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CHAPTER 24
STANDARD COST SYSTEMS
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
Brief
Exercises
B. Ex. 24.1
B. Ex. 24.2
B. Ex. 24.3
B. Ex. 24.4
B. Ex. 24.5
Topic
Variances and normal capacity
Standard cost applied to production
Expected volume variance
Volume and spending variances
Normal vs. ideal standard costs
Learning
Objectives
Skills
24-1, 24-2, 24-5 Analysis, judgment
24-3
Analysis
24-4
Analysis
24-4, 24-5 Analysis
24-2, 24-5 Analysis, communication,
judgment
B. Ex. 24.6
B. Ex. 24.7
B. Ex. 24.8
B. Ex. 24.9
B. Ex. 24.10
Computing labor cost variances
Journal entry for direct labor
Computing materials cost variances
Journal entry for direct materials
Overhead cost variances
24-1, 24-3, 24-5 Analysis, judgment
24-3
Analysis
24-3
Analysis
24-3
Analysis
24-4
Analysis, communication
Exercises
24.1
24.2
24.3
24.4
24.5
24.6
Learning
Topic
Objectives
Skills
Accounting terminology
24-1–24-5 Analysis
Relationships among standard costs, actual 24-3, 24-4 Analysis
costs, and cost variances
Understanding materials cost variances
24-3, 24-5 Analysis, judgment
Computing materials cost variances and
24-3–24-5 Analysis, judgment
volume variance
Manufacturing overhead variances
24-4, 24-5 Analysis, judgment
Computing labor cost variances
24-1, 24-3, Analysis, communication,
24-5
judgment
24.7
24.8
Elements of materials cost variances
Interpreting variances
24-3
24-5
24.9
24.10
24.11
24.12
Computing overhead cost variances
Overhead journal entries
Overhead cost variances
Understanding overhead variances
24-4
24-4
24-4, 24-5
24-4
24.13
24.14
Computing materials and labor variances
Causes of cost variances
24.15
Real World: Standards for Home Depot
24-3
24-1, 24-3,
24-5
24-1, 24-5
Analysis
Analysis, communication,
judgment
Analysis
Analysis
Analysis
Analysis, communication,
judgment
Analysis
Analysis, communication,
judgment
Analysis, communication,
judgment, research
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SOLUTIONS TO BRIEF EXERCISES
B. Ex. 24.1
The problem at Bramford Industries is a result of operating well above normal capacity.
The standard rates and efficiencies were based on normal operations. Because
production was required to be ramped up 25% above normal, there were likely to be
overtime hours at higher pay, machine breakdowns, spoilage and waste that created
significant unfavorable variances.
B. Ex. 24.2
The standard direct labor applied to production was $92,100 (actual direct labor of
$90,000, less an unfavorable rate variance of $2,800, plus a favorable efficiency variance
of $4,900).
B. Ex. 24.3
Production = 780 units
Overhead applied to work in process
at a $14 standard rate
Less budgeted overhead:
Fixed
Variable ($6 per unit)
Volume variance - favorable
$ 10,920
$
5,600
4,680
640
B. Ex. 24.4
The normal or expected hours are lower than the actual billed hours. Furthermore, the
actual expenditures were more than expected. The actual, budgeted, and applied
overhead are:
$53,000 (applied based
$60,000 (actual)
on actual)
$45,000 (budget based on normal)
$15,000 unfavorable Spending Var.
B. Ex. 24.5
$8,000 favorable Volume Var.
Normal standard cost per unit = (2.4 lbs. x $10) + (4 hrs. x $17 ) = $92.
Ideal standard cost per unit = (2.0 lbs. x $9.50) + (3.5 hrs. x $16) = $75.
Managers using ideal standards would expect unfavorable variances on a regular basis.
They would strive to make the unfavorable variances as small as possible, but would
recognize that there will never be favorable variances. Normal standards are based on
reasonably attainable costs and efficiencies so managers expect no unfavorable variances
and expect to occasionally see favorable variances.
B. Ex. 24.6
Actual labor rate = $24,464 ÷ 2,780 hours = $8.80 per hour.
Labor efficiency variance = $8.25 x [(0.75 hrs./vase x 4,000 vases) – 2,780 hours] = $1,815
favorable.
Labor rate variance = ($8.80 - $8.25) x 2,780 hours = -$1,529 unfavorable.
Loring seemed to be able to hire workers that were more efficient (2,780 actual hours
rather than 3,000 hours allowed). Thus, the favorable efficiency variance of $1,815 offset
the unfavorable rate variance of $1,529.
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B. Ex. 24.7
B. Ex. 24.8
The direct labor journal entry for Loring Glassware in September is:
Work in Process Inventory ………………………………… 24,750
1,529
Labor Rate Variance ………………………………………
Labor Efficiency Variance ………………………………………
Direct Labor Payable ………………………………………………
1,815
24,464
Materials price variance = 42,640 – (20,800 lbs × $2 / lb.) = $1,040 unfav.
Materials quantity variance = (20,000 lbs. – 20,800 lbs.) × $2/lb. = $1,600 unfav.
