he personnel manager or payroll manager would be involved in setting
standard labor rates.
%perating department managers with input from production supervisors and
engineers would be involved in setting standards for labor usage.
b. "he factors that should be considered in establishing material standards include
the following
2rice studies! including expected general economic conditions! industry
prospects! demand for the materials! and mar#et conditions.
2roduct specifications from descriptions! drawings! and blueprints.
2ast records on raw-material cost! usage! waste! and scrap.
=actors in establishing labor standards
8ngineering studies of the time required to complete various tas#s.
Hearning.
8xpected wage rates.
8xpected labor mix +e.g.! s#illed versus uns#illed,.
Inc.
10#%. Solutions Manual
27%JH8M 10-*1 +(%:"5:684,
2. "he basis for assignment of responsibility under a standard-costing system is
controllability. 9udgments about whether departments or department managers are
performing efficiently should not be affected by items over which they have no
control.
"he responsibility for a variance should be assigned to the department or
individual that has the greatest responsibility for deciding whether a specific cost
should be incurred. /ome variances! however! are interdependent and responsibility
must be shared.
27%JH8M 10--0 +$0 M5:6"8/,
1. ?ariances +6 denotes unfavorableB = denotes favorable,
a. 4irect-labor rate variance for each labor class
Habor
(lass
Actual
7ate
/tandard
7ate
4ifference
in 7ates
Actual
&ours
7ate
?ariance
555 E1).20 E1..00 E1.20 --0 E ..0 6
55 1-.00 1*.00 1.00 .-0 .-0 6
5 10.00 10.00 .00 $)- $00 6
"otal E1!.10 6
b. 4irect-labor efficiency variance for each labor class
Habor
(lass
Actual
&ours
/tandard
&oursG
4ifference
in &ours
/tandard
7ate
8fficiency
?ariance
555 --0 -00 -0 E1..00 E 000 6
55 .-0 -00 1-0 1*.00 2!100 6
5 $)- -00 +12-, 10.00 +1!2-0, =
"otal E1!.-0 6
G>iven April@s output of production.
Inc.
Managerial Accounting, 5/e 10- %"
27%JH8M 10--0 +(%:"5:684,
2. "he advantages of not changing the labor rate would include +1, comparison of actual
operating results to a fixed base which was previously approved by management! and
+2, the clerical or computer cost savings of not implementing the change. 5f labor
standards are not changed during the year to incorporate significant changes in labor
costs! a noncontrollable variance is created. "his variance may mas# actual operating
variances. 5n addition! when reporting operating variances that contain a significant
noncontrollable variance! a credibility gap may be created.
27%JH8M 10--1 +$- M5:6"8/,
1. /tandard cost per cutting board
4irect material
Humber +1.- board ft.G E$.00 per board ft.,............... E*.-0
=ootpads +* pads E.0- per pad,................................ .20 E*.)0
4irect labor
2repare and cut +1*.*
K
M.0 hr. E0.00 per hr.,.............. E1.12
Assemble and finish +1-M.0 hr. E0.00 per hr.,.......... 2.00 $.12
"otal standard unit cost....................................................... E0..2
ft. board 1.-
-
1, +-
ft. board 1.2- G =
+
min. 1*.*
-
1, +-
board per min. 12
K
=
+

