Exam 10: Standard Costing and Analysis of Direct Costs

Significant departures investigated, when using management by exception, are uniform across all size and types of organizations with varying production processes.

A favorable labor rate variance is created when:

When considering whether to investigate a variance, managers should consider all of the following except the variance's:

Danielle Augusta is the long-time catering director of Windamere, a hotel noted throughout the industry for quality, profitability, and cost control. The hotel recently catered a steak dinner for a 2,000-person convention. Strict standards were in place for the dinner: 0.75 pounds of beef per plate at $9 per pound. A review of the accounting records shortly after the convention showed that 1,680 pounds of beef were purchased and consumed, costing the hotel $13,440. Required: A. Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e., the difference between budgeted and actual cost). Should this variance be of concern to the hotel? Why? B. Assess the job that Augusta did in "managing" the beef purchase by performing a variance analysis. Comment on your findings. C. Assume that the hotel received a number of complaints shortly after the dinner concluded. Explain a possible reason behind the conventioneers' unhappiness.

The Purchasing Department would normally begin an investigation regarding an unfavorable materials quantity variance.

Perez, Inc. recently completed 56,000 units of a product that was expected to consume four pounds of direct material per finished unit. The standard price of the direct material was $8.50 per pound. If the firm purchased and consumed 228,000 pounds in manufacturing (cost = $1,881,000), the direct-material quantity variance would be figured as:

A manager is more likely to investigate the variance for a cost that is controllable by someone in the organization than one that is not.

Use the following information to answer the following Questions Thomas Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units. An examination of Thomas’ payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time. -Thomas' direct-labor efficiency variance was

Storkin Enterprises recently used 24,000 labor hours to produce 8,600 completed units. According to manufacturing specifications, each unit is anticipated to take 2.75 hours to complete. The company's actual payroll cost amounted to $456,000. If the standard labor cost per hour is $19.20, Storkin's labor rate variance is:

A drawback of standard costing is that standard costs often fluctuate erratically.

Donath Corporation manufactures a variety of liquid lawn fertilizers, including a very popular product called Luxury Green. Data about Luxury Green and Sheen, a major ingredient, follow. Expected operations: · Sheen is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount is offered by Sheen's manufacturer for prompt payment of invoices, and Donath takes advantage of all discounts offered. · Donath normally purchases 200 drums of Sheen at a time, paying shipping fees of $2,660 per shipment. · Each gallon of Luxury Green requires three quarts of Sheen; however, because of evaporation and spills, Donath loses 4% of all Sheen that enters production. (Recall that there are four quarts in a gallon.) Actual operations: · For the period just ended, Donath purchased 1,500 drums of Sheen at a total cost of $118,100, which reflects discounts and shipping. There was no beginning inventory, but an end-of-period inventory revealed that 30 drums were still on hand. · Manufacturing activity output totaled 104,000 gallons of Luxury Green. Assume that the company computes variances at the earliest point in time. Required: A. Compute the standard purchase price for one gallon of Sheen. B. Compute the standard quantity of Sheen to be used in producing one gallon of Luxury Green. Express your answer in quarts. C. Compute the direct-material price variance for Sheen. D. How much Sheen was used in manufacturing activity and how much should have been used? Express your answer in quarts.

Normal defect rates in an assembly process would be considered if a company desires to establish a series of practical manufacturing standards.

Loren Company recently purchased materials from a new supplier at a very attractive price. The materials were found to be of poor quality, and the company's laborers struggled significantly as they shaped the materials into finished product. In a desperation move to make up for some of the time lost, the manufacturing supervisor brought in more-senior employees from another part of the plant. Which of the following variances would have a high probability of arising from this situation?

Use the following information to answer the following Questions -The direct-material quantity variance is:

The term "management by exception" is best defined as:

Use the following information to answer the following Questions -The standard hours allowed for the work performed are:

Standard costs are said to be useful in performance evaluation. Assume that the standard direct materials cost per unit of finished product is $6 (three pounds at $2 per pound). Required: A. Explain how such a standard can be used to evaluate performance. B. Why is the degree of controllability important when utilizing standard costs to evaluate performance?

At the end of the accounting period, most companies close variance accounts to:

The following events occurred at Eureka Manufacturing (EM), an assembler of engine parts, during March: 1. Because of a stock shortage at its regular supplier, EM had to rely on a new vendor for two purchases of raw material parts. The vendor required EM to pay air-freight charges; however, upon arrival, the company found the goods to be above-average in quality. 2. The local municipality raised its property tax rates by 2%. 3. A flu outbreak on the assembly line forced management to use more experienced, senior personnel to complete production orders on a timely basis. These workers more than made up for lost time. 4. A shoddy maintenance program resulted in an abnormally high number of breakdowns on machine no. 76 and slowed production. 5. The implementation of a new program had positive effects for the company with respect to material usage and worker productivity. Required: Create a table with the following headings: material price variance, material quantity variance, labor rate variance, and labor efficiency variance. Determine which of these variances would be affected by the individual events and whether the variance would be favorable or unfavorable.

Most companies base the calculation of the material price variance on the: