solutions chapter 9 (1)

7/21/2019 Solutions Chapter 9 (1)

http://slidepdf.com/reader/full/solutions-chapter-9-1 1/37

Chapter 09 - Standard Costing and Variances

9-1© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 9Standard Costing and Variances

ANSWERS TO QUESTIONS

1. Budgetary planning is the process of predicting a company’s goals for the future andthe steps to be taken in achieving those goals. Control is a measure of whether thegoals have been (or are being) met.

2. Standard costs are the expected costs for a particular item, often referred to as whatshould be used (or paid). They are set at the beginning of a period.

3. A standard cost system records all manufacturing costs at their standards instead ofactual amounts. An adjustment is made at the end of the period to reconcilestandard and actual numbers.

4. An ideal standard assumes perfect or near perfect conditions. It is almostimpossible to meet. Easily attainable standards, on the other hand, are often setunrealistically low so that it’s not difficult to meet them.

5. A “tight but attainable” standard is best for motivating employees.

6. A quantity standard is the amount of input that goes into a single unit of product. Aprice standard is the price that should be paid for a specific quantity of input.

7. A standard cost card is the summary of standards that shows what a companyshould spend to make a single unit of product. It is important because it’s the basisfor recording all transactions that occur in the upcoming period.

8. Standards are the expected costs for a single unit of product while budgetssummarize expectations for the company’s anticipated level of production.Standards are multiplied by the number of units to arrive at budgeted amounts.

9. Favorable simply indicates that a company used or spent less than expected.Unfavorable variances mean that the company used or spent more than expected.It is important to note that these terms do not mean good and bad.

10. A static budget is based on a single estimate of sales volume and the master budgetis one example of a static budget. The master budget is developed for the

company’s sales forecast which is a specific level of sales. Flexible budgets showcosts at several possible levels of sales.

11. A volume variance results from comparing the master and flexible budgets.

12. Spending variances are calculated by comparing actual costs to the flexible budget.






13. A spending variance can be broken down into a price variance and a quantityvariance. The price variance relates to the amount paid for an input such as directmaterials or direct labor, while the quantity variance relates to the amount of inputthat is used in production.

14. The two direct materials variances are the materials price variance and the materials

quantity variance. The purchasing department would be responsible for the pricevariance while the production department would be responsible for the quantityvariance.

15. Purchasing lesser quality materials would result in a favorable price variance.However, the lesser quality materials might also lead to more waste or an inferiorproduct which could cause an unfavorable quantity variance.

16. The two direct labor variances are the direct labor rate variance and the direct laborefficiency variance. The personnel department would be responsible for the ratevariance while the production department would be responsible for the efficiency

variance.

17. Hiring more skilled workers would likely result in an unfavorable labor rate variance,but it should also lead to a favorable efficiency variance as the more highly trainedworkers should be more efficient.

18. In a normal cost system, we established a budgeted (standard) manufacturingoverhead rate based on budgeted costs and budgeted levels of the activity drivers.Then we applied overhead cost to products by multiplying the budgeted rate by theactual number of units produced. In a standard cost system, we multiply thebudgeted (standard) overhead rate by the standard value of the cost driver.

19. The two variable overhead variances are the variable overhead rate variance andthe variable overhead efficiency variance. Production would generally beresponsible for each of these variances.

20. The primary fixed overhead variance is the fixed overhead spending variance.Production would generally be responsible for each of these variances.

21. A $1,000 favorable FOH volume variance indicates that the actual volume ofproduction was more than budgeted. In other words, the master budget volumeused to compute the fixed overhead rate was too low.

22. Practical capacity is the number of units that could be produced under normal (notideal) operating conditions. This allows for some "downtime" to allow for things suchas employee training, breaks and preventive maintenance. Practical capacity shouldbe a very stable amount from period to period. Budgeted production, on the otherhand, is subject to seasonal fluctuations in demand.






23. At the end of the accounting period, all variances should be closed to the Cost ofGoods Sold account to adjust the standard cost up or down to the actual cost.

Authors' Recommended Solution Time(Time in minutes)

Mini-exercises Exercises ProblemsCases andProjects*

No. Time No. Time No. Time No. Time

1 4 1 10 PA−1 15 1 302 5 2 10 PA−2 12 2 303 3 3 10 PA−3 12 3 304 4 4 10 PA−4 125 3 5 10 PA−5 126 4 6 10 PA−6 127 5 7 10 PA−7 138 4 8 10 PA−8 159 5 9 10 PA−9 10

10 3 10 10 PA−10 1011 4 11 10 PB−1 1512 5 12 10 PB−2 1213 4 13 10 PB−3 12

14 10 PB−4 1215 10 PB−5 1216 10 PB−6 1217 10 PB−7 1318 10 PB−8 15

PB−9 10

PB−10 10

* Due to the nature of cases, it is very difficult to estimate the amount of time studentswill need to complete them. As with any open-ended project, it is possible for studentsto devote a large amount of time to these assignments. While students often benefitfrom the extra effort, we find that some become frustrated by the perceived difficulty ofthe task. You can reduce student frustration and anxiety by making your expectationsclear, and by offering suggestions (about how to research topics or what companies to

select).






ANSWERS TO MINI-EXERCISES

M9-1

1. Static

2. Volume

3. Production manager4. Favorable

5. Debit; Credit

6. Variable overhead efficiency

7. Favorable

8. Production manager

9. Fixed overhead volume

10. Credit; Debit

M9-2 Answers will vary, but students should have three distinctly different grading scales. Anexample of an ideal standard would be one where a student must receive 100% of thecourse points to receive an A in the course, 95% to receive a B, 90% to receive a C,etc. An easily achievable standard might be one where only 70% of the course pointsare needed for an A, 60% for a B, e tc. A “tight but attainable standard” might be thetypical grading scale where 90% of the total course points is an A, 80% is a B, etc.Obviously the difficulty of these scales will depend on the nature of the course and theability level of the students.