Inc.
10#%$ Solutions Manual
27%JH8M 10--1 +(%:"5:684,
2. a. "he role of the purchasing manager in the development of standards includes
establishing the standard cost for material required by the bill of materials!
determining if the company should ta#e advantage of price reductions available
through economic order si'e! and obtaining data regarding the availability of
materials.
b. "he role of the industrial engineer in the development of standards includes
preparing the bill of materials that specifies the types and quantities of material
requiredB establishing! in con;unction with the production supervisor! any
allowances for scrap! shrin#age! and wasteB and participating in time studies and
test runs to facilitate the establishment of time standards.
c. "he role of the managerial accountant in the development of standards includes
reviewing all information regarding material and labor standards received from
other departments! establishing the labor rate standards based on the type of
labor required! determining application rates for indirect costs such as material
handling and manufacturing overhead! and converting physical standards such
as hours and quantities to monetary equivalents.
Inc.
Managerial Accounting, 5/e 10- %%
27%JH8M 10--1 +(%:"5:684,
$. 8thical issues
a. "he purchasing manager! /mith! acted very unethically in purchasing off-
standard material for the cutting boards. 5t was clear that the material was not
well-suited for %gwood@s product. /mith placed his own annual bonus above the
best interests of the company.
b. <hen 7iv#in! the controller! noticed the large! favorable price variance for the
wood! he acted ethically and responsibly to chec# out the circumstances.
c. <hen the controller failed to get a clear answer from the purchasing manager! he
acted ethically and responsibly in raising the issue with another qualified
individual. "he production manager was a logical choice! since she would be
familiar with the type of materials necessary for the production process.
d. "he controller should raise the entire issue with an individual in the company
who is at a high enough level to ta#e appropriate action. 2referably! this should
be someone on a higher level in the organi'ation than /mith! 7iv#in! or <ilcox.
%gwood may be able to cancel its order with the new supplier! even if it means
paying some sort of penalty.
"he managerial accountant@s ethical standards for ob;ectivity require that the
controller! 7iv#in! disclose what he #nows about this unfortunate situation. "hese
standards are as follows
(ommunicate information fairly and ob;ectively.
4isclose fully all relevant information that could reasonably be expected to
influence an intended user@s understanding of the reports! comments! and
recommendations presented.
Inc.
10#%& Solutions Manual
27%JH8M 10--2 +*0 M5:6"8/,
1. "he standard cost per 10-gallon batch of strawberry ;am is determined as follows
/trawberries +).- qts.G E.00,............................................. E ..00
%ther ingredients +10 gal. E.*-,....................................... *.-0
/orting labor +$M.0 hr. . qt. E1.00,................................ 2.)0
Jlending labor +12M.0 hr. E1.00,....................................... 1.00
2ac#aging +*0 qt.
K
E.$0,.................................................... 1-.20
"otal standard cost per 10-gallon batch............................. E$0.20
G. quarts -M* D ).- qt.! needed to produce . good quarts.
K
* qt. per gal. 10 gal. D *0 qt.
2. 9oe AdamsP behavior regarding the cost information is unethical because it
violates the following ethical standards
Copetence. 2repare complete and clear reports and recommendations after
appropriate analyses of relevant and reliable information.
!nte"rit#. Avoid actual or apparent conflicts of interest and advise all appropriate
parties of any potential conflicts. 7efrain from either actively or passively
subverting the attainment of the organi'ationPs legitimate and ethical ob;ectives.
7efrain from engaging in or supporting any activity that would discredit the
profession.
$b%ecti&it#. (ommunicate information fairly and ob;ectively.
$. a. 5n general! the purchasing manager is held responsible for unfavorable material
price variances. (auses of these variances include the following
=ailure to forecast price increases correctly.
2urchasing nonstandard or uneconomical lots.
2urchasing from suppliers other than those offering the most favorable
terms.
Inc.
Managerial Accounting, 5/e 10- %'
27%JH8M 10--2 +(%:"5:684,
b. 5n general! the production manager is held responsible for unfavorable labor
efficiency variances. (auses of these variances include the following
2oorly trained labor.
/ubstandard or inefficient equipment.
/ubstandard material.
27%JH8M 10--$ +*0 M5:6"8/,
1. ?ariances to be investigated using rule of thumb
?ariance "ype Month Amount
2ercentage of
/tandard (ost
8fficiency.......................... August................. $0!000 6.................... )..0L
8fficiency.......................... /eptember........... $)!000 6.................... ).*0L
8fficiency.......................... %ctober............... *2!000 6.................... 0.*0L
8fficiency.......................... :ovember............ .0!000 6.................... 12.00L
8fficiency.......................... 4ecember............ -2!000 6.................... 10.*0L
2. "he company@s direct-labor efficiency variances exhibit a consistent unfavorable
trend throughout the year. Jeginning in 9anuary with an unfavorable variance of
E-!000! the variances gradually increase to unfavorable variances of E.0!000 and
E-2!000 in :ovember and 4ecember! respectively.
<hen to investigate the trend in the variances is a ;udgment call. A reasonable
investigation point would be 9uly! when the unfavorable trend has persisted for six
months and the variance is ;ust under the E$0!000 threshold value.
5t would also be reasonable to investigate the direct-labor rate variance. Although
the variances are relatively small! they remain consistently favorable over the eight-
month period from May through 4ecember. %nce again! this is a ;udgment call.
$. 5t is important to follow up on favorable variances. A consistent pattern of favorable
variances! a favorable trend! or a large favorable variance may indicate that
employees have discovered a more efficient production method. Management should
learn about such a development and may wish to implement the method elsewhere in
the company.
Inc.
10#%( Solutions Manual
27%JH8M 10--$ +(%:"5:684,
*. /tatistical control chart investigate August and %ctober variances.
Inc.
Managerial Accounting, 5/e 10- %+
"ime
=avorable variances
E.!000
E$!000
0
E$!000
E.!000
6nfavorable variances

9an =eb Mar Apr May 9un 9ul Aug /ept %ct :ov 4ec
27%JH8M 10--* +*0 M5:6"8/,
Memorandum
4ate "oday
"o 2resident! 2ittsburgh 2lastics (orporation
=rom 5. M. /tudent
/ub;ect 2erformance of :orth &ills 2lant
1. "he :orth &ills 2lant@s performance for the period 9anuary through 9une is
summari'ed as follows
a. 2roduction processing and productivity
"he plant@s cycle time +or throughput time, has improved over the period
from 20 hours to 1) hours +average of 10.0 hours,. "his indicates that the
efficiency of the actual processing of products has improved. (onsistent
with this observation is the reduction in setup time from )0 to .2 hours
+average of .-.-,. &owever! the plant@s manufacturing cycle efficiency has
declined through the period! indicating that too much time is being spent
on inspection time! waiting time! and move time! relative to actual
processing time. %vertime hours have increased due to higher demand
late in the period. 2ower consumption has remained stable.
b. 2roduct quality and customer acceptance
"he plant@s quality control program appears to be paying off. "he number
of defective units in finished goods declined dramatically! and no products
were returned. "his is the result of the plant@s inspectors more effectively
identifying defective units while still in process. 8ffort should be devoted
in the future to the reduction of the in-process defective rate.
c. 4elivery performance
4elivery performance is good! but could be improved. All orders were
filled! but only an average of 1- percent of the orders were filled on time in
May and 9une. "his probably reflects the increased demand! as evidenced
by the increase in overtime hours.
Inc.
10#%, Solutions Manual
27%JH8M 10--* +(%:"5:684,
d. 7aw material! scrap and inventory
"he rate of defective raw materials has declined to 'ero. "he purchasing
team is doing a good ;ob by ensuring delivery of high-quality raw
materials. 5nventory value has been steady through the period with an
average of *.0 percent of sales. "his is probably as low as can reasonably
be expected in this industry.
e. Machine maintenance
Machine downtime improved during the period from $0 hours to 10 hours
+average of 21.) hours,! but bottlenec# machine downtime was too high!
particularly in May. Also! unscheduled machine maintenance calls were up
in May and 9une.
2. 7ecommended actions
a. 5nvestigate the reasons behind the decline in manufacturing-cycle
efficiency. (oncentrate on the elimination of non-value-added activities!
such as move time and wait time.
b. Maintain inspections in process. "ry to reduce the in-process defective
rate by emphasi'ing the importance of quality to the wor# force.
c. 5nvestigate causes of bottlenec# machine downtime and correct the
situation.
Inc.
Managerial Accounting, 5/e 10- %-
27%JH8M 10--- +*- M5:6"8/,
1. (ategories of measures
Area of Manufacturing
2erformance
(ycle time +days,........................................................................ a
:umber of defective finished products.................................... b
Manufacturing-cycle efficiency................................................. a
(ustomer complaints................................................................. c
6nresolved complaints.............................................................. c
2roducts returned...................................................................... b!c
<arranty claims......................................................................... b!c
5n-process products re;ected.................................................... d
Aggregate productivity.............................................................. a!e
:umber of units produced per day per employee................... a!e
2ercentage of on-time deliveries.............................................. f
2ercentage of orders filled........................................................ f
5nventory valueMsales revenue.................................................. g!h
Machine downtime +minutes,.................................................... i
Jottlenec# machine downtime +minutes,................................. i
%vertime +minutes, per employee............................................. a!e
Average setup time +minutes,................................................... a
Inc.
10#&. Solutions Manual
27%JH8M 10--- +(%:"5:684,
2. Memorandum
4ate "oday
"o Management! Med"ech! 5nc.
=rom 5. M. /tudent
/ub;ect 2erformance of &arrisburg plant during 1st quarter
"he performance of the &arrisburg plant is evaluated in nine #ey areas
a. 2roduction processing
(ycle time! manufacturing-cycle efficiency! and productivity measures all
point to consistency and high-level performance throughout the measurement
period. Joth cycle time and manufacturing-cycle efficiency exhibit slight!
favorable trends.
b. 2roduct quality
"he number of defective finished products! number of products returned! and
warranty claims all show improvement over the period. All three measures
suggest excellent performance in quality control.
c. (ustomer acceptance
(ustomer complaints are steady with an average of ..- complaints during a
two-wee# period. "he number of unresolved complaints improved during the
period from 2 to 0. 2erformance in this area is very high! but there is a little
room for improvement.
d. 5n-process quality control
"he number of products re;ected in process has increased. "his spea#s well
for the in-process inspection effort. "he cause of these defective in-process
units should be investigated and corrected.
Inc.
Managerial Accounting, 5/e 10- &"
27%JH8M 10--- +(%:"5:684,
e. 2roductivity
Joth the aggregate productivity measure and the number of units produced
per day per employee remained relatively steady throughout the period. "he
latter of these two measures exhibited a slight! favorable trend.
f. 4elivery performance
Joth performance measures +percentages of on-time deliveries and orders
filled, were very high through the period! finishing at 100 percent in period ..
g. R h. 7aw material and scrapB inventory
5nventory valueMsales revenue remained consistently low through the period
+average of 1.0$ percent,.
i. Machine maintenance
Machine downtime was low through the period +average of 0* minutes each
two-wee# period,. Jottlenec# machine downtime was low except in period -.
"he cause of that incident should be investigated.
%verall evaluation
"he &arrisburg plant has performed at a very high level of efficiency in virtually
every phase of its operations during the 1st quarter.
Inc.
10#&$ Solutions Manual
27%JH8M 10--. +*- M5:6"8/,
1. a. "he semiannual installments and total bonus for the (harter 4ivision are
calculated as follows
C3ARTER 2IVISION
6AIN#S3ARIN6 /ON!S CA)C!)ATION
4OR T3E 1EAR EN2E2 2ECEM/ER %"5 $.*"
=irst installment! 9anuaryF9une
2rofitability +.02 E*.2!000,................................. E 1!2*0
7ewor# S+.02 E*.2!000, F E11!-00T..................... +2!2.0,
%n-time delivery +no bonusNunder 1.L,............ -0-
/ales returns
US+.01- E*!200!000, F E0*!000T -0LV........ +10!-00,
/emiannual installment......................................... E +$!-20,
=irst semiannual bonus awarded.............................. E 0
/econd installment! 9ulyF4ecember
2rofitability +.02 E**0!000,................................. E 0!000
7ewor# S+.02 E**0!000, F E11!000T..................... +2!200,
%n-time delivery +1.LF10L,................................. 2!000
/ales returns
US+.01- E*!*00!000, F E)0!000T -0LV........ +2!000,
/emiannual installment......................................... E .!.00
/econd semiannual bonus awarded......................... .!.00
"otal bonus awarded for the year............................. E.!.00
b. "he employees of the (harter 4ivision are li#ely to be frustrated by the new plan!
since the division bonus is more than E20!000 less than that of the previous
year! when sales and operating income were similar. &owever! both on-time
deliveries and sales returns improved in the second half of the year! while
rewor# costs were relatively even. 5f the division continues to improve at the
same rate! the (harter 4ivision bonus will approximate or exceed what it was
under the old plan. "he only open question is whether the employees have
sufficient motivation to effect improvement.
Inc.
Managerial Accounting, 5/e 10- &%
27%JH8M 10--. +(%:"5:684,
2. a. "he semiannual installments and total bonus for the Mesa 4ivision are
calculated as follows
MESA 2IVISION
6AIN#S3ARIN6 /ON!S CA)C!)ATION
4OR T3E 1EAR EN2E2 2ECEM/ER %"5 $.*"
=irst installment! 9anuaryF9une
2rofitability +.02 E$*2!000,................................. E.!0*0

7ewor# S+.02 E$*2!000, F E.!000T....................... -0-G
%n-time delivery +over 10L,.................................. -!000

/ales returns
US+.01- E2!0-0!000, F E**!)-0T -0LV........ +1!000,

/emiannual installment......................................... E10!0*0

=irst semiannual bonus awarded.............................. E10!0*0
/econd installment! 9uly-4ecember
2rofitability +.02 E*0.!000,................................. E0!120

7ewor# S+.02 E*0.!000, F E0!000T....................... -0-G
%n-time delivery +no bonusNunder 1.L,............ -0-

/ales returns
US+.01- E2!100!000, F E*2!-00T -0LV........ $!000
K
/emiannual installment......................................... E11!120

/econd semiannual bonus awarded......................... 11!120
"otal bonus awarded for the year.............................. E21!1.0
G7ewor# costs not in excess of 2 percent of operating income.
K
E$!000! since sales returns are less than 1.- percent of sales.
b. "he employees of the Mesa 4ivision should be as satisfied with the new plan as
with the old plan! because the bonus was almost equivalent. &owever! there is
no sign of improvements in this divisionB in fact! on-time deliveries declined
considerably in the second half of the year. "herefore! the bonus situation may
not be as favorable in the future. 4ecreased bonuses could motivate the
employees to improve! or they could frustrate employees and undermine their
motivation.
Inc.
10#&& Solutions Manual
27%JH8M 10--. +(%:"5:684,
$. &arrington@s revised bonus plan for the (harter 4ivision fostered improvements
including the following
5ncrease of 1.1 percent in on-time deliveries
E-00 reduction in rewor# costs
E1*!000 reduction in sales returns
&owever! operating income as a percentage of sales has decreased from 11 to 10
percent.
"he Mesa 4ivision@s bonus has remained at the status quo. "he effects of the
revised plan at MedHine 8quipment (orporation have been offset by the following
5ncrease of 2 percent in operating income as a percentage of sales +from 12 to 1*
percent,
4ecrease of $.. percent in on-time deliveries
E2!000 increase in rewor# costs
E2!2-0 decrease in sales returns
"hese results suggest that the gain-sharing bonus plan needs revisions.
/uggestions include the following
(reating a reward structure for rewor# costs that are below 2 percent of operating
income that would encourage employees to drive costs lower.
7eviewing the whole year in total. "he bonus plan should carry forward the
negative amounts for one six-month period into the next six-month period!
incorporating the entire year when calculating a bonus.
4eveloping benchmar#s! and then giving rewards for improvements over prior
periods and encouraging continuous improvement.
Inc.
Managerial Accounting, 5/e 10- &'
27%JH8M 10--) +-0 M5:6"8/,
1. a. 4irect-labor rate variance D (AH AR) F (AH SR)
D +$.!-00 E0.2*G, F +$.!-00 E0.20,
D E1!*.0 6nfavorable
GE$00!).0 $.!-00 hours
b. 4irect-labor efficiency variance D (AH SR) F (SH SR)
D +$.!-00 E0.20, F +$)!200G E0.20,
D E-!)*0 =avorable
G/tandard allowed direct-labor hours
(ompleted units................ -!.00 units . hours per unit $$!.00 hours
2artially completed
units................................ 000 units )-L . hours per unit $!.00 hours
"otal standard
hours allowed................ $)!200 hours
c. Actual quantity of material used
4irect-material quantity variance D (AQ SP) F (SQ SP)
D +AQ E-.00, F +-1!200G E-.00,
D E1!-00 6nfavorable
"herefore E-+AQ F -1!200, D E1!-00
AQ F -1!200 D $00
AQ D -1!-00 #ilograms
G/tandard quantity of material allowed
(ompleted units................... -!.00 units 0 #ilograms **!000 #ilograms
2artially completed
units................................... 000 units 0 #ilograms .!*00 #ilograms
"otal standard
quantity allowed............... -1!200 #ilograms
Inc.
10#&( Solutions Manual
27%JH8M 10--) +(%:"5:684,
d. Actual price paid per #ilogram of direct material
Actual price D E2*1!2-0M-0!000
D E*.10- per #ilogram
e. 4irect-material and direct-labor cost transferred to finished goods
4irect-material
cost transferred......................................... -!.00 units E*0 E22*!000
4irect-labor
cost transferred......................................... -!.00 units E*1.20 2)-!-20
"otal cost transferred.................................... E*11!-20
f. 4irect-material and direct-labor cost in :ovember $0 balance of <or#-in-2rocess
5nventory
4irect material.............................................. 000 units E*0 per unit E$2!000
4irect labor................................................... 000 units )-L E*1.20 21!-20
"otal cost in ending
<or#-in-2rocess 5nventory..................... E.1!-20
Inc.
Managerial Accounting, 5/e 10- &+
27%JH8M 10--) +(%:"5:684,
2. 7aw-Material 5nventory........................................................ 2-0!000
4irect-Material 2rice ?ariance.................................. )-0G
Accounts 2ayable...................................................... 2*1!2-0

G4irect-material price variance D PQ(AP SP)
D -0!000+E*.10- F E-.00, D E)-0 =avorable
"o record the purchase of raw material and the direct-material price variance.
<or#-in-2rocess 5nventory.................................................. 2-.!000G
4irect-Material 3uantity ?ariance....................................... 1!-00

