94638495 Solution Manual Managerial Accounting Hansen Mowen 8th Editions ch 9 PDF

Preview

Summary

CHAPTER 9STANDARD COSTING:A MANAGERIAL CONTROL TOOLQUESTIONS FOR WRITING AND DISCUSSION Standard costs are essentially budgeted amounts on a per-unit basis. Unit standards serve as inputs in building budgets. Unit standards are used to build flexible budgets. Unit standards for variable costs are th...

Description

CHAPTER 9 STANDARD COSTING: A MANAGERIAL CONTROL TOOL QUESTIONS FOR WRITING AND DISCUSSION 1. Standard costs are essentially budgeted amounts on a per-unit basis. Unit standards serve as inputs in building budgets.

11. Managers generally tend to have more control over the quantity of an input used rather than the price paid per unit of input.

2. Unit standards are used to build flexible budgets. Unit standards for variable costs are the variable cost component of a flexible budgeting formula.

12.

A standard cost variance should be investigated if the variance is material and if the benefit of investigating and correcting the deviation is greater than the cost.

3. The quantity decision is determining how much input should be used per unit of output. The pricing decision determines how much should be paid for the quantity of input used.

13.

Control limits indicate how large a variance must be before it is judged to be material and the process is out of control. Control limits are usually set by judgment although statistical approaches are occasionally used.

4. Historical experience is often a poor choice for establishing standards because the historical amounts may include more inefficiency than is desired.

14.

The materials price variance is often computed at the point of purchase rather than issuance because it provides control information sooner. When this is done, the variance may be called the materials purchase price variance, and it is the responsibility of the purchasing manager rather than the production manager.

15.

Disagree. A materials usage variance can be caused by factors beyond the control of the production manager, e.g., purchase of a lower-quality material than normal.

16.

Disagree. Using higher-priced workers to perform lower-skilled tasks is an example of an event that will create a rate variance that is controllable.

17.

Some possible causes of an unfavorable labor efficiency variance are inefficient labor, machine downtime, and poor quality materials.

18.

Part of a variable overhead spending variance can be caused by inefficient use of overhead resources.

19.

Agree. This variance, assuming that variable overhead costs increase as labor usage increases, is caused by the efficiency or inefficiency of labor usage. Also labor may not be a good driver for variable overhead.

5. Engineering studies can serve as an important input to standard setting. Many feel that this approach by itself may produce standards that are too rigorous. 6. Ideal standards are perfection standards, representing the best possible outcomes. Currently attainable standards are standards that are challenging but allow some waste. Currently attainable standards are often chosen because many feel they tend to motivate rather than frustrate. 7. Standard costing systems improve planning and control and facilitate product costing. 8. By identifying standards and assessing deviations from the standards, managers can locate areas where change or corrective behavior is needed. 9. Actual costing assigns actual manufacturing costs to products. Normal costing assigns actual prime costs and estimated overhead costs to products. Standard costing assigns estimated manufacturing costs to products. 10.

A standard cost sheet presents the standard amount of inputs and the price for each input and uses this information to calculate the unit standard cost.

27 275

20.

Fixed overhead costs are either committed or discretionary. The committed costs will not differ by their very nature. Discretionary costs can vary, but the level the company wants to spend on these items is decided at the beginning and usually will be met unless there is a conscious decision to change the predetermined levels.

21. The volume variance is caused by the actual volume differing from the expected volume used to compute the predetermined standard fixed overhead rate. If the actual vo-

27 276

lume is different from the expected, then the company has either lost or earned a contribution margin. The volume variance signals this outcome, and if the variance is large, then the loss or gain is large since the volume variance understates the effect. 22. The spending variance is more important. This variance is computed by comparing actual expenditures with budgeted expenditures. The volume variance simply tells whether the actual volume is different from the expected volume.

EXERCISES 9–1 1. d

4. c

2. e 3. d

5. e 6. a

9–2 1.

a. The operating personnel of each cost center should be involved in setting standards. They are the primary source for quantity information. The materials manager and purchasing manager are a source of information for material prices, and personnel are knowledgeable on wage information. The Accounting Department should be involved in overhead standards and should provide information about past prices and usage. Finally, if information about absolute efficiency is desired, industrial engineers can provide important input. b. Standards should be attainable; they should include an allowance for waste, breakdowns, etc. Market prices for materials as well as labor (unions) should be a consideration for setting standards. Labor prices should include fringe benefits, and material prices should include freight, taxes, etc.

