Question 1: Score 0/1: Your Response Correct Response

Question 1: Score 0/1
Your response Correct response
Exercise 11-1 Setting Standards; Preparing a Standard

Exercise
Cost Card
11-1
[LO1]
Setting Standards; Preparing a Standard Cost Card [LO1]
Martin Company manufactures a powerful cleaning solvent. MartinThe main ingredient
Company manufacturesin the
a solvent
powerfuliscleaning
a raw solvent. The main ingredient in the solvent is a raw
material called Echol. Information concerning the purchase
material
and usecalled
of Echol
Echol.
follows:
Information concerning the purchase and use of Echol follows:
Purchase of Echol Echol is purchased in 15-gallon containers at a of
Purchase cost of $115
Echol Echolper
is container.
purchased Aindiscount
15-gallonofcontainers at a cost of $115 per container. A discount of
2% is offered by the supplier for payment within 10 days,2%
and
is Martin
offeredCompany
by the supplier
takes all
for discounts.
payment within
Shipping
10 days, and Martin Company takes all discounts. Shipping
costs, which Martin Company must pay, amount to $130 for an average
costs, shipment
which Martin of 100must
Company 15-gallon containers
pay, amount to $130 for an average shipment of 100 15-gallon containers
of Echol. of Echol.
Use of Echol The bill of materials calls for 7.6 quarts ofUse Echol per bottle
of Echol The of
billcleaning solvent.
of materials calls(Each gallon
for 7.6 quarts of Echol per bottle of cleaning solvent. (Each gallon
contains four quarts.) About 5% of all Echol used is lost through
containsspillage
four quarts.)
or evaporation
About 5%(the of all
7.6Echol
quarts used
above
is lost through spillage or evaporation (the 7.6 quarts above
is the actual content per bottle). In addition, statistical analysis
is the has shown
actual thatper
content every 41st In
bottle). bottle is rejected
addition, at analysis has shown that every 41st bottle is rejected at
statistical
final inspection because of contamination. final inspection because of contamination.
Requirement 1: Requirement 1:
Compute the standard purchase price for one quart of Echol.
Omit the "$" sign in your response.) Omit the "$" sign in your response.)
Standard price $ (0%) Standard price $ 1.9
Total grade: 0.0×1/1 = 0%

Feedback:

Cost per 15-gallon container $ 115.00
Less: 2% cash discount 2.30
Net cost 112.70
Add shipping cost per container ($130 ÷ 100) 1.30
Total cost per 15-gallon container (a) $ 114.00
Number of quarts per container

(15 gallons × 4 quarts per gallon) (b) 60
Standard cost per quart purchased (a) ÷ (b) $ 1.90

Compute the standard quantity of Echol (in quarts) perCompute
salable the
bottle of cleaning
standard solvent.
quantity of Echol (in quarts) per salable bottle of cleaning solvent.
answer to 1 decimal place.) answer to 1 decimal place.)
Standard quantity (0%) quarts Standard quantity 8.2 quarts

Feedback:

Content per bill of materials 7.6 quarts
Add allowance for evaporation and spillage
(7.6 quarts ÷ 0.95 = 8.0 quarts;
8.0 quarts – 7.6 quarts = 0.4 quarts) 0.4 quarts
Total 8.0 quarts
Add allowance for rejected units
(8.0 quarts ÷ 40 bottles) 0.2 quarts
Standard quantity per salable bottle of solvent 8.2 quarts
Requirement 3:
Requirement 3: Using the data from Requirements 1 and 2 above, prepare a standard cost card showing the standard cost of
Using the data from Requirements 1 and 2 above, prepareEchol per bottle
a standard costofcard
cleaning solvent.
showing (Round your
the standard answers to 2 decimal places. Omit the "$" sign in your
cost of
response.)
Echol per bottle of cleaning solvent. (Round your answers to 2 decimal places. Omit the "$" sign in your
response.)
Item Standard Quantity

quart
Echol (0%) Echol 8.2 quart
s s
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Exercise 11-2 Direct Materials Variances [LO2] Exercise 11-2 Direct Materials Variances [LO2]
Bandar Industries Berhad of Malaysia manufactures sportingBandar equipment.
Industries Berhad
One of of
theMalaysia
company's manufactures
products, asporting equipment. One of the company's products, a
football helmet for the North American market, requires afootball
specialhelmet
plastic.for
During the quarter
the North Americanending Junerequires
market, 30, the a special plastic. During the quarter ending June 30, the
company manufactured 35,000 helmets, using 22,500company kilogramsmanufactured
of plastic. The 35,000
plastic
helmets,
cost the
using
company
22,500 kilograms of plastic. The plastic cost the company
RM171,000. (The currency in Malaysia is the ringgit, whichRM171,000.
is denoted here
(The by RM.) in Malaysia is the ringgit, which is denoted here by RM.)
currency
According to the standard cost card, each helmet should According
require 0.6tokilograms
the standard
of plastic,
cost card,
at a cost
eachofhelmet
RM8 should require 0.6 kilograms of plastic, at a cost of RM8
per kilogram. per kilogram.
(a What cost for plastic should have been incurred to make
(a 35,000
What cost
helmets?
for plastic should have been incurred to make 35,000 helmets?
) response.) ) response.)
Cost incurred RM (0%) Cost incurred RM 168,000
(b) How much greater or less is this than the cost that was(b) How much greater or less is this than the cost that was incurred?
incurred?
response.) response.)
Cost incurred is (0%) by RM (0%) than the actual

Cost incurred is less by RM 3,000 than the actual cost incurred.
cost incurred.
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:

Number of helmets 35,000
Standard kilograms of plastic per helmet × 0.6
Total standard kilograms allowed 21,000
Standard cost per kilogram × RM8
Total standard cost RM 168,000

Actual cost incurred RM 171,000
Total standard cost 168,000
Total material variance—unfavorable RM 3,000

Feedback:
Actual Quantity of Actual Quantity of Standard Quantity
Input, at Input, at Allowed for Output,
Actual Price Standard Price at Standard Price
(AQ × AP) (AQ × SP) (SQ × SP)
22,500 kilograms × 21,000 kilograms*

RM8 per kilogram × RM8 per kilogram
RM171,000 = RM180,000 = RM168,000

Price Variance, Quantity Variance,

RM9,000 F RM12,000 U
Total Variance,

RM3,000 U
*35,000 helmets × 0.6 kilograms per helmet = 21,000 kilograms

Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
22,500 kilograms (RM7.60 per kilogram* – RM8.00 per kilogram) = RM9,000 F
*RM171,000 ÷ 22,500 kilograms = RM7.60 per kilogram
Materials quantity variance = SP (AQ – SQ)
RM8 per kilogram (22,500 kilograms – 21,000 kilograms) = RM12,000 U
Exercise 11-3 Direct Labor Variances [LO3] Exercise 11-3 Direct Labor Variances [LO3]
SkyChefs, Inc., prepares in-flight meals for a number ofSkyChefs,
major airlines.
Inc., prepares
One of the
in-flight
company's
meals products
for a number
is of major airlines. One of the company's products is
grilled salmon in dill sauce with baby new potatoes and spring
grilled vegetables.
salmon in dill
During
saucethe
with
most
babyrecent
new week,
potatoes
theand spring vegetables. During the most recent week, the
company prepared 4,000 of these meals using 960 direct company
labor-hours.
prepared
The company
4,000 of these
paid these
mealsdirect
usinglabor
960 direct labor-hours. The company paid these direct labor
workers a total of $9,600 for this work, or $10.00 per hour.workers a total of $9,600 for this work, or $10.00 per hour.
According to the standard cost card for this meal, it should

According
requireto0.25
the standard
direct labor-hours
cost cardatfora this
cost meal,
of it should require 0.25 direct labor-hours at a cost of
$9.75 per hour. $9.75 per hour.
(a What direct labor cost should have been incurred to (a
prepare
What4,000
direct meals?
labor cost should have been incurred to prepare 4,000 meals?
) response): ) response):
Direct labor cost $ (0%) Direct labor cost $ 9,750

Feedback:

Number of meals prepared 4,000
Standard direct labor-hours per meal × 0.25
Total direct labor-hours allowed 1,000
Standard direct labor cost per hour × $9.75
Total standard direct labor cost $ 9,750
(b) How much does this differ from the actual direct labor
(b) cost?
How much does this differ from the actual direct labor cost?
selecting "F" for favorable, "U" for unfavorable, and "None" for"F"
selecting no effect (i.e., zero
for favorable, variance).
"U" Input
for unfavorable, and "None" for no effect (i.e., zero variance). Input
all amounts as positive values. Omit the "$" sign in yourall amounts
response.)
as positive values. Omit the "$" sign in your response.)
Total direct labor variance $ (0%) Total direct labor variance $ 150 F
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

9,60
Actual cost incurred $
0
9,75
Total standard direct labor cost (above)
0
Total direct labor variance $ 150 Favorable

Break down the difference computed in Requirement 1 aboveBreakinto
downa labor rate variance
the difference and a in
computed labor efficiency 1 above into a labor rate variance and a labor efficiency
Requirement
variance. (Indicate the effect of each variance by selecting "F"(Indicate
variance. for favorable, "U" for
the effect unfavorable,
of each varianceandby selecting "F" for favorable, "U" for unfavorable, and
"None" for no effect (i.e., zero variance). Input all amounts
"None"as for
positive values.
no effect (i.e.,Omit
zero the "$" sign
variance). in your
Input all amounts as positive values. Omit the "$" sign in your

Labor rate variance $ (0%) Labor rate variance $ 240 U
Labor efficiency variance $ (0%) Labor efficiency variance $ 390 F
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Actual Hours of Actual Hours of Standard Hours
Input, at the Actual Input, at the Allowed for Output, at
Rate Standard Rate the Standard Rate
(AH × AR) (AH × SR) (SH × SR)
960 hours × 960 hours × 1,000 hours ×

$10.00 per hour $9.75 per hour $9.75 per hour
= $9,600 = $9,360 = $9,750
Rate Variance, Efficiency Variance,

$240 U $390 F
Total Variance,

$150 F

Labor rate variance = AH(AR – SR)
= 960 hours ($10.00 per hour – $9.75 per hour)
= $240 U
Labor efficiency variance = SR(AH – SH)
= $9.75 per hour (960 hours – 1,000 hours)
= $390 F

Exercise 11-4 Variable Overhead Variances [LO4] Exercise 11-4 Variable Overhead Variances [LO4]
Logistics Solutions provides order fulfillment services Logistics
for dot.com merchants.
Solutions Theorder
provides company maintains
fulfillment services for dot.com merchants. The company maintains
warehouses that stock items carried by its dot.com clients.
warehouses
When a client
that receives
stock items
an order
carriedfrom
by its
a customer,
dot.com clients. When a client receives an order from a customer,
the order is forwarded to Logistics Solutions, which pullsthe
theorder
item is
from storage,topacks
forwarded it, and
Logistics ships it which
Solutions, to the pulls the item from storage, packs it, and ships it to the
customer. The company uses a predetermined variable overhead
customer.rate
The based
company
on direct
useslabor-hours.
a predetermined variable overhead rate based on direct labor-hours.
In the most recent month, 120,000 items were shipped toIncustomers using 2,300
the most recent month,direct laboritems
120,000 hours. Theshipped to customers using 2,300 direct labor hours. The
were
company incurred a total of $7,360 in variable overhead costs.
company incurred a total of $7,360 in variable overhead costs.
According to the company's standards, 0.02 direct labor-hours are required

According to fulfill anstandards,
to the company's order for one
0.02item
direct labor-hours are required to fulfill an order for one item
and the variable overhead rate is $3.25 per direct labor−hour.
(a What variable overhead cost should have been incurred
(a to fill the
What ordersoverhead
variable for the 120,000 items?
cost should have been incurred to fill the orders for the 120,000 items?
) "$" sign in your response.) ) "$" sign in your response.)
Variable overhead cost $ (0%) Variable overhead cost $ 7,800

Feedback:

Number of items shipped 120,000
Standard direct labor-hours per item × 0.02
Standard variable overhead cost per hour × $3.25
Total standard variable overhead cost $ 7,800
(b) How much does this differ from the actual variable overhead
(b) Howcost?
much does this differ from the actual variable overhead cost?
by selecting "F" for favorable, "U" for unfavorable, and by selecting
"None" for"F"
nofor
effect
favorable,
(i.e., zero
"U" variance).
for unfavorable, and "None" for no effect (i.e., zero variance).
Input all amounts as positive values. Omit the "$" signInput
in your response.)
all amounts as positive values. Omit the "$" sign in your response.)
Total variable overhead variance Total variable overhead variance
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

7,36
Actual variable overhead cost incurred $
0
7,80
Total standard variable overhead cost (above)
0
Total variable overhead variance $ 440 Favorable
Break down the difference computed in Requirement 1 Breakabove down
into a the
variable overhead
difference rate variance
computed and a 1 above into a variable overhead rate variance and a
in Requirement
variable overhead efficiency variance. (Indicate the effect of each
variable variance
overhead by selecting
efficiency "F" (Indicate
variance. for favorable,
the effect of each variance by selecting "F" for favorable,
"U" for unfavorable, and "None" for no effect (i.e., zero"U"variance). Input alland
for unfavorable, amounts
"None"asfor
positive values.
no effect (i.e., zero variance). Input all amounts as positive values.

Variable overhead rate variance Variable overhead rate variance
Variable overhead efficiency variance Variable overhead efficiency variance
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
2,300 hours × 2,300 hours × 2,400 hours ×

$3.20 per hour* $3.25 per hour $3.25 per hour
= $7,360 = $7,475 = $7,800
Variable Overhead Variable Overhead
$115 F $325 F
Total Variance, $440 F
*$7,360 ÷ 2,300 hours = $3.20 per hour

Variable overhead rate variance:
AH(AR – SR) = 2,300 hours ($3.20 per hour – $3.25 per hour)
= $115 F
Variable overhead efficiency variance:
SR(AH – SH) = $3.25 per hour (2,300 hours – 2,400 hours)
= $325 F
Exercise 11-5 Measures of Internal Business Process Exercise

Performance
11-5 [LO5]
Measures of Internal Business Process Performance [LO5]
Management of Mittel Rhein AG of Köln, Germany, wouldManagement
like to reduceof the
Mittel
amount
RheinofAG
time
of between
Köln, Germany,
when awould like to reduce the amount of time between when a
customer places an order and when the order is shipped.customer
For the first quarter
places of operations
an order and when during the current
the order is shipped. For the first quarter of operations during the current
year the following data were reported: year the following data were reported:

Inspection time 0.3 Inspection time 0.3
Wait time (from order to start of production) 14.0 Wait time (from order to start of production) 14.0
Process time 2.7 Process time 2.7
Move time 1.0 Move time 1.0
Queue time 5.0 Queue time 5.0
Compute the throughput time. Compute the throughput time.
Throughput time (0%) days Throughput time 9 days

Feedback:
Throughput time = Process time + Inspection time + Move time + Queue time
= 2.7 days + 0.3 days + 1.0 days + 5.0 days
= 9.0 days.
Compute the manufacturing cycle efficiency (MCE) for theCompute
quarter. the manufacturing cycle efficiency (MCE) for the quarter.
places.) places.)
Manufacturing cycle efficiency (0%) Manufacturing cycle efficiency 0.3

Feedback:
Only process time is value-added time; therefore the manufacturing cycle efficiency (MCE) is:
What percentage of the throughput time was spent in non-value-added
What percentage
activities?
of the throughput time was spent in non-value-added activities?
Throughput time (0%) % Throughput time 70 %

Feedback:
If the MCE is 30%, then 30% of the throughput time was spent in value-added activities. Consequently, the
other 70% of the throughput time was spent in non-value-added activities.
Compute the delivery cycle time. Compute the delivery cycle time.
Delivery cycle time (0%) days Delivery cycle time 23 days

Feedback:
Delivery cycle time = Wait time + Throughput time
= 14.0 days + 9.0 days
= 23.0 days
If by using Lean Production all queue time during production
If byisusing
eliminated, what will beallthe
Lean Production new time
queue MCE? during production is eliminated, what will be the new MCE?
(Round your answer to 3 decimal places.) (Round your answer to 3 decimal places.)

