Exam 10: Standard Costing: a Managerial Control Tool

Hair of the K9 manufactures dog food. During the month, it manufactured 3,000 bags of kibble, using 0.25 hours of direct labour per bag at a rate of $9.00 per hour. The materials and labour standards for manufacturing the bags of kibble are as follows: Direct materials ( $1 \mathrm{~kg}$ of beef $(\$ 1.00$ per kilogram) $\$ 1.00$ Direct materials ( 1 bag $@ \$ 0.25$ per bag) $\quad 0.25$ Direct labour $(0.30$ hour $(\$ 9.00$ per hour $) \quad 2.70$ The company actually used 3,300 kg of beef at a price of $1.10 per kilogram. It also purchased 3,000 bags at a price of $0.15 per bag. Required: A. Determine the total materials price variance and whether it is favourable or unfavourable. B. Determine the materials usage variance for beef and whether it is favourable or unfavourable. C. Determine the labour rate variance and whether it is favourable or unfavourable. D. Determine the labour efficiency variance and whether it is favourable or unfavourable.

ZZZZZZ Company produces soft pillows made from goose down. The company uses a standard cost system and has set the following standards for materials and labour for each pillow: $\begin{array}{lr}\text { Feathers from } 5 \text { large white geese }(5 \text { geese }(\$) \$ \text { per goose) } & \$ 25 \\\text { Fabric to make pillow cases }(3 \mathrm{~m} @ \$ 2 \text { per metre) } & \$ 6 \\\text { Direct labour }(5 \text { hours }(@) \$ 8 \text { per hour) } & \$ 40\\\text { Total prime cost }&\$71\end{array}$ During the month, the company produced 1,000 goose down pillows. Actual geese purchased were 5,100, at $4 per goose. Actual fabric purchased was 2,900 m at $2.10 per metre. There were no beginning or ending inventories of geese or fabric. Actual direct labour was 5,200 hours at $7.75 per hour. Required: A. Determine the total materials price variance and whether it is favourable or unfavourable. B. Determine the total materials usage variance and whether it is favourable or unfavourable. C. Determine the labour rate variance and whether it is favourable or unfavourable. D. Determine the labour efficiency variance and whether it is favourable or unfavourable. E. Make all necessary journal entries to record the purchase of materials, the issuance and usage of materials, and the direct labour variances. F. Provide the closing entries, assuming that all variances are immaterial.

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 The Fantastic Tool Company. What is the labour rate variance?

When accounting for variances, favourable variances are always debits to the variance account, and unfavourable variances are always credits to the variance account.

Which statements best describes a characteristic of variances?

Niven Company Niven Company has developed the following standards for one of its products: Direct materials: 8\times\ 8.5 per kilogram Direct labour: 3 hours \times\ 1 per hour The following activity occurred during the month of April: Materials purchased: 5,000 costing \ 42,500 Materials used: 3,600 Units produced: 500 units Direct labour: 1,150 hours at \ 11.80 per hour The company records materials price variances at the time of purchase. -Refer to Niven Company. What is the variable standard cost per unit for labour?

Refer to Cakers Express. Assuming the company found that it had a favourable materials price variance of $1,000, what is the flour's standard cost per kilogram?

Sterling Manufacturing has developed the following standards for one of its products. Materials: $5 \mathrm{~m} \times \$ 6$ per metre $\quad \$ 30$ Direct labour: 2 hours $\times \$ 8$ per hour $\quad 16$ The company records materials price variances at the time of purchase. The following activity occurred during the month of December: Materials purchased: 5,200 costing \ 29,900 Materials used: 4,750 Units produced: 1,000 units Direct labour: 2,100 hours costing \ 17,850 Required: A. Calculate the direct materials price variance. B. Calculate the direct materials usage variance. C. Calculate the direct labour rate variance. D. Calculate the direct labour efficiency variance.

Which statement best describes variances?

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 labour rate variance?

A kaizen standard reflects the realized improvements for the past periods and a search for more improvements for the future.

Which statement best describes direct labour variances?

Bi-land Company Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: January \ 130,000 February \ 120,000 March \ 145,000 April \ 160,000 May \ 170,000 June \ 180,000 -Refer to Bi-land Company. How many months resulted in a variance that is lower than the lower control limit?

Which of the following is NOT characteristic of engineering studies?

During November, Rubix Company produced 10,000 units. The standard quantity of material allowed per unit was 10 kg at a standard cost of $3 per kilogram. Suppose the company had an unfavourable usage variance of $18,750 for November. What would have been the actual quantity of materials used?

During March, Raining Unlimited produced 5,500 umbrellas from nylon that costs $0.45 per metre, which is $0.05 per metre cheaper than the standard cost. It also used 3,000 direct labour hours at a rate of $6.50 per hour. Its direct materials standard is 1 m per umbrella. Its direct labour standard is 0.5 hour per umbrella.Its materials usage variance was a favourable $500, and its labour rate variance was a favourable $900. Required: A. Calculate the actual quantity of materials. B. Calculate the standard labour rate. C. Determine the materials price variance and whether it is favourable or unfavourable. D. Determine the labour efficiency variance and whether it is favourable or unfavourable. E. Record the entries for the materials purchase, the issuance and usage of materials, and the labour variances. F. Provide the closing entries, assuming all variances are immaterial.

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. -These reflect the amount of input that should be used per unit of output.

Overland Company is considering manufacturing a new brand of car. Given the current product and process designs, the cost data are as follows: Direct materials costs (per car) \ 10,000 Direct labour costs (per car) \ 3,000 Overhead costs (per car) \ 4,000 The company expects the selling price to be $20,000 and has set a target profit of $5,000. A supplier told Overland that it could purchase a couple of similar components under a different brand name at a lower price. This would result in cost savings of $2,000 per car. Furthermore, the company found that it could redesign its manufacturing process to cut down on both inspection labour and worker labour, which would result in cost savings of $1,000 per car. Required: A. Calculate Overland's target cost. B. Calculate the total costs per car after Overland redesigns its processes and schedules to buy cost-saving components. C. Should Overland manufacture the car? Calculate the expected profit after the cost savings are taken into account.

What is an advantage of standard costing over normal costing and actual costing?

Which term best categorizes the kaizen costing step of setting a new minimum standard?