Exam 10: Standard Costing: a Managerial Control Tool

Meow Meow manufactures gourmet cat food.During the month,it manufactured 5,000 cans of tuna,using 0.10 hours of direct labour per can at a rate of $8.00 per hour.The materials and labour standards for manufacturing the cans of tuna are as follows: The company actually used 4,900 kg of tuna at a price of $0.65 per kg.It also purchased 5,000 cans at a price of $0.45 per can. Direct materials ( 1 of tuna @\ 0.50 per kilogram) \ 0.50 Direct materials (1 can (\ 0.35 per can ) 0.35 Direct labour (0.20 hour @\ 7.00 per hour ) 1.40 A. Determine the total materials price variance and whether it is favourable or unfavourable. B. Determine the materials usage variance for tuna 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 vari ances. F. Provide the closing entries.

If the target cost is less than what is currently achievable,management must find ways to reduce costs in order to attain the target cost.Describe the three cost reduction methods that are typically used.

Match the variance with its correct calculation. -Labour efficiency variance

Kaizen costing involves which of the following?

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: During the year, Serenity Equestrian Corporation 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. Leather (20 strips@ \ 15 per strip) \3 00 Direct labour ( 15 hours @\ 15 per hour) 225 Total prime cost \2 52 -Refer to the Figure.What are the costs of leather and direct labour incurred for the production of 150 saddles?

Kaizen costing provides fixed standards which reflect continuous improvement efforts.

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

Overland Company is considering manufacturing a new brand of car.Given the current product and process designs,the cost data are as follows: 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. Direct materials costs (per car) \ 10,000 Direct labour costs (per car) \ 3,000 Overhead costs (per car) \ 4,000 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.

Aqua Company produces aquariums. During the year, 150,000 aquariums were produced. Materials and labour standards for producing the aquariums are as follows: Aqua 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. Direct materials ( 2 sheets of glass @ \ 2 per sheet) \ 4 Direct labour (3 hours @\ 8 per hour) 24 -Refer to the Figure.What is the materials price variance?

What are price standards based on?

Allan Company manufactures overalls. During the year, it manufactured 125,000 overalls, using 2.9 hours of direct labour at a rate of $6.25 per hour. The materials and labour standards for manufacturing the overalls are as follows: Allan required 600,000 m at $1.95 per metre to make the 125,000 overalls. \begin{array}{lll}\text {Direct materials ( 5 \mathrm{~m} of denim \( (012 \) per metre) }&\$10\\\text { Direct labour (3 hours \( @ \$ 6 \) per hour)}&18\\\end{array} -Refer to the Figure.What is the entry to close the variances of labour and materials?

Min Company has developed the following standards for one of its products. The following activity occurred during the month of November: Direct materials: 15\times\ 17.50 per kilogram Direct labour: 4 hours \times\ 24 per hour Variable manufacturing overhead: 4 hours \times\ 14 per hour The company records materials price variances at the time of purchase.What is the direct materials price variance? Materials purchased: 20,000 costing \ 340,000 Materials used: 7,200 Units produced: 500 units Direct labour: 2,300 hours at \ 23.60 per hour

Which formula is used to compute the standard quantity of materials allowed?

Which of the following statements is characteristic of variances?

Determine if the variance is favourable or unfavourable. -Actual usage of inputs is less than the standard usage.

Assume that SQ = Standard Quantity,SP = Standard Price,AQ = Actual Quantity,and AP = Actual Price.Also assume a favourable materials usage variance.Which of the following would be the journal entry and the equation to record the issuance and usage of materials?

Niven Company has developed the following standards for one of its products: The following activity occurred during the month of April: Direct materials: 8\times\ 8.5 per kilogram Direct labour: 3 hours \times\ 13 per hour The company records materials price variances at the time of purchase.What is the variable standard cost per unit for materials and labour? 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

During August,40,000 units were produced.The standard quantity of material allowed per unit was 5 kg at a standard cost of $2.50 per kilogram.Suppose the company had a favourable usage variance of $25,000 for August.What would have been the actual quantity of materials used?

Western Plastics Company has the following information concerning its direct materials: Direct Materials: Standard quantity 100,000 Actual quantity 80,000 Standard price \ 3 Actual price \ 4 A. Determine the materials price variance and whether it is favourable or unfavourable. B. Determine the materials usage variance and whether it is favourable or unfavourable. C. Western Plastics has set control limits stating that actual costs should be investigated if they fall outside the acceptable range of the standard materials cost $\pm 10 \%$ . i. What is the standard materials cost? ii. What are the upper and lower control limits? iii. What is the actual materials cost? iv. Should the actual materials cost be investigated?

Green Lawn Corporation wants to produce a new lawnmower. The financial data is as follows: Other information: Target price: \ 450 Target profit: \ 75 Estimated cost given current product and process designs: \ 400 1. Through reverse engineering, Green Lawn found a design improvement that would save $10 per unit. 2. It also found that it could purchase a similar component of a different brand at a lower price, which would save $20 per unit. -Refer to the Figure.What is Green Lawn's new expected profit?