Академический Документы
Профессиональный Документы
Культура Документы
Detergent-DX is
one of the products of P&G. It is a cleaning product that is produced, packed in large boxes and then sold to customers and storekeepers.
P&G uses a traditional standard costing system to control costs and has established the following materials, labor and overhead standards
to produce one box of Detergent-DX:
During August 2012, company produced and sold 3,000 boxes of Detergent-DX. 8,000 pounds of direct materials were purchased @ $11.50
per pound. Out of these 8,000 pounds, 6,000 pounds were used during August. There was no inventory at the beginning of August. 1600
direct labor hours were recorded during the month at a cost of $40,000. The variable manufacturing overhead costs during August totaled
$7,200.
Required:
1. Compute materials price variance and materials quantity variance. (Assume that the materials price variance is computed at the
time of purchase.)
2. Compute direct labor rate variance and direct labor efficiency variance.
3. Compute variable overhead spending variance and variable overhead efficiency variance.
The Exide company is a single product company that uses standard costing system to control its costs. The standard and actual costs data for
the most recent month to produce one unit of product is given below:
During the most recent month, 4,800 units of product were produced. The comparison of standard and actual cost on the basis of total cost
is given below:
During the month, the company purchased 21,120 kilograms of materials from its vendors. There was no inventory of materials in stock at
the start and at the end of month.
Required:
(Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price)
= $141,504 – $152,064
= $10,560 Favorable
(Actual quantity used × Standard price) – (Standard quantity allowed × Standard price)
= $152,064 – $138,240
= $13,824 Unfavorable
c. Journal entries:
(Actual hours worked × Actual rate) – (Actual hours worked × Standard rate)
= $65,184 – $60,480
= $4,704 Unfavorable
(Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate)
= $60,480 – $69,120
= $8,640 Favorable
(Actual hours worked × Actual rate) – (Actual hours worked × Standard rate)
= $28,896 – $24,192
= $4,704 Unfavorable
(Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate)
= $24,192 – $27,648
= $3,456 Favorable
The answer to requirement 4 is ‘no’. Although the total unfavorable cost variance of $576 is only 0.25% of the total standard cost, it is made up
of many individual variances and some of them may be large enough to require immediate investigation. A summary of variances computed in
part 1, 2 and 3 is given below:
There are many causes of materials, labor and overhead variances. Some usual causes of the variances computed in part 1, 2 and 3 of this
problem are given below:
1. Favorable direct materials price variance: Decrease in price of raw materials, discount for bulk purchase, purchase of low grade
materials, inaccuracy in setting direct materials standards etc.
2. Unfavorable direct materials quantity variance: Unskilled or untrained workers, use of inferior quality materials, faulty or poorly
adjusted machines and equipments, lack of care in using materials, inaccurate standards etc.
3. Unfavorable labor rate variance: Overtime, appointment of highly skilled workers, change in wage rates, inaccurate standards etc.
4. Favorable labor efficiency variance: Use of new and properly adjusted machines and equipments, appointment of highly skilled
workers, use of high quality materials, inaccuracy in setting standards.
5. Unfavorable variable overhead spending variance: Increase in costs, purchase in uneconomical lots, spoilage, wastage, theft,
inaccurate standards etc.
6. Favorable variable overhead efficiency variance: Use of new and properly adjusted machines and equipments, appointment of highly
skilled workers, use of high quality materials, inaccuracy in setting standards. Notice that the causes of favorable variable overhead
efficiency variance are same as that of favorable direct labor efficiency variance.
Exenco Global is a large company that produces a lot of products. One of the product is a paint that is stored in containers. The variable
standard cost per container is given below:
——–
$24
——–
The direct materials to produce this product is available in liquid form. During May, 60,000 liters of direct materials were purchased and
38,000 liters were sent to production department. The production for the month of May was 6,000 containers.
Required:
1. Compute actual direct labor hours worked during the month of May.
2. Compute variable manufacturing overhead spending variance.
3. Prepare journal entries to record materials and labor related activities during May.
Solution:
——–
——–
Actual hours worked = Actual hours worked at standard rate / Standard rate= $39,000 /
$6= 6,500 hours
= $40,950 – $39,000
= $1,950 Unfavorable
———————————-
———————————-
= $114,000 – $120,000
= $6,000 Favorable
= (38,000 liters × $2) – (36,000 liters × $2)
= $76,000 – $72,000
= $4,000 Unfavorable
= $55,900 – $58,500
= $2,600 Favorable
= $58,500 – $54,000
= $4,500 Unfavorable
Sapna company produces a single product known as product X. The company has set the following direct materials and direct labor
standards for product X:
During the month of August, the company produced 1,400 units of product X. A total of 6,000 pounds of direct materials was purchased at a
total cost of $33,000. The total direct labor cost for the month was $57,000. All materials purchased during the month was used in
production. There was no direct materials inventory on hand at the start and at the end of August.
Someone from the company’s management has computed the following three variances:
Required:
This requirement can be completed in three steps – computation of materials price variance, computation of actual quantity purchased at
standard price and computation of standard price per pound of materials (the actual answer to requirement 1).
Standard price per pound of materials = Actual quantity purchased at standard price/Actual quantity purchased
$36,000/6,000 pounds
= $6 per pound
Standard quantity allowed for actual production = Standard quantity allowed at standard price/Standard price per pound
= $33,600/$6*
= 5,600 pounds
Standard quantity allowed per unit = Standard quantity allowed for actual production/Actual production
Actual direct labor hours worked = Actual direct labor hours worked at standard rate/Standard rate per hour
= $54,000/$18
= 3,000 hours
(Actual hours worked × actual rate) – (Actual hours worked × standard rate)
= $57,000 – $54,000
= $3,000 Unfavorable
Fine Electronics, Inc., manufactures a number of electronic products. The following variable cost standards have been set for product K.
During the month of May, 900 direct labor hours were actually worked and 500 units of product K were manufactured. The actual cost per
unit manufactured during May was $0.28 higher than the standard cost.
The following costs and variances information relates to the month of May:
1. Total standard cost of materials used for actual production during May.
2. Standard quantity of materials per unit of product K.
3. Materials price variance for May.
4. Standard direct labor rate per hour.
5. Direct labor rate and efficiency variance.
6. Variable overhead spending and efficiency variance.
Solution:
Standard quantity of materials per unit = Standard cost of materials per unit/Standard cost of materials per pound
= $45.60/$12
Total materials variance is made up of materials price variance and materials quantity variance. Total materials variance is $2,800 favorable and
materials quantity variance is $1,200 unfavorable. Therefore, the materials price variance must be $4,000 as computed below:
In order to compute the standard direct labor rate per hour we need to compute the standard direct labor hours first. Since variable
manufacturing overhead cost is based on direct labor hours, we can compute standard direct labor hours as follows:
Standard direct labor rate per hour = Total standard direct labor for May/Total standard direct labor hours for May
= $16,000/800 hours
= $20 per direct labor hour
(Actual hours worked × Actual direct labor rate) – (Actual hours worked × Standard direct labor rate)
= $18,900 – $18,000
= $900 Unfavorable
* Total actual cost – (Actual materials cost + Actual variable overhead cost)
= 42,140 – 23,240
= $18,900
**See requirement 4
(Actual hours worked × Standard direct labor rate) – (Standard hours allowed × Standard direct labor rate)
= $18,000 – $16,000
= $2,000 Unfavorable
*See requirement 4
(Actual hours worked × Actual variable overhead rate) – (Actual hours worked × Standard variable overhead rate)
=$3,240 – $3,600
= $360 Favorable
(Actual hours worked × Standard variable overhead rate) – (Standard hours allowed × Standard variable overhead rate)
= $3,600 – $3,200
= $400 Unfavorable