M9-3Variable manufacturing costs, which will change in total as volume changes, includedirect materials, direct labor, and variable manufacturing overhead. Costs that do notchange with fluctuations in volume include fixed manufacturing overhead.

M9-4Historical data, industry averages, and/or process studies may all serve as a basis forsetting standards within a company.






M9-5

The direct labor spending variance is the sum of the direct labor rate and efficiencyvariances. Whether you add or subtract them depends on the sign of the variance.

Answers in bold are the missing amounts that must be computed based on the othertwo variances.

CaseDirect Labor

Rate VarianceDirect Labor

Efficiency VarianceDirect Labor

Spending Variance

A $750 U $1,200 F$750 U - $1,200 F =

$450 F

B $2,000 F$3,500 U – $2,000 F =

$5,500 U $3,500 U

C $1,000 F$1,800 F - $1,000 F =

$800 F $1,800 F

D$2,500 U - $500 U =

$2,000 U $500 U $2,500 U

E$1,950 U + $1,100 F =

$3,050U $1,100 F $1,950 U

F $650 U $1,150 U$650 U + $1,150 U =

$1,800 U

M9-6There’s no way to know whether or not the manager is correct without furtherinvestigation. Variances alone don’t give information about causes. In this case,investigation may reveal that the production manager is correct. However, there areother viable explanations as well and he must be certain of the cause before taking anyaction.

M9-7

AQ x APDirect MaterialsPrice Variance AQ x SP

Direct MaterialsQuantity Variance SQ x SP

4,200 x $3.75$15,750 $1,050 F

4,200 x $4.00$16,800 $800 U

(2 x 2,000) x $4.004,000 x $4.00

$16,000Total Direct Materials Spending Variance

$250 F

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 4,200 x ($4 - $3.75)Direct Materials Price Variance = $1,050 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $4 x (4,000 – 4,200)Direct Materials Quantity Variance = $800 U






M9-8

AH x ARDirect Labor

Rate Variance AH x SRDirect Labor

Efficiency Variance SH x SR1,900 x $11.50

$21,850 $950 F1,900 x $12.00

$22,800 $600 F(1 x 1,950) x $12

$23,400Total Direct Labor Spending Variance

$1,550 F

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 1,900 x ($12 – $11.50)Direct Labor Rate Variance = $950 F

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $12 x (1,950 – 1,900)Direct Labor Efficiency Variance = $600 F

Total Direct Labor Spending Variance = $950 F + $600 F = $1,550 F

M9-9

AH x ARVariable Overhead

Rate Variance AH x SRVariable OverheadEfficiency Variance

Applied VariableOverhead Cost

1,900 x $1.20$2,280 $95 F

1,900 x $1.25$2,375 $125 F

(1 x 2,000) x $1.25$2,500

Total VarianceOver/Underapplied Variable Overhead

$220 F (Overapplied)

Variable Overhead Rate Variance = AH x (SR – AR)

Variable Overhead Rate Variance = 1,900 x ($1.25 - $1.20)Variable Overhead Rate Variance = $95 F

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $1.25 x (2,000 – 1,900)Variable Overhead Efficiency Variance = $125 F

Total Variable Overhead Spending Variance = $95 F + $125 F = $220 F (Overapplied)

M9-10

Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead

Fixed Overhead Spending Variance = $10,200 – $9,900 Fixed Overhead Spending Variance = $300 F






M 9-11

FOH Rate = $10,200 / 30,000 = $0.34

Budgeted FixedOverhead Cost

Fixed OverheadVolume Variance

Applied Fixed Overhead Cos

$10,200 $680 U

$0.34 x 28,000

$9,520

Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $0.34 x (28,000 – 30,000)Fixed Overhead Volume Variance = $680 U

M9-12

Raw Materials Inventory (4,400 x $14)…............................... 61,600Direct Materials Price Variance (4,400 x ($14.00 - $14.50)) 2,200

Cash (4,400 x $14.50)…………………………………………….. 63,800

M9-13

Cost of Goods Sold……………………………........................ 38,000Direct Labor Efficiency Variance………………………………. 800

Direct Labor Rate Variance………………………………….. 1,500Cash or Wages Payable..………………………………………….. 37,300

ANSWERS TO EXERCISES

E9-1

AQ x AP Direct MaterialsPrice Variance AQ x SP Direct MaterialsQuantity Variance SQ x SP(2.4 x 2,500) x

$4.10$24,600

$600 F$4.20 x

(2.4 x 2,500)$25,200

$1,050 F$4.20

x (2.5 x 2,500)$26,250

Total Direct Materials Spending Variance$1,650 F

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = (2.4 x 2,500) x ($4.20 - $4.10)Direct Materials Price Variance = $600 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $4.20 x ((2.5 x 2,500) – (2.4 x 2,500))Direct Materials Quantity Variance = $1,050 F

Total Direct Materials Spending Variance = $600 F + $1,050 F = $1,650 F






AH x ARDirect Labor


Efficiency Variance SH x SR(1.2 x 2,500)

x $15.50$46,500

$1,500 F(1.2 x 2,500)

x $16$48,000

$4,000 U(1.10 x 2,500)

x $16$44,000

Total Direct Labor Spending Variance

$2,500 U

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = (1.2 x 2,500) x ($16 - $15.50)Direct Labor Rate Variance = $1,500 F

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $16 x ((1.10 x 2,500) – (1.2 x 2,500))Direct Labor Efficiency Variance = $4,000 U

Total Direct Labor Spending Variance = $1,500 F + $4,000 U = $2,500 U

E9-2

Master BudgetFlexibleBudget

FlexibleBudget

FlexibleBudget

5,000 Units Per Unit 4,000 units 6,000 units 7,000 units

Directmaterials $15,000 / 5,000 = $3.00

4,000 x $3.00$ 12,000

6,000 x $3.00$ 18,000

7,000 x $3.0$ 21,00

DirectLabor 30,000 / 5,000 = $6.00

4,000 x $6.00$ 24,000

6,000 x $6.00$ 36,000

7,000 x $6.0$ 42,00

Variablemanufacturingoverhead

8,000 / 5,000 = $1.604,000 x $1.60

$ 6,4006,000 x $1.60

$ 9,6007,000 x $1.6

$ 11,20

Fixedmanufacturingoverhead

18,000 n/a $ 18,000 $ 18,000 $ 18,00

TotalManufacturingCosts

$71,000 $60,400 $81,600 $92,20






E9-3

Req. 11.5 feet x $2.50 / foot = $3.75 per collar

Req. 2The direct materials price variance will be favorable because Perfect Pet paid $2.00 perfoot when the standard price is $2.50 per foot.

Req. 3The direct materials quantity variance will be unfavorable because Perfect Pet used1.75 ft in each collar, while the standard only allows 1.5 ft. per collar.

Req. 4One possible explanation is that Perfect Pet bought lower quality leather that wascheaper, but more difficult to use, leading to more waste.

Req. 5

Investigation of the variances would begin by talking to the managers in charge ofpurchasing and production to determine what may have caused the variances.

Req. 6



(60 x 1.75) x $2.00$210 $52.50 F

(60 x 1.75) x $2.50$262.50 $37.50 U

(60 x 1.5) x $2.50$225

Total Direct Materials Spending Variance$15 F

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = (60 x 1.75) x ($2.50 - $2.00)Direct Materials Price Variance = $52.50 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $2.50 x ((60 x 1.5) – (60 x 1.75))Direct Materials Quantity Variance = $37.50 U

Total Direct Materials Spending Variance = $52.50 F + $37.50 U = $15 F






E9-4

Req. 1Shampoo Variances:



725 x $0.16

$116.00 $43.50 U

725 x $0.10

$72.50 $.50 U

(360 x 2) x $0.10

$72.00Total Shampoo Spending Variance

$44.00 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 725 x ($0.10 - $0.16)Direct Materials Price Variance = $43.50 U

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $0.10 x ((360 x 2) – 725)Direct Materials Quantity Variance = $0.50 U

Total Direct Materials Spending Variance = $43.50 U + $0.50 U = $44.00 U

Water Variances:



6,500 x $0.07$455 $130 U

6,500 x $0.05$325 $35 F

(360 x 20) x $0.05$360

Total Water Spending Variance$95 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 6,500 x ($0.05 - $0.07)Direct Materials Price Variance = $130 U

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $0.05 x ((360 x 20) – 6,500)Direct Materials Quantity Variance = $35 F

Total Direct Materials Spending Variance = $130 U + $35 F = $95 U






E9-4 (Continued)

Req. 2Direct Labor Variances:

AH x ARDirect Labor


Efficiency Variance SH x SR230 x $10

$2,300 $230 U

230 x $9

$2,070 $360 F

(360 x .75) x $9

$2,430Total Direct Labor Spending Variance

$130 F

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 230 x ($9.00 – $10)Direct Labor Rate Variance = $230 U

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $9.00 x ((360 x .75) – 230))Direct Labor Efficiency Variance = $360 F

Total Direct Labor Spending Variance = $230 U + $360 F = $130 F

Req. 3Potential causes of the variances could include buying higher quality material, outdatedstandards, increases in the direct labor rate, hiring more skilled workers, etc. Furtherinvestigation would be required to determine the specific causes.

E9-5

Req. 1

Silver Variances:



420 x $22$9,240 $840 U

420 x $20$8,400 $600 F

(1,800 x .25) x $20$9,000

Total Spending Variance$240 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 420 x ($20 - $22)Direct Materials Price Variance = $840 U

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $20 x ((1,800 x .25) – 420)Direct Materials Quantity Variance = $600 F

Total Direct Materials Spending Variance = $840 U + $600 F = $240 U






Crystal Variances:



3,650 x $0.22$803 $109.50 F

3,650 x $0.25$912.50 $12.50 U

(1,800 x 2) x $0.25$900

Total Spending Variance

$97 F

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 3,650 x ($0.25 - $0.22)Direct Materials Price Variance = $109.50 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $0.25 x ((1,800 x 2) – 3,650)Direct Materials Quantity Variance = $12.50 U

Total Direct Materials Spending Variance = $109.50 F + $12.50 U = $97 F

E9-5 (Continued)

Req. 2Direct Labor Variances:

AH x ARDirect Labor



$42,480 $720 F2,880 x $15

$43,200 $2,700 U(1,800 x 1.5) x $15

$40,500Total Spending Variance

$1,980 U

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 2,880 x ($15.00 – $14.75)Direct Labor Rate Variance = $720 F

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $15 x ((1,800 x 1.5) – 2,880)Direct Labor Efficiency Variance = $2,700 U

Total Direct Labor Spending Variance = $720 F + $2,700 U = $1,980 U






Req. 3Potential causes of the variances could include buying higher quality silver, but lowerquality crystals, outdated standards, hiring unskilled labor (who are less expensive, buttake more time to make the jewelry), etc. Further investigation would be required todetermine the specific causes.