Feedback:
If all queue time is eliminated, then the throughput time drops to only 4 days (2.7 + 0.3 + 1.0). The MCE
becomes:
Thus, the MCE increases to 67.5%. This exercise shows quite dramatically how the lean production can
improve the efficiency of operations and reduce throughput time.
Exercise 11-6 Setting Standards [LO1] Exercise 11-6 Setting Standards [LO1]
Victoria Chocolates, Ltd., makes premium handcrafted chocolate
Victoria Chocolates,
confectionsLtd.,
in London.
makes premium
The owner handcrafted
of the chocolate confections in London. The owner of the
company is setting up a standard cost system and has collected
companytheis setting
following
updata
a standard
for one cost
of the system
company's
and has collected the following data for one of the company's
products, the Empire Truffle. This product is made with theproducts,
finest white
the chocolate
Empire Truffle.
and various
This product
fillings.isThe
madedata
with the finest white chocolate and various fillings. The data
below pertain only to the white chocolate used in the product
below(the
pertain
currency
only is
to stated
the white
in pounds
chocolate denoted
used inhere
the product (the currency is stated in pounds denoted here
as £): as £):

Material requirements, kilograms of white chocolate per dozen
Material
truffles
requirements, kilograms of white chocolate per dozen truffles
Allowance for waste, kilograms of white chocolate per dozen
Allowance
truffles for waste, kilograms of white chocolate per dozen truffles
Allowance for rejects, kilograms of white chocolate per dozen
Allowance
trufflesfor rejects, kilograms of white chocolate per dozen truffles
Purchase price, finest grade white chocolate Purchase price, finest grade white chocolate
Purchase discount Purchase discount
Shipping cost from the supplier in Belgium Shipping cost from the supplier in Belgium
Receiving and handling cost Receiving and handling cost
Determine the standard price of a kilogram of white chocolate.
Omit the "£" sign in your response.) Omit the "£" sign in your response.)
Standard price £ (0%) Standard price £ 7.24

Feedback:
The standard price of a kilogram of white chocolate is determined as follows:

Purchase price, finest grade white chocolate £ 7.50
(0.6
Less purchase discount, 8% of the purchase price of £7.50 )
0
Shipping cost from the supplier in Belgium 0.30
Receiving and handling cost 0.04
Standard price per kilogram of white chocolate £ 7.24
Determine the standard quantity of white chocolate for a dozen truffles.
Determine the standard quantity of white chocolate for a dozen truffles.
places.) places.)
Standard quantity (0%) kilograms Standard quantity 0.75 kilograms

Feedback:
The standard quantity, in kilograms, of white chocolate in a dozen truffles is computed as follows:

Material requirements 0.70
Allowance for waste 0.03
Allowance for rejects 0.02
Standard quantity of white chocolate 0.75
Determine the standard cost of the white chocolate in a dozen
Determine
truffles.
the standard cost of the white chocolate in a dozen truffles.
places. Omit the "£" sign in your response.) places. Omit the "£" sign in your response.)
Standard cost £ (0%) Standard cost £ 5.43

Feedback:
The standard cost of the white chocolate in a dozen truffles is determined as follows:

0.7
Standard quantity of white chocolate (a) kilogram
5
7.2
Standard price of white chocolate (b) £ per kilogram
4
5.4
Standard cost of white chocolate (a) × (b) £
3
Exercise 11-7 Direct Material and Direct Labor Variances

Exercise
[LO2, LO3]
11-7 Direct Material and Direct Labor Variances [LO2, LO3]
Dawson Toys, Ltd., produces a toy called the Maze. TheDawson
company
Toys,
has Ltd.,
recently
produces
established
a toy called
a standard
the Maze.
cost The company has recently established a standard cost
system to help control costs and has established the following standards for the Maze toy:
system to help control costs and has established the following standards for the Maze toy:
Direct materials: 6 microns per toy at $0.50 per micron
Direct materials: 6 microns per toy at $0.50 per micron
Direct labor: 1.3 hours per toy at $8 per hour
Direct labor: 1.3 hours per toy at $8 per hour
During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow:
During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow:
Direct materials: 25,000 microns were purchased at a cost of $0.48 per micron. 5,000 of these microns were
still in inventory at the end of the month. Direct materials: 25,000 microns were purchased at a cost of $0.48 per micron. 5,000 of these microns were
Direct labor: 4,000 direct labor-hours were worked at a cost ofstill in inventory at the end of the month.
$36,000.
Direct labor: 4,000 direct labor-hours were worked at a cost of $36,000.
Requirement 1:
Requirement 1:
Compute the direct materials price and quantity variances for July.
selecting "F" for favorable, "U" for unfavorable, and "None"
Compute forthe
no direct
effectmaterials
(i.e., zeroprice
variance). Input variances
and quantity all for July.
amounts as positive values. Omit the "$" sign in your selecting
response.) "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all
amounts as positive values. Omit the "$" sign in your response.)

(0%
Material price variance $
Material price variance $ 500
(0% Material quantity variance $ 1,000
Material quantity variance $
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Notice in the solution below that the materials price variance is computed on the entire amount of materials
purchased, whereas the materials quantity variance is computed only on the amount of materials used in
production.

Input, at Input, at Allowed for Output, at
Actual Price Standard Price Standard Price
25,000 microns × 25,000 microns × 18,000 microns* ×
$0.48 per micron $0.50 per micron $0.50 per micron
= $12,000 = $12,500 = $9,000
Price Variance,
$500 F

20,000 microns × $0.50 per micron

= $10,000

Quantity Variance, $1,000 U
*3,000 toys × 6 microns per toy = 18,000 microns

25,000 microns ($0.48 per micron – $0.50 per micron) = $500 F

$0.50 per micron (20,000 microns – 18,000 microns) = $1,000 U
Compute the direct labor rate and efficiency variances for Compute
July. the direct labor rate and efficiency variances for July.
selecting "F" for favorable, "U" for unfavorable, and "None" for "F"
"U" Input all and "None" for no effect (i.e., zero variance). Input all
for unfavorable,
amounts as positive values. Omit the "$" sign in your amounts
response.)as positive values. Omit the "$" sign in your response.)

Labor rate variance $ Labor rate variance $
Labor efficiency variance $ Labor efficiency variance $
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Direct labor variances:

Input, at the Actual Input, at the Allowed for Output,
Rate Standard Rate at the Standard Rate
4,000 hours × 3,900 hours* ×
$8.00 per hour $8.00 per hour
$36,000 = $32,000 = $31,200

$4,000 U $800 U
Total Variance,

$4,800 U
*3,000 toys × 1.3 hours per toy = 3,900 hours

Labor rate variance = AH (AR – SR)
4,000 hours ($9.00 per hour* – $8.00 per hour) = $4,000 U
*$36,000 ÷ 4,000 hours = $9.00 per hour
Labor efficiency variance = SR (AH – SH)

$8.00 per hour (4,000 hours – 3,900 hours) = $800 U
Exercise 11-8 Direct Materials and Direct Labor Variances

Exercise
[LO2,11-8
LO3]Direct Materials and Direct Labor Variances [LO2, LO3]
Huron Company produces a commercial cleaning compound Huron

known
Company
as Zoom.
produces
The direct
a commercial
materialscleaning
and direct
compound known as Zoom. The direct materials and direct
labor standards for one unit of Zoom are given below: labor standards for one unit of Zoom are given below:
Standard Standard
Standard Price Standard Price
Quantity Quantity
or Hours or Hours
4. 4.
Direct materials pounds $ Direct materials pounds $
6 6
0. 0.
Direct labor hours $ Direct labor hours $
2 2
During the most recent month, the following activity was recorded:
a a
Twenty thousand pounds of material were purchased at a Twenty
cost of $2.35
thousand
per pounds
pound. of material were purchased at a cost of $2.35 per pound.
. .
b b
All of the material purchased was used to produce 4,000 units
All ofofthe
Zoom.
material purchased was used to produce 4,000 units of Zoom.
. .
c. 750 hours of direct labor time were recorded at a total labor
c. 750
cost
hours
of $10,425.
of direct labor time were recorded at a total labor cost of $10,425.
Compute the direct materials price and quantity variancesCompute
for the month.
the direct materials price and quantity variances for the month.
by selecting "F" for favorable, "U" for unfavorable, and by "None" for"F"
selecting nofor
effect (i.e., zero
favorable, "U"variance).Input
for unfavorable, and "None" for no effect (i.e., zero variance).Input

Materials price variance $ Materials price variance $
Materials quantity variance $ Materials quantity variance $
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
20,000 pounds × 20,000 pounds × 18,400 pounds* ×

$2.35 per pound $2.50 per pound $2.50 per pound
= $47,000 = $50,000 = $46,000

$3,000 F $4,000 U
Total Variance,

$1,000 U
*4,000 units × 4.6 pounds per unit = 18,400 pounds

20,000 pounds ($2.35 per pound – $2.50 per pound) = $3,000 F
$2.50 per pound (20,000 pounds - 18,400 pounds) = $4,000 U
Compute the direct labor rate and efficiency variances forCompute
the month.
the direct labor rate and efficiency variances for the month.
selecting
for"F"
nofor
effect
favorable,
(i.e., zero
"U"variance).Input
for unfavorable,
alland "None" for no effect (i.e., zero variance).Input all
response.)

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Input, at the Input, at the Allowed for Output,
Actual Rate Standard Rate at the Standard Rate
750 hours × 800 hours* ×

$10,425 = $9,000 = $9,600

$1,425 U $600 F
Total Variance,

$825 U
*4,000 units × 0.2 hours per unit = 800 hours

750 hours ($13.90 per hour* – $12.00 per hour) = $1,425 U
*10,425 ÷ 750 hours = $13.90 per hour
$12.00 per hour (750 hours – 800 hours) = $600 F

Exercise 11-10 Direct Labor and Variable Manufacturing
Exercise
Overhead
11-10
Variances
Direct Labor
[LO3,and
LO4]
Variable Manufacturing Overhead Variances [LO3, LO4]
Erie Company manufactures a small CD player called the ErieJogging
Company Mate. The company
manufactures usesCD
a small standards to
player called the Jogging Mate. The company uses standards to
control its costs. The labor standards that have been set for
control
one Jogging
its costs.Mate
The CD
labor
player
standards
are asthat
follows:
have been set for one Jogging Mate CD player are as follows:
Standard Standard Rate Standard Standard Standard Rate Standard

Hours per Hour Cost Hours per Hour Cost
18 minutes $ 12.00 $ 3.60 18 minutes $ 12.00 $ 3.60
During August, 5,750 hours of direct labor time were needed

During
to make
August,
20,000
5,750units
hoursofofthe
direct
Jogging
laborMate.
time were
The needed to make 20,000 units of the Jogging Mate. The
direct labor cost totaled $73,600 for the month. direct labor cost totaled $73,600 for the month.
(a What direct labor cost should have been incurred to make
(a What
20,000
directunits
laborof cost
the Jogging
should have
Mate?
been incurred to make 20,000 units of the Jogging Mate?
Standard direct labor cost $ Standard direct labor cost $ 72,000

Feedback:

Number of units manufactured 20,000
Standard labor time per unit
(18 minutes ÷ 60 minutes per hour) × 0.3
Total standard hours of labor time allowed 6,000
Standard direct labor rate per hour × $ 12
(b) By how much does this differ from the cost that was(b)
incurred?
By how much does this differ from the cost that was incurred?
selecting
for"F"
no for
effect
favorable,
(i.e., zero
"U"
variance).
for unfavorable,
Input and "None" for no effect (i.e., zero variance). Input
Total variance $ (0%) Total variance $ 1,600 U
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

Actual direct labor cost $ 73,600
Standard direct labor cost 72,000
Total variance—unfavorable $ 1,600
Break down the difference in cost from Requirement 1 above
Breakinto
the difference andfrom
in cost a labor efficiency 1 above into a labor rate variance and a labor efficiency
Requirement
variance. (Indicate the effect of the variance by selecting "F" (Indicate
the effect of unfavorable,
the variance andby selecting "F" for favorable, "U" for unfavorable, and
"None" as for positive
no effectvalues. Omitvariance).
(i.e., zero the "$" sign
Inputinall amounts as positive values. Omit the "$" sign in
your response.) your response.)

Labor rate variance $ (0%) Labor rate variance $ 4,600
Labor efficiency variance $ (0%) Labor efficiency variance $ 3,000
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
5,750 hours × 6,000 hours* ×

$73,600 = $69,000 = $72,000

$4,600 U $3,000 F
Total Variance,

$1,600 U
*20,000 units × 0.3 hours per unit = 6,000 hours

*$73,600 ÷ 5,750 hours = $12.80 per hour
Labor Efficiency Variance = SR (AH – SH)
$12.00 per hour (5,750 hours – 6,000 hours) = $3,000 F
The budgeted variable manufacturing overhead rate is $4Theperbudgeted
direct labor-hour. During August,overhead
variable manufacturing the company
rate is $4 per direct labor-hour. During August, the company
incurred $21,850 in variable manufacturing overhead cost. Compute
incurred the variable
$21,850 overhead
in variable rate and efficiency
manufacturing overhead cost. Compute the variable overhead rate and efficiency
variances for the month. (Indicate the effect of the variance
variancesby forselecting
the month."F"(Indicate
for favorable, "U" of
the effect forthe variance by selecting "F" for favorable, "U" for
unfavorable, and "None" for no effect (i.e., zero variance). Input alland
unfavorable, amounts
"None"as forpositive values.
no effect Omitvariance). Input all amounts as positive values. Omit
(i.e., zero
the "$" sign in your response.) the "$" sign in your response.)

Variable Overhead Rate Variance Variable Overhead Rate Variance
Variable Overhead Efficiency Variance Variable Overhead Efficiency Variance
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
5,750 hours × 6,000 hours ×

$21,850 = $23,000 = $24,000

$1,150 F $1,000 F
Total Variance,

$2,150 F

Variable overhead rate variance = AH (AR – SR)
5,750 hours ($3.80 per hour* – $4.00 per hour) = $1,150 F
*$21,850 ÷ 5,750 hours = $3.80 per hour
Variable overhead efficiency variance = SR (AH – SH)
Exercise 11-11 Working Backwards from Labor Variances [LO3]11-11 Working Backwards from Labor Variances [LO3]
Exercise
The auto repair shop of Quality Motor Company uses standards
The auto
to repair
controlshop
the labor
of Quality
time and
Motor
labor
Company
cost in uses
the standards to control the labor time and labor cost in the
shop. The standard labor cost for a motor tune-up is givenshop.
below:
The standard labor cost for a motor tune-up is given below:
Standar Standard Standard Standar Standard Standard

Job d Hours Rate Cost Job d Hours Rate Cost
Motor tune-up 2.5 $ 9.00 $ 22.50 Motor tune-up 2.5 $ 9.00 $ 22.50
The record showing the time spent in the shop last weekThe
on motor
record tune-ups
showing has beenspent
the time misplaced.
in the However,
shop last week on motor tune-ups has been misplaced. However,
the shop supervisor recalls that 50 tune-ups were completed
the shop
during
supervisor
the week,recalls
and the
thatcontroller
50 tune-ups
recalls
werethecompleted during the week, and the controller recalls the
following variance data relating to tune-ups: following variance data relating to tune-ups:

Labor rate variance $ 87 F Labor rate variance $ 87 F
Total labor variance $ 93 U Total labor variance $ 93 U
Determine the number of actual labor-hours spent on tune-ups
Determine
duringthe
thenumber
week. of actual labor-hours spent on tune-ups during the week.
Actual labor hours (0%) hours Actual labor hours 145 hours

Feedback:
If the total variance is $93 unfavorable, and the labor rate variance is $87 favorable, then the labor efficiency
variance must be $180 unfavorable, because the labor rate and labor efficiency variances taken together
always equal the total variance. Knowing that the labor efficiency variance is $180 unfavorable, one approach
to the solution would be:
$9.00 per hour (AH – 125 hours*) = $180 U
$9.00 per hour × AH – $1,125 = $180**
$9.00 per hour × AH = $1,305
AH = $1,305 ÷ $9.00 per hour
AH = 145 hours
*50 jobs × 2.5 hours per job = 125 hours
**When used with the formula, unfavorable variances are positive and favorable variances are negative.
Determine the actual hourly rate of pay for tune-ups last week.
Actual hourly rate $ (0%) per hour Actual hourly rate $ 8.4 per hour

Feedback:
145 hours (AR – $9.00 per hour) = $87 F
145 hours × AR – $1,305 = –$87*
145 hours × AR = $1,218
AR = $1,218 ÷ 145 hours
AR = $8.40 per hour
*
When used with the formula, unfavorable variances are positive and favorable variances are negative.
An alternative approach would be to work from known to unknown data in the columnar model for variance analysis:

145 hours × 145 hours × 125 hours§ ×
= $1,218 = $1,305 = $1,125
Labor efficiency
Labor rate Variance,
Variance,
$87 F
$180 U
Total Variance,

$93 U
§
50 tune-ups × 2.5 hours per tune-up = 125 hours
Exercise 11-9 Direct Material Variances [LO2] Exercise 11-9 Direct Material Variances [LO2]
Huron Company produces a commercial cleaning compound Huronknown

Company
as Zoom.
produces
The direct
a commercial
materialscleaning
and direct
Standard Quantity Standard Price Standard Quantity Standard Price

or Hours or Rate or Hours or Rate
Direct materials 4.6 pounds $ 2.50 per pound
Direct materials 4.6 pounds $ 2.50 per pound
Direct labor 0.2 hours $ 12.00 per hour
Direct labor 0.2 hours $ 12.00 per hour
a. Twenty thousand pounds of material were purchased ata.a Twenty
cost of $2.35
thousand
per pounds
pound. of material were purchased at a cost of $2.35 per pound.
b. 14,750 pounds of material was used to produce 3,000 units
b. 14,750
of Zoom.
pounds of material was used to produce 3,000 units of Zoom.
c. 750
cost
hours
of $10,425.
(The rest of the material purchased remained in raw materials

(The inventory.)
rest of the material purchased remained in raw materials inventory.)
Required: Required:
for the month.
by selecting "F" for favorable, "U" for unfavorable, and by "None"
selecting
for"F"
nofor
effect
favorable,
(i.e., zero
"U"variance).
for unfavorable,
Input and "None" for no effect (i.e., zero variance). Input
response.)

