Managerial Accounting CH10 HW1 & CH10 HW2

Due to evaporation during production, Plano Plastics Company requires 8 pounds of material input for every 7 pounds of good plastic sheets manufactured. During May, the company produced 4,200 pounds of good sheets.

Required:

Compute the total standard allowed input quantity, given the good output produced.

  Standard allowed input quantity

pounds  

Part of your company's accounting database was destroyed when Godzilla attacked the city. You have been able to gather the following data from your files. Reconstruct the remaining information using the available data. All of the raw material purchased during the period was used in production. (Input all amounts as positive values. Round the "Standard quantity per unit of output for Direct Material" to 2 decimal places. Omit the "$" sign in your response.)

Direct Labor

Direct Material

  Standard price or rate per unit of input

$

 per hr

$

8

 per lb

  Standard quantity per unit of output

 hrs per unit

 lbs per unit

  Actual quantity used per unit of output

3.5

 hrs

 lbs per unit

  Actual price or rate per unit of input

$

21

 per hr

$

7

 per lb

  Actual output

10,000

 units

10,000

 units

  Direct-material price variance

$

30,000

 F

  Direct-material quantity variance

$

 U

  Total of direct-material variances

$

10,000

 F

  Direct-labor rate variance

$

 U

  Direct-labor efficiency variance

$

100,000

 F

  Total of direct-labor variances

$

65,000

 F

Sal Amato operates a residential landscaping business in an affluent suburb of St. Louis. In an effort to provide quality service, he has concentrated solely on the design and installation of upscale landscaping plans (e.g., trees, shrubs, fountains, and lighting). With his clients continually requesting additional services, Sal recently expanded into lawn maintenance, including fertilization.

     The following data relate to his first year’s experience with 55 fertilization clients:

•

Each client required six applications throughout the year and was billed $40 per application.

•

Two applications involved Type I fertilizer, which contains a special ingredient for weed control. The remaining four applications involved Type II fertilizer.

•

Sal purchased 5,000 pounds of Type I fertilizer at $.53 per pound and 10,000 pounds of Type II fertilizer at $.40 per pound. Actual usage amounted to 3,700 pounds of Type I and 7,800 pounds of Type II.

•

A new, part-time employee was hired to spread the fertilizer. Sal had to pay premium wages of $11.50 per hour because of a very tight labor market; the employee logged a total of 165 hours at client residences.

•

Based on previous knowledge of the operation, articles in trade journals, and conversations with other landscapers, Sal established the following standards:

Fertilizer purchase price per pound: Type I, $.50; Type II, $.42

Fertilizer usage: 40 pounds per application

Typical hourly wage rate of landscape personnel: $9

Labor time per application: 40 minutes

•

The operation did not go as smoothly as planned, with customer complaints actually much higher than expected.

Required:

1.

Compute Sal’s direct-material variances of each type of fertilizer. Indicate whether each variance is favorable or unfavorable. (Input all amounts as positive values. Select "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Type I

Type II

  Direct-material price variance

$

$  

  Direct-material quantity variance

$

$

2.

Compute the direct-labor variances. Indicate whether each variance is favorable or unfavorable. (Input all amounts as positive values. Select "None" for no effect (i.e., zero variance). Do not round the "Standard hour" in your interim calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Type I

  Direct-labor rate variance

$

  Direct-labor efficiency variance

$

3-a.

Compute the actual cost of the client applications. (Note: Exclude any fertilizer in inventory, as remaining fertilizer can be used next year.) (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

  Actual cost

$  

3-b.

Was the new service a financial success?

4.

On the basis of the variances that you computed in parts (1) and (2) was the new service a success from an overall cost-control perspective?

5.

Should the fertilizer service be continued next year?

Santa Rosa Industries uses a standard-costing system to assist in the evaluation of operations. The company has had considerable trouble in recent months with suppliers and employees, so much so that management hired a new production supervisor (Frank Schmidt). The new supervisor has been on the job for five months and has seemingly brought order to an otherwise chaotic situation.

    The vice president of manufacturing recently commented that “. . . Schmidt has really done the trick. The change to a new direct-material supplier and Schmidt’s team-building/morale-boosting training exercises have truly brought things under control.” The VP’s comments were based on both a plant tour, where he observed a contented workforce, and a review of the following data, which was excerpted from a performance report:

  Direct-material variances, favorable

$

4,620

  Direct-labor variances, favorable

6,175

These variances are especially outstanding, given that the amounts are favorable and small. (Santa Rosa’s budgeted material and labor costs generally each average about $350,000 for similar periods.) Additional data follow.

•

The company purchased and consumed 45,000 pounds of direct materials at $7.70 per pound, and paid $16.25 per hour for 20,900 direct-labor hours of activity. Total completed production amounted to 9,500 units.

•

A review of the firm’s standard cost records found that each completed unit requires 4.2 pounds of direct material at $8.80 per pound and 2.6 direct-labor hours at $14 per hour.

Required:

1.

On the basis of the information contained in the performance report, should Santa Rosa be concerned about its variances?

2.

