#MASReview1stSEM2018 MAS04

Standard Costing

i
. Standard-Setting – Direct Materials Required:
Martina Company manufactures a powerful cleaning solvent. The main ingredient in the 1. Determine the standard quantity for each of the raw materials needed to produce an
solvent is a raw material called Echol. Information on the purchase and use of Echol follows: acceptable 10-liter batch of Nysap.
2. Determine the standard labor time to produce an acceptable 10-liter batch of Nysap.
Purchase of Echol. Echol is purchased in 15-gallon container at a cost of P115 per container. 3. Assuming the following purchase prices and costs, prepare a standard cost card for
A discount of 2% is offered by the supplier for payment within 10 days, and Martina Company materials and labor one acceptable 10-liter batch of Nysap:
takes all discounts. Shipping costs, which Martina Company must pay, amount to P130 for an Salex P1.50 per liter
average shipment of 100 15-gallon containers of Echol. Nyclyn 2.80 per kilogram
Protet 3.00 per kilogram
Use of Echol: The bill of materials calls for 7.6 quarts of Echol per bottle of cleaning solvent. Direct labor cost 9.00 per hour
(There are four quarts in a gallon.) About 5% of all Echol used is lost through spillage or
iii
evaporation (the 7.6 quarts above is the actual content per bottle.) In addition, statistical . Materials & Labor Variances Barfield
analysis has shown that every 41st bottle is rejected at final inspection because of ABC Company has the following information available for the current year:
contamination. Standard:
Material 3.5 feet per unit @ $2.60 per foot
Required: Labor 5 direct labor hours @ $8.50 per unit
1. Compute the standard purchase price for one quart of Echol. Actual:
2. Compute the standard quantity of Echol (in quarts) per salable bottle of cleaning solvent. Material 95,625 feet used (100,000 feet purchased @ $2.50 per foot)
3. Using the data from (1) and (2) above, prepare a standard cost card showing the standard Labor 122,400 direct labor hours incurred per unit @ $8.35 per hour
cost of Echol per bottle of cleaning solvent. 25,500 units were produced

REQUIRED:
ii
.
Standard Setting – Direct Materials & Direct Labor (A). Compute the material purchase price and quantity variances.
Danson Company is a chemical manufacturer that supplies various products to industrial (B). Compute the labor rate and efficiency variances.
users. The company plans to introduce a new chemical solution, called Nysap, for which it
needs to develop a standard product cost. The following information is available on the iv
. Labor Rate & Efficiency Variance Barfield
production of Nysap: PJW has made the following information available for January 2001:
 Nysap is made by combining a chemical compound (nyclyn) and a solution (salex), and Actual Standards
boiling the mixture. A 20% loss in volume occurs for both the salex and the nyclyn during 1,500 units produced 2 DLH per unit @ $10
boiling. After boiling, the mixture consists of 9.6 liters of salex and 12 kilograms of nyclyn 2,400 DLH used @ $10.25 per DLH
per 10-liter batch of Nysap. Assume that PJW hires part-time employees for production of these units.
 After the boiling process is complete, the solution is cooled slightly before 5 kilograms of
protet are added per 10-liter batch of Nysap. The addition of the protet does not affect the REQUIRED:
total liquid volume. The resulting solution is then bottled in 10-liter containers. Compute the price and efficiency variances.
 The finished product is highly unstable, and one10-liter batch out of six is rejected at final
inspection. Rejected batches have no commercial value and are thrown out.
 It takes a worker 35 minutes to process one 10-liter batch of Nysap. Employees work an
eight-hour day, including one hour per day for rest breaks and cleanup.
EXERCISES & PROBLEMS Page 1 of 15
#MASReview1stSEM2018 MAS04
Standard Costing

