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Unformatted text preview: ~ {Fish"Id midenymdlﬂdﬂtsd'WebPagﬁﬂlachonterrb’sﬁudentfieamingEKercisempxkoulseFDﬂiESIMQ Stu s erID : 13091}? Std 5510 : 134 Stro  e‘t'er e: ST U D Etc o u a @ alk me through a similar problem El Let's walkthrough a similar problem and calculate
the direct materials price variance. Consider Quality Curtains Company, a
manufacturer ofwindow curtains. Budgeted and
actual activity, as well as standard price and
quantity information is provided in the whiteboard
area. Standard Price and Quantities
Materials yards per unit
per yard DL hours per unit per DL hour Labor Remember, the direct materials price variance
measures the difference between the price the
company paid forthe direct materials purchased
and the price the company had budgetedto pay.
using standard costs. Winn
Planned Produ ction
Actual Production unts
unts Let's start by recalling howthe direct materials
price variance is calculated. Selectthe correct
formula from the following choices. Materials Purchased
Total Cost of Materials Purchased
Materials Used yards yards DL hours used
Actual DL cost hours
Standard Price
X [Actual Quantity Used — Standard Quantity} Actual Quantity Purchased
X [Actual Price — Standard Price} Actual Price
X (Actual Quantity Used — Standard Quantity} Standard Quantity
X (Actual Price — Standard Price} a Enternet Protected Mode: On 4‘9 V 3110096 V "   . on. . b. no... . x l httpsWd msdevmcdufdmstebPagﬁftlashfcontentfsiudentﬁea rn ing Exercise.aspxicourseIDz4581949 Btu serID: 130917'9 Std 55ID: 134 Stro letype: STUDﬁtcou % B I ise ' Walk me through a similar problem direct materials price variance. Nowwe have everything we need to calculate the direct materials price variance.
Calculate the variance and enter it in the box below. Note: Enter the variance amount as a positive
number. Variance = +i'— $ X Actually, the variance is —‘l .000. Just subtract the
standard price (‘12) from the actual price (11.67) and
multiply bythe actual quantity purchased (3,000]. The last step is deciding whetherthis variance is
favorable or unfavorable. A good wayto think about
the diﬁerence is this: Avariance is favorable ifthe
result is goodforthe company and unfavorable ifit
is badforthe company. It is generally a good ideato ignore whether the
variance is positive or negative and insteadjust
focus on whetherthe variance is goodforthe
company. Determine whetherthis $1,000 variance is
favorable or unfavorable to Quality Curtains. Standard Price and Quantities
Materials 6
12.00
0.5
9.00 Labor WWII
Planned Production
Actud Production 500
?00 M aterials Purchm ed
Total C ost of Materials Pu rchas ed
M aterials Used 3.000
35.000 41.400 360
3.050 DL hours used
ﬁctuei DL cost yards per unit
peryard DL hours per unit iit
perDL hour unﬂs
unﬂs
yids
vads hours Actual Quantity Purchased X (Actual Price  Standard Price} 3,000 X (11.666667—12]=—1000 a Internet Protected Mode: Dn "— I .«IOm—g 5.. on... . Em I httpsﬂr'dmsdevryedufdrnWebPage5.i'fash."content‘studenbl'learningExerci5e.aspxhourseID:45819495tuserID:l3091795tdssID:l345troletype:STUD&cou g l E I Walk me through a similar problem i curllpany. 3 Determine whetherthis $1,000 variance is
favorable or unfavorable to Quality Curtains. Favorable Unfavorable \/ Great! The company paid less per unitthan was
expected during the budgeting process, so this is a
favorable variance. So now we knowthat Quality Curtains has a
favorable direct materials price variance of $1,000.
This is because the direct materials purchased
cost less than the company expectedthem to.
Some possible causes ofthis favorable variance
are: 1] The managerin charge ofpurchasing skillfully
negotiatedalower price. 2) The company bought lower—quality direct
materials. 3] The company boughtthe direct materials in bulk,
so they received a discount. 4] The marketforthe materials is over—supplied, I driving down prices. l :r::T'..::;5' .1 Done 9 Internet  Protected Mode: On {a V 611.00% V .  _ . Eh I a Q n I a  I I I .
I httpstr'r'dms.danymdn‘m’WehPagﬁ/ﬂasMenritemistudmtfiearningExercisempx?cnurseiD:4581949&u5erID:13091?95tdssID:134Btroletype: STUDBtcou g l E I Walk me through a similar problem The next piece is the actual quantity ofdirect materials
the company used in production. Standard Price and Quantities Materials 6 vards per unit
Enterthe actual quantity ofmaterials used in the box at 12.00 peryard
bellow; Labor 0.5 DL hours per unit r ' l 9.00 perDL hour ' WW
Planned Production 500 units
ﬂctud Production T00 units X No, sorry. The amount ofmaterials used was
861113“? 4.400 Yards Materials Purchmed 3.000 vards I Total Cost of Materials Purchased 35.000
Materials Used 4.400 vards The last piece ofthe equation is to determine the
standard quantity. Calculate the standard quantity of
direct materials budgeted for production and enter it in
the box below. DL hours used 360 hours
actual DL cost 3.060 i Standard Price X [A ctual Quantity Used — Standard Quantity}
Quantity = i'. . I I 12.ED X [4.400 — Standard Quantity} X No, sorry. This is incorrect. Let's look atthis 1200 X [4400 '[ 5x W 3} calculation more closely. Let's start by identifying the standard quantity of
materials per unit. Enterthe standard quantity of direct
materials per unit in the box below. Quantity = G: Done 9 Internet  Protected Mode: On {a V 611.00% V '.‘ ' ''I 'I II‘ru I ' .. u . 0.. n httpsWd mMMdnﬁfWebPagﬁ/ﬁasMcontenifsmdemﬂeerning Exerci se.aspx?courseID:4581949 Btu serID:1309179 BidssID: 134 Btroletyp e: STU D St: ou g [E I Walk me through a similar problem “Home aluiiualuquaiilu} u. ...a.e..a.a. A
Calculate the standard quantity of direct materials and Staﬂdfird Pfice and Quantities _
enter it in the box below. Materials 6 st per unit
12.00 peryard
Quantity: 4209 Labor 0.5 DL hours per unit
9.00 perDL hour WW
\/ Excellent! This is the amount ofdirect materials the Planned Production 500 units
company had budgetedto use forthis level of Jam”! Production mu units
production. Materials Purchased 3.000 vards ' _ _ Total Cost of Materials Purchased 35.000 Nowwe have everything we needto calculate the direct Materials Used 4 400 “Ids
materials quantity variance. ' DLh d 360 h
Calculate the direct materials quantity variance and amuguéilfoit 3 060 ours enter it in the box below. Standard Price X [A ctual Quantity Used  Standard Quantity} Direct materials quantity variance: +f $ 12.00 X [4.400 — 4.200} Answer l ir:TT'..::;i' .1 Done 9 Internet  Protected Mode: On {a V 611.00% V c— : ...A . 5. .0... . E. ' httpsWd mMMdnﬁfWebPagﬁ/ﬁaswcontenﬂsmdentflea rningExerci 5e.a5px?courseID:4581949 Btu serID:1309179 BtclssID: 134 Btroletyp e: STU D St: ou a LE I Walk me through a similar problem It is generally a good ideato ignore whetherthe variance _‘
is positive or negative andjust focus on whetherthe
variance is goodforthe company. Determine whetherthis $2,400 variance is favorable or
unfavorable to Quality Curtains. Favorable « Unfavorable y Correct! The company used more materials than
expectedforthis level of production. So now we knowthatuuality Curtains has an
unfavorable direct materials quantity variance of $2,400.
This is because the company used more direct
materials than the budget calledforto produce 700
units. Some possible causes ofthis unfavorable variance are: ‘1] Lower quality direct materials leadto more scrap or
waste. 2] Poorly trained direct labor leadto more scrap or
waste. 3] Equipment malfunction caused more scrap or waste.
4] Workers were rushed, leading to more scrap or . waste. l\ :‘r'"' fiLi' It I Done 9 Internet  Protected Mode: On {a V 6110093 V j. WWW n——.1 _, Eiﬂ I Q] https:."."dms.devry.ed u..'d n15."WebPa g EEr'fIEE h."c o ntent"studentr'lea rningExerci seas px? courseID:4581949&u5er10:l309179&cl551[§: 1346:1roletyp e: ST U D St: ou g I E I Walk me through a similar problem ﬂ V Very nice work! This variance occurred because the IL]
company paid its employees $8.50 per labor hour, but Stand ard price and Quantities
expectedto pay $9.00 per hour. rum,— 5 yards per unit
12.00 peryard
Labor 0.5 DL hours per unit
The last step is deciding whetherthis variance is favorable 300 per [JL hour
or unfavorable. A goodway to think about the diﬁerence is
this: Avariance is favorable ifthe result is goodforthe WW
company and unfavorable ifit is badforthe company. It is manned production 500 units
generallyagoodideato ignore whetherthe variance is Actual production mg units
positive or negative andjustfocus on whetherthe variance is
goodforthe 000193”? Materials Purchmed 3.000 yards
_ _ _ _ Total Cost of Materials Purchased 35.000
Determine whetherthis —$180.00 variance is favorable or Materials Used 4_400 wards unfavorable to Quality Curtains. DL hours used 360 hours
actual DL cost 3.060 Favorable
Actual Quantity DL hours X [Actual Rate  Standard Rate} ur bl "mm 9 aaoxra.50s.ooy=1an.nn V Excellent! Quality Curtains paid it its employees
$3.50 per hour, even though the budget expectedto pay
$9.00 an hour. This is a goodthing forthe company, so
this is afavorable variance. So now we knowthatuuality Curtains has afavorable direct
labor rate variance of $180. This is because the rate paid
per direct labor hourwas less than the company expected it to be. Some possible causes ofthis favorable variance are: "v I . I
.\ r....... . Done 9 Internet  Protected Mode: On {a V @1100'36 V ' W. I Ex I a, httpsu'fd mack:thde mstebPa g Efflashfcontentr’studentflearningExercise.aspx?courseIDz45819~495tuserIDzl30917951dEEID: 1346:1roletyp e: ST U D St: ou a I E I Walk me through a similar problem ﬂ \/ Nice Work! In orderto produce 700 units, the Id _ _ _
budgetsuggests the company should have used 350 W
directlaborhours (700 units)(0.5 DL hours per unit). Materials yards per unit
per yard
Labor . DL hours per unit
Nowwe have everything we needto calculate the direct . per DL hour laborelﬁciency variance.
Budgeted and Actual Information Planned Production 50 units
Actual Production ?0 units Calculate the direct labor efﬁciency variance and enter
it inthe box below. Materials Purchased 300 yards
Total Cost of Materials Purchased $ 35 ,00
Materials Used 11,40 yards Variance = +J— $ 9] \/ Nice Job! The variance is the result ofthe
difference between the number oflabor hours the DL Hours Used 35 hours
company used andthe number oflabor hours the Adua' DL C051 $ 3.05 company bUdgetedm use form!) “mtg orpmdumon' Standard Price per 0L hour X (Actual 0L hours  Standard 0L hours} 9.00)( (350  350 }= 90.00
The last step is deciding whetherthis variance is favorable or unfavorable. A goodwayto think aboutthe
difference is this: Avariance is favorable ifthe result is
goodforthe company and unfavorable ifit is bad for
the company. It is generally a good ideato ignore whetherthe
variance is positive or negative andjust focus on
whether or notthe variance is goodforthe company. Determine whetherthis $90.00 variance is favorable orl V
1 llll y '. r _: . Done 9 Internet  Protected Mode: On V”; V Q1003; V I. Learni o Emc' . '.