E9-6

AQ X APDirect MaterialsPrice Variance AQ X SP

Direct MaterialsQuantityVariance

SQ X SP

11,800,000 x $0.70$8,260,000 $236,000 F

11,800,000 x $0.72$8,496,000 $144,000 F

(1,000,000 x 12) x$0.72

$8,640,000Total Direct Materials Spending Variance

$380,000 F

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 11,800,000 x ($0.72 – $.70)Direct Materials Price Variance = $236,000 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $0.72 x ((1,000,000 x 12) – 11,800,000)Direct Materials Quantity Variance = $144,000 F

Total Direct Materials Spending Variance = $236,000 F + $144,000 F = $380,000 F

E9-7

AH x ARDirect Labor



$2,891,000 $98,000 F245,000 x $12.20

$2,989,000 $61,000 F(1,000,000 x .25)

$12.20$3,050,000

Total Direct Labor Spending Variance$159,000 F

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 245,000 x ($12.20 – $11.80)Direct Labor Rate Variance = $98,000 F

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $12.20 x ((1,000,000 x .25) – 245,000)Direct Labor Efficiency Variance = $61,000 F

Total Direct Labor Spending Variance = $98,000 F + $61,000 F = $159,000 F






E9-8

Actual VariableOverhead Cost

Variable OverheadRate Variance AH x SR

Variable OverheadEfficiency Variance


$318,500 $24,500 U245,000 x $1.20

$294,000 $6,000 F(1,000,000 x .25

x $1.20

$300,000Total Variance

Over/Underapplied Variable Overhead$18,500 U (Underapplied)

Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 245,000 x ($1.20 – ($318,500 / 245,000))Variable Overhead Rate Variance = $24,500 U

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $1.20 x ((1,000,000 x .25) – 245,000)Variable Overhead Efficiency Variance = $6,000 F

Variable Overhead Spending Variance = $24,500 U + $6,000 F = $18,500 U (Underapplied)

E9-9

Actual FixedOverhead Cost

Fixed OverheadSpending Variance



Applied FixedOverhead Cost

$355,000 $23,000 F $378,000 $42,000 F$0.42 x 1,000,000


Over/Underapplied Fixed Overhead

$65,000 F (Overapplied)

Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $378,000 - $355,000 Fixed Overhead Spending Variance = $23,000 F

Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $0.42 (900,000 - 1,000,000)Fixed Overhead Volume Variance = $42,000 F

Total Fixed Overhead Variance = $23,000 F + $42,000 F = $65,000 F (Overapplied)






E9-10

Req. 1Entry to record direct materials costs:Cost of Goods Sold ($8.64 x 1,000,000 units)….......................... 8,640,000

Direct Materials Price Variance(($0.72 x 11,800,000) - $8,260,000……………….……………………... 236,000Direct Materials Quantity Variance($0.72 x ((1,000,000 x 12) – 11,800,000)..……..………………………. 144,000Cash or Accounts Payable…………………………..…………………… 8,260,000

Req. 2Entry to record direct labor costs:Cost of Goods Sold ($3.05 x 1,000,000 units)........................... 3,050,000

Direct Labor Rate Variance((245,000 x $12.20) - $2,891,000)….………………………..……….. 98,000Direct Labor Efficiency Variance($12.20 x ((1,000,000 x .25) – 245,000)…………………………….. 61,000

Cash or Accounts Payable……………………………………………. 2,891,000

Req. 3Entry to record variable overhead costs:Cost of Goods Sold ($0.30 x 1,000,000 units)…….….................. 300,000Variable Overhead Rate Variance((245,000 x $1.20) - $318,500)..…………………………..……… 24,500

Variable Overhead Efficiency Variance($1.20 x ((1,000,000 x .25) – 245,000))……………………………….. 6,000Cash or Accounts Payable……………………………………………. 318,500

Req. 4Entry to record fixed overhead costs:Cost of Goods Sold ($0.42 x 1,000,000 units)……....................... 420,000

Fixed Overhead Spending Variance ($378,000 - $355,000)………… 23,000Fixed Overhead Volume Variance ($0.42 x (900,000 – 1,000,000))... 42,000Cash or Accounts Payable………………………………………………. 355,000






E9-11





$9,490 $3,310 F16,000 x $0.80

$12,800 $800 U(25,000 x .6) x

$0.80$12,000


2,510 F (Overapplied)

Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 16,000 x (.80 – ($9,490 / 16,000))Variable Overhead Rate Variance = $3,310 F

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $.80 X ((25,000 x .6) – 16,000)Variable Overhead Efficiency Variance = $800 U

Variable Overhead Spending Variance = $3,310 F + $800 U = 2,510 F (Overapplied)

E9-12

Req. 1FOH rate = $32,400 / 24,000 units = $1.35

Req. 2Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $32,400 - $32,000 = Fixed Overhead Spending Variance = $400 F

Req. 3Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $1.35 x (25,000 – 24,000)Fixed Overhead Volume Variance = $1,350 F

Req. 4Overapplied overhead = Applied – Actual = $33,750 - $32,000 = $1,750 (Overapplied)orTotal Fixed Overhead Variance = $400 F + $1,350 F = $1,750 F (Overapplied)






E9-13

Req. 1

Total purchases = AP × AQ (purchased) = $2.30 × 1,115,000 = $2,564,500

Req. 2

Direct materials price variance = AQ x (SP –

AP)= 1,115,000 x ($2.10 – $ 2.30)

= $223,000 U

Req. 3

Material quantity variance = SP x (SQ – AQ)

= $2.10 x (970,000 – 1,000,000)= $63,000 U

Req. 4Since the labor rate variance is favorable, the actual cost of direct labor must be $5,500

less than the standard cost. The standard cost is $80,500.

Direct labor rate variance = AH x (SR – AR)$5,500 = 10,000 x ($X – $ 7.50)$80,500 = 10,000 AH

$80,500 ÷ 10,000 actual direct labor hours equals a standard rate of $8.05.

