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Solutions for Chapter 10 Problem 53
Problem 53: McKeag Corporation manufactures agricultural machinery. At a...
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Chapter: CH10 Problem: 53

McKeag Corporation manufactures agricultural machinery. At a recent sta meeting, the following direct-labor variance
report for the year just ended was presented by the controller.

MCKEAG
CORPORATION

Direct-labor Variance Direct-Labor Rate

Report Variance

Amount Standard Cost, Amount Standard Cost,

% %
January $ 1,600 .16% $ 10,000 1.00%
F U

February 9,800 F .98% 15,000 U 1.50%

March 200 U .02% 19,400 U 1.94%

April 4,000 U .40% 25,600 U 2.56%

May 7,600 F .76% 40,200 U 4.02%

June 7,800 F .78% 34,000 U 3.40%

July 8,400 F .84% 57,000 U 5.70%

August 10,200 1.02% 76,000 U 7.60%

F

September9,600 F .96% 74,000 U 7.40%

October 11,400 F1.14% 84,000 U8.40%
November 8,400 F .84% 120,000 1 2.00%
U
December 8,600 F .86% 104,000 10.40%
U
McKeags controller uses the following rule of thumb: Investigate all variances equal to or greater than $60,000, which is 6
percent of standard cost.

Required:

1. Which variances would have been investigated during the year? (Indicate month and type of variance.)

2 . What characteristics of the variance pattern shown in the report should draw the controllers
attention, regardless of the usual investigation rule? Explain. Given these considerations, which variances would you have
investigated? Why?

3that
. Is it important to follow up on favorable variances, such as those shown in the report? Why? 4. The controller believes

the
TEXTBOOK SOLUTIONS EXPERT Q&A
rms direct-labor rate variance has a normal probability distribution with a mean of zero and a standard
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deviation of $10,000. Prepare a statistical control chart, and plot the companys direct-labor rate variances for each month.
The critical value is 1 standard deviation. Which variances would have been investigated under this approach?

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Chapter 10, Problem 53 is solved.

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Corresponding Textbook

Managerial Accounting | 8th Edition

ISBN-13: 9780073526928 Alternate ISBN: 9780077388591
ISBN: 0073526924
Authors: Ronald W. Hilton, Ronald Hilton

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Solutions for Problems in Chapter 10

1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19 20

21 22 23 24 25

26 27 28 29 30

31 32 33 34 35

36 37 38 39 40

41 42 43 44 45

46 47 48 49 50

51 52 53 54 55

56 57 59 60 61

62 63 64

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