MANAGEMENT ACCOUNTING
CONCEPTS AND TECHNIQUES
By Dennis Caplan, University
at Albany (State University of New York)
CHAPTER
7: Cost Variances for Direct Materials
and Labor
Exercises
and Problems:
7-1: Following is selected information about the Hopi Popcorn company. All
information represents total amounts, not per unit amounts.
|
|
Static Budget |
Actual Results |
|
Units made and sold Direct materials costs Direct materials used in
production |
100 $5,000 1,000 pounds |
50 $2,700 450 pounds |
Hopi had no beginning or ending inventory of either
finished product or raw materials.
Required:
A) Calculate
the direct materials price variance. Indicate whether it is favorable or
unfavorable.
B) Calculate
the direct materials usage (quantity) variance. Indicate whether it is
favorable or unfavorable.
7-2: Assume the following information for the year:
|
|
Budget |
Actual |
|
Wage rate Direct labor hours per unit Units produced |
$10 5 100 |
$12 7 110 |
Required:
A) Calculate the direct labor wage rate variance (i.e., the price variance). Is it favorable or unfavorable?
B) Calculate the direct labor efficiency variance. Is it favorable or unfavorable?
C) Calculate the flexible budget variance for direct labor. Is it favorable or unfavorable?
7-3: The Plutonium Fruitcake Company’s production level (units of output) and direct materials prices (cost per pound) in 1957 were exactly as planned in the static budget for that year, but the company used more pounds of direct materials per unit of output than planned.
Given this set of circumstances, which of the following two statements can be made with certainty?
(I) There was an unfavorable flexible budget variance for direct materials.
(II) There was an unfavorable static budget variance for direct materials.
(A) both (I) and (II)
(B) (I) only
(C) (II) only
(D) neither (I) nor (II)
7-4: A company that manufactures a single product has a favorable flexible budget variance for direct materials, an unfavorable quantity variance for direct materials, and an unfavorable price variance for direct materials. Which of the following statements is most likely true?
(A) The company recognizes the price variance for direct materials at the time the materials are purchased, not at the time the materials are put into product.
(B) The company used less direct materials per output unit than planned.
(C) The company made fewer units than planned.
(D) The company made more units than planned.
7-5: Following are data for the Van
Ness shirt factory in
|
|
Budget |
Actual |
|
Units Manufactured |
500,000 |
400,000 |
|
Fabric: price per yard total yards used |
$2.50 1,000,000 |
$2.60 800,000 |
|
Direct Labor: wage rate per hour total hours used |
$10.00 250,000 |
$12.00 220,000 |
Required: Compute the price and quantity (usage) variances for fabric, and the wage rate and efficiency variances for labor.
7-6: Following is information for May for the operations of Pink, Inc., which makes reproductions of famous paintings in various shades and hues of pink, mostly for the motel industry.
|
|
Budget |
Actual |
|
Production in units: Raw materials: Direct labor: |
1,000 3 pounds per unit at $24 per pound 20 minutes per unit at $17 per hour |
1,100 4 pounds per unit at $18 per pound 15 minutes per unit at $17 per hour |
Required:
A) Calculate the flexible budget variance for raw materials.
B) Calculate the direct labor wage rate variance.
C) How much of the total flexible budget variance for materials and labor is due to the fact that the company produced more units than planned?
7-7: Li, Lee and Levy Industries makes widgets in its factory located in the
|
|
Static Budget Information |
Actual Results |
|
Widgets produced Direct materials: copper fibers Direct labor Variable overhead (allocated based on machine hours) Fixed costs |
1,000 15,000 pounds for a total cost of $31,500 1,000 hours for a total cost of $9,000 $18,000 $56,000 |
900 12,600 pounds for a total cost of $25,200 950 hours for a total cost of $8,075 $14,553 $57,000 |
Required:
A) Compute the flexible budget variance for the month. Show separate line-items for direct materials, direct labor, variable overhead and fixed overhead.
B) Calculate the direct materials price variance. Is it
favorable or unfavorable?
C) Calculate the direct materials quantity variance. Is
it favorable or unfavorable?
D) Calculate the direct labor wage rate variance. Is it favorable
or unfavorable?
E) Calculate
the direct labor efficiency variance. Is it favorable or unfavorable?
7-8: Silverstream Company makes travel trailers. The following information pertains to the company’s Ohio Division, which manufactures and markets only one model of trailer: the 32-foot Ambassador trailer. Following is budgeted and actual information for the Ohio Division for 2004:
|
|
Budgeted |
Actual |
|
|
Trailers manufactured in 2004 Trailers sold in 2004 Sales price per trailer Direct materials costs (all variable costs): Aluminum Steel Other Total materials costs Direct labor costs (all variable costs) Variable overhead manufacturing costs Fixed overhead costs: Manufacturing fixed overhead Non-manufacturing fixed overhead |
Per Unit $4,000 $2,000 $4,000 $10,000 $5,000 $8,000 |
Total 1,000 1,000 $45,000 $4,000,000 $2,000,000 $4,000,000 $10,000,000 $5,000,000 $8,000,000 $10,000,000 $2,000,000 |
800 600 $45,000 $3,400,000 $1,600,000 $3,800,000 $8,800,000 $3,800,000 $6,400,000 $11,000,000 $2,100,000 |
Additional information:
The company started the year with no inventory of finished trailers or direct materials.
