exercises: set b - cengage · completed and sold during the month; the production department used...

ExErcisEs: sEt BUses of Standard CostsE1B. Accounting connEction ▶ Summer Diaz has just assumed the duties of con-troller for Market Research Company. She is concerned that the company’s methods of cost planning and control do not accurately track the operations of the business. She plans to suggest to Sydney Tyson, the company’s president, that the company start using standard costing for budgeting and cost control. The new method could be incor-porated into the existing accounting system. The anticipated cost of adopting it and training managers is around $7,500. Prepare a memo from Diaz to Tyson that defines standard costing and outlines its uses and benefits.

Computing Standard CostsE2B. Normal Corporation uses standard costing and is in the process of updating its direct materials and direct labor standards for Product 20B. The following data have been accumulated:

Direct materials: In the previous period, 20,500 units were produced, and 32,800 square yards of direct materials at a cost of $122,344 were used to produce them.

Direct labor: During the previous period, 57,400 direct labor hours were worked—34,850 hours on machine H and 22,550 hours on machine K. Machine H operators earned $9.40 per hour, and machine K operators earned $9.20 per hour last period. A new labor union contract calls for a 10 percent increase in labor rates for the coming period.Using this information as the basis for the new standards, compute the direct mate-

rials quantity and price standards and the direct labor time and rate standards for each machine for the coming accounting period.

Computing a Standard Unit CostE3B. Weather Aerodynamics, Inc., makes electronically equipped weather-detecting bal-loons for university meteorology departments. Because of recent nationwide inflation, the company’s management has ordered that standard costs be recomputed. New direct materials price standards are $700 per set for electronic components and $14 per square meter for heavy-duty canvas. Direct materials quantity standards include one set of elec-tronic components and 100 square meters of heavy-duty canvas per balloon. Direct labor time standards are 26 hours per balloon for the Electronics Department and 21 hours per balloon for the Assembly Department. Direct labor rate standards are $21 per hour for the Electronics Department and $18 per hour for the Assembly Department. Stand-ard overhead rates are $16 per direct labor hour for the standard variable overhead rate and $12 per direct labor hour for the standard fixed overhead rate. Compute the stand-ard unit cost of one weather balloon.

Direct Materials Price and Quantity VariancesE4B. Natural Sweep Company produces organic twig brooms. Each broom calls for 2 pounds of wood; the wood should cost $0.10 per pound. In July, the division manufac-tured and sold 300,000 brooms. During the month, it used 600,100 pounds of wood; the total cost of the material was $72,012. Normal monthly capacity was set at 580,000 brooms. Calculate Natural Sweep’s material price and quantity variances for wood for the month.

Direct Materials Price and Quantity VariancesE5B. SITO Elevator Company manufactures small hydroelectric elevators with a maxi-mum capacity of ten passengers. One of the direct materials used is heavy-duty carpet-ing for the floor of the elevator. The direct materials quantity standard for April was 8 square yards per elevator. During April, the purchasing agent purchased this carpeting at $11 per square yard; the standard price for the period was $12. Ninety elevators were

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2 Chapter 24: Standard Costing and Variance Analysis

completed and sold during the month; the Production Department used an average of 8.5 square yards of carpet per elevator. Calculate the company’s direct materials price and quantity variances for carpeting for April.

Direct Materials VariancesE6B. Diekow Productions manufactured and sold 1,000 products at $11,000 each dur-ing the past year. At the beginning of the year, production had been set at 1,200 prod-ucts, and direct materials standards had been set at 100 pounds of direct materials at $2 per pound for each product produced. During the year, the company purchased and used 98,000 pounds of direct materials with a cost of $2.04 per pound. Calculate the company’s direct materials price and quantity variances for the year.

Direct Labor VariancesE7B. At the beginning of last year, Diekow Productions set direct labor standards of 20 hours at $15 per hour for each product produced. During the year, 20,500 direct labor hours were actually worked at an average cost of $16 per hour. Using this information and the applicable information in E6B, calculate the company’s direct labor rate and efficiency variances for the year.

