MANAGERIAL ACCOUNTING W/ACCESS >IP<
MANAGERIAL ACCOUNTING W/ACCESS >IP<
16th Edition
ISBN: 9781259753961
Author: Garrison
Publisher: MCG CUSTOM
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Chapter 10, Problem 16P
To determine

Standard Cost:

The cost of production predetermined by the business based on budgeted production and past experience is called standard cost.

Material Price Variance:

At the actual quantity, the difference between the actual cost and standard cost is known as material price variance.

Material Quantity Variance:

The material quantity variance measures the efficiency of a production in terms of material utilization. It is computed by determining the difference between the standard quantity to used and actual quantity of material used in the production at the standard rate.

Labor Rate Variance:

At the actual direct labor hours, the variance between the actual direct labor cost based on actual rate incurred and the budgeted direct labor cost based on standard rate is called direct labor cost variance.

Direct Labor Efficiency Variance:

Direct labor efficiency variance measures the efficiency in utilization of direct labor costs by determining the difference between the actual labor hours and the standard labor hours allowed at the standard rate.

Variable Overhead Rate Variance:

The overhead cost which varies with the level of activity is called a variable overhead cost. At the actual hours of allocation base, the difference between the actual variable overhead cost and budgeted variable overhead cost is called variable overhead cost variance. The favorability of variance depends upon whether the actual cost is more or less than the budgeted cost. If the actual cost is less than budgeted cost, it is a favorable variance and if the actual cost is more than the budgeted cost, it is an unfavorable variance.

Variable Overhead Efficiency Variance:

Variable overhead efficiency variance is the difference between the actual hours of allocations base and the budgeted hours of allocation base allowed at the standard rate. If the actual hours of allocations base is less than the budgeted hours of allocation base allowed, the variance is favorable and if the actual hours of allocations base is more than the budgeted hours of allocation base allowed at the standard rate, the variance is termed as unfavorable variance meaning the company hasn’t been efficient.

1. What is the standard cost of a single backpack?

2. What was the actual cost per backpack produced during March?

3. Compute how many yards of material are required at standard per backpack?

4. What was the materials price variance for March if there were no beginning or ending inventories of materials?

5. What is the standard direct labor rate per hour?

6. Compute labor rate and efficiency variance for March.

7. What was the variable overhead rate and efficiency variance for March?

8. Prepare a standard cost card for one backpack.

Expert Solution & Answer
Check Mark

Answer to Problem 16P

Solution:

1.

The standard cost per single backpack is $42.

2.

The actual cost per backpack produced during March is $41.85.

3.

The direct materials quantity per backpack is 2.80 yards.

4.

    Material Price Variance $3,000 F
    Materials Quantity Variance $1,200 U
    Materials Spending Variance $1,800 F

5.

The standard direct labor rate per hour is $15 per direct labor hour.

6.

    Direct Labor Rate Variance $750 U
    Direct Labor Efficiency Variance $1,500 U

7.

    Manufacturing Overhead Rate Variance $900 F
    Manufacturing Overhead Efficiency Variance $300 U

8. Standard Cost Card

    Standard Quantity / Hours Standard Price or Rate Standard Cost
    Direct Materials 2.80 yards $6 per yard $16.80
    Direct Labor 1.4 hours $15 $21
    Variable Manufacturing Overhead 1.4 hours $3 per direct labor − hours $4.20
    Total Standard Cost per Unit $42

Explanation of Solution

1.

    Computation of total standard cost
    Materials used $16,800
    Direct labor $21,000
    Variable manufacturing overhead $4,200
    Total standard cost $42,000

  Standard Cost per Single Backpack=  Total Standard Cost Number of Backpacks Produced during the Month  =  $42,000 1,000 backpacks  = $42 per backpack

2.

    Computation of actual cost per backpack
    Standard Cost per Single Backpack $42
    Less: Favorable difference between standard and actual cost per backpack $0.15
    Actual cost per Backpack $41.85

3.

