Reference no: EM132316110

Multiple Choice Question

Excercise 7-16

Metal Shelf Company's standard cost for raw materials is $ 4 per pound and it is expected that each metal shelf uses two pounds of material. During October Year 2, 25,000 pounds of materials are purchased from a new supplier for $ 97,000 and 13,000 shelves are produced using 27,000 pounds of materials. Which statement is a possible explanation concerning the direct materials variances?

a. The production department had to use more materials since the quality of the materials was inferior.
b. The purchasing manager paid more than expected for materials.
c. Production workers were more efficient than anticipated.
d. The overall materials variance is positive; no further analysis is necessary.

Exercise 7-17 All of the following statements regarding standards are accurate except:

a. Standards allow management to budget at a per-unit level.
b. Ideal standards account for a minimal amount of normal spoilage.
c. Participative standards usually take longer to implement than authoritative standards.
d. Currently attainable standards take into account the level of training available to employees.

Excercise 7-18 Amalgamated Manipulation Manufacturing's (AMM) standards anticipate that there will be 3 pounds of raw material used for every unit of finished goods produced. AMM began the month of May with 5,000 pounds of raw material, purchased 15,000 pounds for $ 19,500 and ended the month with estimates standard costs at $ 1.5 per pound. The materials price and efficiency variances for the month of May were:

	Price Variance		Efficiency Variance
1	$3,000	U	$1,500	F
2	$3,000	F	$0
3	$3,000	F	$1,500	U
4	$3,200	F	$1,500	U

Exercise 7-19 Atlantic Company has a manufacturing facility in Brooklyn that manufactures robotic equipment for the auto industry.

For Year 1, Atlantic collected the following information from its main production line:

Actual quantity purchased			200	units
Actual quantity used			110	units
Units standard quantity			100	units
Actual price paid			$8	per unit
Standard price			$10	per unit

Atlantic isolates price variances at the time of purchase. What is the materials price variance for Year 1?

1. $400 favorable.
2. $400 unfavorable.
3. $220 favorable.
4. $220 unfavorable.

Exercise 7-20 Basix Inc. calculates direct manufacturing labor variances and has the following information:

Actual hours worked: 200
Standard hours: 250
Actual rate per hour: $12
Standard rate per hour: $10

Given the information above, which of the following is correct regarding direct manufacturing labor variances?

a. The price and efficiency variances are favorable.
b. The price and efficiency variances are unfavorable.
c. The price variance is favorable, while the efficiency variance is unfavorable.
d. The price variance is unfavorable, while the efficiency variance is favorable.

Solve the problems:

7-21 Flexible budget.

Sweeney Enterprises manufactures tires for the Formula I motor racing circuit. For August 2017, it budgeted to manufacture and sell 3,500 tires at a variable cost of $ 74 per tire and total fixed costs of $53,500 . The budgeted selling price was $ 116 per tire. Actual results in August 2017 were 3,400 tires manufactured and sold at a selling price of $ 117 per tire. The actual total variable costs were $ 278,800 , and the actual total fixed costs were $ 51,000.00

1. Prepare a performance report (akin to Exhibit 7-2, page 254) that uses a flexible budget and a static budget.
2. Comment on the results in requirement 1.

7-22 Flexible budget.

Bryant Company's budgeted prices for direct materials, direct manufacturing labor, and direct marketing (distribution) labor per attaché case are $43 $6 and $13 , respectively. The presi- dent is pleased with the following performance report:

				Actual Cost		Static budget		Variance
Diret materials				$438,000		$473,000		$35,000	F
Direct manufacturing labor				$63,600		$66,000		$2,400	F
Diret marketing (distribution) labor				$133,500		$143,000		$9,500	F

Actual output was 10,000 attaché cases. Assume all three direct-cost items shown are variable costs. Is the president's pleasure justified?

Prepare a revised performance report that uses a flexible budget and a static budget.

7-23 Flexible-budget preparation and analysis.

ank Management Printers, Inc., produces luxury check- books with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer's bank. The company's operating budget for September 2017 included these data:

Number of checkbooks			15,000
Selling price per book			$20
Variable cost per book			$8
Fixed costs for the month			$145,000

The actual results for September 2017 were as follows:

Number of checkbooks produced and sold					12,000
Average Selling price per book					$21
Variable cost per book					$7
Fixed costs for the month					$150,000

The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company's management accountant, you have been asked to provide explanations for the disappointing September results.

Bank Management develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs.

1. Prepare a static-budget-based variance analysis of the September performance.
2. Prepare a flexible-budget-based variance analysis of the September performance.
3. Why might Bank Management find the flexible-budget-based variance analysis more informative than the static-budget-based variance analysis? Explain your answer.

7-24 Flexible budget, working backward.

The Clarkson Company produces engine parts for car manufactur- ers. A new accountant intern at Clarkson has accidentally deleted the company's variance analysis calculations for the year ended December 31, 2017. The following table is what remains of the data.

1. Calculate all the required variances. (If your work is accurate, you will find that the total static-budget variance is $0.)
2. What are the actual and budgeted selling prices? What are the actual and budgeted variable costs per unit?
3. Review the variances you have calculated and discuss possible causes and potential problems. What is the important lesson learned here?

7-25 Flexible-budget and sales volume variances.

Cascade, Inc., produces the basic fillings used in many popular frozen desserts and treats-vanilla and chocolate ice creams, puddings, meringues, and fudge. Cascade uses standard costing and carries over no inventory from one month to the next. The ice- cream product group's results for June 2017 were as follows:

	Perfromace Report June, 2017
			Actual	Static
			Result	Budget
Unist (pounds)			460,000	447,000
Revenues			$2,626,600	$2,592,600
Variable manufacturing costs			1,651,400	1,564,500
Contribution margin			975,200	1,028,100

Jeff Geller, the business manager for ice-cream products, is pleased that more pounds of ice cream were sold than budgeted and that revenues were up. Unfortunately, variable manufacturing costs went up, too. The bottom line is that contribution margin declined by $52,900 which is just over 2% of the budgeted rev- enues of $ 2,592,600 . Overall, Geller feels that the business is running fine.

1. Calculate the static-budget variance in units, revenues, variable manufacturing costs, and contribution margin. What percentage is each static-budget variance relative to its static-budget amount?

2. Break down each static-budget variance into a flexible-budget variance and a sales-volume variance.

3. Calculate the selling-price variance.

4. Assume the role of management accountant at Cascade. How would you present the results to Jeff Geller? Should he be more concerned? If so, why?

7-26 Price and efficiency variances.

Sunshine Foods manufactures pumpkin scones. For January 2017, it budgeted to purchase and use 14,750 pounds of pumpkin at $ 0.92 a pound. Actual purchases and usage for January 2017 were 16,000 pounds at $ 0.85 a pound. Sunshine budgeted for 59,000 pumpkin scones. Actual output was 59,200 pumpkin scones.

1. Compute the flexible-budget variance.

2. Compute the price and efficiency variances.

3. Comment on the results for requirements 1 and 2 and provide a possible explanation for them.

7-27 Materials and manufacturing labor variances.

Consider the following data collected for Great Homes, Inc.:

		Direct
Direct Materials		Manufacturing Labor
$200,000		$90,000
214,000		86,000
225,000		80,000

Cost incurred: Actual inputs * actual prices
Actual inputs * standard prices
Standard inputs allowed for actual output * standard prices

Compute the price, efficiency, and flexible-budget variances for direct materials and direct manufacturing labor.

Exercise 7-24: Price & Efficiency Variances, journal entries.

Given: The Schuyler Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct labor:

	Direct Cost Sheet							Input Units	Cost/Input	Std. Costs
		Direct Materials (pounds):						10.00	$4.50	$45
		Direct Labor (hours):						0.50	$30	$15
January 2014 budgeted finished units								10,000
January 2014 actual results:
	Production							9,850	150	ineffective
	Pounds of direct materials used							98,055	9.9548
	Pounds of direct materials purchased							100,000	10.0000
	Cost of direct materials purchased							$465,000
	Cost of direct materials purchased/unit								$4.65
	Direct manufacturing labor incurred
		Hours worked						4,900	0.4975
		Wages incurred						$154,350
		Actual wage rate per hour						$31.50
	Beginning inventory
		Direct materials						0
		Finished Goods						0
		Work-in-Process						0
Input-price variances are isolated upon purchase.
Input-efficiency variances are isolated at the time of usage.

Required:

1. Compute the January 2014 price and efficiency variances of direct materials and direct mfg. labor.

2. Prepare journal entries to record the variances calculated above.

3. Comment on the January 2014 price and efficiency variances of Schuyler Corporation.

4. Why might Schuyler calculate the materials purchase price variance and the materials efficiency variance with reference to different points in time?

7-28 Direct materials and direct manufacturing labor variances.

Rugged Life, Inc., designs and manu- factures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor outfitters in lots of one dozen. Rugged Life's May 2017 static budget and actual results for direct inputs are as follows:

Static Budget
Number of jacket lots (1 lot = 1 dozen)				300
Per Lot of Jackets:
Direct Materials				18	yards at	$4.65	per yard =	$83.70
Direct Manufacturing labor				2.4	Hours at	$12.50	per hour=	$30.00
Actual Results
Number of jacket lots sold				325
Total Direct Inputs:
Direct Materials				6500	yards at	$4.85	per yard =	$31,525
Direct Manufacturing labor				715	Hours at	$12.60	per hour=	$9,009

Rugged Life has a policy of analyzing all input variances when they add up to more than of the total cost of materials and labor in the flexible budget, and this is true in May 2017. The production manager discusses the sources of the variances: "A new type of material was purchased in May. This led to faster cutting and sewing, but the workers used more material than usual as they learned to work with it. For now, the standards are fine."

1. Calculate the direct materials and direct manufacturing labor price and efficiency variances in May 2017.

What is the total flexible-budget variance for both inputs (direct materials and direct manufactur- ing labor) combined?

What percentage is this variance of the total cost of direct materials and direct manufacturing labor in the flexible budget?

2. Comment on the May 2017 results. Would you continue the "experiment" of using the new material?

7-29 Price and efficiency variances, journal entries.

The Schuyler Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labor:

Direct materials:			10	lb. at	$4.50	per lb.	$45.00
Direct manufacturing labor			0.5	hour at	$30.00	per hour	$15.00

The number of finished units budgeted for January 2017 was 10,000 9,850 units were actually produced.

Actual results in January 2017 were as follows:

Direct materials:			98,055	lb used
Direct manufacturing labor			4,900	Hours	$154,350

Assume that there was no beginning inventory of either direct materials or finished units.

During the month, materials purchased amounted to 100,000 lb., at a total cost of $ 465,000 . Input price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of usage.

1. Compute the January 2017 price and efficiency variances of direct materials and direct manufacturing labor.

2. Prepare journal entries to record the variances in requirement 1.

3. Comment on the January 2017 price and efficiency variances of Schuyler Corporation.

4. Why might Schuyler calculate direct materials price variances and direct materials efficiency variances with reference to different points in time?

7-30 Materials and manufacturing labor variances, standard costs.

Dawson, Inc., is a privately held furni- ture manufacturer. For August 2017, Dawson had the following standards for one of its products, a wicker chair:

				Standards per Chair
Direct materials			3	square yards of input at		$5.50	per square yard
Direct manufacturing labor			0.5	hour of input at		$10.50	per hour

The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,200 ; square yards of input purchased and used, 6,200 ; price per square yard, $5.70 ; direct manufacturing labor costs, $9,844 ; actual hours of input, 920 ; labor price per hour, $10.70

1. Show computations of price and efficiency variances for direct materials and direct manufacturing labor. Give a plausible explanation of why each variance occurred.

2. Suppose 8,700 square yards of materials were purchased (at $ $5.70 per square yard), even though only 6,200 square yards were used. Suppose further that variances are identified at their most timely control point; accordingly, direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach.

7-31 Journal entries and T-accounts (continuation of 7-30).

Prepare journal entries and post them to T-accounts for all transactions in Exercise 7-30, including requirement 2. Summarize how these journal entries differ from the normal-costing entries described in Chapter 4, pages 120-123.

7-32 Price and efficiency variances, benchmarking.

Nantucket Enterprises manufactures insulated cold beverage cups printed with college and corporate logos, which it distributes nationally in lots of 12 dozen cups. In June 2017, Nantucket produced 5,000 lots of its most popular line of cups, the 24 ounce lidded tumbler, at each of its two plants, which are located in Providence and Amherst. The production manager, Shannon Bryant, asks her assistant, Joel Hudson, to find out the precise per-unit budgeted variable costs at the two plants and the variable costs of a competitor, Beverage Mate, who offers similar-quality tumblers at cheaper prices. Hudson pulls together the following information for each lot:

Per lot			Providence Plant				Amherst Plant Beverage				Mate
Direct Materials			74	lbs. @ $	3.2	per lb.	76.5	lbs. @ $	3.1	per lb.	70	lbs. @ $	2.9	per lb.
Direct Manufacturing labor			2.5	hrs. @ $	12	per hr	2.4	hrs. @ $	12.2	per hr.	2.4	hrs. @ $	10.5	per hr.
Variable Overhead			$20	per lot			$22	per lot			$20	per lot

1. What is the budgeted variable cost per lot at the Providence Plant, the Amherst Plant, and at Beverage Mate?

2. Using the Beverage Mate data as the standard, calculate the direct materials and direct manufacturing labor price and efficiency variances for the Providence and Amherst plants.