B. Ex. 24.9
B. Ex. 24.10
The journal entry for Hearts and Flowers is:
Work in Process Inventory ………………………………… 40,000
1,040
Materials Price Variance …………………………………
1,600
Materials Quantity Variance ………………………………
Direct Materials Inventory ………………………………………
42,640
Given that Ringo incurred actual overhead costs of $10,500, applied overhead
costs of $9,000, and reported a $2,000 unfavorable overhead spending variance
for the period, we can construct the diagam shown below:
Actual Overhead
Costs Incurred
$10,500
$2,000 Unfavorable
Spending Variance
Overhead
Costs Applied
$9,000
Standard Overhead
Costs Allowed
?
?
From the above diagram, we see the standard overhead costs allowed must be
$8,500 ($10,500 less the $2,000 unfavorable spending variance). Since overhead
costs applied ($9,000) exceeds the standard amount allowed ($8,500), actual
output must have exceeded normal output, making the $500 volume variance
favorable.
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SOLUTIONS TO EXERCISES
Ex. 24.1
a.
b.
c.
d.
e.
f.
g.
Standard costs
Labor efficiency variance
Volume variance
Materials quantity variance
Spending variance
Materials price variance
Labor rate variance
Ex. 24.2
Actual costs incurred:
Direct materials: Standard cost ($85,000), plus unfavorable price
variance ($5,000), less favorable quantity variance ($3,000) …………$ 87,000
Direct labor: Standard cost ($150,000), less favorable rate
variance ($2,700), plus unfavorable efficiency variance ($6,200)
$ 153,500
Manufacturing overhead: Standard cost ($300,000), less
favorable spending variance ($4,000) and favorable
volume variance ($5,000) ……………………………………………… $ 291,000
Ex. 24.3
a. MPV = Actual Quantity × (Standard Price - Actual Price)
= 150,000 grams × ($18/g - $18/g*)
= $0
*Actual Price = $2,700,000 ÷ 150,000 grams = $18 per gram
b. Given that Blue’s materials price variance equals its materials quantity
variance, both variances must equal zero. Thus, the standard quantity of
material allowed per batch of Allegro must equal the 2,500 grams actually
used, as shown below:
150,000
Total grams used ………………………………
60
÷ Number of batches ……………………………
2,500 grams (or 2.5 kg)
Grams per batch ………………………………
c.
Materials usage in the pharmaceutical industry must be extremely accurate
and precise. Thus, one would not expect to see a significant materials quantity
variance.
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Ex. 24.4
a. Gumchara’s materials price variance is computed as follows:
Materials Price Variance = Actual Quantity Used × (Standard Price Actual Price)
= 6,000 grams × ($4 - $3*)
= $6,000 Favorable
*Actual Price per Gram = $18,000 ÷ 6,000 grams = $3/gram
b. Gumchara’s materials quantity variance is computed as follows:
Materials Quantity Variance = Standard Price × (Standard Quantity Actual Quantity)
= $4 per gram × (5,000 grams* - 6,000
grams)
= -$4,000 (or $4,000 Unfavorable)
*Standard Quantity Allowed = 1,000 units × 5 grams/unit = 5,000
c.
Gumchara’s overhead volume variance will be favorable because its actual
output for the period (1,000 units) was more than “normal” output (900
units).
Ex. 24.5
a. Fixed overhead rate = $400,000 ÷ 50,000 units = $8 per unit;
Total overhead application rate = $8 + $4 = $12 per unit.
b. Overhead applied = $12 × 52,000 units = $624,000.
c. The amount of overapplied overhead = $624,000 - $614,000 = $10,000; the
spending variance = $400,000 + ($4 × 52,000) - $614,000 = -$6,000
unfavorable; the volume variance = (52,000 × $8) - $400,000 = $16,000
favorable.
d. Chasman was able to spend less than budget for the overhead while
simultaneously producing more than the normal or expected number of
units.
Ex. 24.6
a. Marlo’s labor rate variance is computed as follows:
Labor Rate Variance = Actual Labor Hours × (Standard Rate Actual Rate)
= 3,600 hrs. × ($16 - $18*)
= -$7,200 (or $7,200 Unfavorable)
*Actual Rate per Hour $64,800 ÷ 3,600 hours = $18/hour
b. Marlo’s labor efficiency variance is computed as follows:
Labor Efficiency Variance = Standard Rate × (Standard Hours Actual Hours)
= $16 per hour × (4,500 hours* - 3,600
hours)
= $14,400 Favorable
*Standard Hours Allowed = 9,000 units × 0.5 hours/unit = 4,500
hours
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Ex. 24.6
(continued)
c. Extended hours worked during the period may have resulted in an
increased average wage rate due to overtime wage premiums. This may
explain Marlo’s unfavorable labor rate variance. The standard time
allowed to produce a single unit is 0.5 hours. The average time it actually
took to produce a single unit during the period was 0.4 hours (3,600
hours/9,000 units). Thus, although many employees worked extra hours
during the period, their time spent in production was efficiently used as
evidenced by Marlo’s favorable labor efficiency variance.
Ex. 24.7
a. Standard price, $6.80 per pound
The unfavorable materials price variance of $800 indicates actual costs
were $0.20 per pound above standard ($800 ÷ 4,000 lbs. = $0.20/lb.). Thus,
given the actual cost was $7.00/lb., the standard cost must have been
$6.80/lb.
b. Standard price, $6.80 per pound
The materials quantity variance is found by multiplying the standard
materials price by the difference between the standard quantity of
materials and the actual quantity used. The standard price of materials,
$6.80/lb., was determined in part a, above.
c. Actual quantity of materials used, 4,000 pounds
In computing the materials quantity variance, the actual quantity of
materials used is deducted from the standard quantity, and this difference
is multiplied by the standard price. Thus, (c) represents the actual quantity
of materials used. This amount, 4,000 pounds, appeared in the partially
complete formula for computing the materials price variance.
d. Materials quantity variance, $2,720 favorable
Computation: $6.80 Standard Price × (4,400 Standard Pounds - 4,000
Actual Pounds) = $2,720.
Ex. 24.8
a. A favorable direct materials price variance means that the purchase price
of materials was lower than budgeted. Reasons for favorable price
variances could include better negotiation on the part of purchasing agents,
the purchase of lower quality materials at a lower price, higher quantity
discounts, inaccurate budgeted prices for materials, or a lowering of the
basic cost of materials due to external economic factors.
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Ex. 24.8
b. One explanation of the variances is that higher skilled workers were hired at
wages greater than the budgeted rate. The higher skilled workers may have
(continued)
been more efficient at performing their tasks and at using materials, resulting
in favorable labor efficiency and materials quantity variances. The favorable
materials price variance could be due to any of the factors listed in part a
(except the purchase of lower quality materials).
Ex. 24.9
Ex. 24.10
Ex. 24.11
Overhead spending variance:
Overhead budgeted for actual production (25,000 units):
Fixed …………………………………………………$ 360,000
75,000
Variable ($3 per unit × 25,000 units) ………………
$
Overhead per flexible budget …………………………………
Actual overhead ……………………………………………………
Overhead spending variance—favorable ………………………… $
Volume variance:
Overhead applied to Work in Process Inventory
at standard cost (25,000 units × $15/unit) ………………………… $
Less: Budgeted overhead for 25,000 unit production level …………
Volume variance (unfavorable) …………………………………… $
375,000
435,000
(60,000)
375,000
Work in Process Inventory ………………………………
60,000
Overhead Volume Variance ……………………………
Overhead Spending Variance ……………………………………
Manufacturing Overhead …………………………………………
15,000
420,000
435,000
420,000
15,000
a. Overhead Spending Variance = Standard Overhead Allowed
at Actual Production Level - Actual Overhead Costs
Standard overhead allowed at the actual production of 4,500
units:
Fixed overhead allowed ……………………………………………$
Variable overhead allowed
($60,000/10,000 hrs. × 2 hours per unit × 4,500 units) ………
Total overhead allowed ……………………………………… $
Spending Variance = $94,000  $93,000 = $1,000 Favorable
40,000
54,000
94,000
b. Overhead Volume Variance = Overhead Applied - Overhead Allowed at
Actual Production Level
Overhead Rate per Direct Labor
Budgeted Overhead
=
Hour
Budgeted Labor Hours
=
$100,000
10,000
= $10 per direct labor hour
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Ex. 24.11
(continued)
Overhead rate per unit = $10 per labor hr. × 2 labor hours per unit = $20 per unit
Overhead applied = 4,500 actual production units × $20 per unit = $90,000
Volume variance = $90,000  $94,000 (from part a ) = $4,000 Unfavorable
c. Although the overall overhead variance is unfavorable, it is mostly due to an
unfavorable volume variance, reflecting that actual production was less than
budgeted production. The overhead spending variance was favorable, due to fixed
costs that were $2,000 lower than expected ($40,000  $38,000) and variable costs
that were $1,000 higher than allowed at the actual production level ($54,000 
$55,000). Zeta’s manager may want to investigate why the variable overhead costs
per unit were higher than expected and determine if it is linked to the lower fixed
costs. As long as Zeta is meeting its sales demand, the unfavorable volume variance
may not require any corrective action.
Ex. 24.12
The entry to close McGill’s unfavorable overhead spending variance required that the
variance account be credited for $600. Given that the Cost of Goods Sold account was
also credited for $4,200 to close both the spending and the volume variance, its volume
variance must have been favorable by $4,800 as shown in the following journal entry:
4,800*
Overhead Volume Variance ………………………………
Overhead Spending Variance ……………………………………………
Cost of Goods Sold ………………………………………………………
*The entry required to close McGill’s favorable volume variance of $4,800.
Ex. 24.13
a.
600
4,200
Materials Price Variance = Actual Quantity × (Standard Price - Actual Price)
= 27,000 yds. × ($3.10/yd. - $3.05/yd.)
= $1,350 Favorable
Materials Quantity Variance = Standard Price × (Standard Quantity - Actual
Quantity)
= $3.10/yd. × (26,250 yds.* - 27,000 yds.)
= -$2,325 (or $2,325 Unfavorable)
*15,000 pillowcases × 1.75 yds./pillowcase = 26,250 yds.
b.
Labor Rate Variance = Actual Hours × (Standard Hourly Rate - Actual
Hourly Rate)
= 3,300 hrs. × ($5.95/hr - $5.80/hr.*)
= $495 Favorable
*$19,140  3,300 hrs. = $5.80/hr.
Labor Efficiency Variance = Standard Hourly Rate × (Standard Hours Actual Hours)
= $5.95/hr. × (3,000 hrs.** - 3,300 hrs.)
= -$1,785 (or $1,785 Unfavorable)
**Standard Quantity = 15,000 pillowcases × 0.2 hr./pillowcase = 3,000 hrs.
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Ex. 24.14
a. A favorable materials price variance results from the purchasing department being
able to acquire direct materials at a price below standard cost. This may result from
finding a lower price supplier or from obtaining discounts for quantity purchases.
