Management And Accounting Web

Management Accounting: Concepts,
Techniques & Controversial Issues

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.

_________________________

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

________________________

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

_________________________

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

_______________________

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.

_________________________

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.