MANAGEMENT ACCOUNTING CONCEPTS AND TECHNIQUES
By Dennis Caplan, University at Albany (State University of New York)
CHAPTER 10: Standard Costing
Exercises and Problems:
Discussion Question 10-1:
Refer to the standard cost sheet for the Deluxe Widget in the first part of this chapter.
A) Where does this cost information come from?
B) What components of the widget are outsourced?
C) What is going on with the costing of the “core”?
D) How is manufacturing overhead applied? What are the allocation bases?
10-2: A factory makes only one product. Which of the following circumstances ensures that the amount of variable overhead recorded as part of the cost of inventory is the same under Normal Costing as under Standard Costing, when direct labor dollars is used as the allocation base, and the factory makes exactly the number of units as were budgeted.
(I) The actual overhead rate is the same as the budgeted overhead rate.
(II) The actual direct labor dollars is the same as the budgeted direct labor dollars.
(A) (I) is sufficient.
(B) (II) is sufficient.
(C) (I) and (II) are sufficient together, although neither is sufficient by itself.
(D) The amount recorded for variable overhead is always the same under Normal Costing as under Standard Costing. The only difference between these two costing systems pertains to direct costs.
10-3: The Jaramillo Tortilla Factory manufactures two products: corn tortillas, and flour tortillas. Both types of tortillas are made in the same factory, but on different machinery, and each type of tortilla has its own production line. Overhead includes variable and fixed costs, and is allocated based on machine hours. Which of the following costing methods is likely to result in underapplied overhead, if the demand and production of corn tortillas drops relative to plan (i.e., relative to the static budget)?
(I) The use of an Actual Costing System.
(II) The use of a Normal Costing System.
(III) The use of a Standard Costing System.
(A) (I) only
(B) (III) only
(C) (II) and (III), but not (I)
(D) Neither (I), (II) nor (III)
10-4: A company uses a Standard Costing System, and allocated overhead using direct labor hours. At the beginning of the year, the company estimated that there would be $960,000 in overhead and 40,000 direct labor hours worked. At the end of the year, the company had worked 39,000 hours and incurred $949,000 in overhead. What is the underapplied or overapplied overhead for the year?
(A) There is not enough information to determine this.
(B) $13,000 underapplied
(C) $11,000 overapplied
(D) $11,000 underapplied
10-5: The Resistol Company manufactures hats. The company uses a Standard Costing System. Production of one hat is budgeted at $10 of direct materials, and 2 hours of direct labor at $20 per hour. Overhead is budgeted at $500,000, and is allocated based on direct labor hours. The static budget calls for production of 10,000 hats in 2005. Actual costs per hat in 2005 were $12 of direct materials, and 2.2 hours of direct labor at $19 per hour. Actual overhead was $400,000. Actual production was 10,500 hats. Calculate the cost of goods manufactured at standard.
10-6: The following information applies to the manufacture of horseshoes by the town blacksmith:
Cost per pound
Pounds per unit
Wage rate per hour
Hours per unit
Rate per labor hour
The blacksmith uses a standard costing system. On January 1st she has no inventory. She manufactures 120 horseshoes during January, and sells 100 during the month. Variances are written off to Cost of Goods Sold. What is the cost of ending inventory, rounded to the nearest dollar?
Budgeted output units 14,000 engines
Budgeted fixed manufacturing overhead $11,200
Budgeted variable manufacturing overhead $1.50 per direct labor hour
Budgeted direct manufacturing labor hours 0.2 hours per engine
Fixed manufacturing costs incurred $12,000
Direct manufacturing labor hours used 4,000 hours
Variable manufacturing costs incurred $5,500
Actual units manufactured 15,000 engines
Required: Calculate the flexible budget variance for variable overhead.
10-8: The Hopi Popcorn Factory makes and sells two kinds of popcorn: plain, and cheese-flavored. The only direct materials used for the plain popcorn is corn. The company allocates all overhead (fixed and variable) based on pounds of direct materials (i.e., pounds of popcorn).
boxes of plain popcorn
boxes of cheese-flavored
capacity of the facility (boxes)
Direct materials (corn):
for plain popcorn:
cost per pound
pounds per box
for cheese-flavored popcorn:
cost per pound
pounds per box
(for plain popcorn only)
hours per box
Total variable overhead
Total fixed overhead
$0.25 per pound
$0.25 per pound
$10 per hour
$0.30 per pound
$0.30 per pound
$12 per hour
A) Calculate the cost of producing one box of plain popcorn, and also all of the plain popcorn, assuming the company uses an Actual Costing System.
B) Calculate the cost of producing one box of plain popcorn, and also all of the plain popcorn, assuming the company uses a Normal Costing System.
C) Calculate the cost of producing one box of plain popcorn, and also all of the plain popcorn, assuming the company uses a Standard Costing System. Do not consider any adjusting entries at the end of the period.
10-9: The Baked Apple is a bakery specializing in pies. The Bakery uses a Standard Costing System. Following are the standards for the direct costs for making an apple pie:
Quantity: 2 cups
Price: $0.40 per cup
Quantity: 2/3rds cup
Price: $0.60 per cup
Quantity: 7 apples
Price: $0.30 per apple
Quantity: 20 minutes of labor
Wage rate: $12 per hour
The company does not apply overhead to its products. The static budget for May indicated a production and sales level of 150 apple pies. In fact, the restaurant made and sold 160 apple pies.
A) What is the standard cost per unit for making an apple pie?
B) What would the static budget show for the cost of production for all apple pies?
C) The actual cost in direct materials and labor to make all 160 pies was $960. What is the flexible budget variance for apple pies?
D) 330 cups of flour were used to make all of the apple pies. The actual price paid per cup of flour was $0.35. Calculate the quantity and price variances for flour. Provide a possible explanation for the quantity variance.
E) 50 labor hours were spent making apple pies, at an average wage rate of $11 per hour. Calculate the efficiency and wage rate variances for labor. Also calculate the flexible budget variance for labor.
10-10: 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:
Trailers manufactured in 2004
Trailers sold in 2004
Sales price per trailer
Direct materials costs (all variable costs):
Total materials costs
Direct labor costs (all variable costs)
Variable overhead manufacturing costs
Fixed overhead costs:
Manufacturing fixed overhead
Non-manufacturing fixed overhead
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.
The division allocates overhead based on direct labor hours. The only non-manufacturing costs are certain fixed overhead costs, as shown above.
Calculate the following:
A) The overhead rate to use for all manufacturing costs under Standard Costing.
B) The overhead rate to use for all manufacturing costs under Normal Costing.
C) The total manufacturing cost per trailer under Standard Costing.
D) The total manufacturing cost per trailer under Actual Costing.
E) The total manufacturing cost per trailer under Normal Costing.
Management Accounting Concepts and Techniques; copyright 2006; most recent update: November 2010
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