Exam 26: Standard Costing and Variance Analysis

Although expensive to install and maintain, a standard cost accounting system can save a company considerable amounts of money by reducing resource waste.

Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct labor efficiency variance. Direct labor haurs used $\quad 4,950$ hours Total cost of direct labor $\quad \$ 53,460$ Number of good urits produced $\quad 9,000$ units

A flexible budget is most useful

The primary difference between a fixed (static) budget and a flexible budget is that a fixed budget

Keerin, Inc., produces a complete line of women's athletic apparel. Sweat suits are very popular in the northern states. During August, the company's records revealed the following information about the production of sweat suits: Standards: Direct materials 5 yards @ \ 2.50 per yard direct labor 1 hour @ \ 9.50 per hour Overhead: Variable 5.50 per direct labor hour Fixed 7 per direct labor hour Compute the standard unit cost for a sweat suit.

Underfoot Products uses standard costing. The following information about overhead was generated during May: Standard variable overhead rate \ 2 per machine hour Standard fixed overhead rate \ 1 per machine hour Actual variable overhead costs \ 390,000 Actual fixed overhead costs \ 175,000 Budgeted fixed overhead costs \ 190,000 Standard machine hours per unit produced 10 Good units produced 18,000 Actual machine hours 200,000 Compute the fixed overhead budget variance.

A standard cost accounting system can be used for

Direct labor time standards express the hourly labor cost per function or job classification that exists during the current accounting period.

If a company's flexible budget formula is $9.50 per unit plus $67,900, what would be the total budget for evaluating operating performance if 23,850 units were sold and 28,460 units were produced?

The direct materials standards for the main product of Duchess Company are 8 grams of direct materials per product at a cost of $3 per gram. During April, 969 grams of direct materials were used to produce 120 products at a direct materials cost of $2,900. The direct materials quantity variance for April was

Suppose the standard for a given cost during a period was $80,000. The actual cost for the period was $72,000. Under what circumstances would you consider the variance from budget to be a positive performance indication?

Earth, Inc., is developing flexible budgets for each department as part of its plan to use standard costs. Normal monthly volume in the Sifting Department is 50,000 direct labor hours. At normal volume, department fixed costs include $70,000 for power and $40,000 for maintenance, and salaries of $70,000 per month. Indirect variable labor is $120,000, which involves 15,000 hours of indirect labor at $8 per hour. Other variable costs in the Sifting Department are as follows: Tools and supplies $\quad\$ 3.00 \text { per machine hour}$ Maintenance $\quad\$ 2.50 \text { per machine hour}$ Power $\quad\$ 3.50 \text { per machine hour}$ Depreciation $\quad\$ 4.50 \text { per machine hour}$ Normal volume is 40,000 machine hours per month. The company uses a service (or usage) hours method to depreciate its fixed assets. a. Prepare a departmental flexible overhead budget for 30,000 machine hours and for 40,000 machine hours. b. Did you treat depreciation expense as a variable or a fixed cost? Defend your approach.

Using the standard costs of $5 per pound for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct materials variance.

The total variable overhead variance is comprised of the

The Silent Door Company manufactures soundproof doors. Each door requires two pieces of 16-gauge sheet steel measuring 94 inches by 50 inches. The standard cost of each piece of steel is $150. During the month of July, 2,040 doors were started and completed, and there were no beginning or ending work in process inventories. Accounting records revealed that 4,200 pieces of sheet steel were purchased during July at a cost of $623,700. All 4,200 pieces were used during the month. Compute the direct materials price and direct materials quantity variances for July production, assuming the price variance is isolated at the time of purchase. Note whether the variances are favorable or unfavorable. Round to the nearest dollar.

The direct materials price variance is the difference between the actual price and the standard price, multiplied by the standard quantity.

The direct materials quantity variance is the difference between the actual quantity used and the standard quantity times the standard price.

Camping for Fun, Inc., produces a variety of camping products on a year-round basis. The best-selling item is a compact portable camping stove made from sheets of rust-free aluminum. Production of this stove requires two main operations: cutting/assembly and coating. The basic direct materials used are aluminum sheeting, a polyurethane base coating, and a gas jet assembly. Quantity, time, and cost standards for the camping stove are as follows: Direct materials consist of sheet aluminum (two 2-by-3-meter sheets per stove at $1.15 per sheet), 1.2 liters of coating materials per stove at $0.80 per liter, and a gas jet assembly purchased at $11.30. Direct labor in the Cutting/Assembly Department is expected to produce 50 stoves per hour at $9.50 per hour. Direct labor in the Coating Department can handle 32 stoves per hour at $8 per hour. Normal capacity is 126,000 stoves per year. The firm actually produced 120,000 units during the year, and the production records contain the following information: For direct materials, the firm used 241,200 sheets of aluminum at $1.10 per sheet, 148,500 liters of coating at $0.77 per liter, and 120,100 gas jet assemblies costing a total of $1,369,140. Direct labor in the Cutting/Assembly Department amounted to 2,800 hours at $9.25 per hour; in the Coating Department, it amounted to 3,560 hours at $7.50 per hour. Using the information provided, determine the following (remember to indicate whether the variance is favorable or unfavorable): a. Standard hours allowed for the Cutting/Assembly and Coating Departments for the year (by department) b. Direct materials price variances (by material) c. Direct materials quantity variances (by material) d. Direct labor rate variances (by department) e. Direct labor efficiency variances (by department)

When a manufacturing company employs standard costs, all costs affecting the three inventory accounts and the Cost of Goods Sold account are stated in terms of standard or predetermined costs rather than in terms of actual costs incurred.

A(n) ________ cost is synonymous with the product cost calculated in a conventional standard cost accounting system.