Nonfinancial variances. Kathy’s Kettle Potato Chips produces gourmet chips distributed to chain sub shops throughout California. To ensure that their chips are of the highest quality and have taste appeal, Kathy has a rigorous inspection process. For quality control purposes, Kathy has a standard based on the number of pounds of chips inspected per hour and the number of pounds that pass or fail the inspection.
Kathy expects that for every 1,000 pounds of chips produced, 200 pounds of chips will be inspected. Inspection of 200 pounds of chips should take 1 hour. Kathy also expects that 1% of the chips inspected will fail the inspection. During the month of May, Kathy produced 113,000 pounds of chips and inspected 22,300 pounds of chips in 120 hours. Of the 22,300 pounds of chips inspected, 215 pounds of chips failed to pass the inspection.
- A. Compute two variances that help determine whether the time spent on inspections was more or less than expected. (Follow a format similar to the one used for the variable overhead spending and efficiency variances, but without prices.)
Required
- B. Compute two variances that can be used to evaluate the percentage of the chips that fails the inspection.
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- Wildcat Pizza, Inc. produces batches of frozen pizzas to sell at a variety of grocery stores throughout the country. Standard cost information for each batch is presented as follows: Direct materials $60.00 Direct labor 40.00 Variable overhead 30.00 Total $130.00 Wildcat produced and sold 100,000 batches for the year and encountered the following production variances: Direct materials price variance (300,000) Favorable Direct materials quantity variance 290,000 Unfavorable Direct labor rate variance (170,000) Favorable Direct labor efficiency variance (140,000) Favorable Variable overhead spending variance 150,000 Unfavorable Variable overhead efficiency variance (210,000) Favorable Total variable production cost variance (380,000) Favorable Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable overhead.arrow_forwardWildcat Pizza, Inc. produces batches of frozen pizzas to sell at a variety of grocery stores throughout the country. Standard cost information for each batch is presented as follows: Direct materials $60.00 Direct labor 40.00 Variable overhead 30.00 Total $130.00 Wildcat produced and sold 100,000 batches for the year and encountered the following production variances: Direct materials price variance (300,000) Favorable Direct materials quantity variance 290,000 Unfavorable Direct labor rate variance (170,000) Favorable Direct labor efficiency variance (140,000) Favorable Variable overhead spending variance 150,000 Unfavorable Variable overhead efficiency variance (210,000) Favorable Total variable production cost variance (380,000) Favorable Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable…arrow_forwardMaterials and labor variances Branca Inspections Inc. specializes in determining whether a building or houses drainpipes are properly tied into the citys 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 inspectors, at a standard rate of 18 per hour. Each job requires a standard quantity of 5 gallons of Glow (a colored chemical), which should cost 25 per gallon. Data from the companys most recent job (a building) follow: Required: Compute the following variances, using the formulas on pages 421422 and 424: 1. Materials price and quantity variances. 2. Labor rate and efficiency variances.arrow_forward
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- Ed Co. manufactures two types of O rings, large and small. Both rings use the same material but require different amounts. Standard materials for both are shown. At the beginning of the month, Edve Co. bought 25,000 feet of rubber for $6.875. The company made 3,000 large O rings and 4,000 small O rings. The company used 14,500 feet of rubber. A. What are the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance? B. If they bought 10,000 connectors costing $310, what would the direct materials price variance be for the connectors? C. If there was an unfavorable direct materials price variance of $125, how much did they pay per toot for the rubber?arrow_forwardIn 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.arrow_forwardKavallia Company set a standard cost for one item at 328,000; allowable deviation is 14,500. Actual costs for the past six months are as follows: Required: 1. Calculate the variance from standard for each month. Which months should be investigated? 2. What if the company uses a two-part rule for investigating variances? The allowable deviation is the lesser of 4 percent of the standard amount or 14,500. Now which months should be investigated?arrow_forward
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