Standard Costing - Problem Solutions

EXERCISE 10-32 (30 MINUTES)
DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES
ACTUAL MATERIAL COST
Actual
Actual

Quantity
Price
6,000
$7.30
pounds

per
purchased
pound

Actual
Quantity
6,000
pounds
purchased

$43,800




Standard
Price
$7.00
per
pound

STANDARD MATERIAL COST
Standard
Standard

Quantity
Price
4,000
$7.00
pounds

per
allowed
pound

$42,000
$1,800 Unfavorable
Direct-material
price variance
4,200
pounds
used



$28,000

$7.00
per
pound

$29,400
$1,400
Unfavorable
Direct-material
quantity
variance

DIRECT-LABOR RATE AND EFFICIENCY VARIANCES
ACTUAL LABOR COST
Actual
Hours
6,450
hours
used





STANDARD LABOR COST

Actual
Rate

Actual
Hours

$18.10
per
hour

6,450
hours
used

$116,745

 Standard
Rate


Standard
Hours

$18.00
per
hour

6,000
hours
allowed

$116,100

$108,000

$645 Unfavorable

$8,100 Unfavorable

Direct-labor
rate variance

Direct-labor
efficiency variance
$8,745 Unfavorable
Direct-labor variance





EXERCISE 10-34
Good output

= (7/8)  input = .875  input

Good output
.875

= standard allowed input

4,200 pounds
.875

= 4,800 pounds of input

The standard allowed input quantity in May was 4,800 pounds.
EXERCISE 10-35

Standard price or rate per unit of input............................

Direct

Direct

Labor

Material

$20 per hre

$8 per lb

Standard quantity per unit of output................................ 4 hrs per unitf

2.75 lbs per unitc

Actual quantity used per unit of output...........................

3.5 hrs

3 lbs per unita

Actual price or rate per unit of input................................

$21 per hr

$7 per lb

Actual output......................................................................

10,000 units

10,000 units

Direct-material price variance...........................................

—

$30,000 F

Direct-material quantity variance.....................................

—

$20,000 Ub

Total of direct-material variances.....................................

—

$10,000 F

Direct-labor rate variance..................................................

$ 35,000 Ud

—

Direct-labor efficiency variance........................................

$100,000 F

—

Total of direct-labor variances..........................................

$ 65,000 F

—

Explanatory notes:
a.

Direct-material price variance = PQ(AP – SP)
$30,000 F = PQ($7 – $8)
PQ = 30,000 lbs
Actual quantity used = quantity purchased
AQ = PQ = 30,000 lbs
Actual quantity per unit of output =

b.

30,000 lbs
 3 lbs per unit
10,000 units

Total direct-material variance = price variance + quantity variance
$10,000 F = $30,000 F + quantity variance
Quantity variance = $20,000 U

c.

Direct-material quantity variance = SP(AQ – SQ)
$20,000 U = $8(30,000 – SQ)
SQ = 27,500 lbs
Standard quantity per unit =

d.

27,500 lbs
 2.75 lbs per unit
10,000 units

Total direct-labor variance = rate variance + efficiency variance
$65,000 F = rate variance + $100,000 F

Rate variance = $35,000 U
e.

AH = 10,000 units  3.5 hrs per unit = 35,000 hrs
Direct-labor rate variance = AH(AR – SR)
$35,000 U = 35,000($21 – SR)
SR = $20

f.

Direct-labor efficiency variance = SR(AH – SH)
$100,000 F = $20 (35,000 – SH)
SH = 40,000 hrs
Standard hrs per unit = 40,000 hrs/10,000 units
= 4 hrs per unit

PROBLEM 10-39
1.

Schedule of standard production costs:
NEW JERSEY VALVE COMPANY
CAMDEN PLANT
SCHEDULE OF STANDARD PRODUCTION COSTS
BASED ON 7,800 UNITS
FOR THE MONTH OF JANUARY
Standard
Costs

Direct material...................................................... 7,800 units  3 lbs.  $2.50

$ 58,500

Direct labor........................................................... 7,800 units  5 hrs.  $15.00

585,000

Total standard production costs.........................
2.

$643,500

Variances:
a.

Direct-material price variance

= (PQ  AP) – (PQ  SP)
= (25,000  $2.60) – (25,000  $2.50)
= $2,500 Unfavorable

b.

Direct-material quantity variance = (AQ  SP) – (SQ  SP)
= (23,100  $2.50) – (23,400*  $2.50)
= $750 Favorable
*7,800 units  3 lbs. per unit = 23,400 lb.

c.

Direct-labor rate variance = (AH  AR) – (AH  SR)
= (40,100  $14.60) – (40,100  $15.00)
= $16,040 Favorable

d.

Direct-labor efficiency variance

= (AH  SR) – (SH  SR)
= (40,100  $15.00) – (39,000*  $15.00)
= $16,500 Unfavorable

*7,800 units  5 hours per unit = 39,000 hr.

PROBLEM 10-45
1.

Direct-material price variance

= (PQ  AP) – (PQ  SP)
= $304,000 – (160,000  $1.75)
= $304,000 – $280,000
= $24,000 Unfavorable

2.

Direct-material quantity variance

= SP(AQ – SQ)
= $1.75(142,500 – 152,000*)
= $16,625 Favorable

*Standard quantity allowed = 19,000 units  8 lbs. per unit = 152,000 lbs.
3.

Direct-labor rate variance

= (AH  AR) – (AH  SR)
= $37,800* – (5,000  $8.00)
= $2,200 Favorable

*90%  $42,000 = $37,800
4.

Direct-labor efficiency variance = SR(AH – SH)
= $8.00(5,000 – 4,750*)

= $2,000 Unfavorable
*19,000 units  .25 hour per unit = 4,750 hours

PROBLEM 10-50
1.

a.

Responsibility for setting standards:
Materials:
The development of standard prices for material is primarily the responsibility of
the materials manager.
Operating departmental managers and engineers should be involved in setting
standards for material quantities.
Labor:
The personnel manager or payroll manager would be involved in setting
standard labor rates.
Operating department managers with input from production supervisors and
engineers would be involved in setting standards for labor usage.

b.

The factors that should be considered in establishing material standards include
the following:
 Price studies, including expected general economic conditions, industry
prospects, demand for the materials, and market conditions.
 Product specifications from descriptions, drawings, and blueprints.
 Past records on raw-material cost, usage, waste, and scrap.
Factors in establishing labor standards:
 Engineering studies of the time required to complete various tasks.
 Learning.
 Expected wage rates.
 Expected labor mix (e.g., skilled versus unskilled).

2.

The basis for assignment of responsibility under a standard-costing system is
controllability. Judgments about whether departments or department managers are
performing efficiently should not be affected by items over which they have no
control.
The 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. Some variances, however, are interdependent and responsibility
must be shared.