And plot the variance data the chart developed requirement

Exercises

All applicable Exercises are available in Connect.

requirement. Show how the solution will change if the following information changes: the standard direct-labor rate is $15 per hour, and the standard direct-material price is $.79 per kilogram.

Choose one of the following manufacturers (or any manufacturer of your choosing), and use the Internet to gather information about any new products the company has recently introduced or plans to introduce.

Required:

Discuss the steps you think the company would go through in establishing standard costs for its new product.

■ Exercise 10–26 Straightforward Calculation of Variances (, ) During June, Danby Company’s material purchases amounted to 6,000 pounds at a price of $7.30 per pound. Actual costs incurred in the production of 2,000 units were as follows:

■ Exercise 10–28 Cost Variance Investigation ()

The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current year.

■ Exercise 10–29 Standard Allowed Input ()
Due to evaporation during production, Plano Plastics Company requires 8 pounds of material input for every 7 pounds of good plastic sheets manufactured. During May, the company produced 4,200 pounds of good sheets.

Actual quantity used per unit of

Direct-material quantity

■ Exercise 10–31 Journal Entries under Standard Costing (Appendix) (, )
Refer to the data in , regarding Saskatewan Can Company. Prepare journal entries to:
1. Record the purchase of direct material on account.

2. Add direct-material and direct-labor cost to Work-in-Process Inventory. 3. Record the direct-material and direct-labor variances.

All applicable Problems are available in Connect.

■ Problem 10–33 Direct-Material and Direct-Labor Variances (, )

$82.5

■ Problem 10–34 Determining Standard Material Cost ()
South Atlantic Chemical Company manufactures industrial chemicals in Rio de Janeiro, Brazil. The company plans to introduce a new chemical solution and needs to develop a standard product cost. The new chemical solution is made by combining a chemical compound (nyclyn) and a solution (salex), heating the mixture, adding a second compound (protet), and bottling the resulting solution in 10-liter containers. The initial mix, which is 11 liters in volume, consists of 12 kilograms of nyclyn and 9.6 liters of salex. A 1-liter reduction in volume occurs during the boiling process. The solution is cooled slightly before 5 kilograms of protet are added. The addition of protet does not affect the total liquid volume.

19,21

1. Direct-material price variance.
2.

3. 4. Direct-labor rate variance.

and installation of upscale landscaping plans (e.g., trees, shrubs, fountains, and lighting). With his clients continually requesting additional services, Sal recently expanded into lawn maintenance, including fertilization.

The following data relate to his first year’s experience with 55 fertilization clients:

Type II, $.42

Fertilizer usage: 40 pounds per application

Required:

Why?

These variances are especially outstanding, given that the amounts are favorable and small. (Santa Rosa’s budgeted material and labor costs generally each average about $350,000 for similar periods.) Additional data follow.

Required:

company’s variances and determine whether the change to a new supplier and Schmidt’s team-building/morale-boosting training exercises appear to be working.

The following data pertain to Colgate-Palmolive’s liquid filling line during the first 10 months of a particular year. The standard ratio of direct-labor hours to machine hours is 4:1. The standard direct-labor rate is $15.08.

Colgate-Palmolive: Direct-Labor Efficiency Variance Data*

*Source of data: Alan S. Levitan and Sidney J. Baxendale, “Analyzing the Labor Efficiency Variance to Signal Process

Engineering Problems,” Journal of Cost Management 6, no. 2, p. 70. Required:

Orion Corporation has established the following standards for the prime costs of one unit of its chief product, dartboards.

$304,000. The total wages for June were $42,000, 90 percent of which were for direct labor. Orion manufactured 19,000 dartboards during June, using 142,500 pounds of the direct material purchased in June and 5,000 direct-labor hours.

Required:

5. The direct-labor efficiency variance.

(CMA, adapted)

standard-costing system.
(CMA, adapted)

■ Problem 10–41 Direct-Labor Variances (, )

Labor class

differed from the standard rates. The actual direct-labor hours worked and the actual direct-labor rates per hour experienced for the month of April were as follows:

Labor class

actual labor rates were $16.95, $15.10, and $10.60 for labor classes III, II, and I, respectively.

motivation by concentrating only on unfavorable variances, and are out of date too quickly. He noted that his recent switch to cherry for the cutting boards has resulted

in higher material costs but decreased labor hours. The net result was no increase in the total cost to produce the product. The monthly reports continue to show an unfavorable material variance and a favorable labor variance despite indications that the workers are slowing down.