The manager of the purchasing department (purchasing agent) is responsible for
this variance.
b. An unfavorable labor rate variance may result from incurring unexpected overtime
costs or from using higher payscale workers than are called for in the cost standards
to perform specific manufacturing activities. The production manager is responsible
for the scheduling of direct workers and for the labor rate variance.
c. A favorable volume variance results from producing more units during the period
than the average level of production assumed in determining the standard cost.
Volume variances result merely from the mechanics of using a standard unit cost to
apply fixed overhead to production. Therefore, volume variances do not necessarily
indicate efficiency or inefficiency, and no manager is held “responsible” for these
variances.
d. An unfavorable materials quantity variance means that more than the standard
quantity of materials was used in the manufacture of the units produced. Causes
include employee carelessness or inexperience, production machinery that is out of
adjustment, or, perhaps, the purchase of a lower-grade material by the purchasing
department. In most cases, the production manager is responsible for the efficient
use of materials and is responsible for the materials quantity variance. If, however,
the unfavorable variance stems from the purchase of low-grade materials,
responsibility rests with the manager deciding to purchase this type of material
(production manager or purchasing agent).
Ex. 24.15
Several items from the Store Sales and Other Data section of Home Depot’s 5-Year
Summary could be used to create direct labor standards. For example, weighted average
sales per store per employee, number of customer transactions per employee, and
average ticket price per employee are three that seem obvious. Below are suggestions or
examples about how a store manager could use these standards to help manage a Home
Depot Store:
• Standard number of customer transactions per employee — a variance showing
more actual customer transactions than the standard allowed per employee, might
be a signal to hire more employees. Alternatively, if fewer actual customer
transactions than the standard occurred in a given month, then an investigation
might be necessary to assess if the store is overstaffed or if some other inefficiency is
occurring.
• Average ticket price per employee — when a variance occurs showing average ticket
price per employee below standard, the store manager might want to manage
advertising or employee incentives in such a way to encourage the sale of larger
ticket items.
• Weighted average sales per store — when a variance occurs showing higher actual
average store sales, the manager may want to reward employees for their team
efforts in creating sales above the standard or expected amounts.
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SOLUTIONS TO PROBLEMS SET A
25 Minutes, Strong
PROBLEM 24.1A
BRADLEY
a. MPV = Actual Quantity × (Standard Price - Actual Price)
= 800 pounds × ($20/lb - $22/lb)
= $1,600 (or $1,600 Unfavorable)
b. The materials quantity variance (MQV) is first used to find the standard quantity of
material allowed for producing 760 units (MVP is exactly half of MPV):
MQV = Standard Price × (Standard Quantity - Actual Quantity)
00 = $20/lb × (Standard Quantity - 800 pounds)
Thus, we may solve for the Standard Quantity as follows:
-800 = 20 (Standard Quantity) - 16,000
15,200 = 20 (Standard Quantity)
15,200 ÷ 20 = (Standard Quantity) = 760 pounds for 760 units.
760 pounds divided by 760 units = 1.00 pound per unit.
780 units × 1.00 pound per unit = 780 pounds, standard quality of materials allowed for
780 units.
c.
Work in Process Inventory (760 pounds × $20 per pound) ……………… 15,200
800
Materials Quantity Variance (unfavorable) ………………………………
1600
Materials Price Variance (unfavorable) …………………………………
Direct Materials Inventory (800 pounds × $22 per pound) …………………
To record direct materials applied to production.
17,600
d. Bradley’s overhead volume variance is $2,400, given that it is three times the unfavorable
materials quantity variance of $800. The volume variance is unfavorable because actual
output of 760 units was less than normal output of 780 units.
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30 Minutes, Medium
PROBLEM 24.2A
AGRICHEM INDUSTRIES
a. Computation of materials price variance (MPV):
MPV =
=
=
=
Actual Quantity Used × (Standard Price - Actual Price)
102,500 lbs. × ($0.60/lb - $0.57/lb.)
102,500 lbs. × $0.03/lb.
$3,075 Favorable
Computation of materials quantity variance (MQV):
MQV =
=
=
=
Standard Price × (Standard Quantity - Actual Quantity)
$0.60/lb. × [(500 lbs. × 200 batches) - 102,500 lbs.]
$0.60/lb. × -2,500 lbs.
-$1,500 (or $1,500 Unfavorable)
Computation of labor rate variance (LRV):
LRV =
=
=
=
Actual Hours × (Standard Hourly Rate - Actual Hourly Rate)
4,750 hrs. × ($7.00/hr. - $6.80/hr.)
4,750 hrs. × $0.20/hr.
$950 Favorable
Computation of labor efficiency variance (LEV):
LEV =
=
=
=
Standard Hourly Rate × (Standard Hours - Actual Hours)
$7.00/hr. × [(25 hrs. × 200 batches) - 4,750 hrs.]
$7.00/hr. × 250 hrs.
$1,750 Favorable
Overhead variances are computed on the following page.
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PROBLEM 24.2A
AGRICHEM INDUSTRIES (concluded)
Computation of overhead spending variance:
Overhead budgeted for 200 batches:
Fixed
Variable (200 batches × $25 per batch)
Total budgeted overhead
Less: Actual overhead for the month
Overhead spending variance (favorable)
$
50,000
5,000
$
$
Computation of volume variance:
Overhead applied at standard cost ($225 × 200 batches)
Less: Budgeted overhead (above)
Volume variance (unfavorable)
$
$
55,000
54,525
475
45,000
55,000
(10,000)
b.