Req. 5

Since the actual hours are 1,000 less than the standard, the efficiency variance is 1,000

hours x $8.05 = $8,050 F.Direct labor efficiency variance = SR x (SH – AH)

= $8.05 x (11,000 – 10,000)= $8,050 F






E9-14

Req. 1

$600,000 / 30,000 = $20

Req. 2

Fixed Overhead Spending Variance = $600,000 - $560,000 = $40,000 F

Req. 3

Expected (Planned) Capacity Variance = $20 x (20,000 – 30,000) = $200,000 U

Req. 4

Unexpected (Unplanned) Capacity Variance = $20 x (22,000 - 20,000) = $40,000 F

Req. 5

Actual Fixed Overhead $560,000 Applied = 22,000 units x $20 = 440,000Underapplied Fixed Overhead $120,000 U ($40,000 F + 200,000 U + 40,000F)






E9-15





$30,240 $7,560 F63,000 x $0.60

$37,800 $120 U(628,000 x .1) x

$0.60$37,680



Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 63,000 x (.60 –($30,240 / 63,000))Variable Overhead Rate Variance = $7,560 F

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $.60 x ((628,000 x .1) – 63,000)Variable Overhead Efficiency Variance = $120 U

Variable Overhead Spending Variance = $7,560 F + $120 U = $7,440 F (Overapplied)

E 9-16

Req. 1FOH rate = $192,000 / 600,000 = $0.32 per unit

Req. 2Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $192,000 - $195,000

Fixed Overhead Spending Variance = $3,000 U

Req. 3Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $0.32 x (628,000 – 600,000)Fixed Overhead Volume Variance = $8,960 F

Total Fixed Overhead Variance = $3,000 U + $8,960 F = $5,960 F (Overapplied)

Req. 4 Actual Fixed Overhead $195,000 Applied = 628,000 units x $0.32 = 200,960Overapplied Fixed Overhead $ 5,960 F ($3,000 U + 8,960 F)







E9-17

Req. 1

$540,000 / 80,000 = $6.75

Req. 2

Fixed Overhead Spending Variance = $540,000 - $520,000 = $20,000 F

Req. 3

Expected (Planned) Capacity Variance = $6.75 x (70,000 – 80,000) = $67,500 U

Req. 4

Unexpected (Unplanned) Capacity Variance = $6.75 x (75,000 - 70,000) = $33,750 F

E9-18 Casey Co. Kevin, Inc. Jess Company Valerie, Inc.

Units produced 2,000 1,000 120 1,500Standard hours per unit 3.5 .9 2.5 3Standard hours 7,000 900 300 4,500Standard rate per hour $14.50 $10.20 $10.50 $7Actual hours worked 6,800 975 280 4,900

Actual labor cost $96,900 $8,970 $3,090 $31,850DL rate variance $1,700 F $975 F $150 U $2,450 FDL efficiency variance $2,900 F $765 U $210 F $2,800 U






GROUP A PROBLEMS

PA9-1

Req. 1


Direct MaterialsQuantity Variance SQ X SP

178,200 x $1.50$267,300 $17,820 F

178,200 x $1.60$285,120 $21,120 U

(110,000 x 1.5) x$1.60


$3,300 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 178,200 x ($1.60 – $1.50)Direct Materials Price Variance = $17,820 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $1.60 x ((110,000 x 1.50) – 178,200)Direct Materials Quantity Variance = $21,120 U

Total Direct Materials Spending Variance = $17,820 F + $21,120 U = $3,300 U

Req. 2

AH x ARDirect Labor


EfficiencyVariance

SH x SR

150,000 x $13.50$2,025,000 $225,000 U

150,000 x $12.00$1,800,000 $180,000 F

(110,000 x 1.5) x $12.$1,980,000

Total Direct Labor Spending Variance$45,000 U

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 150,000 x ($12 – $13.50)Direct Labor Rate Variance = $225,000 U

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $12 x ((110,000 x 1.5) – 150,000)Direct Labor Efficiency Variance = $180,000 F

Total Direct Labor Spending Variance = $225,000 U + $180,000 F = $45,000 U






PA9-1 (Continued)

Req. 3 Actual VariableOverhead Cost




$200,000 $20,000 U150,000 x $1.20

$180,000 $18,000 F(110,000 x 1.5)

$1.20



Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 150,000 x (1.20 –($200,000 / 150,000))Variable Overhead Rate Variance = $20,000 U

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $1.20 x ((110,000 x 1.5) – 150,000)Variable Overhead Efficiency Variance = $18,000 F

Variable Overhead Spending Variance = $20,000 U + $18,000 F = $2,000 U (Underapplied)

PA9-2

Req. 1

Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $250,000 - $270,000 Fixed Overhead Spending Variance = $20,000 U

Req. 2

Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $2.50 x (110,000 – 100,000)Fixed Overhead Volume Variance = $25,000 F

Req. 3

Actual Fixed Overhead $270,000 Applied = 110,000 units x $2.50 = 275,000Overapplied Fixed Overhead $ 5,000 F ($20,000 U + 25,000 F)







PA9-3Req. 1Entry to record direct materials costs:Cost of Goods Sold ($2.40 x 110,000 units)…............................. 264,000Direct Materials Quantity Variance($1.60 x ((110,000 x 1.5) – 178,200) ……………………………... 21,120

Direct Materials Price Variance ((1.60 x 178,200) - $267,300)…… 17,820Cash or Accounts Payable……………………………………………. 267,300

Req. 2Entry to record direct labor costs:Cost of Goods Sold ($18 x 110,000 units)……............................. 1,980,000Direct Labor Rate Variance((150,000 x $12) - $2,025,000)……………………………………. 225,000

Direct Labor Efficiency Variance($12 x ((110,000 x 1.5) – 150,000))…..……………………………….. 180,000Cash or Accounts Payable………………..……………………………. 2,025,000

Req. 3Entry to record variable overhead costs:Cost of Goods Sold ($1.80 x 110,000 units)…….......................... 198,000Variable Overhead Rate Variance((150,000 x $1.20) - $200,000)……………………………..……… 20,000

Variable Overhead Efficiency Variance($1.20 x ((110,000 x 1.5) – 150,000))….…………………………….. 18,000Cash or Accounts Payable…………………………………………. 200,000

PA9-4Entry to record fixed overhead costs:Cost of Goods Sold ($2.50 x 110,000 units)…............................. 275,000Fixed Overhead Spending Variance ($250,000 - $270,000)……. 20,000