■ Problem 10–43 Determining Standard Costs; Ethics (, ) Quincy Farms produces items made from local farm products that are distributed to supermarkets. For many years, Quincy’s products have had strong regional sales on the basis of brand recognition: however, other companies have begun marketing similar products in the area, and price competition has become increasingly important. Doug Gilbert, the company’s controller, is planning to implement a standard cost system for Quincy and has gathered considerable information from his co-workers on production and material requirements for Quincy’s products. Gilbert believes that the use of standard costing will allow Quincy to improve cost control and make better pricing decisions.

Quincy’s most popular product is strawberry jam. The jam is produced in 10-gallon batches, and each batch requires six quarts of good strawberries. The fresh
strawberries are sorted by hand before entering the production process. Because of imperfections in the strawberries and normal spoilage, one quart of berries is discarded for every four quarts of acceptable berries. Three minutes is the standard direct-labor time for sorting required to obtain one quart of acceptable strawberries. The acceptable strawberries are then blended with the other ingredients. Blending requires 12 minutes of direct-labor time per batch. After blending, the jam is packaged in quart containers.

for each direct-cost component of a batch of strawberry jam: (a) standard quantity, (b) standard price or rate, and (c) standard cost per batch.

use of variance analysis. Gilbert is particularly concerned with the causes of

unfavorable variances. Discuss the possible causes of the following unfavorable variances and identify the individual(s) who should be held responsible: (a) direct-material purchase price variance and (b) direct-labor efficiency variance.

Septemb

Novemb

controller’s attention, regardless of the usual investigation rule? Explain. Given these considerations, which variances would you have investigated? Why?

Aquafloat Corporation manufactures rafts for use in swimming pools. The standard cost for material and labor is $89.20 per raft. This includes 8 kilograms of direct material at a standard cost of $5.00 per kilogram, and 6 hours of direct labor at $8.20 per hour.

The following data pertain to November:

 Purchases of materials: 50,000 kilograms for $249,250.

 Total actual labor costs: $300,760.

standards for its two products.

Deluxe backpacking

firm used 720 yards of the fabric during March in the production of 120 deluxe tents.

Required:

incurrence of variances in March.

Finishing Department: 3 hours of direct labor at $15 per hour

The following pertains to the month of July.

5. Actual usage of veneered wood was 4,500 pounds of the wood purchased during July.

6. Enough parts (bridges and strings) to finish 600 guitars were purchased at a cost of $9,000.

1. Prepare a schedule that computes the and direct labor in each production department.

■ Problem 10–48 Journal Entries under Standard Costing; Continuation of Preceding Problem (Appendix) (, )

Refer to your solution for the preceding problem regarding Springsteen Company. Required:

Assume the beginning balance in all accounts is zero.

Cases

■ Case 10–50 Missing Data; Variances, Ledger Accounts (Appendix) (, , )

MacGyver Corporation manufactures a product called Miracle Goo, which comes in handy for just about anything. The thick tarry substance is sold in six-gallon drums. Two raw materials are used; these are referred to by people in the business as A and B. Two types of labor are required also. These are mixers (labor class I) and packers (labor class II). You were recently hired by the company president, Pete Thorn, to be the controller. You soon learned that MacGyver uses a standard-costing system. Variances are computed and closed into Cost of Goods Sold monthly. After your first month on the job, you gathered the necessary data to compute the month’s variances for direct material and direct labor. You finished everything up by 5:00 p.m. on the 31st, including the credit to Cost of Goods Sold for the sum of the variances. You decided to take all your notes home to review them prior to your formal presentation to Thorn first thing in the morning. As an afterthought, you grabbed a drum of Miracle Goo as well, thinking it could prove useful in some unanticipated way.

gallons.

Fill in the missing amounts in the list, using the available facts.

1
.
2