General Journal
Jan. 31 Work in Process Inventory (at standard)
Materials Quantity Variance
Materials Price Variance
Materials Inventory (actual)
To record direct materials used in January.
Standard cost (200 batches × $300) = $60,000
Actual cost = $58,425
60,000
1,500
3,075
58,425
31 Work in Process Inventory (at standard)
Labor Rate Variance
Labor Efficiency Variance
Direct Labor (actual)
To record direct labor cost applicable to January
production:
Standard cost (200 batches × $175) = $35,000
Actual cost = $32,300
35,000
31 Work in Process Inventory (at standard)
Volume Variance
Overhead Spending Variance
Manufacturing Overhead (actual)
To apply overhead to work in process, using standard
unit cost:
Standard cost (200 batches × $225) = $45,000
Actual cost = $54,525
45,000
10,000
950
1,750
32,300
475
54,525
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25 Minutes, Medium
PROBLEM 24.3A
AMERICAN HARDWOOD PRODUCTS
General Journal
a.
b.
c.
(1) Work in Process (standard cost)
Materials Quantity Variance
Materials Price Variance
Direct Materials Inventory (actual cost)
To record materials used.
90,000
8,400
(2) Work in Process (standard cost)
Labor Efficiency Variance
Labor Rate Variance
Direct Labor (actual cost)
To record direct labor cost.
84,000
1,500
2,400
96,000
3,000
82,500
(3) Work in Process (standard cost)
Overhead Spending Variance
Overhead Volume Variance
Manufacturing Overhead (actual cost)
To record manufacturing overhead assigned to
production, and to record overhead variances.
115,500
3,240
4,500
(1) Finished Goods Inventory (at standard cost)
Work in Process (at standard cost)
To transfer cost of units completed to finished goods
inventory, 9,000 units at $30 per unit.
270,000
(2) Cost of Goods Sold (at standard cost)
Finished Goods Inventory (at standard cost)
To record cost of units sold, 8,800 units at $30 per unit.
264,000
Fixed overhead per month = $4,500 (unfavorable
volume variance) ÷ 0.10 (idle capacity percentage)
123,240
270,000
264,000
$
45,000
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45 Minutes, Strong
a.
PROBLEM 24.4A
SVEN ENTERPRISES
Materials Price Variance = Actual Quantity Used × (Standard Price - Actual Price)
= 148,450 pounds × ($4.20 - $4.00*)
= $29,690 Favorable
*Actual Price per Pound = $593,800/148,450 pounds = $4.00/pound
Materials Quantity Variance
= Standard Price × (Standard Quantity - Actual
Quantity)
= $4.20 per pound × (149,940 pounds* - 148,450 pounds)
= $6,258 Favorable
*Standard Quantity Allowed = 147 batches × 1,020 pounds/batch = 149,940 pounds
b.
Labor Rate Variance = Actual Labor Hours × (Standard Rate - Actual Rate)
= 2,200 hours × ($8.50 - $8.00*)
= $1,100 Favorable
*Actual Rate per Hour = $17,600/2,200 hours = $8.00/hour
Labor Efficiency Variance = Standard Hourly Rate × (Standard Hours - Actual Hours)
= $8.50 per hour × (2,058 hours* - 2,200 hours)
= -$1,207 (or $1,207 Unfavorable)
*Standard Hours Allowed = 147 batches × 14 hours/batch = 2,058 hours
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Problem 24.4A
SVEN ENTERPRISES (continued)
c. Overhead variances:
Actual Overhead
Costs Incurred
Fixed
$2,450
Variable 1,175
$3,625
Standard Overhead
Overhead
Costs Applied
Costs Allowed
Fixed $2,800
$29/batch × 147 batches =
Variable
1,323*
$4,263
$4,123
$498 Favorable
Spending Variance
$140 Favorable
Volume Variance
*Standard Variable Overhead Allowed = $9.00/batch × 147 batches = $1,323
d. Entry to charge materials to production:
629,748 *
Work in Process Inventory (at standard cost) ………………………
Materials Quantity Variance (favorable) …………………………………
Materials Price Variance (favorable) ………………………………………
Direct Materials Inventory (at actual cost) ………………………………
To record the cost of direct materials charged to production.
6,258
29,690
593,800
*147 actual batches × 1,020 pounds allowed per batch × $4.20 per pound = $629,748
e. Entry to charge direct labor to production:
Work in Process Inventory (at standard cost) ………………………
17,493 *
Labor Efficiency Variance (unfavorable) ……………………………
1,207
Labor Rate Variance (favorable) …………………………………………
Direct Labor (at actual cost) ………………………………………………
To record the cost of direct labor charged to production.
1,100
17,600
*147 actual batches × 14 hours allowed per batch × $8.50 per hour = $17,493
f. Entry to charge overhead to production:
Work in Process Inventory (at standard cost) ………………………
4,263
Overhead Spending Variance (favorable) …………………………………………
Overhead Volume Variance (favorable) …………………………………………
Manufacturing Overhead (at actual cost) …………………………………………
To apply overhead to production.
498
140
3,625
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PROBLEM 24.4A
SVEN ENTERPRISES (concluded)
g. Entry to transfer the 147 batches of puppy meal produced in April to finished goods:
Finished Goods Inventory (at standard cost)
Work in Process Inventory (at standard cost)
To transfer 147 batches of puppy meal to finished goods in April.
