Exam 10: Standard Costing: a Managerial Control Tool

Baker Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product follow: Material: 10@\ 4.50 per kilogram \ 45.00 Labour: 6 hours @\ 8.50 perhour \ 51.00 The following operating data were taken from the records for December: 1. Units completed: 5,800 units 2. Budgeted output: 6,000 units 3. Materials purchased: 60,000 kg 4. Total actual labour costs: $306,600 5. Actual hours of labour: 36,500 hours 6. Material usage variance: $2,250 unfavourable 7. Total material variance: $450 unfavourable Required: Compute the following: A. Labour rate variance B. Labour efficiency variance C. Actual kilograms of material used in the production process D. Actual cost paid per kilogram of material

What is most characteristic of ideal standards?

Aqua Company Aqua Company produces aquariums. During the year, 150,000 aquariums were produced. Materials and labour standards for producing the aquariums are as follows: $\begin{array}{ll}\text { Direct materials (2 sheets of glass }(\$) \$ 2 \text { per sheet) } & \$ 4 \\\text { Direct labour (3 hours }(\$ 8 \text { per hour) } & 24\end{array}$ The company purchased and used 310,000 sheets of glass at $1.50 per sheet, and its actual labour hours were 435,000 hours at a wage rate of $8.50 per hour. -Refer to Aqua Company. What is the materials usage variance?

Serenity Equestrian Corporation Serenity Equestrian Corporation produces high-quality leather saddles. The company has a standard cost system and has set the following standards for materials and labour: Leather (20 strips (Q,\ 15 per strip) \ 300 Direct labour (15 hours (a)\ 15 per hour ) \ 225 Total prime cost \ 525 During the year, the company produced 150 saddles. Actual leather purchased was 3,100 strips at $12 per strip. There were no beginning or ending inventories of leather.Actual direct labour was 2,500 hours at $16 per hour. -Refer to Serenity Equestrian Corporation. What is the materials usage variance?

High Fly Company High Fly Company manufactures model airplanes. During the month, it manufactured 10,000 airplanes. Each airplane used an average of 6.5 direct labour hours and an average of 1.5 sheets of aluminum. The company normally manufactures 7,500 airplanes each month. Materials and labour standards for making the airplanes are as follows: Direct materials (1 sheet of aluminum (@)10.00 per sheet) \ 10.00 Direct materials (other accessories @\ 8.75) \ 8.75 Direct labour (6 hours @ \7 .00 per hour) \ 42.00 -Refer to High Fly Company. What is the standard number of sheets of aluminum allowed for a volume of 10,000 airplanes?

How do standard cost systems enhance operational control?

What are price standards based on?

During March, 6,000 direct labour hours were worked at a standard cost of $22 per hour. Suppose the direct labour rate variance for March was $1,600 favourable. What was the actual cost per direct labour hour?

A favourable usage variance would occur when the actual usage of inputs is greater than the standard usage.

During November, 10,000 direct labour hours were worked at a standard cost of $10 per hour. Suppose the direct labour rate variance for November was $4,000 unfavourable. What was the actual cost per direct labour hour?

Green Lawn Corporation Green Lawn Corporation wants to produce a new lawnmower. The financial data is as follows: Target price: $\quad \$ 450$ Target profit: $\quad \$ 75$ Estimated cost given current product and process designs: $400 -Refer to Green Lawn Corporation. What is the target cost?

What are sources of quantity standards?

Wiltshire Limited produces woollen blankets and clothing. During Year 1, Wiltshire produced 10,000 items of blankets and clothing using 4,250 bundles of wool at a price of $10 per bundle. Standard bundles of wool 4,000 Standard price \ 20 per bundle The difference between the actual quantity of materials and the standard quantity of materials is due to waste. At the end of Year 1, Wiltshire developed a new process that would cut down on the waste by 60%. By the end of Year 2, the company had actually cut down its waste by 50%. Required: A. Identify the kaizen and materials standards in place at the beginning of Year 2. Express the standards in both physical and financial terms. B. Calculate the expected cost reduction. C. Calculate the actual cost reduction.

Action Company Action Company's standard cost is $600,000. The allowable deviation is ±10%. Its actual costs for three months are as follows: April \ 520,000 May \ 550,000 June \ 575,000 -Refer to Action Company. What are the upper and lower control limits, respectively?

A favourable price variance occurs whenever the actual prices are greater than the standard prices.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -This reflects the planned improvement that is set, which will help reduce non-value-added costs.

MacDowell Company manufactures 100 kg bags of fertilizer that have the following unit standard costs for direct materials and direct labour: Direct materials (100 kg (\ 1.00 per kilogram) \ 100.00 Direct labour (0.5 hours at \ 24 per hour) 12.00 Total standard direct cost per 100 bag \ 112.00 The following activities were recorded for October: • 1,000 bags were manufactured. • 95,000 kg of materials costing $76,000 were purchased. • 102,500 kg of materials were used. • $12,000 was paid for 475 hours of direct labour. There were no beginning or ending work-in-process inventories. Required: A. Compute the direct materials variances. B. Compute the direct labour variances. C. Give possible reasons for the occurrence of each of the preceding variances.

Aqua Company Aqua Company produces aquariums. During the year, 150,000 aquariums were produced. Materials and labour standards for producing the aquariums are as follows: $\begin{array}{ll}\text { Direct materials (2 sheets of glass }(\$) \$ 2 \text { per sheet) } & \$ 4 \\\text { Direct labour (3 hours }(\$ 8 \text { per hour) } & 24\end{array}$ The company purchased and used 310,000 sheets of glass at $1.50 per sheet, and its actual labour hours were 435,000 hours at a wage rate of $8.50 per hour. -Refer to Aqua Company. What is the labour rate variance?

Refer to Roofus Company. What is the journal entry to record the purchase of materials?

Kaizen costing focuses on the continuous reduction of manufacturing costs of existing products and processes.