Efficiencies have improved in the direction indicated

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Efficiencies have improved in the direction indicated by the production manager—but, it is unclear whether they are a trend or a one-time occurrence. Also, overall, variances are still 7.6% of flexible input budget. GloriaDee should continue to use the new material, especially in light of its superior quality and feel, but it may want to keep the following points in mind: The new material costs substantially more than the old ($1.75 in 2009 and $1.6625 in 2010 vs. $1.50 per meter). Its price is unlikely to come down even more within the coming year. Standard material price should be re-examined and possibly changed. GloriaDee should continue to work to reduce direct materials and direct manufacturing labor content. The reductions from May 2009 to May 2010 are a good development and should be encouraged. 7-11
7-24 (30 min.) Price and efficiency variances, journal entries. 1. Direct materials and direct manufacturing labor are analyzed in turn: Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Direct Materials (100,000 × $4.65 a ) $465,000 Purchases Usage (100,000 × $4.50) (98,055 × $4.50) $450,000 $441,248 (9,850 × 10 × $4.50) $443,250 $15,000 U $2,002 F Price variance Efficiency variance Direct Manufacturing Labor (4,900 × $31.5 b ) $154,350 (4,900 × $30) $147,000 (9,850 × 0.5 × $30) or (4,925 × $30) $147,750 $7,350 U $750 F Price variance Efficiency variance a $465,000 ÷ 100,000 = $4.65 b $154,350 ÷ 4,900 = $31.5 2. Direct Materials Control 450,000 Direct Materials Price Variance 15,000 Accounts Payable or Cash Control 465,000 Work-in-Process Control 443,250 Direct Materials Control 441,248 Direct Materials Efficiency Variance 2,002 Work-in-Process Control 147,750 Direct Manuf. Labor Price Variance 7,350 Wages Payable Control 154,350 Direct Manuf. Labor Efficiency Variance 750 3. Some students’ comments will be immersed in conjecture about higher prices for materials, better quality materials, higher grade labor, better efficiency in use of materials, and so forth. A possibility is that approximately the same labor force, paid somewhat more, is taking slightly 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 be insignificant. They are so small as to be nearly meaningless. Fluctuations about standards are bound to occur in a random fashion. Practically, from a control viewpoint, a standard is a band or range of acceptable performance rather than a single-figure measure. 4. The purchasing point is where responsibility for price variances is found most often. The production point is where responsibility for efficiency variances is found most often. The Monroe Corporation may calculate variances at different points in time to tie in with these different responsibility areas.
7-25 (20 min.) Continuous improvement (continuation of 7-24). 1. Standard quantity input amounts per output unit are: Direct Materials (pounds) Direct Manufacturing Labor (hours) January February (Jan. × 0.988) March (Feb. × 0.988) 10.000 9.880 9.761 0.500 0.494 0.488 2. The answer is the same as that for requirement 1 of Question 7-24, except for the flexible-budget amount.

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