Exam 8: Standard Costing and Variance Analysis

The effective evaluation of managers' performance depends on both human factors and company policies. Using variances from standard costs in a manager's performance report adds accuracy to the evaluation process. To ensure effectiveness and fairness when setting up a performance evaluation process, what actions should be taken?

Using the following information, compute the standard unit cost of a 20 pound bag of dog food: Direct materials quantity standard 20 pounds per unit Direct materials price standard \ 0.02 per pound Direct labor time standard 0.1 hour per unit Direct labor rate standerd \ 11.60 per hour Variable overheadrate standard \ 2.50 per machine hour Fixed overhead rate standard \ 1.50 per machine hour Machine hour standard 0.25 hours per urit

A purpose of standard costing is to

An expression of the hourly labor pay cost per function or job classification that is expected to exist during the next accounting period is the definition of a

Point Company uses the standard costing method. The company's main product is a fine-quality audio speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours, and budgeted fixed overhead costs for the year were $6,750. During the year, the company produced and sold 8,000 units. Actual fixed overhead costs were $4,800. - Compute the fixed overhead budget variance.

The formula used to compute budgeted total cost at any level of activity is presented in the

Love-My-Lips specializes in manufacturing lipstick. Legally Pink, one of more than 75 shades produced by the company, is made from castor oil, beeswax, aloe vera, and a base compound. For the next 12 months, the company's purchasing agent believes that the cost of ingredients will be as follows: Ingredient Standard Cost Castor oil \ 6.30 per gallon Beeswax \ 3.53 per pound Aloe vera \ 19.90 per gallon Base compound \ 21.00 per gallon The direct labor time standard is 4 hours per case at a standard direct labor rate of $10.00 per hour. The standard overhead rates are $16.00 per direct labor hour for the standard variable overhead rate and $12.00 per direct labor hour for the standard fixed overhead rate. a. Using these production standards, compute the standard unit cost of direct materials per case of Legally Pink lipstick if it takes 0.4 gallon of castor oil, 1 pound of beeswax, 0.2 gallon of aloe vera, and 1 gallon of base compound to produce one case. b. Using the standard unit cost of direct materials per case determined in (a) and the production standards given for direct labor and overhead, compute the standard unit cost of one case of Legally Pink lipstick.

Underfoot Products uses standard costing. The following information about overhead was generated during May: Standard variable overheadrate \ 2 per machine hour Standard fixed overhead rate \ 1 per machine hour Actual variable overhead costs \ 389,000 Actual fixed overhead costs \ 175,000 Budgeted fixed overhead costs \ 190,000 Standard machine hours per urit produced 10 Good urits prochuced 18,000 Actual machine hours 200,000 Compute the variable overhead spending variance.

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 quantity variance. Direct materials purchased and used 99,000 pounds Price paid for direct materials \ 4.00 per pound Number of good units prochuced 9,000 units

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 rate variance. Direct labor hours used 4,950 hours Total cost of direct labor \ 53,460 Number of good units prochuced 9,000 units

Powerhorse, Inc., manufactures steel hitches for horse trailers. The company's direct labor rates have been set by the terms of the current labor contract. Direct labor rate standards have been assigned for each job classification. In July 20xx, a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes. A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in July. Standard time for the same work output is 34 hours. The apprentice earned $6.80 per hour in July. The standard direct labor rate for machine operators working on turret lathes is $9.50 per hour. a. From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a regular machine operator during the training period.) b. Did the company benefit financially from the situation? Why or why not? (Show calculations.)

A production manager usually is responsible for direct materials used and direct labor hours used.

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, 974 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

Standard unit costs generally do not include which of the following?

The variable overhead efficiency variance is the difference between actual total overhead costs incurred and the total overhead costs applied using the standard overhead rates.

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

A direct labor rate variance would occur in which of the following situations?

The "flex" in the flexible budget formula occurs in the variable cost segment.

Discuss the keys to preparing a performance report based on standard costs and related variances.

The variable overhead spending variance is also called the variable overhead efficiency variance.