10-17
9 Pages

10-17

Course Number: ACCT 102, Spring 2012

College/University: Golden Gate

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2/2/12 McGraw-Hill's Connect - Ebook Managerial Accounting, eBook 14/e Content Chapter10: Standard Costs and Variances Problems All applicable problems are available with McGraw-Hill's Connect Accounting . PROBLEM 10-9 Comprehensive Variance Analysis [LO1, L O2, L O3] Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the...

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Connect 2/2/12 McGraw-Hill's - Ebook Managerial Accounting, eBook 14/e Content Chapter10: Standard Costs and Variances Problems All applicable problems are available with McGraw-Hill's Connect Accounting . PROBLEM 10-9 Comprehensive Variance Analysis [LO1, L O2, L O3] Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant's contribution format income statement for October. The statement is shown below: p. 449 Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, I sure hope the plant has a standard cost system in operation. If it doesn't, I won't have the slightest idea of where to start looking for the problem. T he plant does use a standard cost system, with the following standard variable cost per ingot: connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 1/9 2/2/12 McGraw-Hill's Connect - Ebook During October the plant produced 5,000 ingots and incurred the following costs: a. Purchased 25,000 pounds of materials at a cost of $2.95 per pound. There were no raw materials in inventory at the beginning of the month. b. Used 19,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,600 direct labor-hours at a cost of $8.70 per hour. d. Incurred a total variable manufacturing overhead cost of $4,320 for the month. A total of 1,800 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis. Required: 1. Compute the following variances for October: a. Direct materials price and quantity variances. b. Direct labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. What impact did this figure have on the company's income statement? 3. Pick out the two most significant variances that you computed in (1) above. Explain to Mr. Santiago possible causes of these variances. PROBLEM 1010 Variance Analysis in a Hospital [LO1, L O2, L O3] What's going on in that lab? asked Derek Warren, chief administrator for Cottonwood Hospital, as he studied the prior month's reports. Every month the lab teeters between a profit and a loss. Are we going to have to increase our lab fees again? We can't, replied Lois Ankers, the controller. We're getting lots of complaints about the last increase, particularly from the insurance companies and connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 2/9 2/2/12 McGraw-Hill's Connect - Ebook governmental health units. They're now paying only about 80% of what we bill. I'm beginning to think the problem is on the cost side. T o determine if lab costs are in line with other hospitals, Mr. Warren has asked you to evaluate the costs for the past month. Ms. Ankers has provided you with the following information: a. T wo basic types of tests are performed in the labsmears and blood tests. During the past month, 2,700 smears and 900 blood tests were performed in the lab. b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 16,000 plates at a cost of $38,400. This cost is net of a 4% purchase discount. A total of 2,000 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month. c. During the past month, 1,800 hours of labor time were used in performing smears and blood tests. The cost of this labor time was $18,450. d. T he lab's variable overhead cost last month totaled $11,700. Cottonwood Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs: Plates: T hree plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed. Labor: Each smear should require 0.3 hours to complete, and each blood test should require 0.6 hours to complete. The average cost of this lab time is $12 per hour. Overhead: Overhead cost is based on direct labor-hours. The average rate of variable overhead is $6 per hour. p. 450 Required: 1. Compute the materials price variance for the plates purchased last month, and compute a materials quantity variance for the plates used last month. 2. F or labor cost in the lab: a. Compute a labor rate variance and a labor efficiency variance. b. In most hospitals, three-fourths of the workers in the lab are certified technicians and onefourth are assistants. In an effort to reduce costs, Cottonwood Hospital employs only onehalf certified technicians and one-half assistants. Would you recommend that this policy be continued? Explain. 3. Compute the variable overhead rate and efficiency variances. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain. connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 3/9 2/2/12 McGraw-Hill's Connect - Ebook PROBLEM 10-11 Basic Variance Analysis [LO1, L O2, L O3] Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta: During June, the company recorded this activity related to production of Fruta: a. T he company produced 3,000 units during June. b. A total of 8,000 pounds of material were purchased at a cost of $46,000. c. T here was no beginning inventory of materials; however, at the end of the month, 2,000 pounds of material remained in ending inventory. d. T he company employs 10 persons to work on the production of Fruta. During June, they worked an average of 160 hours at an average rate of $12.50 per hour. e. Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $3,600. T he company's management is anxious to determine the efficiency of Fruta production activities. Required: 1. F or direct materials: a. Compute the price and quantity variances. b. T he materials were purchased from a new supplier who is anxious to enter into a longterm purchase contract. Would you recommend that the company sign the contract? Explain. 