Fixed Overhead Volume Variance ($2.50 x (110,000 – 100,000)).. 25,000Cash or Accounts Payable……………………………………………. 270,000






PA9-5

Req. 1



360,000 x $2.10$756,000 $36,000 U

360,000 x $2.00$720,000 $20,000 U

(140,000 x 2.5) x$2.00


$56,000 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 360,000 x ($2.00 – $2.10)Direct Materials Price Variance = $36,000 U

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $2.00 x ((140,000 X 2.5) - 360,000)Direct Materials Quantity Variance = $20,000 U

Total Direct Materials Spending Variance = $36,000 U + $20,000 U = $56,000 U

Req. 2

AH x ARDirect Labor



$1,938,800 $133,200 F148,000 x $14

$2,072,000 $112,000 U(140,000 x 1) x

$14$1,960,000


Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 148,000 x ($14 – $13.10)Direct Labor Rate Variance = $133,200 F

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $14 x ((140,000 x 1) – 148,000)Direct Labor Efficiency Variance = $112,000 U

Total Direct Labor Spending Variance = $133,200 F + $112,000 U = $21,200 F






PA9-5 (Continued)





$72,000 $2,000 F148,000 x $0.50

74,000 $4,000 U(140,000 x 1) x

$0.50



Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 148,000 x ($0.50 – ($72,000 / 148,000))Variable Overhead Rate Variance = $2,000 F

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $0.50 x ((140,000 x 1) – 148,000)Variable Overhead Efficiency Variance = $4,000 U

Variable Overhead Spending Variance = $2,000 F + $4,000 U = $2,000 U (Underapplied)

PA9-6 Actual Fixed

Overhead CostFixed Overhead

Spending VarianceBudgeted FixedOverhead Cost



$50,000 $10,000 U $40,000 $5,000 U$0.25 x 140,000


Over/Underapplied Fixed Overhead$15,000 U (Underapplied)

Req. 1Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $40,000 - $50,000 = Fixed Overhead Spending Variance = $10,000 U

Req. 2Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $0.25 x (140,000 - 160,000)Fixed Overhead Volume Variance = $5,000 U

Req. 3

Total Fixed Overhead Variance = $10,000 U + $5,000 U = $15,000 U (Underapplied)






PA9-7

Req. 1Entry to record direct materials costs:Cost of Goods Sold ($5.00 x 140,000 units)…............................. 700,000Direct Materials Price Variance($2.00 x 360,000) - ($756,000)….………………………………... 36,000Direct Materials Quantity Variance($2.00 x ((140,000 x 2.5) – 360,000))…………………………….. 20,000

Cash or Accounts Payable……………………………………………. 756,000

Req. 2Entry to record direct labor costs:Cost of Goods Sold ($14 x 140,000 units)……........................... 1,960,000Direct Labor Efficiency Variance($14 x ((140,000 x 1) – 148,000))…….………………………….. 112,000

Direct Labor Rate Variance((148,000 x $14) - $1,938,800)…...………………………………..….. 133,200

Cash or Accounts Payable…………………………………………. 1,938,800

Req. 3Entry to record variable overhead costs:Cost of Goods Sold ($0.50 x 140,000 units)…….......................... 70,000Variable Overhead Efficiency Variance($.50 x ((140,000 x 1) – 148,000)……………………………….. 4,000

Variable Overhead Rate Variance((148,000 x $0.50) - $72,000)….………………………………..……… 2,000Cash or Accounts Payable……………………………………………… 72,000

PA9-8

Entry to record fixed overhead costs:Cost of Goods Sold ($0.25 x 140,000 units)…............................. 35,000Fixed Overhead Spending Variance ($40,000 - $50,000)……. 10,000Fixed Overhead Volume Variance ($0.25 x (140,000 – 160,000)..

5,000







PA9-9

Req. 1



4,920 x $5.60$27,552 $2,952 U

4,920 x $5.00$24,600 $1,200 U

(312 x 15) x$5.00


$4,152 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 4,920 x ($5.00 – $5.60)Direct Materials Price Variance = $2,952 U

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $5.00 x ((312 x 15) – 4,920)Direct Materials Quantity Variance = $1,200 U

Total Direct Materials Spending Variance = $2,952 U + $1,200 U = $4,152 U

Req. 2

AH x ARDirect Labor



$47,736 $1,836 U3,060 x $15

$45,900 $900 F(312 x 10) x $15

$46,800

Total Direct Labor Spending Variance$936 U

Direct Labor Rate Variance = AH x (SR – AR)Direct Labor Rate Variance = 3,060 x ($15 – $15.60)Direct Labor Rate Variance = $1,836 U

Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = 15 x ((312 x 10) – 3,060)Direct Labor Efficiency Variance = $900 F

Total Direct Labor Spending Variance = $1,836 U + $900 F = $936 U






PA9-10

Req. 1Entry to record direct materials costs:Cost of Goods Sold ($75 x 312 units)…….................................... 23,400Direct Materials Price Variance(($5.00 x 4,920) - $27,552)………………………………..………... 2,952Direct Materials Quantity Variance($5.00 x ( (312 x 15) – 4,920)) ……….…………………………….. 1,200


Req. 2Entry to record direct labor costs:Cost of Goods Sold ($150 x 312 units)…….................................. 46,800Direct Labor Rate Variance((3,060 x 15) - $47,736)…..………………………………..……….. 1,836

Direct Labor Efficiency Variance($15 x ((312 x 10) – 3,060))…………………………………………….. 900

Cash or Accounts Payable…..…………………………………………. 47,736

GROUP B PROBLEMS

PB9-1

Req. 1



583,000 x $0.065

$37,895 $8,745 U

583,000 x $0.05

$29,150 $275 U

(38,500 x 15) x

$0.05$28,875

Total Direct Materials Spending Variance$9,020 U

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 583,000 x ($0.05 –$0.065)Direct Materials Price Variance = $8,745 U

