Chapter 24 – Weygandt Financial and Managerial Accounting, 3e

Challenge Exercises

CE 24-1
Anders Painting Service specializes in painting tall office buildings. During a recent month, the
company worked on three painting projects (the Arrow Building, the Besler Building and the
Cartrwright Building). The company is interested in controlling the materials costs, namely the
paint, used for these painting contracts.

In order to provide management with useful cost control information, the company uses
standard costs and prepares monthly variance reports. Analysis reveals that the purchasing
agent mistakenly purchased poor-quality paint for the Arrow Building project. The Besler
Building project, however, received higher-than-standard-quality paint that was on sale. The
Cartwright Building project received standard-quality paint. However, the price had increased
and a new employee was used to paint the building.

Shown below are quantity and cost data for each project.
Actual ___ Standard Total
Project Quantity Costs Quantity Costs Variance
Arrow Building 3,750 gallons $285,000 3,500 gallons $280,000 $ 5,000 U
Besler Building 3,800 $296,400 4,000 $320,000 23,600 F
Cartwright Building 4,500 $369,000 4,200 $336,000 33,000 U
Total variance $14,400 U

Instructions
(a) Prepare a variance report for the purchasing department with the following columns: (1)
Project, (2) Actual Gallons Purchased, (3) Actual Price, (4) Standard Price, (5) Price
Variance, and (6) Explanation.
(b) Prepare a variance report for the production department with the following columns: (1)
Project, (2) Actual Gallons, (3) Standard Gallons, (4) Standard Price, (5) Quantity
Variance, and (6) Explanation.
(c) In an effort to improve performance, Anders Painting Service found a new supplier that
sold average quality paint. The initial quantity and cost data for each project is below:

Actual Standard Total

Project Quantity Costs Quantity Costs Variance
Arrow Building 3,650 gallons $286,525 3,500 gallons $280,000 $ 6,525 U
Besler Building 3,800 $298,300 4,000 $320,000 21,700 F
Cartwright Building 4,350 $341,475 4,200 $336,000 5,475 U
Total variance $ 9,700 F

(1) Prepare a variance report for the purchasing department with the following
columns: (1) Project, (2) Actual Gallons Purchased, (3) Actual Price, (4) Standard Price,
(5) Price Variance, and (6) Explanation.

(2) Prepare a variance report for the production department with the following columns:
(1) Project, (2) Actual Gallons, (3) Standard Gallons, (4) Standard Price, (5) Quantity
Variance, and (6) Explanation.

(3) Discuss whether the change to the new supplier is beneficial to Anders Painting
Service and why or why not.
CE 24-2

Paulson’s Piano Service, Inc. is trying to establish the standard labor cost of tuning a typical
piano. The following data have been collected from time and motion studies conducted over the
past three months.

Actual time spent on tuning a piano 1.25 hours

Hourly wage rate $50
Payroll taxes 12% of wage rate
Setup and downtime 5% of actual labor time
Travel and rest periods 15% of actual labor time
Fringe benefits 20% of wage rate

Instructions
(a) Determine the standard direct labor hour per each piano that is tuned.
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per each piano that is tuned.
(d) If it took 1.65 hours to tune a piano at the standard hourly rate, what was the direct labor
quantity variance?
(e) During the month of May, Paulson’s Piano service tuned 80 pianos. The average time
spent on each piano was 1.75 hours. The average cost per hour was $62.25 per hour.
Paulson’s had to hire some less experienced part time help in order to handle the
demand.
(1) Calculate the direct labor price variance.
(2) Calculate the direct labor quantity variance.
(3) Calculate the total direct labor variance.
(4) Explain what might have caused the variances.