# Solutions to Exam 2 Study Problems - 6-20 1. (30 min.)...

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6-20(30 min.)Revenues and production budget.1.SellingPriceUnitsSoldTotalRevenues12-ounce bottles\$0.254,800,000a\$1,200,0004-gallon units1.501,200,000b1,800,000\$3,000,000a400,000 × 12 months = 4,800,000b100,000 × 12 months = 1,200,0002.Budgeted unit sales (12-ounce bottles)4,800,000Add target ending finished goods inventory600,000Total requirements5,400,000Deduct beginning finished goods inventory900,000Units to be produced4,500,0003.BeginningBudgetedTargetBudgeted=+inventorysalesending inventoryproduction= 1,200,000 + 200,0001,300,000= 100,000 4-gallon units
7-25(30 min.)Price and efficiency variances, journal entries.1.Direct materials and direct manufacturing labor are analyzed in turn:Actual CostsIncurred(Actual Input Qty.× Actual Price)Actual Input Qty.× Budgeted PriceFlexible Budget(Budgeted InputQty. Allowed forActual Output× Budgeted Price)DirectMaterials(100,000×\$3.10a)\$310,000PurchasesUsage(100,000×\$3.00)(98,073×\$3.00)\$300,000\$294,219(9,810×10×\$3.00)\$294,300\$10,000 U\$81 FPrice varianceEfficiency varianceDirectManufacturingLabor(4,900×\$21b)\$102,900(4,900×\$20)\$98,000(9,810×0.5×\$20) or(4,905×\$20)\$98,100\$4,900 U\$100 FPrice varianceEfficiency variancea\$310,000 ÷ 100,000 = \$3.10b\$102,900 ÷ 4,900 = \$212.Direct Materials Control300,000Direct Materials Price Variance10,000Accounts Payable or Cash Control310,000Work-in-Process Control294,300Direct Materials Control294,219Direct Materials Efficiency Variance81Work-in-Process Control98,100Direct Manuf. Labor Price Variance4,900Wages Payable Control102,900Direct Manuf. Labor Efficiency Variance1003.Some students’ comments will be immersed in conjecture about higher prices formaterials, better quality materials, higher grade labor, better efficiency in use of materials, and soforth. A possibility is that approximately the same labor force, paid somewhat more, is takingslightly less time with better materials and causing less waste and spoilage.A key point in this problem is that all of these efficiency variances are likely to beinsignificant. They are so small as to be nearly meaningless. Fluctuations about standards arebound to occur in a random fashion.Practically, from a control viewpoint, a standard is a bandor range of acceptable performance rather than a single-figure measure.4.The purchasing point is where responsibility for price variances is found most often. Theproduction point is where responsibility for efficiency variances is found most often. Chemical,Inc., may calculate variances at different points in time to tie in with these differentresponsibilityareas.
7-26(20 min.)Continuous improvement (continuation of 7-25).1.Standard quantity input amounts per output unit are:DirectMaterials(pounds)DirectManufacturing Labor(hours)JanuaryFebruary (Jan. × 0.997)March (Feb. × 0.997)10.00009.97009.94010.50000.49850.49702.The answer to requirement 1 of Question 7-25 is identical except for the flexible- budgetamount.Actual CostsIncurred(Actual Input Qty.×Actual Price)Actual Input Qty.×Budgeted PriceFlexible Budget(Budgeted Input Qty. Allowedfor Actual Output×Budgeted Price)DirectMaterials(100,000 × \$3.10a)\$310,000PurchasesUsage(100,000 × \$3.00)(98,073 × \$3.00)\$300,000\$294,219(9,810 × 9.940 × \$3.00)\$292,534\$10,000 U\$1,685 UPrice varianceEfficiency varianceDirectManuf.

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Term
Spring
Professor
Olvera
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