651,504
651,504*
*The $651,504 figure equals the total direct materials, direct labor, and manufacturing
overhead charged to production at standard cost during April ($629,748 + $17,493 +
$4,263).
h. Entry to close overapplied overhead to cost of goods sold:
Overhead Spending Variance (favorable)
Overhead Volume Variance (favorable)
Cost of Goods Sold
To close overhead variances to Cost of Goods Sold.
498
140
638
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45 Minutes, Strong
a.
PROBLEM 24.5A
SLICK CORPORATION
Materials Price Variance = Actual Quantity Used × (Standard Price - Actual Price)
= 16,500 gallons × ($1.30 - $1.25*)
= $825 Favorable
*Actual Price per Pound = $20,625 ÷ 16,500 gallons = $1.25/gallon
Materials Quantity Variance
= Standard Price × (Standard Quantity - Actual Quantity)
= $1.30 per gallon × (16,250 gallons* - 16,500 gallons)
= -$325 (or $325 Unfavorable)
*Standard Quantity Allowed = 5,000 cases × 3.25 gallons/case = 16,250 gallons
b.
Labor Rate Variance = Actual Labor Hours × (Standard Rate - Actual Rate)
= 4,200 hours × ($16 - $15)
= $4,200 Favorable
Labor Efficiency Variance = Standard Hourly Rate × (Standard Hours - Actual Hours)
= $16 per hour × (3,750 hours* - 4,200 hours)
= -$7,200 (or $7,200 Unfavorable)
*Standard Hours Allowed = 5,000 cases × 0.75 hours/case = 3,750 hours
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Problem 24.5A
SLICK CORPORATION (concluded)
c. Overhead variances:
Actual Overhead
Costs Incurred
$2,200
Fixed
7,750
Variable
$9,950
$150 Favorable
Spending Variance
Standard Overhead
Costs Allowed
Fixed $2,600
Variable
7,500*
$10,100
Overhead
Costs Applied
$2/case × 5,000 cases = $10,000
$100 Unfavorable
Volume Variance
*Standard Variable Overhead Allowed = $1.50/case × 5,000 cases = $7,500
d. (1) Work in Process Inventory (at standard cost) …………………
21,125 *
325
Materials Quantity Variance (unfavorable) ……………………
Materials Price Variance (favorable) ……………………………………
Direct Materials Inventory (at actual cost) ………………………………
To record the cost of direct materials charged to production.
825
20,625
*5,000 actual cases x 3.25 gallons allowed per case x $1.30 per gallon = $21,125
(2) Work in Process Inventory (at standard cost) …………………
60,000 *
7,200
Labor Efficiency Variance (unfavorable) ………………………
Labor Rate Variance (favorable) …………………………………………
Direct Labor (at actual cost) ………………………………………………
To record the cost of direct labor charged to production.
4,200
63,000
*5,000 actual cases x 0.75 hours allowed per case x $16 per hour = $60,000
(3) Work in Process Inventory (at standard cost) …………………
10,000
100
Overhead Volume Variance (unfavorable) ……………………
Overhead Spending Variance (favorable) ………………………………
Manufacturing Overhead (at actual cost) ………………………………
To apply overhead to production.
(4) Finished Goods Inventory (at standard cost) …………………
91,125
Work in Process Inventory (at standard cost) ……………………………
To transfer 5,000 cases to finished goods in May.
150
9,950
91,125*
*The $91,125 figure equals the total direct materials, direct labor, and manufacturing
overhead charged to production at standard cost during May ($21,125 + $60,000 +
$10,000).
(5) Overhead Spending Variance (favorable) ………………………
150
Overhead Volume Variance (unfavorable) ……………………………
Cost of Goods Sold …………………………………………………….
To close overhead variances to Cost of Goods Sold.
100
50
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40 Minutes, Strong
a.
PROBLEM 24.6A
POLYGLAZE, INC.
Materials price variance:
Actual Quantity × (Standard Price - Actual Price)
(8,000 units × 11 ounces) × ($0.15/oz. - $0.16/oz.)
$
(880)
Unfavorable
Materials quantity variance:
Standard Price × (Standard Quantity - Actual Quantity)
$0.15/oz. × (80,000 ounces - 88,000 ounces)
$
(1,200)
Unfavorable
Journal entry to record direct materials used in June:
Work in Process Inventory (8,000 units × 10 oz. × $0.15/oz.)
Materials Price Variance
Materials Quantity Variance
Materials Inventory (8,000 units × 11 oz. × $0.16/oz.)
To record cost of direct materials used in June.
b.
12,000
880
1,200
14,080
Labor rate variance:
Actual Hours × (Standard Hourly Rate - Actual Hourly Rate)
(8,000 units × .45 hr.) × ($10.00/hr. - $10.40/hr.)
$
(1,440)
Unfavorable
Labor efficiency variance:
Standard Hourly Rate × (Standard Hours - Actual Hours)
$10.00/hr. × [(8,000 units × .5 hr.) - (8,000 units × 0.45 hr.)]
$10.00/hr. × 400 hrs.
$
4,000
Favorable
Work in Process Inventory (8,000 units × 0.5 hr. × $10/hr.)
Labor Rate Variance
Labor Efficiency Variance
Direct Labor (8,000 units × 0.45 hr. × $10.40/hr.)