Materials price variance $ Materials price variance $ 3,000
Materials quantity variance $ Materials quantity variance $ 2,375
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Notice in the solution below that the materials price variance is computed for the entire amount of materials
purchased, whereas the materials quantity variance is computed only for the amount of materials used in
production.
Inputs, at Inputs, at Allowed for Output,
= $47,000 = $50,000 = $34,500
Price Variance,

$3,000 F
14,750 pounds × $2.50 per pound

= $36,875
Quantity Variance,

$2,375 U
Alternatively:
$2.50 per pound (14,750 pounds – 13,800 pounds) = $2,375 U

Exercise 11-1 Setting Standards; Preparing a Standard
Exercise
Cost Card
11-1
[LO1]
Setting Standards; Preparing a Standard Cost Card [LO1]
Martin Company manufactures a powerful cleaning solvent. MartinThe main ingredient
Company manufacturesin the
a solvent
powerfuliscleaning
a raw solvent. The main ingredient in the solvent is a raw
material called Echol. Information concerning the purchase
material
and usecalled
of Echol
Echol.
follows:
Information concerning the purchase and use of Echol follows:
Purchase of Echol Echol is purchased in 15-gallon containers at a of
Purchase cost of $112
Echol Echolper
is container.
purchased Aindiscount
15-gallonofcontainers at a cost of $112 per container. A discount of
4% is offered by the supplier for payment within 10 days,4%
and
is Martin
offeredCompany
by the supplier
takes all
for discounts.
payment within
Shipping
10 days, and Martin Company takes all discounts. Shipping
costs, which Martin Company must pay, amount to $132 for an average
costs, shipment
which Martin of 100must
Company 15-gallon containers
pay, amount to $132 for an average shipment of 100 15-gallon containers
of Echol. of Echol.
Use of Echol The bill of materials calls for 5 quarts of Use Echol of per bottle
Echol Theofbillcleaning solvent.
of materials (Each
calls for 5gallon
quarts of Echol per bottle of cleaning solvent. (Each gallon
contains four quarts.) About 10% of all Echol used is lostcontains
through spillage
four quarts.)
or evaporation
About 10%(theof all
5 quarts
Echol used
aboveis lost through spillage or evaporation (the 5 quarts above
is the actual content per bottle). In addition, statistical analysis
is the has shown
actual thatper
content every 41st In
bottle). bottle is rejected
addition, at analysis has shown that every 41st bottle is rejected at
statistical
final inspection because of contamination. final inspection because of contamination.
Standard price $ (0%) Standard price $ 1.81

Feedback:

Cost per 15-gallon container $ 112
Less: 4% cash discount 4.48
Net cost 107.52
Add shipping cost per container ($132 ÷ 100) 1.32
Total cost per 15-gallon container (a) $ 108.84
Number of quarts per container

(15 gallons × 4 quarts per gallon) (b) 60
Standard cost per quart purchased (a) ÷ (b) $ 1.81
Compute the standard quantity of Echol (in quarts) perCompute
salable the
bottle
standard
of cleaning
quantity
solvent.
of Echol (in quarts) per salable bottle of cleaning solvent.
answer to 2 decimal places.) answer to 2 decimal places.)
5.7 with
a
Standard quantity (0%) quarts Standard quantity quarts
tolerance
of ±0.01

Feedback:

Content per bill of materials 5 quarts
Add allowance for evaporation and spillage
(5 quarts ÷ 0.9 = 5.56 quarts;
5.56 quarts – 5 quarts = 0.56 quarts) 0.56 quarts
Total 5.56 quarts
Add allowance for rejected units
(5.56 quarts ÷ 40 bottles) 0.14 quarts
Standard quantity per salable bottle of solvent 5.7 quarts
Requirement 3:
Requirement 3: Using the data from Requirements 1 and 2 above, prepare a standard cost card showing the standard cost of
Using the data from Requirements 1 and 2 above, prepareEchol per bottle
a standard costofcard
cleaning solvent.
showing (Round your
the standard answers to 2 decimal places. Omit the "$" sign in your
cost of
response.)
Echol per bottle of cleaning solvent. (Round your answers to 2 decimal places. Omit the "$" sign in your
response.)

Item Standard Quantity 5.7 with
quart a quart
Echol (0%) Echol
s tolerance s
of ±0.01
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Exercise 11-2 Direct Materials Variances [LO2] Exercise 11-2 Direct Materials Variances [LO2]
Bandar Industries Berhad of Malaysia manufactures sportingBandar equipment.
Industries Berhad
One of of
theMalaysia
company's manufactures
products, asporting equipment. One of the company's products, a
football helmet for the North American market, requires afootball
specialhelmet
plastic.for
During the quarter
the North Americanending Junerequires
market, 30, the a special plastic. During the quarter ending June 30, the
company manufactured 39,000 helmets, using 24,960company kilogramsmanufactured
of plastic. The 39,000
plastic
helmets,
cost the
using
company
24,960 kilograms of plastic. The plastic cost the company
RM204,672. (The currency in Malaysia is the ringgit, whichRM204,672.
is denoted here
(The by RM.) in Malaysia is the ringgit, which is denoted here by RM.)
currency
According to the standard cost card, each helmet should
According
require 0.56
to thekilograms
standardofcost
plastic,
card,ateach
a cost
helmet
of should require 0.56 kilograms of plastic, at a cost of
RM8.6 per kilogram. RM8.6 per kilogram.
(a What cost for plastic should have been incurred to make
(a 39,000
What cost
helmets?
for plastic should have been incurred to make 39,000 helmets?
) response.) ) response.)
Cost incurred RM (0%) Cost incurred RM 187,824
(b) How much greater or less is this than the cost that was(b) How much greater or less is this than the cost that was incurred?
incurred?
Cost incurred is (0%) by RM (0%) than the actual

Cost incurred is less by RM 16,848 than the actual cost incurred.
cost incurred.
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:

Number of helmets 39,000
Standard kilograms of plastic per helmet × 0.56
Total standard kilograms allowed 21,840
Standard cost per kilogram × RM8.6
Total standard cost RM 187,824

Actual cost incurred RM 204,672
Total standard cost 187,824
Total material variance—unfavorable RM 16,848

Feedback:
24,960 kilograms × 21,840 kilograms*

RM8.6 per kilogram × RM8.6 per kilogram
RM204,672 = RM214,656 = RM187,824


RM9,984 F RM26,832 U
Total Variance,

RM16,848 U
*39,000 helmets × 0.56 kilograms per helmet = 21,840 kilograms

24,960 kilograms (RM8.2 per kilogram* – RM8.6 per kilogram) = RM9,984 F
*RM204,672 ÷ 24,960 kilograms = RM8.2 per kilogram
RM8.6 per kilogram (24,960 kilograms – 21,840 kilograms) = RM26,832 U
Exercise 11-3 Direct Labor Variances [LO3] Exercise 11-3 Direct Labor Variances [LO3]
SkyChefs, Inc., prepares in-flight meals for a number ofSkyChefs,
major airlines.
Inc., prepares
One of the
in-flight
company's
meals products
for a number
is of major airlines. One of the company's products is
grilled salmon in dill sauce with baby new potatoes and spring
grilled vegetables.
salmon in dill
During
saucethewith
most
babyrecent
new week,
potatoes
theand spring vegetables. During the most recent week, the
company prepared 13,000 of these meals using 2,560 direct company
labor-hours.
preparedThe13,000
companyof these
paid these
mealsdirect
usinglabor
2,560 direct labor-hours. The company paid these direct labor
workers a total of $24,960 for this work, or $9.75 per hour.workers a total of $24,960 for this work, or $9.75 per hour.
According to the standard cost card for this meal, it should

According
require 0.2
to the
direct
standard
labor-hours
cost card
at a for
costthis
of meal,
$9.5 it should require 0.2 direct labor-hours at a cost of $9.5
per hour. per hour.
(a What direct labor cost should have been incurred to (a
prepare
What13,000
direct labor
meals?cost should have been incurred to prepare 13,000 meals?
) response): ) response):
Direct labor cost $ (0%) Direct labor cost $ 24,700

Feedback:

Number of meals prepared 13,000
Standard direct labor-hours per meal × 0.2
Standard direct labor cost per hour × $9.5
(b) How much does this differ from the actual direct labor
(b) cost?
How much does this differ from the actual direct labor cost?
"U" Input
for unfavorable, and "None" for no effect (i.e., zero variance). Input
response.)
Total direct labor variance $ (0%) Total direct labor variance $ 260 U
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

Actual cost incurred $ 24,960
Total standard direct labor cost

(above) 24,700
Total direct labor variance $ 260 Unfavorable

Break down the difference computed in Requirement 1 aboveBreakinto
the difference and a in
computed labor efficiency 1 above into a labor rate variance and a labor efficiency
Requirement
variance. (Indicate the effect of each variance by selecting "F"(Indicate
the effect unfavorable,
of each varianceandby selecting "F" for favorable, "U" for unfavorable, and
"None"as for
positive values.
no effect (i.e.,Omit
zero the "$" sign
variance). in your
Input all amounts as positive values. Omit the "$" sign in your

Labor rate variance $ (0%) Labor rate variance $ 640 U
Labor efficiency variance $ (0%) Labor efficiency variance $ 380 F
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

= $24,960 = $24,320 = $24,700

$640 U $380 F
Total Variance,

$260 F

Labor rate variance = AH(AR – SR)
= 2,560 hours ($9.75 per hour – $9.5 per hour)
= $640 U
Labor efficiency variance = SR(AH – SH)
= $9.5 per hour (2,560 hours – 2,600 hours)
= $380 F

Exercise 11-4 Variable Overhead Variances [LO4] Exercise 11-4 Variable Overhead Variances [LO4]
Logistics Solutions provides order fulfillment services Logistics
for dot.com merchants.
Solutions Theorder
provides company maintains
fulfillment services for dot.com merchants. The company maintains
warehouses that stock items carried by its dot.com clients.
warehouses
When a client
that receives
stock items
an order
carriedfrom
by its
a customer,
dot.com clients. When a client receives an order from a customer,
the order is forwarded to Logistics Solutions, which pullsthe
theorder
item is
from storage,topacks
forwarded it, and
Logistics ships it which
Solutions, to the pulls the item from storage, packs it, and ships it to the
customer. The company uses a predetermined variable overhead
customer.rate
The based
company
on direct
useslabor-hours.
a predetermined variable overhead rate based on direct labor-hours.
In the most recent month, 200,000 items were shipped toIncustomers using 7,900
the most recent month,direct laboritems
200,000 hours. Theshipped to customers using 7,900 direct labor hours. The
were
company incurred a total of $25,675 in variable overhead company
costs. incurred a total of $25,675 in variable overhead costs.
According to the company's standards, 0.04 direct labor-hours are required

According to fulfill anstandards,
to the company's order for one
0.04item
direct labor-hours are required to fulfill an order for one item
(a What variable overhead cost should have been incurred
(a to fill the
What ordersoverhead
variable for the 200,000 items?
cost should have been incurred to fill the orders for the 200,000 items?
Variable overhead cost $ (0%) Variable overhead cost $ 26,400

Feedback:

Number of items shipped 200,000
Standard direct labor-hours per item × 0.04
Standard variable overhead cost per hour × $3.3
Total standard variable overhead cost $ 26,400
(b) How much does this differ from the actual variable overhead
(b) Howcost?
much does this differ from the actual variable overhead cost?
by selecting "F" for favorable, "U" for unfavorable, and by selecting
"None" for"F"
nofor
effect
favorable,
(i.e., zero
"U" variance).
for unfavorable, and "None" for no effect (i.e., zero variance).
Input all amounts as positive values. Omit the "$" signInput
in your response.)
Total variable overhead variance Total variable overhead variance
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

Actual variable overhead cost incurred $ 25,675
Total standard variable overhead cost (above) 26,400
Total variable overhead variance $ 725 Favorable
Break down the difference computed in Requirement 1 Breakabove down
into a the
variable overhead
difference rate variance
computed and a 1 above into a variable overhead rate variance and a
in Requirement
variable overhead efficiency variance. (Indicate the effect of each
variable variance
overhead by selecting
efficiency "F" (Indicate
variance. for favorable,
the effect of each variance by selecting "F" for favorable,
"U" for unfavorable, and "None" for no effect (i.e., zero"U"variance). Input alland
for unfavorable, amounts
"None"asfor
positive values.
no effect (i.e., zero variance). Input all amounts as positive values.

Variable overhead rate variance Variable overhead rate variance
Variable overhead efficiency variance Variable overhead efficiency variance
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

$3.25 per hour* $3.3 per hour $3.3 per hour
= $25,675 = $26,070 = $26,400
Variable Overhead Variable Overhead
$395 F $330 F
Total Variance, $725 F
*$25,675 ÷ 7,900 hours =$3.25 per hour

Variable overhead spending variance:
AH(AR – SR) = 7,900 hours ($3.25 per hour – $3.3 per hour)
= $395 F
Variable overhead efficiency variance:
SR(AH – SH) = $3.3 per hour (7,900 hours – 8,000 hours)
= $330 F
Exercise 11-5 Measures of Internal Business Process Exercise

Performance
11-5 [LO5]
Measures of Internal Business Process Performance [LO5]
Management of Mittel Rhein AG of Köln, Germany, wouldManagement
like to reduceof the amount
Mittel RheinofAG
time
of between when awould like to reduce the amount of time between when a
Köln, Germany,
customer places an order and when the order is shipped. customer
For the first
places
quarter
an order
of operations,
and when during
the order
the current
is shipped. For the first quarter of operations, during the current
year the following data were reported: year the following data were reported:

Inspection time 0.8 Inspection time 0.8
Wait time (from order to start of production) 16.8 Wait time (from order to start of production) 16.8
Process time 3.1 Process time 3.1
Move time 1.1 Move time 1.1
Queue time 4.5 Queue time 4.5
Compute the throughput time. (Round your answer to 1 Compute
decimal place.)
the throughput time. (Round your answer to 1 decimal place.)
Throughput time (0%) days Throughput time 9.5 days

Feedback:
Throughput time = Process time + Inspection time + Move time + Queue time
= 3.1 days + 0.8 days + 1.1 days + 4.5 days
= 9.5 days.

Compute the manufacturing cycle efficiency (MCE) for theCompute
quarter. the manufacturing cycle efficiency (MCE) for the quarter.
places.) places.)

Feedback:
Only process time is value-added time; therefore the manufacturing cycle efficiency (MCE) is:
What percentage of the throughput time was spent in non-value-added activities?
What percentage of the throughput time was spent in non-value-added activities?
the nearest whole number. Omit the "%" sign in your response.)
the nearest whole number. Omit the "%" sign in your response.)
Throughput time (0%) % Throughput time 67 %

Feedback:
If the MCE is 33%, then 33% of the throughput time was spent in value-added activities. Consequently, the
other 67% of the throughput time, was spent in non-value-added activities.
Compute the delivery cycle time. (Round your answer toCompute
1 decimal
theplace.)
delivery cycle time. (Round your answer to 1 decimal place.)
Delivery cycle time (0%) days Delivery cycle time 26.3 days

Feedback:
Delivery cycle time = Wait time + Throughput time
= 16.8 days + 9.5 days
= 26.3 days
If by using Lean Production all queue time during production
If byisusing
eliminated, what will beallthe
Lean Production new time
queue MCE? during production is eliminated, what will be the new MCE?
(Round your answer to 3 decimal places.) (Round your answer to 3 decimal places.)

Feedback:
If all queue time is eliminated, then the throughput time drops to only 5 days (0.8 + 3.1 + 1.1). The MCE
becomes:
Thus, the MCE increases to 62%. This exercise shows quite dramatically how the lean production can
improve the efficiency of operations and reduce throughput time.
Exercise 11-6 Setting Standards [LO1] Exercise 11-6 Setting Standards [LO1]
Victoria Chocolates, Ltd., makes premium handcrafted chocolate
Victoria Chocolates,
confectionsLtd.,
in London.
makes premium
The owner handcrafted
of the chocolate confections in London. The owner of the
company is setting up a standard cost system and has collected
companytheis setting
following
updata
a standard
for one cost
of the system
company's
and has collected the following data for one of the company's
products, the Empire Truffle. This product is made with theproducts,
finest white
the chocolate
Empire Truffle.
and various
This product
fillings.isThe
madedata
with the finest white chocolate and various fillings. The data
below pertain only to the white chocolate used in the product
below(the
pertain
currency
only is
to stated
the white
in pounds
chocolate denoted
used inhere
the product (the currency is stated in pounds denoted here
as £): as £):

Material requirements, kilograms of white chocolate per dozen
Material
truffles
requirements, kilograms of white chocolate per dozen truffles
Allowance for waste, kilograms of white chocolate per dozen
Allowance
truffles for waste, kilograms of white chocolate per dozen truffles
Allowance for rejects, kilograms of white chocolate per dozen
Allowance
trufflesfor rejects, kilograms of white chocolate per dozen truffles
Purchase price, finest grade white chocolate Purchase price, finest grade white chocolate
Purchase discount Purchase discount
Shipping cost from the supplier in Belgium Shipping cost from the supplier in Belgium
Receiving and handling cost Receiving and handling cost
Omit the "£" sign in your response.) Omit the "£" sign in your response.)
Standard price £ (0%) Standard price £ 10.35

Feedback:
The standard price of a kilogram of white chocolate is determined as follows:

Purchase price, finest grade white chocolate £ 10
Less purchase discount, 1% of the purchase price of £10 (0.1)
Shipping cost from the supplier in Belgium 0.4
Receiving and handling cost 0.05
Standard price per kilogram of white chocolate £ 10.35
Determine the standard quantity of white chocolate for a dozen
Determine
truffles.
the standard quantity of white chocolate for a dozen truffles.
places.) places.)
Standard quantity (0%) kilograms Standard quantity 0.88 kilograms

Feedback:
The standard quantity, in kilograms, of white chocolate in a dozen truffles is computed as follows:

Material requirements 0.84
Allowance for waste 0.02
Allowance for rejects 0.02
Standard quantity of white chocolate 0.88
Determine the standard cost of white chocolate in a dozenDetermine
truffles. the standard cost of white chocolate in a dozen truffles.
places. Omit the "£" sign in your response.) places. Omit the "£" sign in your response.)
Standard cost £ (0%) Standard cost £ 9.11

Feedback:
The standard cost of the white chocolate in a dozen truffles is determined as follows:

Standard quantity of white chocolate (a) 0.88 kilogram
Standard price of white chocolate (b) £ 10.35 per kilogram
Standard cost of white chocolate (a) × (b) £ 9.11
Exercise 11-7 Direct Material and Direct Labor Variances

Exercise
[LO2, LO3]
11-7 Direct Material and Direct Labor Variances [LO2, LO3]
Dawson Toys, Ltd., produces a toy called the Maze. TheDawson
company Toys,
has Ltd.,
recently
produces
established
a toy called
a standard
the Maze.
cost The company has recently established a standard cost
system to help control costs and has established the following
system
standards
to help control
for the Maze
costs and
toy: has established the following standards for the Maze toy:
Direct materials: 7 microns per toy at $0.31 per micron Direct materials: 7 microns per toy at $0.31 per micron
Direct labor: 1.4 hours per toy at $7.5 per hour Direct labor: 1.4 hours per toy at $7.5 per hour
During July, the company produced 4,500 Maze toys. Production
During July,
data the
for the
company
monthproduced
on the toy4,500
follow:
Maze toys. Production data for the month on the toy follow:
Direct materials: 79,000 microns were purchased at a cost of $0.27 per micron. 39,625 of these microns were
Direct materials: 79,000 microns were purchased at a cost of still
$0.27 per micron.
in inventory at 39,625
the endof
ofthese microns were
the month.
still in inventory at the end of the month.
Requirement 1:
Requirement 1:
Compute the direct materials price and quantity variances for July.
Compute the direct materials price and quantity variancesselecting
for July. "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all
amounts foras
nopositive
effect (i.e., zero Round
values. variance).
yourInput all to the nearest dollar amount. Omit the "$" sign in
answers
amounts as positive values. Round your answers to the nearest dollar
your response.) amount. Omit the "$" sign in
your response.)

Materials price variance

Materials price variance $
Materials quantity variance

Materials quantity variance $
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Notice in the solution below that the materials price variance is computed on the entire amount of materials
purchased, whereas the materials quantity variance is computed only on the amount of materials used in
production.

Input, at Input, at Allowed for Output, at
Actual Price Standard Price Standard Price
79,000 microns × 79,000 microns × 31,500 microns* ×
$0.27 per micron $0.31 per micron $0.31 per micron
= $21,330 = $24,490 = $9,765
Price Variance,
$3,160 F

39,375 microns × $0.31 per micron

= $12,206

Quantity Variance,

$2,441 U
*4,500 toys × 7 microns per toy = 31,500 microns
79,000 microns ($0.27 per micron – $0.31 per micron) = $3,160 F

$0.31 per micron (39,375 microns – 31,500 microns) = $2,441 U
Compute the direct labor rate and efficiency variances for Compute
July. the direct labor rate and efficiency variances for July.
selecting "F" for favorable, "U" for unfavorable, and "None" for "F"
"U" Input all and "None" for no effect (i.e., zero variance). Input all
for unfavorable,

Labor rate variance $ Labor rate variance
Labor efficiency variance $ Labor efficiency variance
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
Direct labor variances:

Input, at the Actual Input, at the Allowed for Output,
Rate Standard Rate at the Standard Rate
6,600 hours × 6,300 hours* ×
$52,140 = $49,500 = $47,250

$2,640 U $2,250 U
Total Variance,

$4,890 U
*4,500 toys × 1.4 hours per toy = 6,300 hours

6,600 hours ($7.9* per hour – $7.5 per hour) = $2,640 U
*$52,140 ÷ 6,600 hours = $7.9 per hour

$7.5 per hour (6,600 hours – 6,300 hours) = $2,250 U
Exercise 11-8 Direct Materials and Direct Labor Variances

Exercise
[LO2,11-8
LO3]Direct Materials and Direct Labor Variances [LO2, LO3]
Huron Company produces a commercial cleaning compound Huron

known
Company
as Zoom.
produces
The direct
a commercial
materialscleaning
and direct
Standard Standard
Standard Price Standard Price
Quantity Quantity
or Hours or Hours
7. 7.
Direct materials pounds $ Direct materials pounds $
2 2
0. 0.
Direct labor hours $ Direct labor hours $
3 3
a a
22,480 pounds of material were purchased at a cost of $2.8
22,480
per pound.
pounds of material were purchased at a cost of $2.8 per pound.
. .
b b
All of the material purchased was used to produce 2,900 units
All ofofthe
Zoom.
material purchased was used to produce 2,900 units of Zoom.
. .
c. 770
cost
hours
of $8,932.
for the month.
by selecting "F" for favorable, "U" for unfavorable, and by "None"
selecting
for"F"
nofor
effect
favorable,
(i.e., zero
"U"variance).Input
for unfavorable, and "None" for no effect (i.e., zero variance).Input

Materials price variance $ Materials price variance $
Materials quantity variance $ Materials quantity variance $
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

$2.8 per pound $3 per pound $3 per pound
= $62,944 = $67,440 = $62,640

$4,496 F $4,800 U
Total Variance,

$304 U

22,480 pounds ($2.8 per pound – $3 per pound) = $4,496 F
$3 per pound (22,480 pounds - 20,880 pounds) = $4,800 U
Compute the direct labor rate and efficiency variances forCompute
the month.
the direct labor rate and efficiency variances for the month.
selecting
for"F"
nofor
effect
favorable,
(i.e., zero
"U"variance).Input
for unfavorable,
alland "None" for no effect (i.e., zero variance).Input all

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
770 hours × 870 hours* ×

$8,932 = $7,777 = $8,787

$1,155 U $1,010 F
Total Variance,

$145 U
*2,900 units × 0.3 hours per unit = 870 hours

770 hours ($11.6 per hour* – $10.1 per hour) = $1,155 U
*8,932 ÷ 770 hours = $11.6 per hour
$10.1 per hour (770 hours – 870 hours) = $1,010 F
Exercise 11-10 Direct Labor and Variable Manufacturing

Exercise
Overhead
11-10
Variances
Direct Labor
[LO3,and
LO4]
Variable Manufacturing Overhead Variances [LO3, LO4]
Erie Company manufactures a small CD player called the ErieJogging
Company Mate.
manufactures
The companya small
usesCDstandards
player called
to the Jogging Mate. The company uses standards to
control its costs. The labor standards that have been set for
control
one Jogging
its costs.Mate
The CD
labor
player
standards
are asthat
follows:
have been set for one Jogging Mate CD player are as follows:
Standard Standard Rate Standard Standard Standard Rate Standard
Hours per Hour Cost Hours per Hour Cost
30 minutes $ 5.8 $ 2.9 30 minutes $ 5.8 $ 2.9
During August, 10,290 hours of direct labor time were needed to August,
During make 19,100
10,290units of the
hours Jogging
of direct Mate.
labor timeThe
were needed to make 19,100 units of the Jogging Mate. The
direct labor cost totaled $57,624 for the month. direct labor cost totaled $57,624 for the month.
(a What direct labor cost should have been incurred to make 19,100
(a What directunits
laborof cost
the Jogging Mate?
should have been incurred to make 19,100 units of the Jogging Mate?
Standard direct labor cost $ Standard direct labor cost $ 55,390

Feedback:

Number of units manufactured 19,100
Standard labor time per unit
(30 minutes ÷ 60 minutes per hour) × 0.5
Total standard hours of labor time allowed 9,550
Standard direct labor rate per hour × $5.8
(b) By how much does this differ from the cost that was(b)
incurred?
By how much does this differ from the cost that was incurred?
selecting no for
effect (i.e., zero
favorable, variance).
"U" Input and "None" for no effect (i.e., zero variance). Input
for unfavorable,
all amounts as positive values. Omit the "$" sign in your
all amounts
response.)
Total variance $ (0%) Total variance $ 2,234 U
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

Actual direct labor cost $ 57,624
Standard direct labor cost 55,390
Total variance—unfavorable $ 2,234
Break down the difference in cost from Requirement 1 above
Breakinto
the difference andfrom
in cost a labor efficiency 1 above into a labor rate variance and a labor efficiency
Requirement
variance. (Indicate the effect of the variance by selecting "F" (Indicate
the effect of unfavorable,
the variance andby selecting "F" for favorable, "U" for unfavorable, and
"None" for no effect (i.e., zero variance). Round your"None"
answers fortonothe nearest
effect (i.e.,dollar amount. Input
zero variance). Round all your answers to the nearest dollar amount. Input all
response.) as positive values. Omit the "$" sign in your response.)