7aw-Material 5nventory.............................................. 2-)!-00
K
G-1!200 E-.00 D E2-.!000
K
-1!-00 E-.00 D E2-)!-00
"o add the direct-material cost to wor# in process and record the direct-material
quantity variance.
<or#-in-2rocess 5nventory.................................................. $0-!0*0G
4irect-Habor 7ate ?ariance................................................. 1!*.0

4irect-Habor 8fficiency ?ariance.............................. -!)*0
<ages 2ayable........................................................... $00!).0
G$)!200 E0.20 D E$0-!0*0
"o add the direct-labor cost to wor#-in-process! record the direct-labor rate and
efficiency variances! and recogni'e the actual direct-labor cost.
Inc.
10#&, Solutions Manual
27%JH8M 10--0 +2- M5:6"8/,
1. +a, 4irect-material price variance D PQ(AP SP)
2roduct
(alculation
PQ(AP SP)
2rice
?ariance
/tandard tent................... 2!100 +E..*0G F E.,................................ E0*0 6
4eluxe tent....................... 000 +E).10
K
F E0,................................... 00 =
4irect-material
price variance.................................................................................. E).0 6
GE..*0 D E1$!**0 2!100
K
E).10 D E.!$20 000
+b, 4irect-material quantity variance D SP(AQ SQ)
2roduct
(alculation
SP(AQ SQ)
3uantity
?ariance
/tandard tent................. E. +1!2-0 F 1!200G,.................................. E$00 6
4eluxe tent..................... E0 +)20 F )20
K
,........................................ -0-
4irect-material
quantity variance.............................................................................. E$00 6
G1!200 D 100 tents 12 lbs. per tent
K
)20 D 120 tents . lbs. per tent
Inc.
Managerial Accounting, 5/e 10- &-
27%JH8M 10--0 +(%:"5:684,
2. 7aw-Material 5nventory................................................ 11!000G
4irect-Material 2rice ?ariance..................................... ).0

Accounts 2ayable.............................................. 11!).0

"o record purchase of tent fabrics.
GE11!000 D +2!100 lbs. E. per lb., O +000 lbs. E0 per lb.,
<or#-in-2rocess 5nventory.......................................... 12!1.0G
4irect-Material 3uantity ?ariance............................... $00

7aw-Material 5nventory...................................... 1$!2.0
K
"o record use of direct material.
GE12!1.0 D +1!200 lbs. E. per lb., O +)20 lbs. E0 per lb.,
K
E1$!2.0 D +1!2-0 lbs. E. per lb., O +)20 lbs. E0 per lb.,
Inc.
10#'. Solutions Manual
27%JH8M 10--1 +.0 M5:6"8/,
1. /tandard cost schedule
4578(" MA"875AH
(onstruction
4epartment
=inishing
4epartment
/tandard quantity
4irect material and parts in finished product
?eneered wood....................................... ) lbs N
Jridge and strings.................................. N 1 set
Allowance for normal waste....................... 1 lb N
"otal standard quantity per guitar................. 0 lbs 1 set
/tandard price
4irect material and parts
?eneered wood....................................... E12 per lb N
Jridge and strings.................................. N E1- per set
/tandard direct-material cost
/tandard quantity........................................ 0 lbs 1 set
/tandard price............................................. E12 per lb E1- per set
/tandard cost per guitar............................. E1. per guitar E1- per guitar
Actual output in 9uly................................... -00 guitars -00 guitars
"otal standard cost of direct material
in 9uly........................................................... E*0!000 E)!-00
4578(" HAJ%7
(onstruction
4epartment
=inishing
4epartment
/tandard direct-labor cost
/tandard quantity........................................ . hrs $ hrs
/tandard rate...............................................

