Chapters 10 and 11 Solutions

Chapters 10 and 11 Solutions - 10-28 10-46 11-49 11-31...

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Unformatted text preview: 10-28, 10-46, 11-49, 11-31 EXERCISE 10-28 Direct-material price variance = PQ(AP – SP) = 6,500($7.40 – $7.20) = $1,300 Unfavorable Direct-material quantity variance = SP(AQ – SQ) = $7.20(4,300* – 4,000†) = $2,160 Unfavorable *AQ = 4,300 pounds = $31,820 ÷ $7.40 per pound † SQ = 4,000 pounds = 2,000 units × 2 pounds per unit Direct-labor rate variance = AH(AR – SR) = 6,450*($18.30 – $18.00) = $1,935 Unfavorable *AH = 6,450 hours = $118,035 ÷ $18.30 per hour Direct-labor efficiency variance = SR(AH – SH) = $18(6,450 – 6,000*) = $8,100 Unfavorable *SH = 6,000 hours = 2,000 units × 3 hours per unit PROBLEM 10-46 1. Type I fertilizer: Price variance: Actual quantity purchased x actual price 5,000 pounds x $ .53……………………………… Actual quantity purchased x standard price 5,000 pounds x $ .50……………………………… Direct-material price variance………………………. Quantity variance: Actual quantity used x standard price 3,700 pounds x $ .50……………………………… Standard quantity allowed x standard price 4,400 pounds* x $ .50…………………………….. Direct-material quantity variance…………………… $2,650 2,500 $ 150 Unfavorable $1,850 2,200 $ 350 Favorable * 40 pounds x 55 clients x 2 applications Type II fertilizer: Price variance: Actual quantity purchased x actual price 10,000 pounds x $ .40……………………………. Actual quantity purchased x standard price 10,000 pounds x $ .42……………………………. Direct-material price variance………………………. $4,000 4,200 $ 200 Favorable PROBLEM 10-46 (CONTINUED) Quantity variance: Actual quantity used x standard price 7,800 pounds x $ .42……………………………… Standard quantity allowed x standard price 8,800 pounds* x $ .42…………………………….. Direct-material quantity variance…………………… $3,276 3,696 $ 420 Favorable * 40 pounds x 55 clients x 4 applications 2. Direct-labor variances: Rate variance: Actual hours used x actual rate 165 hours x $11.50…………………….. Actual hours used x standard rate 165 hours x $9.00……………………… Direct-labor rate variance………………… Efficiency variance: Actual hours used x standard rate 165 hours x $9.00………………………. Standard hours allowed x standard rate 220 hours* x $9.00……………………... Direct-labor efficiency variance…………. $1,897.50 1,485.00 $ 412.50 Unfavorable $1,485.00 1,980.00 $ 495.00 Favorable * 2/3 hours x 55 clients x 6 applications 3. Actual cost of applications: Type I fertilizer: Actual quantity used x actual price (3,700 pounds x $ .53)…. Type II fertilizer: Actual quantity used x actual price (7,800 pounds x $ .40)…. Direct labor: Actual hours used x actual rate (165 hours x $11.50)………... Total actual cost…………………………………………………………. $1,961.00 3,120.00 1,897.50 $6,978.50 Yes, the service was a financial success. Wolfe charged clients $40 per application, generating revenue of $13,200 (55 clients x 6 applications x $40). With costs of $6,978.50, the fertilization service produced a profit of $6,221.50. 4. (a) Yes, the service was a success. Overall costs were controlled as indicated by a total favorable variance of $902.50. In addition, each of the three cost components (Type I fertilizer, Type II fertilizer, and direct labor) produced a net favorable variance. Wolfe did have a sizable unfavorable labor-rate variance as a result of his having to pay $11.50 per hour when a more typical wage rate would have been $9.00 per hour. This inflated rate is attributable to the tight labor market, which is beyond his control. Note: Part of the variance may have been caused by a standard rate that was set too low, especially given the fact that this is a new service. Type I fertilizer: Price variance………………………………….. Quantity variance……………………………… Type II fertilizer: Price variance……………………………….. Quantity variance……………………………… Direct labor: Rate variance…………………………………… Efficiency variance…………………………… Total material and labor variances (b) 5. 200.00 Favorable 420.00 Favorable 412.50 Unfavorable 495.00 Favorable $902.50 Favorable In this case, several of the favorable variances may have come back to haunt Wolfe. The favorable labor efficiency variance means that less time is being spent on the job than originally anticipated. This may indicate that the part-time employee is rushing and doing sloppy work. Also, less fertilizer used than budgeted (i.e., favorable quantity variances for both Type I and Type II) would likely give rise to an increased occurrence of weeds as well as a lack of greening in the lawn. This is a management judgment for Wolfe to make. If the service is continued, Wolfe should consider hiring a full-time employee and insisting on the standard amount of fertilizer being applied to each lawn. PROBLEM 11-49 1. $150.00 Unfavorable 