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $0.05 x ((38,500 x 15) – 583,000)Direct Materials Quantity Variance = $275 U

Total Direct Materials Spending Variance = $8,745 U + $275 U = $9,020 U






Req. 2

AH x ARDirect Labor



$136,620 $1,980 F9,900 x $14.00

$138,600 $3,850 U(38,500 x .25) x

$14.00$134,750

Total Direct Labor Spending Variance$1,870 U


Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $14 x ((38,500 x .25) – 9,900)Direct Labor Efficiency Variance = $3,850 U

Total Direct Labor Spending Variance = $1,980 F + $3,850 U = $1,870 U

PB9-1 (Continued)





$3,630 $330 F9,900 x $0.40

$3,960 $110 U(38,500 x.25) x

$0.40$3,850

Total Variance

Over/Underapplied Variable Overhead$220 F (Overapplied)

Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 9,900 x ($0.40 – ($3,630 / 9,900))Variable Overhead Rate Variance = $330 F

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $0.40 x ((38,500 x .25) – 9,900)Variable Overhead Efficiency Variance = $110 U

Variable Overhead Spending Variance = $330 F + $110 U = $220 F (Overapplied)






PB9-2






$9,900 $100 F $10,000 $375 U$0.25 x 38,500

$9,625

Total VarianceOver/Underapplied Fixed Overhead

$275 U (Underapplied)

Req. 1Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $10,000 - $9,900 Fixed Overhead Spending Variance = $100 F

Req. 2Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $0.25 x (38,500 – 40,000)Fixed Overhead Volume Variance = $375 U

Req. 3Total Fixed Overhead Variance = $100 F + $375 U = $275 U (Underapplied)

PB9-3

Req. 1Entry to record direct materials costs:Cost of Goods Sold ($0.75 x 38,500 units)…............................... 28,875

Direct Materials Price Variance(($0.05 x 583,000) - $37,895)….…………………………………… 8,745Direct Materials Quantity Variance($0.05 x ((38,500 x 15) – 583,000) ….…………………………..... 275

Cash or Accounts Payable…………………………………………. 37,895

Req. 2Entry to record direct labor costs:Cost of Goods Sold ($3.50 x 38,500 units)……........................... 134,750Direct Labor Efficiency Variance($14 x ((38,500 x .25) – 9,900)…………………….……………….. 3,850

Direct Labor Rate Variance((9,900 x $14) - $136,620)……………………………………..……….. 1,980Cash or Accounts Payable………..……………………………………. 136,620






Req. 3Entry to record variable overhead costs:Cost of Goods Sold ($0.10 x 38,500 units)…….......................... 3,850Variable Overhead Efficiency Variance($0.40 x ((38,500 x .25) – 9,900)..………………………………... 110

Variable Overhead Rate Variance((9,900 x $0.40) - $3,630)…...…………………………………..……… 330Cash or Accounts Payable……..………………………………………. 3,630

PB9-4

Entry to record fixed overhead:Cost of Goods Sold ($.25 x 38,500 units)…................................. 9,625Fixed Overhead Volume Variance ($0.25 x (38,500 – 40,000))… 375

Fixed Overhead Spending Variance ($10,000 - $9,900)……….…. 100Cash or Accounts Payable……………………………………………. 9,900

PB9-5

Req. 1



1,305,000 x $.76$991,800 $52,200 F

1,305,000 x $.80$1,044,000 $36,000 F

(675,000 x 2) x$.80

$1,080,000Total Direct Materials Spending Variance

$88,200 F

Direct Materials Price Variance = AQ x (SP – AP)Direct Materials Price Variance = 1,305,000 x ($.80 - $.76)Direct Materials Price Variance = $52,200 F

Direct Materials Quantity Variance = SP x (SQ – AQ)Direct Materials Quantity Variance = $0.80 x ((675,000 x 2) – 1,305,000)Direct Materials Quantity Variance = $36,000 F

Total Direct Materials Spending Variance = $52,200 F + $36,000 F = $88,200 F






Req. 2

AH x ARDirect Labor



$3,712,500 $337,500 F337,500 x $12

$4,050,000 $0(675,000 x .5) x

$12$4,050,000



Direct Labor Efficiency Variance = SR x (SH – AH)Direct Labor Efficiency Variance = $12 x ((675,000 x .5) – 337,500)Direct Labor Efficiency Variance = $0

Total Direct Labor Spending Variance = $337,500 F + $0 = $337,500 F

PB9-5 (Continued)





$157,500 $22,500 U337,500 x $0.40

$135,000 0(675,000 x .5) x

$0.40$135,000

AH x (SR – AR)337,500 x ($0.40 –

($157,500 / 337,500))$22,500 U

SR x (SH – AH)$0.40 x ((750,000 x

.5) –

375,000)$0Total Variance


Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 337,500 x ($0.40 – ($157,500 / 337,500))Variable Overhead Rate Variance = $22,500 U

Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $0.40 x ((750,000 x .5) – 375,000)

Variable Overhead Efficiency Variance = $0

Variable Overhead Spending Variance = $22,500 U + $0= $22,500 U (Underapplied)






PB9-6






$505,000 $25,000 U $480,000 $75,000 U$0.60 x 675,000

units


Over/Underapplied Fixed Overhead$100,000 U (Underapplied)

Req. 1Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $480,000 - $505,000 Fixed Overhead Spending Variance = $25,000 U

Req. 2Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $0.60 x (675,000 - 800,000)Fixed Overhead Volume Variance = $75,000 U

Req. 3Total Fixed Overhead Variance = $25,000 U + $75,000 U = $100,000 U (Underapplied)

PB9-7

Req. 1

Entry to record direct materials costs:Cost of Goods Sold ($1.60 x 675,000 units)…............................. 1,080,000

Direct Materials Price Variance(($0.80 x 1,305,000) - $991,800)……………………………………... 52,200Direct Materials Quantity Variance($0.80 x ((675,000 x 2) – 1,305,000)…….…………………………….. 36,000Cash or Accounts Payable………………………………………………. 991,800