E 20 E1-
/tandard cost per guitar............................. E120 E*-
Actual output in 9uly................................... -00 guitars -00 guitars
"otal standard cost of direct labor
in 9uly........................................................... E.0!000 E22!-00
Inc.
Managerial Accounting, 5/e 10- '"
27%JH8M 10--1 +(%:"5:684,
2. +a, (onstruction 4epartment
4578("-MA"875AH 275(8 A:4 36A:"5"I ?A75A:(8/
A("6AH MA"875AH (%/" /"A:4A74 MA"875AH (%/"
Actual
3uantity
Actual
2rice
Actual
3uantity
/tandard
2rice
/tandard
3uantity
/tandard
2rice
.!000
pounds
purchased
E12.-0
per
pound
.!000
pounds
purchased
E12.00
per
pound
*!000
pounds
allowed
E12.00
per
pound
E)-!000 E)2!000 E*0!000
E$!000 6nfavorable
4irect-material
price variance
*!-00
pounds
used
E12.00
per
pound
E-*!000
E.!000
6nfavorable
4irect-material
quantity
variance
Inc.
10#'$ Solutions Manual
27%JH8M 10--1 +(%:"5:684,
4578("-HAJ%7 7A"8 A:4 8==5(58:(I ?A75A:(8/
A("6AH HAJ%7 (%/" /"A:4A74 HAJ%7 (%/"
Actual
&ours
Actual
7ate
Actual
&ours
/tandard
7ate
/tandard
&ours
/tandard
7ate
2!0-0
hours
used
E11
per
hour
2!0-0
hours
used
E20
per
hour
$!000
hours
allowed
E20
per
hour
E-*!1-0 E-)!000 E.0!000
E2!0-0 =avorable E$!000 =avorable
4irect-labor
rate variance
4irect-labor
efficiency variance
E-!0-0 =avorable
+b, =inishing 4epartment
4578("-HAJ%7 7A"8 A:4 8==5(58:(I ?A75A:(8/
A("6AH HAJ%7 (%/" /"A:4A74 HAJ%7 (%/"
Actual
&ours
Actual
7ate
Actual
&ours
/tandard
7ate
/tandard
&ours
/tandard
7ate
1!-)0
hours
used
E1.
per
hour
1!-)0
hours
used
E1-
per
hour
1!-00
hours
allowed
E1-
per
hour
E2-!120 E2$!--0 E22!-00
E1!-)0 6nfavorable E1!0-0 6nfavorable
4irect-labor
rate variance
4irect-labor
efficiency variance
E2!.20 6nfavorable
Inc.
Managerial Accounting, 5/e 10- '%
27%JH8M 10--1 +(%:"5:684,
$. (ost variance report
SPRIN6STEEN COMPAN1
COST VARIANCE REPORT
4OR T3E MONT3 O4 0!)1
(onstruction 4epartment =inishing 4epartment
Amount
2ercentage of
/tandard (ost Amount
2ercentage of
/tandard (ost
4irect material
/tandard cost! given
actual output............... E*0!000 N E )!-00 N
4irect-material price
variance....................... $!000 6 ..2-L -0- -0-
4irect-material quantity
variance....................... .!000 6 12.-0L -0- -0-
4irect labor
/tandard cost! given
actual output............... E.0!000 N E22!-00 N
4irect-labor rate variance 2!0-0 = *.)-L 1!-)0 6 ..10L
4irect-labor efficiency
variance....................... $!000 = -.00L 1!0-0 6 *..)L
Inc.
10#'& Solutions Manual
27%JH8M 10-.0 +*- M5:6"8/,
1. 9ournal entries
7aw-Material 5nventory........................................................ )2!000
4irect-Material 2rice ?ariance............................................. $!000
Accounts 2ayable...................................................... )-!000
"o record purchase of veneered wood.
7aw-Material 5nventory........................................................ 1!000
Accounts 2ayable...................................................... 1!000
"o record purchase of bridges and strings.
<or#-in-2rocess 5nventory.................................................. *0!000
4irect-Material 3uantity ?ariance....................................... .!000
7aw-material 5nventory............................................. -*!000
"o record usage of veneered wood.
<or#-in-2rocess 5nventory.................................................. )!-00
7aw-Material 5nventory.............................................. )!-00
"o record usage of bridges and strings.
<or#-in-2rocess 5nventory.................................................. .0!000
4irect-Habor 7ate ?ariance....................................... 2!0-0
4irect-Habor 8fficiency ?ariance.............................. $!000
<ages 2ayable........................................................... -*!1-0
"o record (onstruction 4epartment direct-labor costs and variances.
<or#-in-2rocess 5nventory.................................................. 22!-00
4irect-Habor 7ate ?ariance................................................. 1!-)0
4irect-Habor 8fficiency ?ariance........................................ 1!0-0
<ages 2ayable........................................................... 2-!120
"o record =inishing 4epartment direct-labor costs and variances.
Inc.
Managerial Accounting, 5/e 10- ''
27%JH8M 10-.0 +(%:"5:684,
=inished->oods 5nventory................................................... 1$0!000
<or#-in-2rocess 5nventory....................................... 1$0!000
"o record completion of -00 guitars at a standard cost of E2). each
+E2). D E1. O E1- O E120 O E*-,.
Accounts 7eceivable........................................................... 120!000
/ales 7evenue............................................................ 120!000
(ost of >oods /old 02!000
=inished->oods 5nventory......................................... 02!000
"o record sale of $00 guitars at a price of E*00 each and a standard cost of E2). each.
(ost of >oods /old.............................................................. -!))0

4irect-Habor 7ate ?ariance................................................. 1!200G
4irect-Habor 8fficiency ?ariance........................................ 1!1-0
K
4irect-Material 2rice ?ariance.................................. $!000
4irect-Material 3uantity ?ariance............................. .!000
"o close variances into (ost of >oods /old.
G/um of direct-labor rate variances E1!200 = D E2!0-0 = O E1!-)0 6
K
/um of direct-labor efficiency variances E1!1-0 = D E$!000 = O E1!0-0 6
Inc.
10#'( Solutions Manual
27%JH8M 10-.0 +(%:"5:684,
2. 2osting of ;ournal entries
7aw-Material 5nventory Accounts 7eceivable
)2!000 -*!000 120!000
1!000 )!-00
<or#-in-2rocess 5nventory Accounts 2ayable
*0!000 1$0!000 )-!000
)!-00 1!000
.0!000
22!-00
=inished->oods 5nventory <ages 2ayable
1$0!000 02!000 -*!1-0
2-!120
(ost of >oods /old /ales 7evenue
02!000 120!000
-!))0
4irect-Material 2rice ?ariance 4irect-Habor 7ate ?ariance
$!000 $!000 1!-)0 2!0-0
1!200
4irect-Material
3uantity ?ariance
4irect-Habor
8fficiency ?ariance
.!000 .!000 1!0-0 $!000
1!1-0
Inc.
Managerial Accounting, 5/e 10- '+
SO)!TIONS TO CASES
(A/8 10-.1 +.0 M5:6"8/,
1. /tandard cost of lots 22! 2$! and 2*
E!ROPEAN ST1)ES5 INC7
STAN2AR2 COST O4 PRO2!CTION
4OR NOVEM/ER
Hot
3uantity
+boxes,
/tandard
(ost per
Jox
"otal
/tandard
(ost
22.................................................................... 1!000 E10..-0

