Chapter 10 Solutions
James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Chapter 10 | MAAW's Textbook Table of Contents
Solution 10-1
1. Material price variance based on quantity purchased.
(3.05 - 3)(8,500) = $425 Unfavorable.
2. The material quantity variance.
[(10)(800) - 8,200](3) = $600 Unfavorable.
3. Debit work in process (8,000)(3) = $24,000.
4. The direct labor rate variance.
(8.40 - 8)(2,500) = $1,000 Unfavorable.
5. The direct labor efficiencyvariance.
[(3)(800) - 2,500](8) = $800 Unfavorable.
6. Debit work in process (2,400)(8) = $19,200.
7. The variable overhead spending variance.
18,000 - (7)(2,500) = 500 Unfavorable.
8. The fixed overhead spending variance.
62,000 - 60,000* = 2,000 Unfavorable.
* (1,000)(3)(20)
9. The variable overhead efficiency variance.
(2,500 - 2,400)(7) = 700 Unfavorable.
10. The production volume variance.
60,000 - (20)(2,400) = 12,000 Unfavorable.
or (3,000 DH - 2,400 SH)(20) = 12,000 U
11. Cost of goods sold at standard.
(600)(135) = $81,000.
Note, this is not budgeted cost of goods sold because applied fixed overhead is included rather than budgeted fixed overhead.
12. Gross profit based on standard costs.
120,000 - 81,000 = $39,000.
13. The production volume variance is said to be uncontrollable because control refers to influence over actual costs. The production volume variance is the difference between budgeted and applied fixed overhead.
14. The production volume variance and the idle capacity variance. The production volume variance is a better measurement because it is not distorted by direct labor efficiency, i.e., it is based on the difference between standard hours allowed and denominator hours rather than actual hours and denominator hours.
15. The price variance based on quantity purchased and the price variance based on quantity used in production. The price variance based on quantity purchased is the better measurement.
16. Using quantity purchased as a basis for the price variance provides the following advantages:
1. Allows the variances to be calculated sooner.
2. Measures current actual prices against current standard prices.
3. Reduces problems (clerical effort etc.) with cost flow assumptions.
4. Allows the entire variance to be calculated on the relevant quantity, i.e., quantity purchased.
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Solution 10-2
1. The entry to record direct material purchases is:
| Materials control | 25,500 | |
| Material price variance | 425 | |
| Accounts payable | 25,925 |
2. The entry to record direct material usage is:
Work in
process
24,000
Material quantity
variance
600
Materials
control
24,600
3. The entry to record the factory payroll is:
Factory payroll
21,000
Wages &
salaries
payable
16,800
FICA &
FIT
withheld
4,200
4. The entry to record direct labor usage is:
Work in
process
19,200
Direct labor rate
variance
1,000
Direct labor efficiency
variance 800
Factory
payroll
21,000
5. The entry to record actual overhead incurred is:
Factory overhead
control 80,000
Misc.
accounts
80,000
6. The entry to record factory overhead applied is:
Work in
process
64,800
Factory overhead
control
64,800
7. The entry to transfer of 800 units to finished goods is:
Finished
goods
108,000
Work in
process
108,000
8. The entry to record cost of goods sold is:
Cost of goods
sold
81,000
Finished
goods
81,000
9. The entry to record sales is:
Accounts receivable
or cash 120,000
Sales
120,000
10. The total variance in factory overhead is:
Actual 80,000 - Applied 64,800 = 15,200 Unfavorable
11. The variable overhead spending variance.
18,000 - (7)(2,500) = 500 Unfavorable.
12. The fixed overhead spending variance.
62,000 - 60,000* = 2,000 Unfavorable.
* (1,000)(3)(20)
13. The variable overhead efficiency variance.
(2,500 - 2,400)(7) = 700 Unfavorable.
14. The production volume variance.
60,000 - (20)(2,400) = 12,000 Unfavorable.
or (3,000 DH - 2,400 SH)(20) = 12,000 U
15. The entry to close the factory overhead account using a four variance approach is:
Variable overhead
spending variance 500
Fixed overhead spending
variance 2,000
Variable overhead efficiency
variance 700
Fixed overhead volume
variance 12,000
Factory overhead
control 15,200
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Solution 10-3
1. The entry to record direct material purchases is:
Materials
control
17,200
Material price
variance
430
Accounts
payable
17,630
2. The entry to record direct material usage is:
Work in
process
16,800
Material
quantity
variance 200
Materials
control
16,600
3. The entry to record the factory payroll for direct labor is:
Factory
payroll
38,080
Wages
& salaries
payable
30,464
FICA
& FIT
withheld 7,616
4. The entry to record direct labor usage is:
Work in
process
37,800
Direct labor
efficiency variance 600
Direct labor rate
variance
320
Factory
payroll
38,080
5. The entry to record actual overhead incurred is:
Factory overhead
control 119,000
Sundry
accounts
119,000
6. The entry to record factory overhead applied is:
Work in
process
119,700
Factory overhead
control
119,700
7. The entry to transfer of 2,100 units to finished goods is:
Finished goods
174,300
Work in
process
174,300
8. The entry to record cost of goods sold is:
Cost of goods
sold
157,700
Finished
goods
157,700
9. The entry to record sales is:
Accounts receivable
or cash 304,000
Sales
304,000
10. The variable overhead spending variance.
57,000 - (9)(6,400) = 57,000 - 57,600 = 600 Favorable
11. The fixed overhead spending variance.
62,000 - 60,000* = 2,000 Unfavorable
* (2,000 Den Units)($30) or (6,000 Den hrs)($10)
12. The variable overhead efficiency variance.
(6,400 Act hrs - 6,300 Std hrs)(9) = 900 Unfavorable
Estimate of how direct labor inefficiency increased variable overhead costs.