v viii
. Labor Spending & Volume Variance Barfield . Materials Mix & Yield Variance Carter & Usry
SAF has provided the following information for July 2001: Kreutzer Candle Co. manufactures candles in various shapes, sizes, colors, and scents.
Actual Standards Depending on the orders received, not all candles require the same amount of color, dye, or
800 units produced 2 DLH per unit @ $5.00 scent materials. Yields also vary, depending upon the usage of beeswax or synthetic wax.
Actual DL cost $6,750 $1 fixed overhead per DLH Standard ingredients for 1,000 lbs. of candles are:
Assume that SAF hires full-time employees who are paid a total of $6,500 per month. Input: Standard Mix Standard Cost per Pound
Beeswax 200 lbs. $1.00
REQUIRED: Synthetic wax 840 .20
Compute the spending and volume variances. Colors 7 2.00
Scents 3 6.00
vi
. Labor Variances - Missing Information Barfield 4e Totals 1,050 lbs.
For each of the independent cases, fill in the missing figures. Standard output 1,000 lbs.
Case A Case B Case C Case D
Units produced 800 ? 240 1,500 Price variances are charged off at the time of purchase. During January, the
Standard hours per unit 3 0.8 ? ? company was busy manufacturing red candles for Valentine's Day. Actual
Standard hours allowed ? 600 480 ? production then was:
Standard rate per hour $7 ? $9.50 $6 Input:
Actual hours worked 2,330 675 ? 4,875 Beeswax 4,100
Actual labor cost ? ? $4,560 $26,812.50 Synthetic wax 13,800
Labor rate variance $466 F $1,080 F $228 U ? Colors 2,200
Labor efficiency variance ? $780 U ? $2,250 U Scents 60
Totals 20,160 lbs.
vii
. Relationships – labor variances L & H 10e Actual output 18,500 lbs.
Each of the following independent situations relates to direct labor. Fill in the blanks.
A B C D Required:
Units produced 4,000 _____ 3,000 _____ Compute the materials mix variance and the materials yield variance. (Indicate whether each
Actual hours worked 1,900 8,400 _____ _____ variance is favorable or unfavorable and round to three decimal places.)
Standard hours for
production achieved 2,000 _____ _____ 6,000 ix
. Labor Rate, Mix & Yield Variances Barfield 4e
Standard hours per unit _____ 0.5 2 3 Righting Moment Inc. is a mechanical engineering firm. The firm employs both engineers and
Standard rate per hour $12 $10 $12 _____ draftspeople. The average hourly rates are $80 for engineers and $40 for draftspeople. For one
Actual labor cost _____ $83,600 _____ $24,500 project, the standard was set at 375 hours of engineer time and 625 hours of draftsperson time.
Rate variance $310U _____ $900U $300F Actual hours worked on this project were:
Efficiency variance _____ $2,000U $1,800F $800 U Engineers 500 hours at $85 per hour
Draftspeople 500 hours at $42.00 per hour
Determine the labor rate, mix, and yield variances for this project.

EXERCISES & PROBLEMS Page 2 of 15

#MASReview1stSEM2018 MAS04
Standard Costing

x
. Material & Labor Mix & Yield Variances Barfield 4e REQUIRED:
Pablo's three-topping 18-inch frozen pizzas are produced by Quintella Food Industries in Los Prepare a flexible budget for the Assembly Department at 70%, 80%, 90%, and 100% of
Angeles. The company uses a standard cost system. The three toppings (in addition to cheese) normal capacity.
for each pizza are onions, olives, and mushrooms. To some extent, discretion may be used to
xii
determine the actual mix of these toppings. The company has two classes of labor, and . Variable Overhead Variances
discretion may be used to determine the mix of the labor inputs. The standard cost card for a Heather’s Pillow Company manufactures pillows. The 20x4 operating budget is based on
pizza follows: production of 20,000 pillows with 0.5 machine-hours allowed per pillow. Variable
Onions: 3 ounces at $0.10 per ounce manufacturing overhead is anticipated to be $220,000.
Olives: 3 ounces at $0.35 per ounce Actual production for 20x4 was 18,000 pillows using 9,500 machine-hours.
Mushrooms: 3 ounces at $0.50 per ounce Actual variable costs were $20 per machine-hour.
Labor category 1: 5 minutes at $12 per hour
Labor category 2: 6 minutes at $8 per hour Required: Horngren
Calculate the variable overhead spending and efficiency variances.
During May 2001, Quintella produced 12,000 pizzas and used the following inputs:
xiii
Onions: 2,000 pounds . Standard cost relationships L & H 10e
Olives: 3,000 pounds Trombull Inc. makes gear casings. It has established the standard prices and quantities for a
Mushrooms: 2,000 pounds finished unit as follows:
Labor category 1: 1,300 hours Materials 4 pounds at $3.00 per pound
Labor category 2: 1,000 hours Direct labor 3 hours at $16 per hour
Variable overhead $6 per direct labor hour (DLH)
During the month there were no deviations from standards on material prices or labor rates.
A. Determine the material quantity, mix, and yield variances. Trombull also has fixed overhead of $1,000,000 per year.
B. Determine the labor efficiency, mix, and yield variances.
C. Prepare the journal entries to record the above mix and yield variances. Required:
Fill in the blanks in the following items.
xi
. Flexible Budget. Carter & Usry 1. The standard cost per unit of finished product is
At normal capacity, Boulder Products Corp. manufactures 10,000 trail bikes. At that level, unit A._____for materials.
variable costs for the Assembly Department are: B._____for direct labor.
Direct materials $30 C._____for variable overhead.
Direct labor 60 2. At 70,000 direct labor hours, total variable overhead cost should be_____.
Indirect labor 30 3. At 90,000 direct labor hours, production should be_____units.
Repairs and maintenance 15 4. If 100,000 pounds of materials are used, production should be_____units.
General factory expenses 15 5. At 60,000 direct labor hours, total materials used should be_____pounds.
$ 150 6. If 66,000 pounds of materials are used, total variable overhead cost should be_____and
Fixed expenses are $150,000 for indirect labor, $175,000 for repairs and maintenance, and total labor cost should be_____.
$80,000 for general factory.

EXERCISES & PROBLEMS Page 3 of 15

#MASReview1stSEM2018 MAS04
Standard Costing

xiv xvii
. Labor & Variable Overhead Variances – Missing Elements L&H . Four-Way Variance G&N
Ralph Inc. had the following variances for the most recent month: Flick Company uses a standard cost system in which manufacturing overhead is applied to
Direct Labor Rate Variance $14,560 U units of product on the basis of direct labor-hours. The company's total budgeted variable and
Direct Labor Efficiency Variance $ 3,660 U fixed manufacturing overhead costs at the denominator level of activity are $20,000 for
Variable Overhead Spending Variance $12,320 F variable overhead and $30,000 for fixed overhead. The predetermined overhead rate,
Other information included: actual wages paid $105,560; materials purchased $124,860; including both fixed and variable components, is $2.50 per direct labor-hour. The standards
standards per unit were 2 labor hours at $5 per hour and variable overhead at $6 per hour. call for two direct labor-hours per unit of output produced. Last year, the company produced
11,500 units of product and worked 22,000 direct labor-hours. Actual costs were $22,500 for
Required: variable overhead and $31,000 for fixed overhead.
a. Find the units produced.
b. Find the standard labor hours. REQUIRED: (M)
c. Find the actual labor hours. a. What is the denominator level of activity?
d. Find the variable overhead efficiency variance. b. What were the standard hours allowed for the output last year?
e. Find the actual variable overhead. c. What was the variable overhead spending variance?
d. What was the variable overhead efficiency variance?
xv
. Two-Way, Three-Way & Four-Way Overhead Variances Barfield 4e e. What was the fixed overhead budget variance?
The manager of the Automobile Registration Division of the state of Nebraska has f. What was the fixed overhead volume variance?
determined that it typically takes 30 minutes for the department's employees to register a
xviii
new car. The following predetermined overhead costs are applicable to Lancaster County. . Four-Way Variance Fixed Overhead Budget Variance G&N
Fixed overhead, computed on an estimated 4,000 direct labor hours, is $8 per DLH. Tracton Corporation uses a standard costing system in which manufacturing overhead costs
Variable overhead is estimated at $3 per DLH. are applied to products on the basis of machine time.
During July 2001, 7,600 cars were registered in Lancaster County, taking 3,700 direct
labor hours. For the month, variable overhead was $10,730 and fixed overhead was REQUIRED:
$29,950. a. Several numbers and labels have been omitted from the analysis of fixed overhead below.
A. Compute overhead variances using a four-variance approach. Supply the missing numbers and labels.
B. Compute overhead variances using a three-variance approach. Fixed Overhead Cost
C. Compute overhead variances using a two-variance approach. Flexible Budget Fixed Applied to Work in Process
? Overhead Cost 302,100 MH x $1.08
xvi
. Three-way Variance - Missing data Barfield 4e $ __?____ $ __?____ $ __?____
The flexible budget formula for total overhead for the Windlass Corporation is $720,000 + $16 Budget Variance, ?
per direct labor hour. The combined overhead rate is $40 per direct labor hour. The following $1,880 U $ __?____
data have been recorded for the year. Total variance, $388 F
Actual total overhead $1,160,000 b. Suppose that 6 minutes of machine time is standard per unit of production. How many
Total overhead spending variance $ 32,000 U units were actually produced in the situation above?
Volume variance $ 48,000 U c. Again suppose that 6 minutes of machine time is standard per unit of production. How
Use a three-variance approach to determine the following: many units of production were assumed when the predetermined application rate for fixed
A. Number of standard hours allowed overhead was established?
B. Actual direct labor hours worked
EXERCISES & PROBLEMS Page 4 of 15
#MASReview1stSEM2018 MAS04
Standard Costing

Compute all variable cost variances.

xix
. Four-Way Variance – Missing Elements Horngren
McKenna Company manufactured 1,000 units during April with a total overhead budget of
$12,400. However, while manufacturing the 1,000 units the microcomputer that contained the
month's cost information broke down. With the computer out of commission, the accountant
has been unable to complete the variance analysis report. The information missing from the
report is lettered in the following set of data:
Variable overhead:
Standard cost per unit: 0.4 labor hour at $4 per hour
Actual costs: $2,100 for 376 hours
Flexible budget: a
Total flexible-budget variance: b
Variable overhead spending variance: c
Variable overhead efficiency variance: d

Fixed overhead:
Budgeted costs: e
Actual costs: f
Flexible-budget variance: $500 favorable

Required:
Compute the missing elements in the report represented by the lettered items.
xx
. Materials, Labor & Variable Overhead Variances L & H 10e
Flexlube makes engine additives. Standard costs for a gallon of its major product follow, along
with actual results for March.
Materials, 5 pounds at $6 per pound $30
Direct labor at $12 per hour 24
Variable overhead at $6 per DLH 12
Total standard variable cost $66
Actual results for March:
A. Production was 1,200 gallons.
B. Material purchases were 3,200 pounds at $5.90 per pound.
C. The company used 6,200 pounds of materials in production.
D. Direct laborers worked 2,250 hours at $12.10, earning $27,225.
E. Variable overhead was $13,800.

Required:
EXERCISES & PROBLEMS Page 5 of 15
#MASReview1stSEM2018 MAS04
Standard Costing

xxi
. Materials, Labor, Variable Overhead Variances – Relationships among costs L&H F. Number of units manufactured
10e
Fill in the blanks.
1. Standard variable costs per unit:
A. Materials 4 pounds @ $_____ $_____
B. Direct labor_____ hours @ $12.00 $6.00
C. Variable overhead $8 per DLH $_____
2. Production 8,000 units
3. Materials purchases, 32,000 pounds $62,000
4. Materials used at standard prices, 31,200 pounds $_____
5. Direct labor, actual_____ hours $47,200
6. Material price variance $2,000 U
7. Material use variance $_____
8. Direct labor rate variance $2,000 F
9. Direct labor efficiency variance $_____
10. Variable overhead spending variance $1,500 F
11. Variable overhead efficiency variance $_____
12. Actual variable overhead cost $_____
xxii
. Labor Variance & Four-Way Variance – Missing Data Barfield 4e
ATTENTION Products manufactures a neon lamp sign with the following standard conversion
costs:
Direct labor (4 hours @ $12 per hour) $ 48
Factory overhead (10,000 DLH expected capacity)
Variable (4 hours @ $16 per hour) 64
Fixed (4 hours @ $8 per hour) 32
Total unit conversion cost $144
The following data are given for December, when 8,000 standard labor hours were used:
Labor rate variance $ 4,500 U
Labor efficiency variance 12,000 U
Actual variable overhead 153,000
Actual fixed overhead 78,000
Calculate the answers for the following unknowns:
A. Total applied factory overhead
B. Volume variance
C. Variable overhead spending variance
D. Variable overhead efficiency variance
E. Total actual overhead
EXERCISES & PROBLEMS Page 6 of 15
#MASReview1stSEM2018 MAS04
Standard Costing

SOLUTIONS

EXERCISES & PROBLEMS Page 7 of 15

i
. Standard-Setting
1. P1.90 (P115 x 0.98 + P1.30) ÷ 15 ÷ 4 = P1.90
2. 8.20 quarts (7.6 ÷ 0.95) x 41/40 = 8.20
3. P15.58 8.20 quarts x P1.90/quart
ii
. Standard Cost Card
QuantityUnit CostAmountSalex9.6 ÷ 0.8 x 6/5 14.40P1.5021.60Nyclyn12 ÷ 0.8 x 6/5 18.002.8050.40Protet5 x
6/56.003.0018.00Direct labor8 ÷ 7 x 35/60 x 6/50.809.007.20Total97.20
iii
. Materials & Labor Variances
Material Purchase Price and Quantity Variances
Material price variance:100,000 x $2.50 =$250,000100,000 x $2.60 = 260,000$ 10,000FMaterial quantity variance:95,625 x
$2.60 =$248,62589,250 x $2.60 = 232,050$ 16,575U
Labor Rate and Efficiency Variance
Labor rate variance:122,400 x $8.35 =$1,022,040122,400 x $8.50 = 1,040,400$ 18,360FLabor efficiency variance:122,400
x $8.50 =$1,040,400127,500 x $8.50 = 1,083,750$ 43,350F
iv
. Labor Rate & Efficiency Variance
2,400 x $10.25$24,6002,400 x $10.00 24,000Price variance$ 600U2,400 x $10.00$24,000(1,500 x 2) x
$10.00 30,000Efficiency variance$ 6,000F
v
. Labor Spending & Volume Variance
Actual labor cost$6,750Budgeted labor cost 6,500Spending variance$ 250UBudgeted labor cost$6,500Standard labor cost
(800 x 2) x $58,000Volume variance$1,500F
vi
. Missing information for materials and labor
Case A Case B Case C Case D
Units produced 800 750 240 1,500
Std. hrs. per unit 3 .8 2.0 3
Std. hrs allowed 2,400 600 480 4,500
Std. rate per hour $7 $10.40 $9.50 $6
Actual hrs. worked 2,330 675 456 4,875
Actual labor cost $15,844 $5,940 $4,560 $26,812.50
Labor rate variance $466F $1,080F $228U $2,437.50F
Labor efficiency variance $490F $780U $228F $2,250U

Case A:
Std. hrs. allowed = 800 × 3 = 2,400
LRV = AQ(AP - SP)
-$466 = 2,330(AP - $7)
-$466 = 2,330AP - $16,310
$15,844 = 2,330AP
$6.80 = AP

Actual labor cost = $6.80 × 2,330 = $15,844

LEV = SP(AQ - SQ)

LEV = $7(2,330 - 2,400) = $7(70) = $490 F

Case B:
Units produced = 600 ÷ 0.8 = 750
LEV = SP(AQ - SQ)
$780 = SP(600 - 675)
$780 = SP(75)
$10.40 = SP

LRV = AQ(AP - SP)

-$1,080 = 675(AP - $10.40)
-$1,080 = 675AP - $7,020
$5,940 = 675AP
$8.80 = AP
Actual labor cost = $8.80 × 675 = $5,940

Case C:
Std. hrs. allowed = 480 ÷ 240 = 2

LRV = AQ[(4,560 ÷ AQ) - SP]

$228 = AQ[($4,560 ÷ AQ) - $9.50)
$228 = $4,560 - $9.50AQ
-$4,332 = -$9.50AQ
456 = AQ

LEV = SP(AQ - SQ)

