Guide: Solutions Please reword the answers to essay type parts so as to guarantee
that your answer is an original. Do not submit as your own.
Vintech Company is planning to produce 2,000 units of product in 2011. Each unit
requires 3 pounds of materials at $6 per pound and a half hour of labor at $14 per hour.
The overhead rate is 70% of direct labor. (a)compute the budgeted amounts for 2011 for
direct materials to be used, direct labor, and applied overhead. (b)compute the standard
cost of one unit of product. (c)what are the potential advantages to a corporation of using
standard costs?
(a) Direct materials: (2,000 X 3) X $6 = $36,000
Direct labor: (2,000 X 1/2) X $14 = $14,000
Overhead: $14,000 X 70% = $ 9,800
(b) Direct materials: 3 X $6 = $18.00
Direct labor: 1/2 X $14 = 7.00
Overhead: $7 X 70% = 4.90
Standard cost: $29.90
(c) The advantages of standard costs which are carefully established and
prudently used are:
1. Management planning is facilitated.
2. Greater economy is promoted by making employees more cost-conscious.
3. Setting selling prices is facilitated.
4. Management control is enhanced by having a basis for evaluation
of cost control.
5. Variances are highlighted in management by exception.
6. Costing of inventories is simplified and clerical costs are reduced
The standard cost of Product B manufactured by TLC Company includes three units of
direct materials at $5.00 per unit. During June, 28,000 units of direct materials are
purchased at a cost of $4.70 per unit, and 28,000 units of direct materials are used to
produce 9,000 units of Product B. (a)compute the total materials variance and the price
and quantity variances. (b)repeat (a), assuming the purchase price is $5.20 and the
quantity purchased and used is 26,200 units.
(a) Total materials variance:
= ( AQ X AP ) - ( SQ X SP )
= (28,000 X $4.70) - (27,000* X $5.00)
= $131,600 - $135,000
= $3,400 F
*9,000 X 3
Materials price variance:
= ( AQ X AP ) - ( AQ X SP )
= (28,000 X $4.70) - (28,000 X $5.00)
= $131,600 - $140,000 = $8,400 F
Materials quantity variance:
= ( AQ X SP ) - ( SQ X SP )
= (28,000 X $5.00) - (27,000 X $5.00)
= $140,000 - $135,000
= $5,000 U
(b) Total materials variance:
= ( AQ X AP ) - ( SQ X SP )
= (26,200 X $5.20) - (27,000 X $5.00)
= $136,240 - $135,000
= $1,240 U
Materials price variance:
= ( AQ X AP ) - ( AQ X SP )
= (26,200 X $5.20) - (26,200 X $5.00)
= $136,240 - $131,000
= $5,240 U
Materials quantity variance:
= ( AQ X SP ) - ( SQ X SP )
= (26,200 X $5.00) - (27,000 X $5.00)
= $131,000 - $135,000
= $4,000 F
Kendras Company standard labor cost of producing one unit of Product DD is 4 hours at
the of rate $12.00 per hour. During August, 40,800 hours of labor are incurred at a cost of
$12.10 per hour to produce 10,000 units of Product DD. (a)compute the total labor
variance (b)compute the labor price and quantity variances. (c)repeat (b), assuming the
standard is 4.2 hours of direct labor at $12.25 per hour.
(a) Total labor variance:
= ( AH X AR ) - ( SH X SR )
= (40,800 X $12.10) - (40,000* X $12.00)
= $493,680 - $480,000
= $13,680 U
*10,000 X 4
(b) Labor price variance:
= ( AH X AR ) - ( AH X SR )
= (40,800 X $12.10) - (40,800 X $12.00)
= $493,680 - $489,600
= $4,080 U
Labor quantity variance:
= ( AH X SR ) - ( SH X SR )
= (40,800 X $12.00) - (40,000 X $12.00)
= $489,600 - $480,000
= $9,600 U
(c) Labor price variance:
= ( AH X AR ) - ( AH X SR )
= (40,800 X $12.10) - (40,800 X $12.25)
= $493,680 - $499,800
= $6,120 F
Labor quantity variance:
= ( AH X SR ) - ( SH X SR )
= (40,800 X $12.25) - (42,000 X $12.25)
= $499,800 - $514,500
= $14,700 F
Winters Company uses a standard cost accounting system. During January, the company
reported the following manufacturing variances. Materials price variance $1,250U;
Materials quantity variance $700F; Labor price variance $525U; Labor quantity variance
$725U; overhead variance $800U. In addition, 8,000 units of product were sold at $8.00
per unit. Each unit sold had a standard cost of $6.00. Selling and administrative expenses
were $6,000 for the month. Prepare an income statement for management for the month
ended January 31, 2011.
WINTERS COMPANY
Income Statement
For the Month Ended January 31, 2011
Sales (8,000 X $8)......................................................................
Cost of goods sold (8,000 X $6) ...........................................
Gross profit (at standard).......................................................
Variances
Materials price................................................................... $1,250
Materials quantity.............................................................
(700)
Labor price .........................................................................
525
Labor quantity ...................................................................
725
Overhead.............................................................................
800
Total varianceunfavorable ...............................
Gross profit (actual) .................................................................
Selling and administrative expenses .................................
Net income ..................................................................................
$64,000
48,000
16,000
2,600
13,400
6,000
$ 7,400