To record direct labor costs applicable to production during June.
40,000
1,440
Journal entry to record direct labor cost for June:
4,000
37,440
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PROBLEM 24.6A
POLYGLAZE, INC. (concluded)
c. Overhead spending variance:
Overhead per flexible budget—8,000 units:
Fixed
Variable (8,000 units × $0.50 per unit)
Total overhead per flexible budget
Less: Actual overhead in June ($5,000 + $4,600)
Overhead spending variance
Overhead volume variance:
Overhead applied at standard cost (8,000 units × $1)
Less: Overhead per flexible budget (above)
Overhead volume variance
$
$
$
$
$
5,000
4,000
9,000
9,600
(600)
Unfavorable
8,000
9,000
(1,000)
Unfavorable
Journal entry to record overhead applied to work in process:
Work in Process Inventory (8,000 units × $1 per unit)
Overhead Spending Variance
Overhead Volume Variance
Manufacturing Overhead (Actual cost, $5,000 + $4,600)
To apply overhead cost to 8,000 units produced at the
standard rate of $1 per unit.
8,000
600
1,000
9,600
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40 Minutes, Strong
a.
PROBLEM 24.7A
HERITAGE FURNITURE CO.
(1) Computation of materials price variance (MPV):
MPV =
=
=
=
Actual Quantity Used × (Standard Price - Actual Price)
(800 units × 110 ft.) × ($1.30/ft. - $1.20/ft.)
88,000 ft. × $0.10
$8,800 Favorable
(2) Computation of materials quantity variance (MQV):
MQV =
=
=
=
Standard Price × (Standard Quantity - Actual Quantity)
$1.30/ft. × [(800 units × 100 ft.) - (88,000 ft.)]
$1.30/ft. × -8,000 ft.
-$10,400 (or $10,400 Unfavorable)
(3) Computation of labor rate variance (LRV)
LRV =
=
=
=
Actual Hours × (Standard Hourly Rate - Actual Hourly Rate)
(800 units × 5.5 hrs.) × ($8.00/hr. - $7.80/hr.)
4,400 hrs. × $0.20
$880 Favorable
(4) Computation of labor efficiency variance (LEV):
LEV =
=
=
=
Standard Hourly Rate × (Standard Hours - Actual Hours)
$8.00/hr. × [(800 units × 5 hrs.) - (800 units × 5.5 hrs.)]
$8.00/hr. × -400 hours
-$3,200 (or $3,200 Unfavorable)
Overhead variances are computed on the following page.
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PROBLEM 24.7A
HERITAGE FURNITURE CO. (continued)
(5)
Computation of overhead spending variance:
Overhead per flexible budget for 800 units:
Fixed
Variable (800 units × $7.00 per unit)
Less: Actual overhead for the month
Overhead spending variance (favorable)
$
15,000
5,600
(6) Computation of volume variance:
Overhead applied using standard cost
($800 units × $22 per unit)
Overhead per flexible budget for 800 units
(computed above)
Volume variance (unfavorable)
$
$
20,600
18,480
2,120
$
17,600
$
20,600
(3,000)
b.
General Journal
July 31 Work in Process Inventory (at standard)
Materials Quantity Variance
Materials Price Variance
Materials Inventory (at actual)
To record direct materials used during July.
Standard cost = 800 units @ $130 = $104,000
Actual cost = 800 units @ $132 = $105,600
104,000
10,400
8,800
105,600
31 Work in Process Inventory (at standard)
Labor Efficiency Variance
Labor Rate Variance
Direct Labor (actual cost)
To charge July production with direct labor cost.
Standard cost = 800 units @ $40.00 = $32,000
Actual cost = 800 units @ $42.90 = $34,320
32,000
3,200
31 Work in Process Inventory (at standard)
Volume Variance
Overhead Spending Variance
Manufacturing Overhead (actual cost)
To charge overhead to production at standard cost.
Standard cost = 800 units @ $22.00 = $17,600
Actual cost = $18,480
17,600
3,000
880
34,320
2,120
18,480
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PROBLEM 24.7A
HERITAGE FURNITURE CO. (concluded)
c.
Comments on cost variances:
The company appears to be having significant problems in two areas. First, the large
unfavorable materials quantity variance ($10,400) indicates that far more material is being
used in the production process than is provided for in the cost standards. Assuming that
the cost standards are reasonable, the quantity of materials being used is excessive. Second,
the unfavorable labor efficiency variance indicates that more labor hours are being used
than indicated by the standards. This indicates low productivity by direct workers. (The
unfavorable volume variance results only from scheduled production being less than
“normal” production and is not a cause for concern.)
The company shows two significant favorable variances: the materials price variance and
the overhead spending variance. The favorable materials price variance ($8,800) may
indicate that the purchasing department is doing an excellent job of securing materials at
advantageous prices. The overhead spending variance may indicate that the production
manager is doing very well at controlling spending on overhead. However, these favorable
variances may be closely linked to the company’s problems in the areas of materials usage
and labor efficiency.
The favorable materials price variance may mean that the purchasing department is
purchasing lower-grade materials than normal and perhaps contributing to the large
unfavorable materials quantity variance because some of these materials prove to be
unusable. The favorable overhead spending variance may result from unfilled supervisory
positions, which may be contributing to the inefficient use of materials and the low
productivity of direct workers. Thus, management should thoroughly investigate the causes
of these cost variances.