 LEV = $9.50(466 - 480) = $9.50(-24) = $228 F
Case D:
Actual labor rate = $26,812.50 ÷ 4,875 = $5.50
LRV = AQ(AP - SP)
LRV = 4,875($5.50 - $6) = $2,437.50 F

LEV = SP(AQ - SQ)

$2,250 = $6(4,875 - SQ)
$2,250 = $29,250 - $6SQ
-$27,000 = -$6SQ
4,500 = SQ

Std. hrs. per unit = 4,500 ÷ 1,500 = 3

vii
. Relationships--Labor Variances (20 minutes)
(a) 0.50 standard hours, 2,000 total standard hours/4,000 units produced
$23,110 actual labor cost, 1,900 actual hours x $12 standard rate + $310 unfavorable rate variance
$1,200 favorable efficiency variance, 2,000 standard hours - 1,900 actual hours = 100 hours under standard; 100 x
$12 = $1,200

(b) $400 favorable rate variance, 8,400 actual hours x $10 = $84,000 budgeted cost less $83,600 actual cost = $400
8,200 standard hours, 8,400 actual hours - ($2,000 unfavorable efficiency variance/$10) standard rate per hour. Or,
$2,000/$10 = 200 hours over standard, so that 8,400 actual hours are 200 over standard.
16,400 units produced, 8,200 standard hours/0.50 standard hours per unit

(c) 6,000 standard hours, 3,000 units x 2 hours per unit

5,850 actual hours, efficiency variance of $1,800F/$12 standard rate = 150 hours below standard; 6,000 standard -
150 = 5,850
$71,100 actual labor cost (5,850 actual hours x $12 = $70,200 budget for 5,850 hours, plus $900 unfavorable rate
variance = $71,100)

(d) 2,000 units produced, 6,000 standard hours/3 hours per unit
$4 standard rate, $24,500 actual cost + $300 favorable rate variance - $800 unfavorable efficiency variance =
$24,000 standard cost for 6,000 standard hours. $24,000/6,000 = $4
6,200 actual hours, 6,000 standard hours + ($800 unfavorable efficiency variance/$4 standard rate). Or, 200 hours
over standard, from $800/$4.
viii
. Materials Mix & Yield Variance
Actual quantities at individual standard materials cost$11,620(1)Actual input quantity at weighted average of standard
materials cost (20,160 x $.381)(2)
$7,681 Materials mix variance$3,939 unfav.Actual input quantity at weighted average of standard materials cost (20,160 x
$.381)(2)
$7,681Actual output quantity at standard materials cost per pound of output (18,500 lbs. x $.40)(3)
7,400Materials yield variance$281unfav.
(1) Beeswax4,100lbs.@ $1 per lb.$4,100 Synthetic wax13,800lbs.@ $.20 per lb.2,760Colors2,200lbs.@ $2 per lb.4,400
Scents 60lbs.@ $6 per lb.36020,160lbs.$ 11,620
(2)Weighted average standard materials costs: Beeswax200lbs.@ $1$200Synthetic wax840lbs.@ $.20168 Colors7lbs.@
$214 Scents 3lbs.@ $6181,050lbs.$400
$400 Standard materials cost $400
(3) Standard materials cost = = $0.381/pound = = $0.40/lb. cost/unit of output
1,050 lbs. Stanard output 1, 000 lbs.
ix
. Labor Rate, Mix & Yield Variances
Let E represent engineers, and D represent draftspeople
Standard Mix = 3/8 E and 5/8 D
Actual Mix = 50% E and 50% D
Standard Quantity (Hours Allowed) = 1,000 hrs.

Actual cost of E = $85 × 500 = $42,500

Actual cost of Class D = $42 × 500 = $21,000

Standard rate; actual mix & quantity of E = $80 × 500 = $40,000

Standard rate; actual mix & quantity of D = $40 × 500 = $20,000

Standard rate & mix; actual quantity of E = $80 × 3/8 × 1,000 = $30,000
Standard rate & mix; actual quantity of D = $40 × 5/8 × 1,000 = $25,000

Standard for E = $80 × 3/8 × 1,000 = $30,000

Standard for D = $40 × 5/8 × 1,000 = $25,000

AQ x AP ($42,500 + $21,000) $63,500

 AQ x SP ($30,000 + $20,00) 60,000
Labor Rate Variance $ 3,500 U

AQ x SP ($30,000 + $20,00) $60,000

AQ x WASP 55,000
Labor Mix Variance $ 5,000 U

AQ x WASP $55,000
SQ x SP ($30,000 + $25,000 55,000
Labor Yield Variance $ - .
x
. Material & Labor Mix & Yield Variances
a. Standard mix Actual mix
Onions 1/3 2/7
Olives 1/3 3/7
Mushrooms 1/3 2/7

Standard quantity =(12,000 units × 9 ozs.) ÷ 16 oz. per lb. = 6,750 lbs.