\. X Sorry, this is notthe right equation. Remember, the variable overhead price variance
measures the eiTect ofthe diﬁerence between
the allocation rate the company budgeted and
the allocation rate the companywould have
budgeted hadthey known the actual number of
labor hours, so we use this equation: Actual Allocation Units * (Actual Rate — Standard
Rate] The ﬁrst step is deciding how many actual
allocation units the company used during the
period. Because Fancy Cheese Dip uses
machine hours to applyvariable overhead, the
allocation unit is machine hours. Enterthe actual machine hours used during the
periodin the box below. Machine hours used: Answer Standard Price and Quantities
Materials Labor Machine Hours
Variable Overhead Application Rate Budgeted and Actual Information
Planned Production
Actual Production Materials Purchased
Total Cost of Materials Purchased
Materials Used Machine Hours Used
Machine Hours Budgeted for Period DL Hours Used
Actual DL Cost Total Variable Manufacturing Overhead Actual Fixed Overhead
Total Budgeted Fixed Overhead 1,000
000 5,000
00,000
4,000 2,050
2,000 440
5,000 10,000
12,000
14,000 Actual Allocation Units * {Actual Rate — Standard Rate) £31; I g, httpsWdrnsdevlytdufd mstebPa g esfflashfcontentu’studentflearningExercise.aspxhourseID:45819495£user1D=l3091?9&dssID:13451roletyp e: ST U D St: ou g E Walk me through a similar problem ﬂ pounds per unit
per pound DL hours per unit per DL hour machine hours perunit
permachine hour units
units pounds
pounds hours
hours DL hours Done I {1‘ .. ming Exercise  Windows IntemetExplurer __ 9 Internet  Protected Mode: On l g, http s:''cms .devryed ur'cl n15."‘."."ebPa g eEr'flaE h."c o ntent"stuclentr'lea rningExerci seas px? courseIDz4581949 &u5erID:1309179 ﬁthEEID: 1346:1roletyp e: ST U D St: ou g I E I Walk me through a similar problem ﬂ think about what the variable overhead
allocation rate would be ifthe company could
look into the future while creating the budget
and know exactly how many machine hours
would be used during the period andthe total
variable overhead expense. Let's start by recalling howwe calculate a
predetermined overhead rate (PDQR]. Select
the correct equation from the list below. Total Actual Variable [hierheadal
Total Actual Allocation Activity Units Total Budgeted Variable CtrverheadiI
Total Budgeted Allocation Activity Units \/ Excellent! The PDORis set at the beginning
ofthe period, so the company has to use
budgetedinformation. Let's begin by deciding the total budgeted
variable overhead, assuming Fancy Cheese Dip
can predictthe future and knows EXACTLY how
many machine hours itwill use andthe EXACT
amount ofvariable overhead. Determine the total budgeted variable overhead
in this situation and enter it in the box below. Standard Price and Quantities
Materials Labor Machine Hours
Variable Overhead Application Rate Budgeted and Actual Information
Planned Production
Actual Production Materials Purchased
Total Cost of Materials Purchased
Materials Used Machine Hours Used
Machine Hours Budgeted for Period DL Hours Used
Actual DL Cost Total Variable Manufacturing Overhead Actual Fixed Overhead
Total Budgeted Fixed Overhead 1,000
000 5,000
00,000
4,000 2,050
2,000 440
6,000 10,000
12,000
14,000 Actual Allocation Units ‘ {Actual Rate — Standard Rate] 2,650 ’ (Actual Rate —Standard Rate] pounds per unit
per pound DL hours per unit per DL hour machine hours perunit
permachine hour units
units pounds
pounds machine hours
machine hours DL hours 2,650 ’ ( (Total Budgeted Variable Overhead I Total Budgeted
Allocation Activity Units] — Standard Rate] 9 Internet  Protected Mode: On ...
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This note was uploaded on 03/26/2012 for the course AC505 AC505 taught by Professor Dillan during the Spring '10 term at Keller Graduate School of Management.
 Spring '10
 DILLAN

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