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60 Minutes, Strong
PROBLEM 24.8A
RIPLEY COPRORATION
a. Based on the journal entry to charge direct materials costs to work in process, the actual
quantity of material purchased and used during June is determined as follows:
Materials Price = Actual Quantity Used × (Standard Price - Actual Price)
$8,200 = Actual Quantity Used × ($6 - $5)
Thus, the actual quantity of material purchased and used during June was 8,200 pounds.
b. Based on the journal entry to charge direct material costs to work in process, the standard
quantity of material allowed for the actual level of output achieved in June is determined as
follows:
Materials Quantity Variance = Standard Price × (Standard Quantity - Actual Quantity)
-$1,200 = $6 per pound × (Standard Quantity - 8,200 pounds*)
-$1,200 = $6 (Standard Quantity) - $49,200
$48,000 = $6 (Standard Quantity)
Thus, the standard quantity allowed = $48,000/$6 per pound = 8,000 pounds.
*The 8,200 pounds figure was calculated in part a above.
c. Based on the journal entry to charge direct labor costs to work in process, the average per
hour labor cost incurred in June is determined as follows:
Labor Rate Variance
-$950
-$950
-$86,450
=
=
=
=
Actual Labor Hours × (Standard Rate - Actual Rate)
9,500 hours × ($9 - Actual Rate)
$85,500 - 9,500 (Actual Rate)
9,500 (Actual Rate)
Thus, the actual hourly rate incurred = -$86,450 ÷ -9,500 hours = $9.10 per hour.
d. Based on the journal entry to charge direct labor costs to work in process, the standard direct
labor hours allowed during June is determined as follows:
Labor Efficiency Variance
-$4,500
-$4,500
$81,000
=
=
=
=
Standard Hourly Rate × (Standard Hours - Actual Hours)
$9 per hour × (Standard Hours - 9,500 hours)
$9 (Standard Hours)  $85,500
$9 (Standard Hours)
Thus, the standard hours allowed = $81,000/$9 per hour = 9,000 hours.
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Problem 24.8A
RILEY CORPORATION (concluded)
e. Based on the journal entry to charge overhead costs to work in process, the following
relationships exist:
Actual Overhead
Costs Incurred
$22,000
Overhead
Costs Applied
$25,000
Standard Overhead
Costs Allowed
?
$2,000 Unfavorable
Spending Variance
$5,000 Favorable
Volume Variance
Thus, standard overhead costs allowed for in June of $20,000 can be computed as follows:
$22,000 - $2,000 = $20,000, or $25,000 - $5,000 = $20,000.
f. Finished Goods Inventory (at standard cost)
Work in Process Inventory (at standard cost)
To transfer cost of completed units to finished goods.
154,000
154,000*
*The $154,000 figure equals the total direct materials, direct labor, and manufacturing
overhead charged to production at standard cost during June ($48,000 + $81,000 + $25,000).
g. Overhead Volume Variance (favorable) ………………………………
5,000
Materials Price Variance (favorable) …………………………………
8,200
Materials Quantity Variance (unfavorable) ………………………………………
Direct Labor Rate Variance (unfavorable) ………………………………………
Direct Labor Efficiency Variance (unfavorable) …………………………………
Overhead Spending Variance (unfavorable) ………………………………………
Cost of Goods Sold …………………………………………………………………
To close the cost variance accounts.
1,200
950
4,500
2,000
4,550
h. Given that Ripley’s overhead volume variance was favorable, its actual production during
June must have exceeded “normal” output.
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45 Minutes, Medium
PROBLEM 24.9A
ANTON COMPANY
a. Since the direct materials quantity variance is $0, the actual quantity of materials used per
stand must equal the budgeted quantity per stand. Thus, the total quantity purchased and
used is:
220 stands × 3 square feet per stand = 660 square feet.
Materials Price Variance = Actual Quantity Used × (Standard Price - Actual Price)
-$33 (Unfavorable) = 660 sq. ft. × ($0.25 - actual price)/sq. ft.
-33
= $0.25  actual price
660
-0.05 = $0.25  actual price
Actual Price = $0 .30 per square foot
b.
Labor Efficiency Variance = Standard Hourly Rate × (Standard Hours - Actual Hours)
-$550 (Unfavorable) = $10 × (.5 hours per unit - actual hours per unit) × 220 units
-550
= .5 hours per unit - actual hours per unit
$2,200
-0.25 = .5 hours per unit - actual hours per unit
Actual Hours Per Unit = .75 hours per unit
c.
Labor Rate Variance = Actual Labor Hours × (Standard Rate - Actual Rate)
$231 (Favorable) = .75 hours per unit × 220 units × ($10 per hour - actual
rate)
$231 = 165 hours × ($10 per hour - actual rate)
$231
= $10 - actual rate
165
$1.40 = $10 - actual rate
Actual Rate Per Hour = $8.60 per hour
d.
Overhead Spending Variance = Standard Overhead Allowed at Actual Production Level
- Actual Overhead Costs
-$210 (Unfavorable) = $1,040* - actual overhead costs
Actual Overhead Costs = $1,250
*Standard overhead allowed at the actual production of 220 units:
Fixed overhead allowed ($3 × 200 units) ……………………………………………… $
Variable overhead allowed ($2 × 220 units) ……………………………………………
Total overhead allowed ………………………………………………………………$
600
440
1,040
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