Std. cost; actual quantity & mix

Onions 2,000 × $1.60 = $ 3,200
Olives 3,000 × $5.60 = 16,800
Mushrooms 2,000 × $8.00 = 16,000
$36,000
Std. cost & mix; actual quantity
Onions 1/3 × 7,000 × $1.60 = $ 3,733
Olives 1/3 × 7,000 × $5.60 = 13,067
Mushrooms 1/3 × 7,000 × $8.00 = 18,667
$35,467
Standard cost, quantity, mix
Onions 1/3 × 6,750 × $1.60 = $ 3,600
Olives 1/3 × 6,750 × $5.60 = 12,600
Mushrooms 1/3 × 6,750 × $8.00 = 18,000
$34,200

AQ x SP $36,000
AQ x WASP 35,467
Materials Mix Variance $ 533 U

AQ x WASP $35,467
SQ x SP 34,200
Materials Yield Variance 1,267 U
Material Quantity Variance $1,800 U

b. Standard mix Actual mix

Labor 1 5/11 13/23
Labor 2 6/11 10/23

Standard hours allowed = (12,000 × 11 minutes) ÷ 60 minutes per hour = 2,200 hours

Std. rate; actual mix & hours:

#1 = 1,300 × $12 = $15,600
#2 = 1,000 × $8 = 8,000
$23,600

Std. rate & mix; actual hours

#1 = 5/11 × 2,300 × $12 = $12,545
#2 = 6/11 × 2,300 × $8 = 10,036
$22,581

Standard rate, mix, hours

#1 = 5/11 × 2,200 × $12 = $12,000
#2 = 6/11 × 2,200 × $8 = 9,600
$21,600

AH x SR $23,600
AH x WASR 22,581
Labor Mix Variance $1,019 U

AH x WASR $22,581
 SH x SR 21,600
Labor Yield Variance 981 U
Labor Efficiency Variance $2,000 U

c. Work in Process 34,200.00

Material Mix Variance 533.33
Material Yield Variance 1,266.67
Raw Material - Onions 3,200
Raw Material - Olives 16,800
Raw Material – Mushrooms 16,000

Work in Process 21,600

Labor Mix Variance 1,020
Labor Yield Variance 980
Wages Payable 23,600
xi
. Flexible Budget.
Assembly DepartmentFlexible Budget Percentage of capacity70%80%90%100%Units7,0008,0009,000 10,000Variable
cost:Direct materials$210,000$240,000$270,000$300,000Direct labor420,000480,000540,000600,000Indirect
labor210,000240,000270,000300,000Repairs and maintenance105,000120,000135,000150,000General factory
expenses105,000120,000135,000150,000Total variable cost$1,050,000$1,200,000$1,350,000$1,500,000 Fixed cost:Indirect
labor150,000150,000150,000150,000Repairs and maintenance175,000175,000175,000175,000General
factory80,00080,00080,000 80,000Total fixed cost$ 405,000$ 405,000$ 405,000$ 405,000Total cost$ 1,455,000$
1,605,000$1,755,000$ 1,905,000
xii
. Variable Overhead Variances
Budgeted variable overhead per hour = $220,000/(20,000 x 0.5) machine-hours = $22
Spending variance = ($22 - $20) x 9,500 = $19,000 favorable
Efficiency variance = [9,500 - (20,000 x 0.5)] x $22 = $11,000 favorable
xiii
. Standard Cost Relationships (15-20 minutes)
This basic exercise deals with the concept of standards as "should be" quantities and costs. It also treats relationships.
1. (a) $12 (4 pounds x $3)
(b) $48 (3 hours x $16)
(c) $18 (3 hours x $6)

2. $420,000 70,000 x $6

3. 30,000 units (90,000 hours/3 hours per unit)

4. 25,000 units (100,000 pounds/4 pounds per unit)

5. 80,000 pounds (60,000 hours/3 hours per unit) = 20,000 units; 4 pounds x 20,000 units = 80,000 pounds

6. $297,000 variable overhead 66,000 lbs/4 lbs per unit = 16,500 units, 16,500 units x 3 hours per unit = 49,500
hours x $6 per hour = $297,000 variable overhead
$792,000 labor, 49,500 hours x $16 per hour = $792,000 labor
xiv
. Labor & Variable Overhead Variances – Missing Elements
a. 8,734 units ($105,560 - 14,560 - 3,660) / (2 x $5)
b. 17,468 SH 8,734 x 2
c. 18,200 AH ($105,560 - 14,560) / $5
d. $4,392 U (18,200 - 17,468) x 6
e. $96,880 (18,200 x $6) - $12,320
xv
. Computation of all overhead variances
a. Four-way Variance
Variable Overhead:
Actual $10,370
Budget $3 x 3,700 11,100
VOH Spending Variance $370 F

Budget $3 x 3,700 $11,100

Applied $3 x 3,800 11,400
VOH Efficiency Variance 300 F
Total VOH Variance $670 F

Fixed Overhead:
Actual $29,950
Budget 32,000
FOH Spending Variance $2,050 F
 Budget $32,000
Applied $8 x 3,800 30,400
Volume Variance 1,600 U
Total FOH Variance $ 450 F

b. Three-Way Variance
Actual ($10,730 + $29,950) $40,680
Budget at Actual [$32,000 + ($3 x 3,700)] 43,100
Spending Variance $2,420 F

Budget at Actual $43,100

Budget at Standard [32,000 x ($3 x 3,800)] 43,400
Efficiency Variance 300 F

Budget at Standard $43,400

Applied (3,800 x $11) 41,800
Volume Variance 1,600 U
Total Variance $1,120 F

c. Two-way Variance
Actual ($10,730 + $29,950) $40,680
Budget at Standard [32,000 x ($3 x 3,800)] 43,400
Budget Variance 2,720 F

Budget at Standard $43,400

Applied (3,800 x $11) 41,800
Volume Variance 1,600 U
Total Variance $1,120 F
xvi
. Missing data, three-variance approach
a. Actual $1,160,000
Budget at Actual $720,000 + ($16 x 28,000) 1,128,000
OH Spending Variance $ 32,000 U

Budget at Actual $720,000 + ($16 x 28,000) $1,128,000

Budget at Standard 1,168,000
OH Efficiency Variance $ 40,000 F

Budget at Standard $1,168,000

Applied 1,120,000
Volume Variance $ 48,000 U

Explanation:
The fixed overhead rate per hour is $24 ($40 combined - $16 variable from the flexible budget formula). Budgeted
OH of $720,000 divided by the $24 FOH rate = expected annual capacity of 30,000 hours. Dividing the volume
variance of $48,000 by the $24 FOH rate gives 2,000 hours; this is the difference between the standard hours and
the expected annual capacity in hours. Since the volume variance was unfavorable, standard hours are lower than
expected annual capacity. SH = 28,000.

b. Spending variance = Actual - (Budget at Input Hrs)

$32,000 U = $1,160,000 - $1,128,000
Budget at Input Hrs = (Budgeted VOH @ Act. Hrs.) + Budgeted FOH
$1,128,000 = ($16 per hr. × Actual Hrs.) + $720,000
$408,000 = $16 × Actual Hrs
25,500 = Actual Hours
xvii
. Four-Way Variance
a.
Total overhead at the denominator level of activity (a)$50,000Predetermined overhead rate (b)$2.50/DLHDenominator
level of activity (a)  (b)20,000 DLHsb.
Actual output11,500 unitsStandard DLH per unitx 2 DLH per unitStandard DLHs allowed23,000 DLHs
c. Computation of variable overhead spending variance:
Spending variance = (AH x AR) - (AH x SR)
= ($22,500) - (22,000 DLHs x $1.00*)
= $500 U
* $20,000 ÷ 20,000 DLHs = $1.00

d. Computation of variable overhead efficiency variance:

Spending variance = (AH x SR) - (SH x SR)
 = (22,000 DLHs x $1.00) – (23,000 DLHs* x $1.00)
= $1,000 F
* 2 DLHs per unit x 11,500 units = 23,000 DLHs

e. Computation of the fixed overhead budget variance:

Budget variance = Actual fixed overhead – Flexible budget fixed overhead
= $31,000 - $30,000
= $1,000 U

f. Computation of the fixed overhead volume variance:

Volume variance = Fixed portion of predetermined overhead rate x (Denominator hours – Standard hours allowed)
= $1.50* (20,000 DLH - 23,000 DLH)
= $4,500 F
*$30,000 ÷ 20,000 DLH = $1.50
xviii
. Four-Way Variance Fixed Overhead Budget Variance
a.

Actual Fixed Overhead Cost

$325,880
Flexible Budget Fixed Overhead Cost
$324,000Fixed Overhead Cost Applied to Work in Process
302,100 MH x $1.08
$326,268Budget Variance,
$1,880 UVolume Variance
$2,268 FTotal variance, $388 F
Computations -- in this order:

(Note: When used in the below algebraic formulas, favorable variances are negative and favorable variances are
positive.)

Volume variance = Total variance - Budget variance

= $388 F - $1,880 U
= -$388 - $1,880
= -$2,268
= $2,268 F

Fixed overhead applied = 302,100 MH X $1.08

= $326,268

Flexible budget fixed overhead = Fixed overhead applied - Volume variance

= $326,268 - $2,268 F
= $326,268 + $2,268
= $324,000

Actual fixed overhead = Fixed overhead applied + Total variance

= $326,268 + $388 F
= $326,268 - $388
= $325,880

b. Standard MH allowed for production, . 302,100

Standard hours allowed per unit ÷ 0.1
Units produced 3,021,000

c. Fixed overhead in flexible budget, (a) above $ 324,000

Standard cost per machine hour ÷ $1.08
MH assumed in flexible budget 300,000
Standard hours allowed per unit ÷ 0.1
Units assumed in flexible budget 3,000,000
xix
. Four-Way Variance – Missing Elements
a. 1,000 x 0.40 x $4 = $1,600
b. $2,100 - $1,600 = $500 unfavorable
c. $2,100 - (376 x $4) = $596 unfavorable
d. $1,504 - $1,600 = $96 favorable
e. $12,400 - $1,600 = $10,800
f. $10,800 - $500 favorable = $10,300
xx
. Basic Variance Analysis (15 minutes)
 This exercise is straightforward, but some students will have trouble with materials because the quantity used exceeds
the quantity purchased. Despite their continual exposure to inventories, students sometimes miss the point that
purchases can well be less than use. Some students also might have difficulty determining standard labor hours. They
do not have to make the calculation ($24/$12 = 2 standard hours) to complete the assignment. We also give the
materials variances in a different format. You might wish to show students that format is not the critical element.