2. F or labor employed in the production of Fruta: a. Compute the rate and efficiency variances. b. In the the past, 10 persons employed in the production of Fruta consisted of 4 senior workers and 6 assistants. During June, the company experimented with 5 senior workers and 5 assistants. Would you recommend that the new labor mix be continued? Explain. connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 4/9 2/2/12 McGraw-Hill's Connect - Ebook 3. Compute the variable overhead rate and efficiency variances. What relation can you see between this efficiency variance and the labor efficiency variance? problem 10-12 Basic Variance Analysis; the Impact of Variances on Unit Costs [LO1, L O2, L O3] Landers Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May. p. 451 T he production superintendent was pleased when he saw this report and commented: This $0.40 excess cost is well within the 2 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product. Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials. Required: 1. Compute the following variances for May: a. Materials price and quantity variances. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. How much of the $0.40 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.40 excess unit cost is traceable to apparent inefficient use of labor time? 4. Do you agree that the excess unit cost is not of concern? PROBLEM 10-13 Materials and Labor Variances; Computations from Incomplete connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 5/9 2/2/12 McGraw-Hill's Connect - Ebook Data [LO1, L O2] Topaz Company makes one product and has set the following standards for materials and labor: During the past month, the company purchased 6,000 pounds of direct materials at a cost of $16,500. All of this material was used in the production of 1,400 units of product. Direct labor cost totaled $28,500 for the month. The following variances have been computed: Required: 1. F or direct materials: a. Compute the standard price per pound for materials. b. Compute the standard quantity allowed for materials for the month's production. c. Compute the standard quantity of materials allowed per unit of product. 2. F or direct labor: a. Compute the actual direct labor cost per hour for the month. b. Compute the labor rate variance. (Hint: In completing the problem, it may be helpful to move from known to unknown data either by using the variance formulas or by using the columnar format shown in Exhibits 10-5 and 10-6.) p. 452 PROBLEM 10-14 Comprehensive Variance Analysis [LO1, L O2, L O3] Vitalite, Inc., produces a number of products, including a body-wrap kit. Standard variable costs relating to a single kit are given below: During August, 500 kits were manufactured and sold. Selected information relating to the connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 6/9 2/2/12 McGraw-Hill's Connect - Ebook month's production is given below: The following additional information is available for August's production of kits: Required: 1. What was the total standard cost of the materials used during August? 2. How many yards of material are required at standard per kit? 3. What was the materials price variance for August if there were no beginning or ending inventories of materials? 4. What is the standard direct labor rate per hour? 5. What was the labor rate variance for August? The labor efficiency variance? 6. What was the variable overhead rate variance for August? The variable overhead efficiency variance? 7. Complete the standard cost card for one kit shown at the beginning of the problem. PROBLEM 10-15 Comprehensive Variance Analysis [LO1, L O2, L O3] Helix Company produces several products in its factory, including a karate robe. The company uses a standard cost system to assist in the control of costs. According to the standards that have been set for the robes, the factory should work 780 direct labor-hours each month and produce 1,950 robes. The standard costs associated with this level of production are as follows: connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 7/9 2/2/12 p. 453 McGraw-Hill's Connect - Ebook During April, the factory worked only 760 direct labor-hours and produced 2,000 robes. The following actual costs were recorded during the month: At standard, each robe should require 2.8 yards of material. All of the materials purchased during the month were used in production. Required: Compute the following variances for April: 1. T he materials price and quantity variances. 2. T he labor rate and efficiency variances. 3. T he variable manufacturing overhead rate and efficiency variances. PROBLEM 10-16 Multiple Products, Materials, and Processes [LO1, L O2] Monte Rosa Corporation produces two products, Alpha8s and Zeta9s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials, X342 and Y561. The company uses a standard cost system, with the following standards for each product (on a per unit basis): Information relating to materials purchased and materials used in production during May follows: connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 8/9 2/2/12 McGraw-Hill's Connect - Ebook The following additional information is available: a. T he company recognizes price variances when materials are purchased. b. T he standard labor rate is $20.00 per hour in Sintering and $19.00 per hour in Finishing. c. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,000, and 2,850 direct labor-hours were worked in Finishing at a total labor cost of $59,850. d. Production during May was 1,500 Alpha8s and 2,000 Zeta9s. p. 454 Required: 1. Prepare a standard cost card for each product, showing the standard cost of direct materials and direct labor. 2. Compute the materials quantity and price variances for each material. 3. Compute the direct labor efficiency and rate variances for each operation. 2012 McGraw-Hill Higher Education Any use is subject to the Terms of Use and Privacy Notice. McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies. connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs 9/9
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