Direct labor standard: 250 hours per trailer
Actual direct labor hours incurred: 195,000 hours
The budgeted quantity of aluminum: 100 lbs. per trailer
The budgeted cost of aluminum: $40 per lb.
The actual quantity of aluminum purchased 84,000 lbs.
The actual quantity of aluminum used 82,927 lbs.
Calculate
the following:
A) The
aluminum usage variance.
B) The
aluminum price variance, if the price variance is calculated at the time the
aluminum is purchased.
C) The
aluminum price variance, if the price variance is calculated at the time the
aluminum is put into production.
D) The
flexible budget variance for aluminum.
E) The
flexible budget variance for steel.
F) The
direct labor wage rate variance.
G) The
direct labor efficiency variance.
H) The
flexible budget variance for direct labor.
7-9: The Durango Clothing Company reports the following
costs for one of its products.
|
The Plaid Frock |
Static Budget |
Actual Results |
|
Units produced Materials: Yards of fabric per unit Cost per yard Labor: Hours per unit Wage rate per hour Fixed costs |
5,600 2.2 $5.10 4.5 $15 $125,000 |
6,500 2.0 $5.00 5.0 $14 $152,000 |
Actual quantity of fabric purchased was 15,000 yards.
Required:
A) Complete
the flexible budget in the table below for production costs:
|
|
Flexible Budget |
|
Units produced Materials cost Labor cost Fixed costs Total costs |
6,500 units |
B) Calculate
the flexible budget variance for direct labor.
C) Calculate
the quantity (usage) variance for direct materials.
D) What is
the direct labor efficiency variance?
E) What is
the direct labor wage rate variance?
F) Calculate
the price variance for direct materials, assuming the company recognizes the
price variance at the time the materials are put into production.
7-10:
|
Product Model XJ-12 |
Static Budget |
Actual Results |
|
Units produced Materials: Pounds of materials per unit Cost per pound of materials Labor: Hours per unit Wage rate per hour Fixed costs |
900 3 $7.00 1.0 $13 $45,000 |
850 4 $6.50 1.2 $10 $39,000 |
Actual quantity of materials purchased was 4,000
pounds.
Required:
A) Calculate the flexible
budget variance for direct labor.
B) Calculate
the price variance for direct materials, assuming the company recognizes the
price variance at the time the materials are purchased.
C) Calculate the quantity
(usage) variance for direct materials.
D) What is the direct labor
wage rate variance?
E) What is the direct labor
efficiency variance?
7-11: The Oswald Company makes four products in its factory
in
|
|
Steppers |
Runners |
Walkers |
Gliders |
|
Actual Results Units produced Machine hours per unit Budget Units produced Machine hours per unit |
80 7 100 8 |
70 7 70 8 |
60 6 50 7 |
50 5 50 5 |
Oswald allocates variable overhead using machine hours. Actual variable overhead was $456,789. Budgeted variable overhead was $654,321.
Required: Calculate the variable overhead spending and efficiency variances for steppers. Be sure to indicate if these variances are favorable or unfavorable.
7-12: Preparation of a box of Chex Party Mix is budgeted to require 1.0 pound of Wheat Chex, 1.5 pounds of Rice Chex, and 0.8 pounds of Corn Chex. On Tuesday, the manager’s five-year-old son sat at the control panel of the highly-automated factory and made 50 boxes of Party Mix. The following information pertains to material variances for that day's production, analyzed by ingredient:
|
|
Wheat Chex |
Rice Chex |
Corn Chex |
|
Price variance |
$16 Unfavorable |
$12 Favorable |
$19 Unfavorable |
|
Usage variance |
$20 Unfavorable |
$25 Favorable |
$10 Favorable |
The actual prices were $0.30 more per pound of Wheat Chex, $0.20 less per pound of Rice Chex, and $0.50 more per pound of Corn Chex, than their standard prices.
Required:
A) Determine
the standard price per pound of each ingredient.
B) Determine the number of pounds used of each ingredient.
7-13: Billy Bones, your
long-time business partner in the rum-making business, dies unexpectedly from
natural causes. (It’s unexpected because nobody expected Billy to live long
enough to die from natural causes.) You now discover that he was not always so
honest in his business dealings, and the company’s silent partners are becoming
not-so-silent about the return on their investment. The silent partners demand
to know the company’s revenue for the year just ended.
You know that the financial statements that Billy
prepared before his death were a hoax. But you also know that the company’s rum
recipe calls for one barrel of molasses to produce 20 pints of rum, and that
the company had no beginning or ending inventory of either molasses or rum.
Also, you find among Billy’s private papers the following information, which
you believe is reliable. The company’s fixed costs are $2,530 per year. The
company budgeted $2 per barrel of molasses, but paid $0.10 more per barrel of
molasses than budgeted, resulting in an unfavorable price variance for molasses
of $115 for the year. Also, the company had an unfavorable quantity variance for
molasses of $74 for the year. (Somehow, under Billy’s supervision, all
variances were always negative.) Also, a few days before he died, Billy
scribbled a note to himself that at the sales price that the company has had in
place for over two years now, and at the current variable cost per pint of
$0.30 (which includes molasses and all other variable costs), the company’s
breakeven volume was 11,500 pints of rum.
Required:
A) How many
pints of rum were produced and sold during the year?
B) Calculate
the company’s revenue for the year.
Return
to the Table of Contents
Management
Accounting Concepts and Techniques; copyright 2006; most recent update:
November 2010
For a printer-friendly version, contact Dennis Caplan at dcaplan@uamail.albany.edu