Materials variances
Price variance:
Actual cost of purchases, $5.90 x 3,200 $18,880
Budgeted cost, 3,200 pounds at $6 19,200
Favorable variance $ 320 F
Use variance:
Standard cost of materials used, 6,200 x $6 $37,200
Standard cost of standard quantity, 1,200 x 5 x $6 36,000
Unfavorable use variance $ 1,200 U

Labor variances
Actual Cost $27,225
Budget for 2,250 hours ($12 x 2,250) 27,000
Rate variance $ 22 5 U

Budget for 2,250 hours $27,000

Budget for 1,200 units (1,200 x 2 x $12 or 1,200 x $24) 28,800
Efficiency variance $ 1,800 F

Variable overhead variances

Actual Cost $13,800
Budget for 2,250 Hours ($6 x 2,250) 13,500
Budget Variance $ 300 U

Budget for 2,250 Hours $13,500

Budget for 1,200 Units 14,400
Efficiency Variance $ 900 F

This exercise lends itself to using the differences between standard and actual rates to determine price/rate variances.

Material price variance = ($6.00 - $5.90) x 3,200 $ 320 F

Labor rate variance = ($12.00 - $12.10) x 2,250 $ 225 U
xxi
. Variances--Relationships Among Costs (30 minutes)
1. (a) $2.00 per pound, $8.00 per unit of product.
Actual material cost (from 3) $62,000
Plus favorable material price variance (from 6) 2,000
Standard material cost for the 32,000 pounds purchased $64,000
Divided by the number of pounds purchased (from 3) 32,000
Equals standard cost per pound $ 2.00
Times the number of pounds in each finished unit (from 1a) 4
Equals standard material cost per pound $ 8.00

(b) 0.50 hours

Standard labor cost per unit (from 1b) $ 6.00
Divided by standard cost per hour (from 1b) $12.00
Equals standard number of hours per finished unit 0.50

(c) $4.00 per unit

Standard rate per hour, given $8.00
Times number of hours per unit (from 1b, computed above) 0.50
Equals standard variable overhead per unit $4.00

4. $62,400
Number of pounds of material used, given 31,200
Times standard material cost per pounds (from 1a above) $2
Equals material used at standard cost $62,400

5. 4,100 hours
Total actual labor cost $47,200
Plus favorable labor rate variance (from 8) 2,000
Budgeted labor cost for actual hours $49,200
Divided by standard labor rate per hour $12
 Equals actual labor hours 4,100

7. $1,600 favorable
Material used, at standard rates (computed in 4 above) $62,400
Standard use, 8,000 x 4 pounds per unit x $2 per pound 64,000
Favorable material use variance $ 1,600

9. $1,200 unfavorable (100 hours x $12)

Standard number of hours required to produce 8,000 units
8,000 units x 0.50 hours per unit (computed in 1b) 4,000
Actual hours worked (computed in 5) 4,100
Hours over standard 100

11. $800 unfavorable

Hours over standard (from 9) 100
Times standard variable overhead cost per hour (from 1c) $8
Equals favorable variance overhead efficiency variance $800

12. $31,300
Standard variable overhead at standard rates
8,000 units x $4 per unit (computed in 1c) $32,000
Plus unfavorable efficiency variance (from 11) 800
Budget for actual hours, = 4,100 x $8 32,800
Less favorable spending variance (from 10) 1,500
Actual overhead $31,300
A shorter solution is to go immediately to budgeted variable overhead for 4,100 hours, $32,800 (4,100 x $8) and
subtract the $1,500 favorable budget variance.
xxii
. Variance analysis with unknowns
(The items marked with an * were given.)
Actual Labor Cost $112,500
Budgeted Labor Cost ($12 x 9,000) 108,000
Labor Rate Variance 4,500 U*

Budgeted Labor Cost ($12 x 9,000) 108,000

Applied Labor Cost ($12 x 8,000) 96,000
12,000 U*

Budgeted FOH = 10,000 DLH expected capacity × $8 FOH rate = $80,000

Actual OH ($153,000 + $78,000) $231,000

Budget at actual labor hours ($16 x 9,000) + 80,000 224,000
Spending Variance $ 7,000 U

Budget at actual labor hours ($16 x 9,000) + 80,000 $224,000

Budget at standard labor hours ($16 x 8,000) + 80,000 208,000
Efficiency Variance $ 16,000 U

Budget at standard labor hours ($16 x 8,000) + 80,000 $208,000

Applied Overhead [8,000 x ($16 + $8) 192,000
Volume Variance $ 16,000 U

a. Total applied overhead = $192,000

b. Volume variance = $16,000 U
c. VOH spending variance = $153,000 - $144,000 = $9,000 U
d. VOH efficiency variance = $16,000 U
e. Total actual overhead = $231,000
f. Number of units manufactured = 8,000 ÷ 4 = 2,000