2.

In principle, before formal responsibility is assigned, the causes of the variances must be known. To be responsible, a manager must have the ability to control or influence the variance. The following assignments of responsibility are general in nature and have exceptions: MPV: MUV: LRV: LEV: OH variances:

Purchasing manager Production manager Production manager Production manager Departmental managers

27 277

9–3 1.

SH = 1.5 × 1,700 = 2,550 hours

2.

SQ = 4 × 1,700 = 6,800 components

9–4 1.

SQ direct materials per unit = 340,000/40,000 = 8.5 oz per bunny

2.

SH direct labor hours per unit = 10,000/40,000 = 0.25 hrs. per bunny

3.

Standard Cost for Dark Chocolate Bunny: Standard Price Direct materials $0.30 Direct labor 9.00 Total standard unit prime cost

Standard Usage 8.50 oz. 0.25 hr.

Standard Cost $2.55 2.25 $4.80

9–5 1.

SQ = 8.5 × 47,000 = 399,500 oz.

2.

SH = 0.25 × 47,000 = 11,750 hours

3.

Total standard prime cost = ($0.30 × 399,500) + ($9 × 11,750) = $225,600

9–6 1.

Cases needing investigation: Week 1: Exceeds the 2,100 rule and the 5% rule. Week 4: Exceeds the $2,100 rule and the 5% rule.

2.

The installation and repair manager. If the new workers are now properly trained, no corrective action is required. If they are not, further training will be required to return to the direct labor hours normally used.

27 278

9–7 1.

Cases needing investigation: Week 2: Exceeds the 10% rule. Week 4: Exceeds the $8,000 rule and the 10% rule. Week 5: Exceeds the 10% rule.

2.

The purchasing agent. Corrective action would require a return to the purchase of the higher-quality material normally used.

3.

Production engineering is responsible. If the relationship is expected to persist, then the new labor method should be adopted, and standards for materials and labor need to be revised.

9–8 1.

MPV = (AP – SP)AQ = ($0.047 – $0.046)6,420,000 = $6,420 U MUV = (AQ – SQ)SP = (6,420,000 – 6,656,000*)$0.046 = $10,856 F * SQ = 52,000 × 128 = 6,656,000

2.

LRV = (AR – SR)AH = ($12.50 – $12.00)2,000 = $1,000 U LEV

= (AH – SH)SR = (2,000 – 1,976*)$12.00 = $288 U

* SH = 52,000 × 0.038 = 1,976

27 279

9–9 1.

Variable overhead analysis: Actual VOH $160,000

Budgeted VOH $3.00 × 52,000 $4,000 U Spending

Applied VOH $3.00 × 54,750* $8,250 F Efficiency

* SH for direct labor = 73,000 × 0.75 = 54,750 2.

Fixed overhead analysis: Actual FOH $710,000

Budgeted FOH $14 × 50,000 $10,000 U Spending

Applied FOH $14 × 54,750 $66,500 U Volume

28 280

9–10 1.

Materials: $35 × 34,000 = $1,190,000 Labor: $21 × 34,000 = $714,000

2. Materials Labor

Actual Cost* $1,183,270 687,150

Budgeted Cost $1,190,000 714,000

Variance $ 6,730 F 26,850 F

*$173,500 × $6.82; 50,900 × $13.50 3.

MPV = (AP – SP)AQ = ($6.82 – $7.00)173,500 = $31,230 F MUV = (AQ – SQ)SP = (173,500 – 170,000)$7 = $24,500 U AP × AQ $6.82 × 173,500

SP × AQ $7 × 173,500 $31,230 F Price

4.

SP × SQ $7 × 170,000 $24,500 U Usage

LRV = (AR – SR)AH = ($13.50 – $14.00)50,900 = $25,450 F LEV

= (AH – SH)SR = (50,900 – 51,000)$14 = $1,400 F

AR × AH $13.50 × 50,900

SR × AH $14 × 50,900 $25,450 F Rate

SR × SH $14 × 51,000 $1,400 F Efficiency

28 281

9–11 1.

MPV = (AP – SP)AQ = ($8.05 – $7.95)222,500 = $22,250 U MUV = (AQ – SQ)SP = [220,400 – (20,100 × 11)]$7.95 = $5,565 F (A three-pronged variance diagram is not shown because MPV is for materials purchased and not materials used.)