Req. 2Entry to record direct labor costs:Cost of Goods Sold ($6 x 675,000 units)……........................... 4,050,000

Direct Labor Rate Variance((337,500 x $12) - $3,712,500)….…………………………..……….. 337,500Cash or Accounts Payable……………………………………………. 3,712,500






Req. 3Entry to record variable overhead costs:Cost of Goods Sold ($0.20 x 675,000 units)…….......................... 135,000Variable Overhead Rate Variance((337,500 x $0.40) - $157,500)…..………………………..……… 22,500


PB9-8Entry to record fixed overhead:Cost of Goods Sold ($0.60 x 675,000 units)…............................. 405,000Fixed Overhead Spending Variance ($480,000 - $505,000)……. 25,000Fixed Overhead Volume Variance ($0.60 x (675,000 – 800,000)) 75,000


PB9-9





$14,790 $3,570 F3,060 x $6$18,360 $360 F

(312 x10) x $6$18,720



Req. 1Variable Overhead Rate Variance = AH x (SR – AR)Variable Overhead Rate Variance = 3,060 x ($6.00 – ($14,790 / 3,060))Variable Overhead Rate Variance = $3,570 F

Req. 2Variable Overhead Efficiency Variance = SR x (SH – AH)Variable Overhead Efficiency Variance = $6 x ((312 x 10) – 3,060)Variable Overhead Efficiency Variance = $360 F

Req. 3Variable Overhead Spending Variance = $3,570 F + $360 F = $3,930 F (Overapplied)











$24,600 $600 U $24,000 $960 F$80 x 312 units


Over/Underapplied Fixed Overhead

$360 F (Overapplied)

Req. 4Fixed Overhead Spending Variance = Budgeted Fixed Overhead – Actual Fixed Overhead Fixed Overhead Spending Variance = $24,000 - $24,600 Fixed Overhead Spending Variance = $600 U

Req. 5Fixed Overhead Volume Variance = FOH Rate x (Actual Volume – Budgeted Volume)Fixed Overhead Volume Variance = $80 x (300 - 312)Fixed Overhead Volume Variance = $960 F

Req. 6Total Fixed Overhead Variance = $600 U + $960 F = $360 F (Overapplied))

PB9-10

Req. 1Entry to record variable overhead costs:Cost of Goods Sold ($60 x 312 units)…….......................... 18,720

Variable Overhead Rate Variance

((3,060 x $6.00) - $14,790)…...…..……………………………..……… 3,570Variable Overhead Efficiency Variance($6 x ((312 x 10) – 3,060)………………….…………………………… 360Cash or Accounts Payable……………………………………………… 14,790

Req. 2Entry to record fixed overhead costs:Cost of Goods Sold ($80 x 312 units)……..…............................. 24,960Fixed Overhead Spending Variance ($24,000 - $24,600)……. 600

Fixed Overhead Volume Variance ($80 x (312 – 300)……………. 960Cash or Accounts Payable……………………………………………. 24,600






ANSWERS TO SKILLS DEVELOPMENT CASES

S9-1

Answers to this case will depend on the product chosen, but should demonstratestudents’ understanding of how cost standards are created and the potential causes ofthe various cost variances.

S9-2This case provides an opportunity to show students that managerial accounting, in general,and performance evaluation, in particular, doesn’t f ollow any established rules or imposedguidelines. The case often leads students to develop very creative evaluation criteria and,as a result, is very easily discussed in a large group or classroom setting.

Req. 1

Sales RepSample

VarianceTravel

VarianceEntertainment

VarianceOverall Expense

VarianceSales

Variance

Terry $3,000 F $10,000 U $2,900 F $4,100 U $12,000 UMaria 8,300 U 6,000 F 5,100 U 7,400 U 40,000 FSamantha 4,300 F 0 200 F 4,500 F 47,000 U

Abraham 1,900 F 1,800 F 300 F 4,000 F 2,000 F

Student rankings and bonus allocations may vary, but when using the variances abovestudents should rank either Maria or Abraham as best and Terry or Samantha as worst.

Req. 2

This additional information helps explain the travel variances for both Terry (large

geographic area) and Maria (much smaller geographic area). It also helps explain thesample and entertainment variances since Maria is in a metropolitan area where thereare a larger number of physicians and they are much more densely populated.

At this point, some students may choose to evaluate the sales reps using an alternatecriteria such as sales generated for every dollar spent on travel (or samples orentertainment), or they may calculate sales per dollar of total expense.

Req. 3

Other information that might be relevant includes the number of physicians or hospitals

in each territory, experience level of each sales rep, cost of gasoline, last year’sperformance numbers, changes to the territory (such as hospital closings or populationincreases/decreases), competition from other companies’ reps, etc.

Additionally, information such as timing of the sales might be helpful. For example,finding out that Abraham’s numbers have changed very little since April 1 could suggest




S9-2 (Continued)

that he’s “managing the numbers” and slacking off once he hit the 6 -month sales goaland/or while his expense variances are all favorable.

Req. 4

Students’ answers will vary.

Req. 5

Given the differences in territory, Acore’s process isn’t appropriate. Acore couldimplement a participative budgeting process that allows input from each sales repand/or they could rely on previous periods for more accurate information.

S9-3

Req. 1Yes, there is incentive to build “slack” into the process study in order to give everyonemore possibility of meeting or exceeding expectations in the future.

Req. 2If the study results in time and amount standards that are at or near perfection, thenthere is less chance of “beating the budget” in the future. To the extent that bonusesare tied to variances, this would lessen the possibility of earning a bonus.

Req. 3The company could find a way of estimating time and amount over a longer period of

time or more employees. Alternatively, a standard based on perfection plus someallowance (e.g., perfection plus 10%) could be used.

solutions chapter 9 (1)

Documents