Direct Labor Rate and Efficiency VariancesE8B. NEO Foundry, Inc., manufactures castings that other companies use in the produc-tion of machinery. For the past two years, NEO’s best-selling product has been a casting for an eight-cylinder engine block. Standard direct labor hours per engine block are 1.8 hours. A labor union contract requires that the company pay all direct labor employees $14 per hour. During June, NEO produced 16,500 engine blocks. Actual direct labor hours and costs for the month were 29,900 hours and $433,550, respectively.

1. Compute the direct labor rate variance for eight-cylinder engine blocks during June. 2. Using the same data, compute the direct labor efficiency variance for eight-cylinder

engine blocks during June. Check your answer, assuming that the total direct labor cost variance is $17,750 (U).

Variable Overhead VariancesE9B. At the beginning of last year, Diekow Productions set variable overhead standards of 10 machine hours at a rate of $10 per hour for each product produced. During the year, 10,800 machine hours were used at a cost of $10.20 per hour. Using this informa-tion and the applicable information in E6B, calculate the company’s variable overhead spending and efficiency variances for the year.

Fixed Overhead VariancesE10B. At the beginning of last year, Diekow Productions set budgeted fixed overhead costs at $456,000. During the year, actual fixed overhead costs were $500,000. Using this information and the applicable information in E6B, calculate the company’s fixed overhead budget and volume variances for the year. Assume that fixed overhead is applied based on units of product.

Variable Overhead Variances for a Service BusinessE11B. Design Architects, LLP, billed clients for 6,000 hours of design work for the month. Actual variable overhead costs for the month were $315,000, and 6,250 hours were worked. At the beginning of the year, a variable overhead standard of $50 per design hour had been developed based on a budget of 5,000 design hours each month. Calculate the company’s variable overhead spending and efficiency variances for the month.

Fixed Overhead Variances for a Service BusinessE12B. Engineering Associates billed clients for 11,000 hours of engineering work for the month. Actual fixed overhead costs for the month were $435,000. At the beginning

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of the year, a fixed overhead standard of $40 per engineering hour had been developed based on a budget of 10,000 engineering hours each month. Calculate the company’s fixed overhead budget and volume variances for the month.

Overhead VariancesE13B. Cedar Key Company produces handmade clamming buckets and sells them to distributors along Florida’s Gulf Coast. The company incurred $9,400 of actual over-head costs ($8,000 variable; $1,400 fixed) in May. Budgeted standard overhead costs for May were $4 of variable overhead costs per direct labor hour and $1,500 of fixed overhead costs. Normal capacity was set at 2,000 direct labor hours per month. In May, the company produced 10,100 clamming buckets by working 1,900 direct labor hours. The time standard is 0.2 direct labor hour per clamming bucket. Compute (a) the vari-able overhead spending and efficiency variances and (b) the fixed overhead budget and volume variances for May.

Overhead VariancesE14B. Suncoast Industries uses standard costing and a flexible budget for cost plan-ning and control. Its monthly budget for overhead costs is $200,000 of fixed costs plus $5.20 per machine hour. Monthly normal capacity of 100,000 machine hours is used to compute the standard fixed overhead rate. During December, employees worked 105,000 machine hours. Only 98,500 standard machine hours were allowed for good units produced during the month. Actual overhead costs incurred during December totaled $441,000 of variable costs and $204,500 of fixed costs. Compute (a) the under- or overapplied overhead during December and (b) the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.

Evaluating Managerial PerformanceE15B. BusinEss ApplicAtion ▶ Ron LaTulip oversees projects for ACE Construction Company. Recently, the company’s controller sent him a performance report regarding the construction of the Campus Highlands Apartment Complex, a project that LaTulip supervised. Included in the report was an unfavorable direct labor efficiency variance of $1,900 for roof structures. What types of information does LaTulip need to analyze before he can respond to this report?

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