350.00 Favorable Calculation of variances: Direct-material price variance = PQ(AP – SP) = 15,000($2.20* – $2.00) = $3,000 Unfavorable *$2.20 = $33,000 ÷ 15,000 Direct-material quantity variance = SP(AQ – SQ) = $2.00(15,000 – 14,500*) = $1,000 Unfavorable *14,500 lbs. = 725 × 20 lbs. per unit Direct-labor rate variance = AH(AR – SR) = 4,000($18.90* – $18.00) = $3,600 Unfavorable *$18.90 = $75,600 ÷ 4,000 Direct-labor efficiency variance = SR(AH – SH) = $18.00(4,000 – 3,625*) = $6,750 Unfavorable *3,625 hours = 725 units × 5 hours per unit Variable-overhead spending variance = actual variable overhead – (AH × SVR) = $5,500 – (4,000)($1.50) = $500 Favorable Variable-overhead efficiency variance = SVR(AH – SH) = $1.50(4,000 – 3,625) = $562.50 Unfavorable Fixed-overhead budget variance = actual fixed overhead – budgeted fixed overhead = $13,000 – $12,500* = $500 Unfavorable *$12,500 = $150,000 (annual) ÷ 12 months Fixed-overhead volume variance = budgeted fixed overhead – applied fixed overhead = $12,500 – $10,875* = $1,625 U† *$10,875 = 725 units × $15.00 per unit † Some accountants would designate a positive volume variance as "unfavorable." EXERCISE 11-31 Budgeted fixed overhead................................................................. Actual fixed overhead ..................................................................... Budgeted production in units.......................................................... Actual production in units .............................................................. Standard machine hours per unit of output................................... Standard variable-overhead rate per machine hour...................... Actual variable-overhead rate per machine hour........................... Actual machine hours per unit of output........................................ Variable-overhead spending variance ........................................... Variable-overhead efficiency variance............................................ Fixed-overhead budget variance..................................................... Fixed-overhead variance.................................................................. Total actual overhead....................................................................... Total budgeted overhead (flexible budget)..................................... Total budgeted overhead (static budget)....................................... Total applied overhead..................................................................... $ 25,000   $ 32,500a   12,500   12,000c       4 hours      $8.00      $9.00b       3d $ 36,000 U $ 96,000 F $ 7,500 U $ 1,000g U* $356,500 $409,000e $425,000f $408,000 *Some accountants would designate a positive fixed-overhead volume variance as unfavorable. EXERCISE 11-31 (CONTINUED) Explanatory Notes: a. Fixed-overhead budget variance = actual fixed overhead – budgeted fixed overhead $7,500 U = X – $25,000 X = $32,500 = actual fixed overhead b. Total actual overhead = actual variable overhead + actual fixed overhead $356,500 = X + $32,500 X = $324,000 = actual variable overhead Variable-overhead spending variance = actual variable overhead – (AH × SR) $36,000 U = $324,000 – (AH × $8) $8AH = $288,000 AH = 36,000 Actual variable-overhead rate per machine hour = actual variable overhead actual hours = $324,000 = $9 per hour 36,000 EXERCISE 11-31 (CONTINUED) = Fixed-overhead rate budgeted fixed overhead budgeted machine hours = c. $25,000 (12,500 units)(4 hrs. per unit) = $.50 per hr. Total standard overhead rate = standard variable overhead rate + fixed-overhead rate $8.50 = $8.00 + $.50 Total applied overhead = total standard hours × total standard overhead rate $408,000 = X × $8.50 X = 48,000 = total standard hrs. Actual production = total standard hrs. standard hrs. per unit = 48,000 = 12,000 units 4 e. Actual machine hrs. per unit of output = total actual machine hrs. actual production = d. 36,000 hrs. = 3 hrs. per unit 12,000 units Total budgeted overhead (flexible budget) = budgeted fixed overhead + (SVR × SH) = $25,000 + ($8.00 × 12,000 units × 4 hrs. per unit) = $409,000 EXERCISE 11-31 (CONTINUED) f. Total budgeted overhead (static budget) = total standard budgeted standard hrs. overhead rate production per unit = ($8.50)(12,500)(4) = $425,000 g. Fixed overhead volume variance = budgeted fixed overhead – applied fixed overhead = $25,000 – ($.50)(12,000 × 4) = $1,000 U* * Some accountants would designate a positive volume variance as "unfavorable." ...
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This note was uploaded on 11/21/2011 for the course BUS 211 taught by Professor Mr.taylor during the Spring '10 term at Emory.

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