E10.!-00
2$.................................................................... 1!)00 10..-0

101!0-0
2*.................................................................... 1!200 10.*0G 100!-).
/tandard cost of production E$1.!12.
G/tandard material cost plus 00 percent of standard cost of labor and overhead
E2..*0 O +00L,+E**.10 O E$..00,.
2. ?ariances +6 denotes unfavorableB = denotes favorable,
2IRECT#MATERIA) PRICE VARIANCE
4OR NOVEM/ER
Actual cost of materials purchased.......................................................... E10.!*00
/tandard cost of materials purchased
+1-!000 E1.10,....................................................................................... 10*!-00
4irect-material price variance.................................................................... E 1!100 6
Inc.
10#', Solutions Manual
(A/8 10-.1 +(%:"5:684,
2IRECT#MATERIA) AN2 2IRECT#)A/OR VARIANCES
4OR NOVEM/ER
Hot no.
22 2$ 2* "otal
4irect-material quantity
variance
/tandard yards
6nits in lot............................. 1!000 1!)00 1!200 $!100
/tandard yards
per lot............................... 2* 2* 2* 2*
"otal standard
quantity............................ 2*!000 *0!000 20!000 1$!.00
Actual yards used.................... 2*!100 *0!**0 20!02- 1$!$.-
?ariance in yardsG........................ 100 +$.0, 2- +2$-,
/tandard price............................. E1.10 E1.10 E1.10 E1.10
4irect-material
quantity variance.................. E 110 6 E +$1., = E2).-0 6 E+2-0.-0, =
G2arentheses denote favorable variance.
Hot no.
22 2$ 2* "otal
4irect-labor efficiency variance
/tandard hours
6nits in lot............................ 1!000 1!)00 1!200
/tandard hours
per lot........................... $ $ $
"otal...................................... $!000 -!100 $!.00
2ercentage of completion. . . 100 L 100 L 00 L
"otal standard hours............ $!000 -!100 2!000 10!100
Actual hours wor#ed............ 2!100 -!1$0 2!010 11!000
?ariance in hoursG.................... +20, $0 10 20
/tandard rate............................. E1*.)0 E1*.)0 E1*.)0 E1*.)0
4irect-labor
efficiency variance............ E +21*, = E**1 6 E1*) 6 E21* 6
G2arentheses denote favorable variance.
Inc.
Managerial Accounting, 5/e 10- '-
(A/8 10-.1 +(%:"5:684,
Hot no.
22 2$ 2* "otal
4irect-labor rate variance
Actual hours wor#ed.............. 2!100 -!1$0 2!010 11!000
7ate paid in excess of standard
+E1-.00 F E1*.)0,................ E .
$0
E .$0 E .$0 E .$0
?ariance..................................... E 01* 6 E1!-$1 6 E 0.) 6 E $!$00 6
$. 9ournal entries
7aw-material 5nventory........................................................ 10*!-00G
4irect-Material 2rice ?ariance............................................. 1!100

Accounts 2ayable...................................................... 10.!*00
G1-!000 E1.10 D E10*!-00
"o record the purchase of raw material.
<or#-in-2rocess 5nventory.................................................. 102!1.0G
4irect-Material 3uantity ?ariance............................. 2-0.-0
7aw-Material 5nventory.............................................. 102!)01.-0
G1$!.00 E1.10 D E102!1.0
"o add direct-material cost to wor#-in-process inventory and record the direct-material
quantity variance.
<or#-in-2rocess 5nventory.................................................. 1.1!*0.G
4irect-Habor 7ate ?ariance................................................. $!$00

4irect-Habor 8fficiency ?ariance........................................ 21*

<ages 2ayable........................................................... 1.-!000
G10!100 E1*.)0 D E1.1!*0.
"o add direct-labor cost to wor#-in-process inventory! record the direct-labor
variances! and record the incurrence of direct-labor cost.
Inc.
10#(. Solutions Manual
(A/8 10-.2 +)- M5:6"8/,
"he completed list is shown below. Jegin by filling in the facts you #now. "he reasoning
used to reduce the remaining data is explained after the list of answers.
1. Actual output +in drums,
D
drum per A material direct of quanity standard
output actual given allowed! A material direct of quantity standard
D
drums 1!000
drum per lb. 10
lb. 10!000
=
2.
4irect material A J
a. /tandard quantity per drum........................................ 10 lb. - gal.
a
b. /tandard price.............................................................. E-.00Mlb. E$.00Mgal.
b
c. /tandard cost per drum............................................... E-0.00
c
E1-.00
d. /tandard quantity allowed! given actual output........ 10!000 lb. -!000 gal.
e. Actual quantity purchased.......................................... 12!000 lb. .!000 gal.
f. Actual price.................................................................. E*.-0Mlb. E$.20Mgal.
d
g. Actual quantity used.................................................... 10!-00 lb.
e
*!000 gal.
h. 2rice variance............................................................... E.!000 =
f
E1!200 6
i. 3uantity variance......................................................... E2!-00 6 E.00 =
g
a
/tandard quantity of direct material J per drum
D
output actual
output actual given allowed! J material direct of quantity standard
D
gal. -
drums 1!000
gal. -!000
=
b
/tandard price of direct material J D
drum per allowed quantity standard
drum per J material of cost standard
D
gal. per E$.00
drum per gal. -
drum per E1-.00
=
Inc.
Managerial Accounting, 5/e 10- ("
(A/8 10-.2 +(%:"5:684,
c
/tandard cost of direct material A per drum D 10 lbs. E-.00 per lb. D E-0.00.
d
"he reasoning for the actual price of direct material J is as follows! where the
subscripts denote materials A and J
5ncrease in
accounts payable
D
actual cost of
material purchases
D (PQ
A
AP
A
) O (PQ
'
AP
'
)
E)$!200 D +12!000 E*.-0 , O +.!000 AP
'
,
AP
'
D E$.20 per gallon
e
"his conclusion comes from the following formula for the quantity variance
3uantity variance +A, D SP(AQ SQ)
E2!-00 6 D +AQ F 10!000, E-.00
AQ D 10!-00 lb.
f
4irect material A price variance D PQ (AP SP)
D 12!000 +E*.-0 F E-.00,
D E.!000 =
g
4irect material J quantity variance D SP(AQ SQ)
D E$.00 +s*!000 F -!000,
D E.00 =
Inc.
10#($ Solutions Manual
(A/8 10-.2 +(%:"5:684,
$.
4irect labor
5
+mixers,
55
+pac#ers,
a. /tandard hours per drum............................................ 2 hr.
a
* hr.
b. /tandard rate per hour................................................. E1-.00 E12.00
b
c. /tandard cost per drum............................................... E$0.00 E*0.00
d. /tandard quantity allowed! given actual output........ 2!000 hr.
c
*!000 hr.
d
e. Actual rate per hour..................................................... E1-.$0
e
E11.10
f. Actual hours................................................................. 2!000 hr
f
*!100 hr.
g
g. 7ate variance................................................................ E.00 6 E*10 =
h
h. 8fficiency variance....................................................... -0-
i
E1!200 6
a
/tandard hours of direct labor type 5 per drum
D
hour per rate standard
drum per 5 labor direct of cost standard
D
. hr 2
hr. per E1-.00
drum per E$0.00
=
b
4irect labor type 55! standard rate per hour
D
drum per hours standard
drum per 55 type labor direct of cost standard
D
E12.00
drum per hr. *
drum per E*0.00
=
c
4irect labor type 5! standard quantity allowed! given actual output
D 1!000 drums 2 hr. per drum
D 2!000 hr.
d
4irect labor type 55! standard quantity allowed given actual output
D 1!000 drums * hr. per drum
D *!000 hr.
Inc.
Managerial Accounting, 5/e 10- (%
(A/8 10-.2 +(%:"5:684,
e
4irect labor type 5! actual rate per hour D E1-.$0. 6se the formula for the direct-labor
rate variance as follows
E.00 6 D 2!000 +AR F E1-.00,
AR D E1-.$0
f
4irect labor type 5! actual hours D 2!000 hr. /ince there was no labor type 5 efficiency
variance! actual hours and standard hours are equal.
g
4irect labor type 55! actual hours D *!100 hr. 6se the formula for the direct-labor
efficiency variance! as follows
4irect-labor +55, efficiency variance D SR (AH SH)
E1!200 6 D E12.00 +AH F *!000,
AH D *!100 hr.
h
4irect-labor type 55! rate variance D AH (AR SR)
D *!100 +E11.10 F E12.00,
D E*10 =
Inc.
10#(& Solutions Manual
(A/8 10-.2 +(%:"5:684,
i
4irect labor type 5! efficiency variance D 'ero.
9ust fill in the remaining variance in the following tabulation
4irect-material variances
A 2rice variance..................................................................................... E.!000 =
A 3uantity variance............................................................................... 2!-00 6
J 2rice variance..................................................................................... 1!200 6
J 3uantity variance............................................................................... .00 =
4irect-labor variances
5 7ate variance...................................................................................... .00 6
5 8fficiency variance............................................................................. W
55 7ate variance...................................................................................... *10 =
55 8fficiency variance............................................................................. 1!200 6
"otal +favorable variance because of credit to cost of >oods /old,........ E1!-10 =
"herefore! the direct-labor type 5 efficiency variance D E1!-10 F E.!000 O E2!-00
O E1!200 F E.00 O E.00 F E*10 O E1!200 D 0
*. "otal of all variances for the month E1!-10 = +favorable because of credit to (ost of
>oods /old,.
Inc.
Managerial Accounting, 5/e 10- ('
C!RRENT ISS!ES IN MANA6ERIA) ACCO!NTIN6
5//68 10-.$
X6./ A6"% MAY87/ "% 78? 62 %6"26" %= @&IJ754@ ?8&5(H8/!X (H) *ALL S(R))(
+$,R-AL! %("%J87 2*! 2000! 98==78I JAHH.
1. &ybrids boost fuel economy by adding an electric motor to a traditional internal
combustion engine.
2. 4eveloping standards for a radically new product is difficult at best. Manufacturers
generally try to find aspects of the new product +and the processes needed to
produce it, that are similar to products and processes with which they have
experience. 5nitial standards then can be inferred from these more familiar products
and processes. Also! using a target price analysis would allow auto ma#ers to
determine what price consumers would pay for a hybrid vehicle. "he auto ma#ers
could then wor# bac#wards toward reducing their costs in order to ma#e an
economically viable product.
5//68 10-.*
X(A: IA&%%Z "&75?8 5: A &A7/& (H5MA"8!X (H) *ALL S(R))( +$,R-AL! %("%J87
1.! 2000.
1. Iahoo is an online business that provides many free services.
2. Iahoo offers search capabilities! an auction! classifieds! travel information! mail!
photos! chat rooms! clubs and a myriad of other services.
$. "he article questions whether Iahoo will be innovative enough to be competitive as
the 5nternet business environment evolves over time. 5nnovation and learning is one
of the four ma;or areas covered by the balanced scorecard. Management could use
the balanced scorecard to put a spotlight on this area of critical importance to the
company.
Inc.
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CHAPTER 10

Standard Costing and Performance Measures for

8C87(5/8 10-$* +(%:"5:684,

McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,

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