P8-1 Materials and labor variances Branca Inspections Inc. specializes in determining whether a build- ing or house's drainpipes are properly tied into the city's sewer system. The company pours colored chemical through the pipes and collects an inspection sample from each outlet, which is then analyzed. Each job should take 15 hours for each of four inspec- tors, at a standard rate of $18 per hour. Each job requires a stan- dard quantityl of 5 gallons of Glow (a colored chemical), which should cost $25 per gallon. Data from the company's most recent job (a building) follow: 5 men worked a total of 80 hours and were paid $17.50 per hour.... $1,400.00 5.5 gallons of Glow were used and cost $27.50 per gallon .... ..... 151.25 Total cost of the job $1,551.25 .... Required: Compute the following variances, using the formulas on pages 421-422 and 424: 1. Materials price and quantity variances. 2. Labor rate and efficiency variances.

P8-1 Materials and labor variances Branca Inspections Inc. specializes in determining whether a build- ing or house's drainpipes are properly tied into the city's sewer system. The company pours colored chemical through the pipes and collects an inspection sample from each outlet, which is then analyzed. Each job should take 15 hours for each of four inspec- tors, at a standard rate of $18 per hour. Each job requires a stan- dard quantityl of 5 gallons of Glow (a colored chemical), which should cost $25 per gallon. Data from the company's most recent job (a building) follow: 5 men worked a total of 80 hours and were paid $17.50 per hour.... $1,400.00 5.5 gallons of Glow were used and cost $27.50 per gallon .... ..... 151.25 Total cost of the job $1,551.25 .... Required: Compute the following variances, using the formulas on pages 421-422 and 424: 1. Materials price and quantity variances. 2. Labor rate and efficiency variances.

Name: lance.d. Was the factory overhead under- or overapplied? By whatamoun
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Description: lance.d. Was the factory overhead under- or overapplied? By whatamount?PROBLEMSIn all problems involving variances, use "F" and "U" to indicatefavorable and unfavorable variances, respectively.P8-1Materials and labor variancesBranca Inspections Inc.

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter8: Standard Cost Accounting—materials, Labor, And Factory Overhead

Section: Chapter Questions

Problem 4E

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Madison Company uses the following rule to determine whether direct labor efficiency variances ought to be investigated. A direct labor efficiency variance will be investigated anytime the amount exceeds the lesser of 12,000 or 10 percent of the standard labor cost. Reports for the past five weeks provided the following information: Required: 1. Using the rule provided, identify the cases that will be investigated. 2. Suppose that investigation reveals that the cause of an unfavorable direct labor efficiency variance is the use of lower quality direct materials than are usually used. Who is responsible? What corrective action would likely be taken? 3. Suppose that investigation reveals that the cause of a significant favorable direct labor efficiency variance is attributable to a new approach to manufacturing that takes less labor time but causes more direct materials waste. Upon examining the direct materials usage variance, it is discovered to be unfavorable, and it is larger than the favorable direct labor efficiency variance. Who is responsible? What action should be taken? How would your answer change if the unfavorable variance were smaller than the favorable?
Sommers Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated anytime the amount exceeds the lesser of 12,000 or 10% of the standard cost. Reports for the past 5 weeks provided the following information: Required: 1. Using the rule provided, identify the cases that will be investigated. 2. CONCEPTUAL CONNECTION Suppose investigation reveals that the cause of an unfavorable materials usage variance is the use of lower-quality materials than are normally used. Who is responsible? What corrective action would likely be taken? 3. CONCEPTUAL CONNECTION Suppose investigation reveals that the cause of a significant unfavorable materials usage variance is attributable to a new approach to manufacturing that takes less labor time but causes more material waste. Examination of the labor efficiency variance reveals that it is favorable and larger than the unfavorable materials usage variance. Who is responsible? What action should be taken?
The management of Golding Company has determined that the cost to investigate a variance produced by its standard cost system ranges from 2,000 to 3,000. If a problem is discovered, the average benefit from taking corrective action usually outweighs the cost of investigation. Past experience from the investigation of variances has revealed that corrective action is rarely needed for deviations within 8% of the standard cost. Golding produces a single product, which has the following standards for materials and labor: Actual production for the past 3 months follows, with the associated actual usage and costs for materials and labor. There were no beginning or ending raw materials inventories. Required: 1. What upper and lower control limits would you use for materials variances? For labor variances? 2. Compute the materials and labor variances for April, May, and June. Identify those that would require investigation by comparing each variance to the amount of the limit computed in Requirement 1. Compute the actual percentage deviation from standard. Round all unit costs to four decimal places. Round variances to the nearest dollar. Round variance rates to three decimal places so that percentages will show to one decimal place. 3. CONCEPTUAL CONNECTION Let the horizontal axis be time and the vertical axis be variances measured as a percentage deviation from standard. Draw horizontal lines that identify upper and lower control limits. Plot the labor and material variances for April, May, and June. Prepare a separate graph for each type of variance. Explain how you would use these graphs (called control charts) to assist your analysis of variances.
Recompute the variances from the second Acme Inc. exercise using $0.0725 as the standard cost of the material and $14 as the standard labor cost per hour. How has your explanation of the variances changed?
Refer to the information for Cinturon Corporation on the previous page. Required: 1. Break down the total variance for labor into a rate variance and an efficiency variance using the columnar and formula approaches. 2. CONCEPTUAL CONNECTION As part of the investigation of the unfavorable variances, the plant manager interviews the production manager. The production manager complains strongly about the quality of the leather strips. He indicates that the strips are of lower quality than usual and that workers have to be more careful to avoid a belt with cracks and more time is required. Also, even with extra care, many belts have to be discarded and new ones produced to replace the rejects. This replacement work has also produced some overtime demands. What corrective action should the plant manager take?
Warner Company has the following data for the past year: Warner uses the overhead control account to accumulate both actual and applied overhead. Required: 1. Calculate the overhead variance for the year and close it to cost of goods sold. 2. Assume the variance calculated is material. After prorating, close the variances to the appropriate accounts and provide the final ending balances of these accounts. 3. What if the variance is of the opposite sign calculated in Requirement 1? Provide the appropriate adjusting journal entries for Requirements 1 and 2.
Which of the following is true concerning labor variances that are not material in amount? a. They are closed to Cost of Goods Sold. b. They are prorated among Work in Process, Finished Goods, and Cost of Goods Sold. c. They are prorated among Materials, Work in Process, Finished Goods, and Cost of Goods Sold. d. They are reported as part of Overall Variance on the balance sheet at the end of the year.
In all of the exercises involving variances, use F and U to designate favorable and unfavorable variances, respectively. E8-1 through E8-5 use the following data: The standard operating capacity of Tecate Manufacturing Co. is 1,000 units. A detailed study of the manufacturing data relating to the standard production cost of one product revealed the following: 1. Two pounds of materials are needed to produce one unit. 2. Standard unit cost of materials is 8 per pound. 3. It takes one hour of labor to produce one unit. 4. Standard labor rate is 10 per hour. 5. Standard overhead (all variable) for this volume is 4,000. Each case in E8-1 through E8-5 requires the following: a. Set up a standard cost summary showing the standard unit cost. b. Analyze the variances for materials and labor. c. Make journal entries to record the transfer to Work in Process of: 1. Materials costs 2. Labor costs 3. Overhead costs (When making these entries, include the variances.) d. Prepare the journal entry to record the transfer of costs to the finished goods account. Standard unit cost; variance analysis; journal entries 1,000 units were started and finished. Case 1: All prices and quantities for the cost elements are standard, except for materials cost, which is 8.50 per pound. Case 2: All prices and quantities for the cost elements are standard, except that 1,900 lb of materials were used.
Using variance analysis and interpretation Last year, Endicott Corp. adopted a standard cost system. Labor standards were set on the basis of time studies and prevailing wage rates. Materials standards were determined from materials specifications and the prices then in effect. On June 30, the end of the current fiscal year, a partial trial balance revealed the following: Standards set at the beginning of the year have remained unchanged. All inventories are priced at standard cost. What conclusions can be drawn from each of the four variances shown in Endicotts trial balance?
At the end of the period, the factory overhead account has a credit balance of 10,000. (a) Is the total factory cost variance favorable or unfavorable? (b) Are the controllable and volume variances favorable or unfavorable?
Variance interpretation Vanadium Audio Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the past month of operations: Actual units produced: 15,000 (90% of practical capacity) The plant manager is not pleased with the 12,320 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred: Plant Manager: I just received this factory report for the latest month of operations. Im not very pleased with these figures. Before these numbers go to headquarters, you and I need to reach an understanding. Controller: Go ahead. Whats the problem? Plant Manager: Whats the problem? Well, everything. Look at the variance. Its too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I dont believe these costs are variable at all. I think they are fixed costs. As a result, when we operate below capacity, the costs really dont go down. Im being penalized for costs I have no control over. I need this report to be redone to reflect this fact. If anything, the difference between actual and budget is essentially a volume variance. Listen, I know that youre a team player. You really need to reconsider your assumptions on this one. Assume you are the controller. Write a memo responding to the plant manager.
Marten Company has a cost-benefit policy to investigate any variance that is greater than 1,000 or 10% of budget, whichever is larger. Actual results for the previous month indicate the following: The company should investigate: a. neither the materials variance nor the labor variance. b. the materials variance only. c. the labor variance only. d. both the materials variance and the labor variance.