Exam 10: Standard Costing and Analysis of Direct Costs

The term "management by exception" is best defined as:

Consider the following statements about variance investigation: I. Variance investigation involves a look at only unfavorable variances. II. Variance investigation is typically based on a cost-benefit analysis. III. Variance investigation is often performed by establishing guidelines similar to the following: Investigate variances that are greater than $X or greater than Y% of standard cost. Which of the above statements is (are) true?

When the quantity of materials purchased is not equal to the quantity of material used, most companies base the calculation of the material quantity variance on the:

Listed below are five variances (and possible causes) that are under review by management of Knox Company. Which of the following is least likely to cause the variance indicated?

Which of the following is a predetermined estimated cost that can be used in the calculation of a variance?

Which of the following would be considered if a company desires to establish a series of practical manufacturing standards?

Chen Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used in the manufacture of the company's only product. According the production specifications, each completed unit requires four pounds of direct material at a standard cost of $9 per pound. Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture of 16,050 finished units. An examination of Chen's payroll records revealed that the company worked 42,000 labor hours (cost = $621,600) during the period, and specifications called for each completed unit requiring 2.6 hours of labor at a standard cost of $15 per hour. Assume that the company computes variances at the earliest point in time. Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Standard cost systems can have motivational effects; some are desirable, some are not. Consider the following situation: The materials purchasing manager is paid a salary plus a bonus based on the net favorable materials price variance. Generally, this bonus amounts to 30 - 40% of the manager's total compensation. Due to the bankruptcy of a company in a related field, there is an opportunity to buy a key raw material. The standards for this material call for grade 2A, usually purchased for $56 per ton. Because of the bankruptcy, the company can obtain a higher grade, 4A, for $62 per ton. While the quality of the final product will be the same regardless of the grade of material used, there will be substantial savings in material yield and labor productivity if 4A is used. These savings are expected to be two-to-three times the additional cost of $6 per ton. Required: A. How would an unfavorable price variance on a particular purchase affect the overall price variance for the year and the manager's bonus? B. Would the use of the materials price variance as a basis for the manager's bonus lead to a desirable or undesirable behavioral outcome? Explain, being sure to note whether the manager would likely pursue acquisition of the grade 4A material.

The following data relate to product no. 89 of Des Moines Corporation: Direct material standard: 3 square feet at $2.50 per square foot Direct material purchased: 30,000 square feet at $2.60 per square foot Direct material consumed: 29,200 square feet Manufacturing activity: 9,600 units completed Assume that the company computes variances at the earliest point in time. The direct-material price variance is:

Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units. An examination of Taylor's payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time. Taylor's direct-material quantity variance was:

The individual generally responsible for the direct-material price variance is the:

Normal defect rates in an assembly process would be considered if a company desires to establish a series of practical manufacturing standards.

Vanderhaus Corporation manufactures a variety of liquid lawn fertilizers, including a very popular product called Lush 'N Green. Data about Lush 'N Green and Proctol, a major ingredient, follow. Expected operations: • Proctol is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount is offered by Proctol's manufacturer for prompt payment of invoices, and Vanderhaus takes advantage of all discounts offered. • Vanderhaus normally purchases 200 drums of Proctol at a time, paying shipping fees of $2,660 per shipment. • Each gallon of Lush 'N Green requires three quarts of Proctol; however, because of evaporation and spills, Vanderhaus loses 4% of all Proctol that enters production. (Recall that there are four quarts in a gallon.) Actual operations: • For the period just ended, Vanderhaus purchased 1,500 drums of Proctol at a total cost of $118,100, which reflects discounts and shipping. There was no beginning inventory, but an end-of-period inventory revealed that 30 drums were still on hand. • Manufacturing activity output totaled 104,000 gallons of Lush 'N Green. Assume that the company computes variances at the earliest point in time. Required: A. Compute the standard purchase price for one gallon of Proctol. B. Compute the standard quantity of Proctol to be used in producing one gallon of Lush 'N Green. Express your answer in quarts. C. Compute the direct-material price variance for Proctol. D. How much Proctol was used in manufacturing activity and how much should have been used? Express your answer in quarts.

Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units. An examination of Taylor's payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time. Taylor's direct-material price variance was:

Which of the following variances are most similar with respect to the manner in which they are calculated?

Courtney purchased and consumed 50,000 gallons of direct material that was used in the production of 11,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of five gallons. If a review of Courtney's accounting records at the end of the period disclosed a material price variance of $5,000U and a material quantity variance of $3,000F, what is the actual price paid for a gallon of direct material?

An unfavorable labor rate variance is created when:

Cloverleaf, Inc. produces glass shelves that are used in furniture. Each shelf requires 3.6 pounds of raw material at a cost of $2 per pound. Unfortunately, given the nature of the manufacturing process, one out of every five shelves is chipped, scratched, or broken at the beginning of production and has to be scrapped. On average, 20 good shelves are completed during each hour. Laborers who work on these units are paid $15 per hour. Required: A. Distinguish between perfection standards and practical standards. B. Who within an organization would be in the best position to assist in setting the: 1. direct-material price standard? 2. direct-material quantity standard? 3. direct-labor efficiency standard? C. Calculate a practical direct-material and direct-labor standard for each good shelf produced.

A favorable labor rate variance is created when:

Consider the following information: Actual direct labor hours 34,500 Standard direct labor hours 35,000 Total actual direct labor cost \ 241,500 Direct-labor efficiency variance \ 3,200 The direct-labor rate variance is: