Principles of Accounting II

Exercise A - Chapter 8 Standard Costs and Variances

EA1.

LO 8.1Moisha is developing material standards for her company. The operations manager wants

grade A widgets because they are the easiest to work with and are the quality the customers

want. Grade B will not work because customers do not want the lower grade, and it takes more

time to assemble the product than with grade A materials. Moisha calls several suppliers to get

prices for the widget. All are within $0.05 of each other. Since they will use millions of widgets,

she decides that the $0.05 difference is important. The supplier who has the lowest price is

known for delivering late and low-quality materials. Moisha decides to use the supplier who is

$0.02 more but delivers on time and at the right quality. This supplier charges $0.48 per widget.

Each unit of product requires four widgets. What is the standard cost per unit for widgets?

EA2.

LO 8.1Rene is working with the operations manager to determine what the standard labor cost is

for a spice chest. He has watched the process from start to finish and taken detailed notes on

what each employee does. The first employee selects and mills the wood, so it is smooth on all

four sides. This takes the employee 1 hour for each chest. The next employee takes the wood and

cuts it to the proper size. This takes 30 minutes. The next employee assembles and sands the

chest. Assembly takes 2 hours. The chest then goes to the finishing department. It takes 1.5 hours

to finish the chest. All employees are cross-trained so they are all paid the same amount per hour,

$17.50.

A. What are the standard hours per chest?

B. What is the standard cost per chest for labor?

EA3.

LO 8.1Fiona cleans offices. She is allowed 5 seconds per square foot. She cleans building A,

which is 3,000 square feet, and building B, which is 2,460 square feet. Will she finish these two

buildings in an 8-hour shift? Will she have time for a break?

EA4.

LO 8.1Use the information provided to create a standard cost card for production of one glove

box switch. To make one switch it takes 16 feet of plastic-coated copper wire and 0.5 pounds of

plastic material. The plastic material can usually be purchased for $20.00 per pound, and the wire

costs $2.50 per foot. The labor necessary to assemble a switch consists of two types. The first

type of labor is assembly, which takes 3.5 hours. These workers are paid $27.00 per hour. The

second type of labor is finishing, which takes 2 hours. These workers are paid $29.00 per hour.

Overhead is applied using labor hours. The variable overhead rate is $14.90 per labor hour. The

fixed overhead rate is $15.60 per hour.

EA5.

Exercise A - Chapter 8 Standard Costs and Variances

LO 8.2Sitka Industries uses a cost system that carries direct materials inventory at a standard

cost. The controller has established these standards for one ladder (unit):

Sitka Industries made 3,000 ladders in July and used 8,800 pounds of material to make these

units. Sitka Industries bought 15,500 pounds of material in the current period. There was a $250

unfavorable direct materials price variance.

A. How much in total did Sitka pay for the 15,500 pounds?

B. What is the direct materials quantity variance?

C. What is the total direct material cost variance?

D. What if 9,500 pounds were used to make these ladders, what would be the direct

materials quantity variance?

E. If there was a $340 favorable direct materials price variance, how much did Sitka pay for

the 15,500 pounds of material?

EA6.

LO 8.2Use the information provided to answer the questions.

All material purchased was used in production.

A. What is the standard price for materials?

B. What is the direct materials quantity variance?

C. What is the total direct materials cost variance?

D. If the direct materials price variance was unfavorable, what would be the standard price?

EA7.

Exercise A - Chapter 8 Standard Costs and Variances

LO 8.2Dog Bone Bakery, which bakes dog treats, makes a special biscuit for dogs. Each biscuit

uses 0.75 cup of pure semolina flour. They buy 4,000 cups of flour at $0.55 per cup. They use

3,550 cups of flour to make 4,750 biscuits. The standard cost per cup of flour is $0.53.

A. What are the direct materials price variance, the direct materials quantity variances, and

the total direct materials cost variance?

B. What is the standard cost per biscuit for the semolina flour?

EA8.

LO 8.3Queen Industries uses a standard costing system in the manufacturing of its single

product. It requires 2 hours of labor to produce 1 unit of final product. In February, Queen

Industries produced 12,000 units. The standard cost for labor allowed for the output was

$90,000, and there was an unfavorable direct labor time variance of $5,520.

A. What was the standard cost per hour?

B. How many actual hours were worked?

C. If the workers were paid $3.90 per hour, what was the direct labor rate variance?

EA9.

LO 8.3Penny Company manufactures only one product and uses a standard cost system. The

following information is from Penny’s records for May:

During May, the company used 12.5% more hours than the standard allowed.

A. What were the total standard hours allowed for the units manufactured during the month?

B. What were the actual hours worked?

C. How many actual units were produced during May?

EA10.

LO 8.4ThingOne Company has the following information available for the past year. They use

machine hours to allocate overhead.

Exercise A - Chapter 8 Standard Costs and Variances

What is the variable overhead efficiency variance?

EA11.

LO 8.4A manufacturer planned to use $78 of variable overhead per unit produced, but in the

most recent period, it actually used $76 of variable overhead per unit produced. During this same

period, the company planned to produce 500 units but actually produced 540 units. What is the

variable overhead spending variance?

EA12.

LO 8.5Acme Inc. has the following information available:

A. Compute the material price and quantity, and the labor rate and efficiency variances.

B. Describe the possible causes for this combination of favorable and unfavorable variances.

EA13.

LO 8.5Acme Inc. has the following information available:

Exercise A - Chapter 8 Standard Costs and Variances

A. Compute the material price and quantity, and the labor rate and efficiency variances.

B. Describe the possible causes for this combination of favorable and unfavorable variances.

EA14.

LO 8.5Acme Inc. has the following information available:

A. Compute the material price and quantity, and the labor rate and efficiency variances.

B. Describe the possible causes for this combination of favorable and unfavorable variances.