4.

    Computation of materials price variance
    Standard cost of materials $16,800
    Less: Actual cost of materials $15,000
    Materials Spending Variance $1,800 F
    Add: Unfavorable Materials Quantity Variance $1,200 U
    Material Price Variance $3,000 F

5.

Computation of standard direct labor rate per hour

6.

    Computation of actual direct labor cost
    Total Actual Cost of Production ($41.85 X 1,000) $41,850
    Less: Actual Direct Materials Cost $15,000
    Actual Variable Manufacturing Overhead Cost $3,600
    Actual Direct Labor Cost $23,250
    Actual Direct Labor Hours 1,500 hours
    Actual Direct Labor Rate $15.50

7.

Conclusion

After analyzing the variances, it is concluded that there is a favorable variance of $150 between the standard cost and actual cost of production of Highland Company.

    Material Price Variance $3,000 F
    Materials Quantity Variance $1,200 U
    Direct Labor Rate Variance $750 U
    Direct Labor Efficiency Variance $1,500 U
    Manufacturing Overhead Rate Variance $900 F
    Manufacturing Overhead Efficiency Variance $300 U
    Total Variance $150 F

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Chapter 10 Solutions

MANAGERIAL ACCOUNTING W/ACCESS >IP<

Ch. 10.A - PROBLEM 10A-11 Comprehensive Standard Cost...Ch. 10.A - Prob. 12PCh. 10.B - Prob. 1ECh. 10.B - Prob. 2ECh. 10.B - Prob. 3PCh. 10.B - Prob. 4PCh. 10.B - Prob. 5CCh. 10 - Prob. 1QCh. 10 - Why are separate price and quantity variances...Ch. 10 - 10-3 Who is generally responsible for the...Ch. 10 - The materials price variance can be computed at...Ch. 10 - 10-5 If the materials price variance is favorable...Ch. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - 10-8 What effect, if any, would you expect...Ch. 10 - 10-9 If variable manufacturing overhead is applied...Ch. 10 - 10-10 Why can undue emphasis on labor efficiency...Ch. 10 - The Excel worksheet form that appears below is to...Ch. 10 - Prob. 2AECh. 10 - Prob. 1F15Ch. 10 - Prob. 2F15Ch. 10 - Prob. 3F15Ch. 10 - Prob. 4F15Ch. 10 - Prob. 5F15Ch. 10 - Prob. 6F15Ch. 10 - Prob. 7F15Ch. 10 - Prob. 8F15Ch. 10 - Prob. 9F15Ch. 10 - Preble Company manufactures one product. Its...Ch. 10 - Prob. 11F15Ch. 10 - Prob. 12F15Ch. 10 - Prob. 13F15Ch. 10 - Prob. 14F15Ch. 10 - Prob. 15F15Ch. 10 - EXERCISE 10-1 Direct Materials Variances LO10-1...Ch. 10 - EXERCISE 10-2 Direct Labor Variances...Ch. 10 - EXERCISE 10–3 Variable Overhead Variances...Ch. 10 - EXERCISE 10-4 Direct Labor and Variable...Ch. 10 - EXERCISE 10-5 Working Backwards from Labor...Ch. 10 - EXERCISE 10-6 Direct Materials and Direct Labor...Ch. 10 - EXERCISE 10-7 Direct Materials Variances LOIO-1...Ch. 10 - EXERCISE 10-8 Direct Materials and Direct Labor...Ch. 10 - PROBLEM 10-9 Comprehensive Variance Analysis...Ch. 10 - PROBLEM 10-10 Multiple Products, Materials, and...Ch. 10 - PROBLEM 10-11 Direct Materials and Direct Labor...Ch. 10 - PROBLEM 10-12 Variance Analysis in a...Ch. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - PROBLEM 10-15 Comprehensive Variance Analysis...Ch. 10 - Prob. 16PCh. 10 - Prob. 17C
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What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY