A key point in this problem is that all of these

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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. Actual Costs Incurred Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Qty. Allowed Allowed for 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 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
7-13 7-25 7-25 (20 min.) Continuous Continuous improvement improvement (continuation (continuation of of 7-24). 7-24). 1. Standard quantity input amounts per output unit are: 2. The answer is the same as that for requirement 1 of Question 7-24, except for the flexible-budget amount. $15,000 U $8,592 U Price variance Efficiency variance $7,350 U $2,796 U Price variance Efficiency variance a $465,000 ÷ 100,000 = $4.65 b $154,350 ÷ 4,900 = $31.5 Using continuous improvement standards sets a tougher benchmark. The efficiency variances for January (from Exercise 7-24) and March (from Exercise 7-25) are: Note that the question assumes the continuous improvement applies only to quantity inputs. An alternative approach is to have continuous improvement apply to the total budgeted input cost per output unit ($45 for direct materials in January and $15 for direct manufacturing labor in January). 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 Actual Costs Incurred (Actual (Actual Input Input Qty. Qty. × Actual Actual Price) Price) Actual Actual Input Input Qty. Qty. × Budgeted Budgeted Price Price Flexible Budget (Budgeted Input Qty. Allowed for for Actual Actual Output Output × Budgeted Budgeted Price) 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 × 9.761 × $4.50) $432,656 Direct Manuf. Labor (4,900 × $31.5 b ) $154,350 (4,900 × $30) $147,000 (9,850 × 0.488 × $30) $144,204 January March Direct materials Direct manufacturing labor $2,002 F $ 750 F $8,592 U $2,796 U
7-14 7-26 7-26 (20 30 min.) Materials Materials and and manufacturing manufacturing labor labor variances, variances, standard standard costs. costs. 1. Direct Materials $370 U $1,500 F Price variance Efficiency variance $1,130 F Flexible-budget variance The unfavorable materials price variance may be unrelated to the favorable materials efficiency variance. For example, (a) the purchasing officer may be less skillful than assumed in the budget, or (b) there was an unexpected increase in materials price per square yard due to reduced competition. Similarly, the favorable materials efficiency variance may be unrelated to the unfavorable materials price variance. For example, (a) the production manager may have

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