Moisha 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

Solution

$0.48 per widget × 4 widget = $1.92.

EA2. LO 8.1 Rene 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?

Solution

A. 1 hour + 0.5 hours + 2 hours + 1.5 hour = 5 hours

B. 5 hours × $17.50 per hour = $87.50

EA5. LO 8.2 Sitka 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?

Solution

A. (15,500 lb. $4.50 per lb.) + $250 = $70,000

B. 3,000 ladders 3 lbs. per ladder = 9,000 lbs. (standard quantity) $4.50 (8,800 lbs. – 9,000 std. lbs.) = –900 or $900 (favorable)

C. $250 U + $900 F = $650 F

D. $4.50 per lb. × (9,500 lbs. – 9,000 lbs.) = $2,250 (unfavorable)

E. (15,500 lbs. × $4.50 per lb.) – $340 = $69,410

EA7. LO 8.2 Dog 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?

Solution

A. 4,000 cups × ($0.55 per cup − $0.53 std. per cup) = $80 (unfavorable)

$80 U + $6.63 F = $73.37 U

B. $0.53 × $0.75 = $0.3975

EA9. LO 8.3 Penny 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?

Solution

A. $25,000/25 = 1,000 extra hours = 12.5% of standard hours. 1,000/12.5% = 8,000 standard hours.

B. 8,000 hrs. + 1,000 hrs. = 9,000 actual hours worked.

C. 8,000 hrs./2.5 std. hrs. per unit = 3,200 units produced.

EA11. LO 8.4 A 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?

Solution

540 units × ($76 var. OH per unit – $78 std. var. OH per unit) = $1,080 favorable variable overhead spending variance

EA12. LO 8.5 Acme 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.

Solution

A. Material price variance: 100 actual material units× ($1 per unit of material − $1.2 std. per unit of material) = $20 favorable

Material quantity variance: $1.2 × (100 − 110) = $12 favorable

Labor rate variance: 200 × ($15 − $16) = $200 favorable

Labor efficiency variance: $16 × (200 − 220) = $320 favorable

B. An answer might be that we found a great new manufacturer of the material we use, it costs us less for the product, the material is such high quality that it takes us less time to fit it into assembly, and it costs us less for our labor workers per hour. Another option is that we just estimated high in all categories.