Labor rate variance $ (0%) Labor rate variance $ 2,058
Labor efficiency variance $ (0%) Labor efficiency variance $ 4,292
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
10,290 hours × 9,550 hours* ×

$57,624 = $59,682 = $55,390

$2,058 F $4,292 U
Total Variance,

$2,234 U
*19,100 units × 0.5 hours per unit = 9,550 hours

10,290 hours ($5.6 per hour* – $5.8 per hour) = $2,058 F
*$57,624 ÷ 10,290 hours = $5.6 per hour
Labor Efficiency Variance = SR (AH – SH)
$5.8 per hour (10,290 hours – 9,550 hours) = $4,292 U
The budgeted variable manufacturing overhead rate is $4.1
The per direct labor-hour.
budgeted During August,overhead
variable manufacturing the company
rate is $4.1 per direct labor-hour. During August, the company
incurred $47,334 in variable manufacturing overhead cost. Compute
incurred the variable
$47,334 overhead
in variable rate and efficiency
manufacturing overhead cost. Compute the variable overhead rate and efficiency
variances for the month. (Indicate the effect of the variance
variancesby forselecting
the month."F"(Indicate
for favorable, "U" of
the effect forthe variance by selecting "F" for favorable, "U" for
unfavorable, and "None" for no effect (i.e., zero variance). Round and
unfavorable, your"None"
answers fortonothe nearest
effect (i.e.,dollar
zero variance). Round your answers to the nearest dollar
amount. Input all amounts as positive values. Omit theamount.
"$" signInput
in your response.)

Variable Overhead Rate Variance Variable Overhead Rate Variance
Variable Overhead Efficiency Variance Variable Overhead Efficiency Variance
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:
10,290 hours × 9,550 hours ×

$47,334 = $42,189 = $39,155

$5,145 U $3,034 U
Total Variance,

$8,179 U

Variable overhead rate variance = AH (AR – SR)
*$47,334 ÷ 10,290 hours = $4.6 per hour
Variable overhead efficiency variance = SR (AH – SH)
Exercise 11-11 Working Backwards from Labor Variances

Exercise
[LO3]11-11 Working Backwards from Labor Variances [LO3]
The auto repair shop of Quality Motor Company uses standards to repair
The auto controlshop
the labor time and
of Quality labor
Motor cost in uses
Company the standards to control the labor time and labor cost in the
shop. The standard labor cost for a motor tune-up is givenshop.
below:
The standard labor cost for a motor tune-up is given below:
Standar Standard Standard Standar Standard Standard

Job d Hours Rate Cost Job d Hours Rate Cost
Motor tune-up 1.5 $ 6.2 $ 9.3 Motor tune-up 1.5 $ 6.2 $ 9.3
The record showing the time spent in the shop last weekThe
on motor
record tune-ups
showing has
the time
beenspent
misplaced.
in the However,
shop last week on motor tune-ups has been misplaced. However,
the shop supervisor recalls that 230 tune-ups were completed during
the shop the week,
supervisor and the
recalls thatcontroller recalls
230 tune-ups thecompleted during the week, and the controller recalls the
were
following variance data relating to tune-ups: following variance data relating to tune-ups:

Labor rate variance $ 360 F Labor rate variance $ 360 F
Total labor variance $ 291 U Total labor variance $ 291 U
Determine the number of actual labor-hours spent on tune-ups duringthe
Determine thenumber
week. of actual labor-hours spent on tune-ups during the week.
Actual labor hours (0%) hours Actual labor hours 450 hours

Feedback:
If the total variance is $291 unfavorable, and the labor rate variance is $360 favorable, then the labor
efficiency variance must be $651 unfavorable, because the labor rate and labor efficiency variances taken
together always equal the total variance. Knowing that the labor efficiency variance is $345 unfavorable, one
approach to the solution would be:
$6.2 per hour (AH – 345 hours*) = $651 U
$6.2 per hour × AH – $2,139 = $651**
$6.2 per hour × AH = $2,790
AH = $2,790 ÷ $6.2 per hour
AH = 450 hours
*230 jobs × 1.5 hours per job = 345 hours
**When used with the formula, unfavorable variances are positive and favorable variances are negative.
Actual hourly rate $ (0%) per hour Actual hourly rate $ 5.4 per hour

Feedback:
450 hours (AR – $6.2 per hour) = $360 F*
450 hours × AR – $2,790 = –$360
450 hours × AR = $2,430
AR = $2,430 ÷ 450 hours
AR = $5.4 per hour
*
When used with the formula, unfavorable variances are positive and favorable variances are negative.
An alternative approach would be to work from known to unknown data in the columnar model for variance analysis:

450 hours × 450 hours × 345 hours§ ×

= $2,430 = $2,790 = $2,139
Labor rate variance, Labor efficiency
variance,
$360 F
$651 U
Total Variance,

$291 U
§
230 tune-ups × 1.5 hours per tune-up = 345 hours
Exercise 11-9 Direct Material Variances [LO2] Exercise 11-9 Direct Material Variances [LO2]
Standard Quantity Standard Price

or Hours or Rate
7.
Direct materials pounds $ 2.7 per pound
3
0.
Direct labor hours $ 9.5 per hour
3

Materials price variance $
Materials quantity variance $
Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%
Feedback:
Notice in the solution below that the materials price variance is computed for the entire amount of materials
purchased, whereas the materials quantity variance is computed only for the amount of materials used in
production.
Inputs, at Inputs, at Allowed for Output,
= $59,644 = $61,938 = $45,333
Price Variance,

$2,294 F
18,940 pounds × $2.7 per pound

= $51,138
Quantity Variance,

$5,805 U
*2,300 units × 7.3 pounds per bottle = 16,790 pounds
Alternatively:
Materials Price Variance = AQ (AP – SP)
Materials Quantity Variance = SP (AQ – SQ)
$2.7 per pound (18,940 pounds – 16,790 pounds) = $5,805 U

Question 1: Score 0/1: Your Response Correct Response

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Question 1: Score 0/1

Your response Correct response

Exercise 11-1 Setting Standards; Preparing a Standard

Standard price $ (0%) Standard price $ 1.9

Total grade: 0.0×1/1 = 0%

Your response Correct response

Standard quantity (0%) quarts Standard quantity 8.2 quarts

Total grade: 0.0×1/1 = 0%

Your response Correct response

Item Standard Quantity

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Question 2: Score 0/1

Cost incurred RM (0%) Cost incurred RM 168,000

Cost incurred is (0%) by RM (0%) than the actual

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Your response Correct response

*35,000 helmets × 0.6 kilograms per helmet = 21,000 kilograms

Question 3: Score 0/1

Your response Correct response

According to the standard cost card for this meal, it should

Total grade: 0.0×1/1 = 0%

Your response Correct response

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Your response Correct response

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Alternatively, the variances can be computed using the formulas:

Question 4: Score 0/1

Your response Correct response

According to the company's standards, 0.02 direct labor-hours are required

Variable overhead cost $ (0%) Variable overhead cost $ 7,800

Total grade: 0.0×1/1 = 0%

Your response Correct response

Total variable overhead variance Total variable overhead variance

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Your response Correct response

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

*$7,360 ÷ 2,300 hours = $3.20 per hour

Alternatively, the variances can be computed using the formulas:

Question 5: Score 0/1

Your response Correct response

Exercise 11-5 Measures of Internal Business Process Exercise

Throughput time (0%) days Throughput time 9 days

Total grade: 0.0×1/1 = 0%

Manufacturing cycle efficiency (0%) Manufacturing cycle efficiency 0.3

Total grade: 0.0×1/1 = 0%

Your response Correct response

Throughput time (0%) % Throughput time 70 %

Total grade: 0.0×1/1 = 0%

Your response Correct response

Delivery cycle time (0%) days Delivery cycle time 23 days

Total grade: 0.0×1/1 = 0%

Your response Correct response

Manufacturing cycle efficiency (0%) Manufacturing cycle efficiency 0.675

Total grade: 0.0×1/1 = 0%

Question 6: Score 0/1

Your response Correct response

Standard price £ (0%) Standard price £ 7.24

Total grade: 0.0×1/1 = 0%

Your response Correct response

Standard quantity (0%) kilograms Standard quantity 0.75 kilograms

Total grade: 0.0×1/1 = 0%

Your response Correct response