3. What advantage does Nantucket get by using Beverage Mate's benchmark data as standards in cal- culating its variances? Identify two issues that Bryant should keep in mind in using the Beverage Mate data as the standards.

7-34 Flexible budget, direct materials, and direct manufacturing labor variances.

Emerald Statuary manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2017:

Expected production and sales				7,000	Units
Expected selling price per unit				$680
Total fixed costs				$1,400,000

Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manu- facturing labor:

			Standard Quantity		Standard Price		Standard Unit Cost
Direct Materials			10	Pounds	$8.00	Pounds	$80.00
Direct Manufacturing Labor			3.7	Hours	$50.00	Hours	$185.00

During 2017, actual number of units produced and sold was 4,800 , at an average selling price of $ 720 Actual cost of direct materials used was $ 392,700 based on 66,000 pounds purchased at $5.95 per pound. Direct manufacturing labor-hours actually used were 18,300 , at the rate of $ 48 per hour. As a result, actual direct manufacturing labor costs were $878,400 .Actual fixed costs were $1,170,000 . There were no beginning or ending inventories.

1. Calculate the sales-volume variance and flexible-budget variance for operating income.
2. Compute price and efficiency variances for direct materials and direct manufacturing labor.

7-36 Comprehensive variance analysis review.

Ellis Animal Health, Inc., produces a generic medication used to treat cats with feline diabetes. The liquid medication is sold in 100 ml vials. Ellis employs a team of sales representatives who are paid varying amounts of commission.

Given the narrow margins in the generic veterinary drugs industry, Ellis relies on tight standards and cost controls to manage its operations. Ellis has the following budgeted standards for the month of April 2017:

Average selling price per vial						$8.30
Total direct materials cost per vial						$3.60
Direct manufacturing labor cost per hour						$15.00
Average labor productivity rate (vials per hour)						100
Sales commission cost per vial						$0.72
Fixed administrative and manufacturing overhead						$990,000

Ellis budgeted sales of 700,000 vials for April. At the end of the month, the controller revealed that actual results for April had deviated from the budget in several ways:

Unit sales and production were 90% of plan.						90%
Actual average selling price decreased to $8.20.						$8.20
Productivity dropped to 90 vials per hour.						90
Actual direct manufacturing labor cost was $15.20 per hour.						$15.20
Actual total direct material cost per unit increased to $3.90.						$3.90
Actual sales commissions were $0.70 per vial.						$0.70
Fixed overhead costs were $110,000 above budget.						$110,000

Calculate the following amounts for Ellis for April 2017:

1. Static-budget and actual operating income
2. Static-budget variance for operating income
3. Flexible-budget operating income
4. Flexible-budget variance for operating income
5. Sales-volume variance for operating income
6. Price and efficiency variances for direct manufacturing labor
7. Flexible-budget variance for direct manufacturing labor

7-37 Possible causes for price and efficiency variances.

You have been invited to interview for an internship with an international food manufacturing company. When you arrive for the interview, you are given the following information related to a fictitious Belgian chocolatier for the month of June. The choco- latier manufactures truffles in 12-piece boxes. The production is labor intensive, and the delicate nature of the chocolate requires a 12 high degree of skill.

Actual
Boxes produced					10,000
Direct materials used in production					2,150,000	g
Actual direct material cost					60,200	euro
Actual direct manufacturing labor-hours					1,100
Actual direct manufacturing labor cost					12,650	euro
Standards
Purchase price of direct materials					0.03	euro/g
Materials per box					200	g
Wage rate					12	euro/hour
Boxes per hour					10

Please respond to the following questions as if you were in an interview situation:

1. Calculate the materials efficiency and price variance and the wage and labor efficiency variances for the month of June.

2. Discuss some possible causes of the variances you have calculated. Can you make any possible connection between the material and labor variances? What recommendations do you have for future improvement?