2.

LRV = (AR – SR)AH = ($9.50 – $9.40)79,900 = $7,990 U Note: AR = $759,050/79,900 = $9.50 LEV = (AH – SH)SR = [79,900 – (20,100 × 4)]$9.40 = $4,700 F AR × AH $9.50 × 79,900

SR × AH $9.40 × 79,900 $7,990 U Rate

SR × SH $9.40 × 80,400 $4,700 F Efficiency

3. Materials Inventorya ..................................

1,768,875

MPV ............................................................

22,250

b

Accounts Payable .............................. Work in Processc .......................................

1,791,125 1,757,745

MUV ....................................................... Materials Inventoryd ............................

5,565 1,752,180

Work in Processe .......................................

755,760

LRV .............................................................

7,990

LEV ........................................................ Accrued Payrollf .................................. a

$7.95 × 222,500 =1,768,875

b

$8.05 × 222,500 =1,791,125

c

$7.95 × 221,100 =1,757,745

d

$7.95 × 222,500 = 1,768,875

e

$9.40 × 80,400 = 755,760

f

$9.50 × 79,900 = 759,050

28 282

4,700 759,050

9–12 1.

Fixed overhead rate = $0.55/(1/2 hr. per unit) = $1.10 per DLH SH = 786,000 × 0.5 = 393,000 Applied FOH = $1.10 × 393,000 = $432,300

2.

Fixed overhead analysis: Actual FOH $430,300

Budgeted FOH $1.10 × 400,000*

Applied FOH $1.10 × 393,000

$9,700 F Spending

$7,700 U Volume

*400,000 expected hours = 0.5 hour × 800,000 units) 3.

Variable OH rate = ($1,120,000 – $440,000)/400,000 = $1.70 per DLH

4.

Variable overhead analysis: Actual VOH $695,000

Budgeted VOH $1.70 × 390,000 $32,000 U Spending

Applied VOH $1.70 × 393,000 $5,100 F Efficiency

28 283

9–13 1.

Standard fixed overhead rate = $864,000/(120,000 × 3) = $2.40 per DLH Standard variable overhead rate = $1,440,000/360,000 = $4.00 per DLH

2.

Fixed: 120,600 × 3 × $2.40 = $868,320 Variable: 120,600 × 3 × $4.00 = $1,447,200 Total FOH variance = $72,000 U

= $940,320 – $868,320

Total VOH variance = $1,447,200 – $1,443,500 = $3,700 F 3.

Fixed overhead analysis: Actual FOH $940,320

Budgeted FOH $864,000 $76,320 U Spending

Applied FOH $868,320 $4,320 F Volume

The spending variance is the difference between planned and actual costs. Each item’s variance should be analyzed to see if these costs can be reduced. The volume variance is the incorrect prediction of volume, or alternatively, it is a signal of the loss or gain that occurred because of producing at a level different from the expected level. 4. Variable overhead analysis: Actual VOH $1,443,500

Budgeted VOH $4 × 361,800 $3,700 F Spending

Applied VOH $1,447,200 $0 Efficiency

The variable overhead spending variance is the difference between the actual variable overhead costs and the budgeted costs for the actual hours used. The variable overhead efficiency variance is the savings or extra cost attributable to the efficiency of labor usage.

28 284

9–14 1.

MPV = (AP – SP)AQ = ($6.60 – $6.40)1,684,700 = $336,940 U MUV = (AQ – SQ)SP = (1,684,000 – 1,680,000)$6.40 = $25,600 U Note: There is no three-pronged analysis for materials because materials purchased is different from the materials used. (MPV uses materials purchased and MUV uses materials used.)

2.

LRV = (AR – SR)AH = ($18.10 – $18.00)515,000 = $51,500 U LEV = (AH – SH)SR = [515,000 – (1.8 × 280,000 units)]$18.00 = $198,000 U AR × AH $18.10 × 515,000

SR × AH $18 × 515,000 $51,500 U Rate

3.

SR × SH $18 × 504,000 $198,000 U Efficiency

Fixed overhead analysis: Actual FOH $4,140,200

Budgeted FOH $8 × 518,400 $7,000 F Spending

Applied FOH $8 × 504,000 $115,200 U Volume

Note: Practical volume in hours = 1.8 × 288,000 = 518,400 hours 4. Variable overhead analysis: Actual VOH $872,000

Budgeted VOH $1.50 × 515,000 $99,500 U Spending

Applied VOH $1.50 × 504,000 $16,500 U Efficiency

28 285

9–15 1. Materials Inventory ...................................

10,782,080

MPV ............................................................ Accounts Payable ................................

336,940

2. Work in Process ........................................

10,752,000

MUV ............................................................ Materials Inventory ..............................

25,600

3. Work in Process ........................................

9,072,000

LRV ............................................................. LEV .............................................................

51,500 198,000

11,119,020

10,777,600

Accrued Payroll ................................... 4. Work in Process ........................................ Fixed Overhead Control ......................

9,321,500 4,788,000 4,032,000

Variable Overhead Control .................

756,000

5. Materials and labor: Cost of Goods Sold ...................................

612,040

MPV ....................................................... MUV .......................................................

336,940 25,600

LRV........................................................ LEV ........................................................

51,500 198,000

Overhead disposition: Cost of Goods Sold ...................................

108,200

Fixed Overhead Control ...................... Cost of Goods Sold ................................... Variable Overhead Control .................

28 286

108,200 116,000 116,000

9–16 1.

Tom purchased the large quantity to obtain a lower price so that the price standard could be met. In all likelihood, given the reaction of Jackie Iverson, encouraging the use of quantity discounts was not an objective of setting price standards. Usually, material price standards are to encourage the purchasing agent to search for sources that will supply the quantity and quality of material desired at the lowest price.

2.

It sounds like the price standard may be out of date. Revising the price standard and implementing a policy concerning quantity purchases would likely prevent this behavior from reoccurring.

3.

Tom apparently acted in his own self-interest when making the purchase. He surely must have known that the quantity approach was not the objective. Yet, the reward structure suggests that there is considerable emphasis placed on meeting standards. His behavior, in part, was induced by the reward system of the company. Probably, he should be retained with some additional training concerning the goals of the company and a change in emphasis and policy to help encourage the desired behavior.

9–17 Materials: AP × AQ $38,295

SP × AQ $2.00 × 20,700 $3,105 F Price

SP × SQ $2.00 × 20,650 $100 U Usage

Labor: AR × AH $57,226

SR × AH $9 × 6,200 = $55,800 $1,426 U Rate

SR × SH $9 × 6,195 = $55,755 $45 U Efficiency

28 287

9–18 1. Materials Inventory ...................................

41,400

MPV ....................................................... Accounts Payable ................................

3,105 38,295

2. Work in Process ........................................

41,300

MUV ............................................................ Materials Inventory ..............................

100

3. Work in Process ........................................

55,755

LRV........................................................ LEV ........................................................

1,426 45

41,400

Accrued Payroll ...................................

57,226

4. Cost of Goods Sold ................................... MUV .......................................................

100

MPV ............................................................ LRV .............................................................

3,105 1,426

LEV ............................................................. Cost of Goods Sold .............................

45

28 288

100

4,576

9–19 1.

VOH efficiency variance = (AH – SH)SVOR $8,000 = (1.2SH – SH)$2 $8,000 = $0.4SH SH = 20,000 AH = 1.2SH = 24,000

2.

LEV = (AH – SH)SR $20,000 = (24,000 – 20,000)SR $20,000 = 4,000SR SR = $5 LRV= (AR – SR)AH $6,000= (AR – $5)24,000 $0.25= AR – $5 AR= $5.25

3.

SH = 4 × Units produced 20,000 = 4 × Units produced Units produced = 5,000

28 289

PROBLEMS 9–20 1.

Materials: AP × AQ $1.72 × 38,500

SP × AQ $1.70 × 38,500 $770 U Price

SP × SQ $1.70 × 40,000 $2,550 F Usage

The new process saves 0.25 × 4,000 × $1.70 = $1,700. Thus, the net savings attributable to the higher-quality material are (2,550 – $1,700) – $770 = $80. Keep the higher-quality material. 2.

Labor for new process: AR × AH $26,500

SR × AH $10 × 2,500 $1,500 U Rate

SR × SH $10 × 2,400 $1,000 U Efficiency

The new process gains $80 in materials (see Requirement 1) but loses $2,500...