Calculate the company's direct-material variances and direct-labor variances. Indicate whether each variance is favorable or unfavorable. (Select "None" for no effect (i.e., zero variance). Input all amounts as positive values. Omit the "$" sign in your response.)

  Direct-material variances:

       Price variance:

$   

       Quantity variance:

$   

  Total direct-material variance:

$   

  Direct-labor variances:

       Price variance:

$   

       Efficiency variance:

$   

  Total direct-labor variance:

$   

3.

On the basis of your answers to part (2), should Santa Rosa be concerned about its variances?

4.

Are things going as smoothly as the vice president believes?

5.

Is it possible that some of the company’s current problems lie outside Schmidt’s area of responsibility?

Orion Corporation has established the following standards for the prime costs of one unit of its chief product, dartboards.

Standard Quantity

Standard Price or Rate

Standard Cost

  Direct material

8

 pounds

$

1.75

 per pound

$

14.00

  Direct labor

.25

 hour

$

8.00

 per hour

2.00

  Total

$

16.00

     During June, Orion purchased 160,000 pounds of direct material at a total cost of $304,000. The total wages for June were $42,000, 90 percent of which were for direct labor. Orion manufactured 19,000 dartboards during June, using 142,500 pounds of direct material and 5,000 direct-labor hours.

Required:

Compute the following variances for June, and indicate whether each is favorable or unfavorable. (Input all amounts as positive values. Select "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

  Direct-material price variance

$  

  Direct-material quantity variance

$  

  Direct-labor rate variance

$  

  Direct-labor efficiency variance

$  

Springsteen Company manufactures guitars. The company uses a standard, job-order cost-accounting system in two production departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department. The diagram below depicts the production process.

     Each finished guitar contains seven pounds of veneered wood. In addition, one pound of wood is typically wasted in the production process. The veneered wood used in the guitars has a standard price of $12 per pound. The other parts needed to complete each guitar, such as the bridge and strings, cost $15 per guitar. The labor standards for Springsteen’s two production departments are as follows:

Construction Department: 6 hours of direct labor at $20 per hour

Finishing Department: 3 hours of direct labor at $15 per hour

The following pertains to the month of July.

1.

There were no beginning or ending work-in-process inventories in either production department.

2.

There was no beginning finished-goods inventory.

3.

Actual production was 500 guitars, and 300 guitars were sold on account for $400 each.

4.

The company purchased 6,000 pounds of veneered wood at a price of $12.50 per pound.

5.

Actual usage of veneered wood was 4,500 pounds.

6.

Enough parts (bridges and strings) to finish 600 guitars were purchased at a cost of $9,000.

7.

The Construction Department used 2,850 direct-labor hours. The total direct-labor cost in the Construction Department was $54,150.

8.

The Finishing Department used 1,570 direct-labor hours. The total direct-labor cost in that department was $25,120.

9.

There were no direct-material variances in the Finishing Department.

Required:

1.

Prepare a schedule that computes the standard costs of direct material and direct labor in each production department. (Omit the "$" sign in your response.)

DIRECT MATERIAL

Construction Department

Finishing Department

  Standard direct-material cost:

     Standard quantity

 lbs

 set

     Standard price

×$

 per lb

×$

 per set

     Standard cost per guitar

$

 per guitar

$

 per guitar

     Actual output in July

×

 guitars

×

 guitars

  Total standard cost of direct material in July

$

$

DIRECT LABOR

Construction Department

Finishing Department

  Standard direct-labor cost:

     Standard quantity

 hrs

 hrs

     Standard rate

×$

×$

     Standard cost per guitar

$

$

     Actual output in July

×

 guitars

×

 guitars

  Total standard cost of direct labor in July

$

$

2.

Using the formats employed in Exhibits 10-2 and 10-3 as a guide, fill in the amounts in the below tables. Indicate whether each variance is favorable or unfavorable. (Input all amounts as positive values. Select "None" for no effect (i.e., zero variance). Round "per pound" to 2 decimal places. Omit the "$" sign in your response.)

Construction Department:

$  

$

$

$

$

$

     $

$

$

  $

  $

$

$

   $ 

 $ 

 $ 

   $

$

$  

Finishing Department:

  $

$

$

   $ 

 $ 

 $ 

   $

$

$  

3.

Prepare a cost variance report for July. Indicate whether each variance is favorable or unfavorable. (Input all amounts as positive values. Select "None" for no effect (i.e., zero variance). Leave no cells blank - be certain to enter "0" wherever required. Round "Percentage of standard cost" to 2 decimal places. Omit the "$" and "%" signs in your response.)

SPRINGSTEEN COMPANY COST VARIANCE REPORT FOR THE MONTH OF JULY

Construction Department

Finishing Department

       Amount

Percentage of Standard Cost

       Amount

Percentage of Standard Cost

  Direct material:

     Standard cost, given actual output

$ 

$

     Direct-material price variance

%  

     Direct-material quantity variance

%  

  Direct labor:

     Standard cost, given actual output

$

$

     Direct-labor rate variance

%  

%  

     Direct-labor efficiency variance

%  

%