Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution

1. The standards for product X call for 1.0 pounds of a raw material that costs $15.60 per pound.
Last month, 5,700 pounds of the raw material were purchased for $90,345. The actual output of
the month was 5,280 units of product X. A total of 5,200 pounds of the raw material were used to
produce this output.
Actual Quantity
Actual Quantity
of Input,
of Input,
at Actual Price
at Standard Price
(AQ AP)
(AQ SP)
5,700 lb $15.85/ lb
5,700 lb $15.60/ lb
= $90,345
= $88,920
Materials Price Variance
= $1,425 U

Standard Quantity Allowed

for Actual Output,
at Standard Price
(SQ SP)
5,280 lb $15.60/ lb
= $82,368

5,200 lb $15.60/ lb
= $81,120
Materials Quantity Variance
= $1,248 F

Alternate Solution:
a. What is the Material Price Variance for the month?
Materials Price Variance

= (AQ x AP) - (AQ x SP)

= $90,345 - (5,700 x $15.60)
= $1,425 U

Journal Entry:
Raw Materials
DM Price Variance
Accounts Payable

88920
1425
90345

T Accounts:
RM Inventory
88,920
5700*15.6

2nd prong

Accounts Payable
90,345
Actual

DM Price Variance
1,425
Difference

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
b. What is the Materials Quantity Variance for the month?
Materials Quantity Variance = SP (AQ - SQ*)
= $15.60(5,200 - 5,280)
= $1,248 F
*SQ = Standard quantity per unit x Actual output
= 1.0 x 5,280
= 5,280

Journal Entry:
WIP

82368
DM Quantity Variance
1248
Raw Materials
81120

T-Accounts:
RM Inventory
81,120
2nd prong

5200*15.6

WIP
82,368
5280*15.6

Flex
budget

DM Quantity Variance
1,248
Difference

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
2. The standards for product Y specify 2.5 direct labor-hours per unit at $13.20 per direct laborhour. Last month 3,160 units of product Y were produced using 8,100 direct labor hours at a total
direct labor wage cost of $104,085. What was the Labor Rate Variance and Efficiency Variance for
the month?

Actual Hours of Input,

at Actual Rate
(AH AR)
8,100 hours $12.85/hour
= $104,085

Actual Hours of Input,

at Standard Rate
(AH SR)
8,100 hours $13.20/hour
= $106,920

Standard Hours Allowed

for Actual Output,
at Standard Rate
(SH SR)
7,900 hours $13.20/hour
= $104,280

Labor rate variance

Labor efficiency variance
= $2,835 F
= $2,640 U
Spending variance = $195 F

Alternate Solution:
Labor Rate Variance = (AH x AR) - (AH x SR)
= $104,085 - (8,100 x $13.20)
= $2,835 F
Labor Efficiency Variance

= SR (AH - SH*)
= $13.20 (8,100 - 7,900)
= $2,640 U

*SH = Standard hours per unit x Actual output

= 2.5 x 3,160
= 7,900
Journal Entry:
WIP
DL Efficiency Variance
Wages Payable
DL Rate Variance

104280
2640
104085
2835

T-Accounts:
WIP
104,280
7900*13.20 2nd prong

Wages Payable
104,085
Actual

DL Rate Variance

DL Efficiency Variance

2835

2640

Difference

Difference

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
3. Spence Corporation, which makes skylights, has provided the following data for December:
Budgeted Production
3,200
Skylight
Actual Production
3,400
Skylight
Standard Machine Hours per skylight
4.6
Machine Hours
Actual Machine Hours
15,740
Machine Hours
Budgeted Variable Overhead Cost per Machine Hour
Indirect Labor
$8.50
Per Machine Hour
Power
$1.20
Per Machine Hour
Actual Total Variable Overhead Costs
Indirect Labor
$132,805
Power
$17,656
Compute the rate variances and the efficiency variances for indirect labor and power, also
indicate whether they are favorable or unfavorable.
Standard machine-hours allowed for the actual output = 4.6 x 3,400 = 15,640
a) Compute the rate variances and the efficiency variances for indirect labor. Indicate whether
they are favorable or unfavorable.
Standard Hours Allowed
Actual Hours of Input,
Actual Hours of Input,
for Actual Output,
at Actual Rate
at Standard Rate
at Standard Rate
(AH AR)
(AH SR)
(SH SR)
15,740 hours $8.50/hour 3,400 hours 4.6 x $8.50/hour
$132,805
= $133,790
= $132,940
Variable overhead rate
Variable overhead efficiency
variance
variance
= $985 F
= $850 U
Spending variance = $135 F (Over Applied)

Alternate Solution:
Variable overhead rate variance = (AH x AR) - (AH x SR)
= $132,805 - (15,740 x $8.50)
= $132,805 - $133,790
= $985 F
Variable overhead efficiency variance = (AH x SR) - (SH x SR)
= (15,740 x $8.50) - (15,640 x $8.50)
= $133,790 - $132,940
= $850 U

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
Journal Entry:
VMOH Control
132805
Accounts Payable
132805
WIP
132940
VMOH Control
132940
VMOH Efficiency Variance 850
VMOH Control
135
VMOH Rate Variance
985
T-Accounts:
WIP
132,940

VMOH Control
132805
132,940
Overapplied
135
Actual
Applied

3400*4.6*8.50
VMOH Rate Variance
985
Difference

VMOH Efficiency
Variance
850
Difference

b) Compute the rate variances and the efficiency variances for power. Indicate whether they are
favorable or unfavorable.

Actual Hours of Input,

at Actual Rate
(AH AR)
$17,656

Standard Hours Allowed

Actual Hours of Input,
for Actual Output,
at Standard Rate
at Standard Rate
(AH SR)
(SH SR)
15,740 hours $1.20/hour = 3,400 hours 4.6 x $1.20/hour
$18,888
= $18,768

Variable overhead rate

Variable overhead efficiency
variance
variance
= $1232 F
= $120 U
Spending variance = $1,112 F (Over Applied)

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
Alternate Solution:
Variable overhead rate variance

= (AH x AR) - (AH x SR)

= $17,656 - (15,740 x $1.20)
= $17,656 - $18,888
= $1,232 F

Variable overhead efficiency variance = (AH x SR) - (SH x SR)

= (15,740 x $1.20) - (15,640 x $1.20)
= $18,888 - $18,768
= $120 U
Journal Entry:
VMOH Control
17656
Accounts Payable
17656
WIP
18768
VMOH Control
1868
VMOH Efficiency Variance 120
VMOH Control
1112
VMOH Rate Variance
1232
T-Accounts:
WIP
18,768

VMOH Control
17656
18,768
Overapplied
1112
Actual
Applied

3400*4.6*1.20

VMOH Rate Variance

1232
Difference

VMOH Efficiency
Variance
120
Difference

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
4. Marvel Parts, Inc., manufactures auto accessories. One of its products is a set of seat covers
that can be adjusted to fit nearly any small car. The company uses a standard costing system.
The factorys planned monthly production is 1,900 sets of covers, at which level the following
standard costs should be incurred for prime manufacturing elements:
Total
Per Set of Covers
Direct materials
$42,560 $22.40
Direct labor
$17,100 9.00
Total prime cost at standard
$31.40
The standard number of direct labor hours allowed for that production level is 2,850 hours. Each
set of covers should require 5.6 yards of material.
(a) The standard rate per hour for direct labor is $6.00.
$17,100 -:- 2,850 standard hours
(b) The standard direct labor hours allowed per unit of output is 1.5 hrs .
$9.00 per unit -:- $6 per hour
(c) The standard price per yard for material is $4.00
$22.40 per unit -:- 5.6 yards
During August, the factory produced 2,000 sets of seat covers. Additional information is
presented below:
Quantity of direct materials purchased. (All used in production)
Actual direct labor hours worked
Direct materials flexible budget variance
Actual prime cost per unit produced

12,000 yds.
2,800
$800 U
$31.90

Management is concerned about the 50 cents per unit cost above standard for prime
manufacturing costs and asks you to perform variance analysis as indicated in (d) through (f)
below.
(d) The static (overall) variance for total prime manufacturing costs for the month was
$4,140 U.
Standard cost for planned output minus actual cost for actual output.
($31.40 x 1,900 units) ($31.90 x 2,000 units)

Accounting 225 Quiz Section #11

Chapter 10 Class Exercises Solution
$59,660 - $63,800
(e) Direct Materials Quantity and Price Variance Analysis:
Aq x Ap
12,000 yds x ?
$45,600**

Aq x Sp
12,000 yds x $4
$48,000
Price variance
$2,400 F

Sq x Sp
(2,000 units x 5.6 yds) x $4
$44,800
Quantity variance
$3,200 U

Flexible Budget Variance $800 Unfavorable

(**Since the flexible budget variance was $800 U, Prong 3 must be $800 greater than Prong 1.)

(f) Direct Labor Efficiency and Rate Variance Analysis:

Aq x Ap
2,800 hr x ?
$18,200**

Aq x Sp
2,800 hr. x $6
$16,800
Price variance
$1,400 U

Sq x S
(2,000 units x 1.5 hr) x $6
$18,000
Quantity variance
$1,200 F

Flexible Budget Variance $200 Unfavorable

(** Since total actual prime cost was $63,800, see Part d above, then $63,800 minus $45,600
actual direct materials cost incurred see direct materials variance analysis -- was $18,200.)