Chapter 10, Problem 68P

BuyFind*arrow_forward*

7th Edition

Maryanne M. Mowen + 2 others

ISBN: 9781337115773

Textbook Problem

151 views

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.

**1.**

To determine

Compute the upper and lower limit of materials and labor.

Explanation

**Variance:**

The amount obtained when actual cost is deducted from budgeted cost is known as variance. Variance is calculated to find whether the cost is over applied or under applied.

Use the following formula to calculate the value of upper limit of material for April:

Substitute 0.08 for direct material quantity and $180,750 for price standard in the above formula.

Use the following formula to calculate the value of lower limit of material of price standard for April:

Substitute 0.08 for direct material quantity and $180,750 for price standard in the above formula.

Use the following formula to calculate the value of upper limit of material of quantity standard for April:

Substitute 0.08 for direct material quantity and $180,000 for quantity standard in the above formula.

Use the following formula to calculate the value of lower limit of material of quantity standard for April:

Substitute 0.08 for direct material quantity and $180,000 for quantity standard in the above formula.

Use the following formula to calculate the value of upper limit of labor of price standard for April:

Substitute 0.08 for standard quantity and $270,000 for price standard in the above formula.

Use the following formula to calculate the value of lower limit of labor of price standard for April:

Substitute 0.08 for standard quantity and $270,000 for price standard in the above formula.

Use the following formula to calculate the value of upper limit of labor of efficiency standard for April:

Substitute 0.08 for standard quantity and $270,000 for efficiency standard in the above formula.

Use the following formula to calculate the value of lower limit of labor of efficiency standard for April:

Substitute 0.08 for direct material quantity and $270,000 for quantity standard in the above formula.

Use the following formula to calculate the value of upper limit of material for May:

Substitute 0.08 for direct material quantity and $217,500 for price standard in the above formula.

Use the following formula to calculate the value of lower limit of material of price standard for May:

Substitute 0.08 for direct material quantity and $217,500 for price standard in the above formula.

Use the following formula to calculate the value of upper limit of material of quantity standard for May:

Substitute 0.08 for direct material quantity and $200,000 for quantity standard in the above formula.

Use the following formula to calculate the value of lower limit of material of quantity standard for May:

Substitute 0.08 for direct material quantity and $200,000 for quantity standard in the above formula.

Use the following formula to calculate the value of upper limit of labor of price standard for May:

Substitute 0.08 for standard quantity and $330,000 for price standard in the above formula.

Use the following formula to calculate the value of lower limit of labor of price standard for May:

Substitute 0

**2.**

To determine

Calculate the materials and labor variances for the month of April, May and June.

**3.**

To determine

Construct the graph for upper and lower limits for month of April, May and June.

Ch-10 P-1DQCh-10 P-2DQCh-10 P-3DQCh-10 P-4DQCh-10 P-5DQCh-10 P-6DQCh-10 P-7DQCh-10 P-8DQCh-10 P-9DQCh-10 P-10DQ

Ch-10 P-11DQCh-10 P-12DQCh-10 P-13DQCh-10 P-14DQCh-10 P-15DQCh-10 P-16DQCh-10 P-17DQCh-10 P-18DQCh-10 P-19DQCh-10 P-20DQCh-10 P-21DQCh-10 P-22DQCh-10 P-23DQCh-10 P-1MCQCh-10 P-2MCQCh-10 P-3MCQCh-10 P-4MCQCh-10 P-5MCQCh-10 P-6MCQCh-10 P-7MCQCh-10 P-8MCQCh-10 P-9MCQCh-10 P-10MCQCh-10 P-11MCQCh-10 P-12MCQCh-10 P-13MCQCh-10 P-14MCQCh-10 P-15MCQCh-10 P-16MCQCh-10 P-17MCQCh-10 P-18MCQCh-10 P-19MCQCh-10 P-20MCQCh-10 P-21BEACh-10 P-22BEACh-10 P-23BEACh-10 P-24BEACh-10 P-25BEACh-10 P-26BEACh-10 P-27BEACh-10 P-28BEACh-10 P-29BEACh-10 P-30BEACh-10 P-31BEACh-10 P-32BEBCh-10 P-33BEBCh-10 P-34BEBCh-10 P-35BEBCh-10 P-36BEBCh-10 P-37BEBCh-10 P-38BEBCh-10 P-39BEBCh-10 P-40BEBCh-10 P-41BEBCh-10 P-42BEBCh-10 P-43ECh-10 P-44ECh-10 P-45ECh-10 P-46ECh-10 P-47ECh-10 P-48ECh-10 P-49ECh-10 P-50ECh-10 P-51ECh-10 P-52ECh-10 P-53ECh-10 P-54ECh-10 P-55ECh-10 P-56ECh-10 P-57ECh-10 P-58ECh-10 P-59ECh-10 P-60ECh-10 P-61ECh-10 P-62PCh-10 P-63PCh-10 P-64PCh-10 P-65PCh-10 P-67PCh-10 P-68PCh-10 P-69PCh-10 P-70PCh-10 P-71PCh-10 P-72PCh-10 P-73PCh-10 P-74PCh-10 P-75PCh-10 P-76PCh-10 P-77CCh-10 P-79CCh-10 P-1MTCCh-10 P-2MTCCh-10 P-3MTCCh-10 P-4MTCCh-10 P-5MTCCh-10 P-6MTCCh-10 P-7MTCCh-10 P-8MTCCh-10 P-9MTCCh-10 P-10MTC

Financial & Managerial Accounting

Accounting Information Systems

Intermediate Accounting: Reporting And Analysis

Financial And Managerial Accounting

Corporate Financial Accounting

Financial Accounting

College Accounting, Chapters 1-27

Management, Loose-Leaf Version

Foundations of Business (MindTap Course List)

Principles of Macroeconomics (MindTap Course List)

Fundamentals of Financial Management (MindTap Course List)

Essentials of Economics (MindTap Course List)

Brief Principles of Macroeconomics (MindTap Course List)

Accounting Information Systems

STATISTICS F/BUSINESS+ECONOMICS-TEXT

Principles of Economics (MindTap Course List)

ECON: MICRO4 (New, Engaging Titles from 4LTR Press)

MKTG 12:STUDENT ED.-TEXT

Essentials of Business Communication (MindTap Course List)

Principles of Microeconomics (MindTap Course List)

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

Contemporary Marketing

Financial Accounting

Accounting (Text Only)

College Accounting (Book Only): A Career Approach

Financial & Managerial Accounting

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Exploring Economics

Statistics for Business & Economics, Revised (MindTap Course List)

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

College Accounting (Book Only): A Career Approach

Fundamentals of Financial Management (MindTap Course List)

Pkg Acc Infor Systems MS VISIO CD

Principles of Macroeconomics (MindTap Course List)

Survey of Accounting (Accounting I)

Corporate Financial Accounting

PAYROLL ACCT.,2019 ED.(LL)-TEXT

Macroeconomics

Economics For Today

Cornerstones of Cost Management (Cornerstones Series)

Economics (MindTap Course List)

Practical Management Science

Purchasing and Supply Chain Management