13. The production volume variance.
Budget fixed - Applied fixed
60,000 - (10)(6,300 Std hrs) = 60,000 - 63,000 = 3,000 Favorable
or (Denominator hours - Standard hours)(fixed overhead rate)
(6,000 - 6,300)(10) = 6,300 Favorable
Note: The entry to close the factory overhead account would be:
Factory overhead
control
700
Fixed overhead spending
variance
2,000
Variable overhead efficiency
variance 900
Variable
overhead spending
variance
600
Production
volume
variance
3,000
14. The difference between the production volume variance and idle capacity variance is called the fixed overhead efficiency variance. It measures how direct labor efficiency distorts the idle capacity variance.
(6,400 actual hours - 6,300 standard hours)($10) = 1,000 Unfavorable
or
Production volume
variance 3,000 Favorable
Idle capacity variance (6,000 - 6,400)(10) 4,000
Favorable
Fixed overhead efficiency
variance 1,000 Unfavorable
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Solution 10-4
1. c. (3.20 - 3.00)(101,100) = 20,220 U
2. a. SQA = (5,050)(20) = 101,000
(101,050 - 101,000)(3) = 150 U
3. a. (3.20 - 3.00)(101,050) = 20,210 U
4. d. 254,500 - (5,050)((50) = 2,000 U
5. b. 52,500 - (5,05)(100) = 1,500 U
6. e. 202,500 - 200,000* = 2,500 U
* (500 denominator hours)($400) = 200,000
7. d. (500 denominator hours - 505 standard hours)($400) = 2,000 F
8. e. (500 denominator hours - 510 actual hours)($400) = 4,000 F
9. a. (5,050 tables)($110 standard cost per table) = 550,000
10. b. (5,000 tables sold)(110) = 550,000
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Solution 10-5
Riley Company
1. Entry to record material purchases.
Materials Control
(2,400)(11)
26,400
Material
price variance
(2,400)911-10)
2,400
Accounts
Payable
(2,400)(10) 24,000
2. Entry to record direct material used.
Work in process (1,100)(2)(11)
24,200
Material
quantity variance
(2,340-2,200)(11)
1,540
Materials
control
(2,340)(11)
25,740
3. Entry to record direct labor usage.
Work in process
(1,100)(3)(14)
46,200
Direct labor rate
variance
(15.20-14.00)(3,480)
4,176
Direct labor
efficiency variance
(3,480-3,300)(14)
2,520
Payroll
(3,480)(15.20)
52,896
4. Entry to record factory overhead costs incurred.
Factory overhead control
319,000
Miscellaneous accounts
319,000
5. Entry to record applied factory overhead.
Work in process (1,100)(3)(100)
330,000
Factory overhead control
330,000
6. Entry to record the transfer of completed goods.
Finished goods (1,100)(364)
400,400
Work in process
400,400
7. Entry to record cost of goods sold.
Cost of goods sold (1,000)(364)
364,000
Finished goods
364,000
8. Entry to record sales.
Accounts receivable or cash (1,000)(610) 610,000
Sales
610,000
9. Total overhead variance = 330,000 - 319,000 = 10,900 F
10. The variable overhead spending variance = 135,600 - (3,480)(40) = 3,600 F
11. The fixed overhead spending variance = 183,500 - 180,000 = 3,500 U
12. The variable overhead efficiency variance = (3,480-3,300)(40) = 7,200 U
13. The production volume variance = (3,300-3,000)(60) = 18,000 F
14. The controllable variance = 319,000 - [180,000 + (3,300)(40)] = 7,100 U
or combine the answers to 10. 11. and 12.
15. The idle capacity variance = (3,480-3,000)(60) = 28,800 F
16. The distortion in the idle capacity variance = (3,480-3,300)(60) = 10,800 U
or the difference between the answers to 13. and 15.
17. The combined price and quantity variances for variable overhead
= 3,600 U, a combination of 10 and 12.
18. The combined price variances forindirect resources cannot be determined with the information given. The spending variances include quantity variances as well as price variances. The budgeted prices and actual quantities of each indirect resource are needed to calculate price variances.
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Solution 10-6
1. The material quantity variance:
(Actual quantity - standard quantity)(Standard price)
A [6,000 - (5,000)(2)](5) = (6,000 - 10,000)(5) = 20,000
Favorable
B [18,000 - (5,000)(2)](4) = (18,000 - 10,000)(4) = 32,000 Unfavorable
Total $12,000 Unfavorable
2. The material mix variance:
(Actual quantity - Actual quantity adjusted*)(Standard price)
A [6,000 - (.5)(24,000)](5) = (6,000 - 12,000)(5) = 30,000 Favorable
B [18,000 - (.5)(24,000)](4) = (18,000 - 12,000)(4) = 24,000 Unfavorable
Total $ 6,000 Favorable
* Total quantity used adjusted by the standard mix proportions, i.e., 1/2 for each type of material in this problem.
3. The material yield variance:
(Actual quantity adjusted - Standard quantity)(Standard price)
A (12,000 - 10,000)(5) = 10,000
Unfavorable
B (12,000 - 10,000)(4) = 8,000 Unfavorable
Total $18,000 Unfavorable
Note: Material quantity variance = mix variance + yield variance.