# Managerial Accounting Tools For Business Decision Making 7th Edition By Paul – Test Bank

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 11-1

(a) Standards are stated as a per unit amount. Thus, the standards are materials $2.80 ($1,400,000 ÷ 500,000) and labor $3.40 ($1,700,000 ÷ 500,000).

(b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are materials $1,400,000 and labor $1,700,000.

BRIEF EXERCISE 11-2

(a) Standard direct materials price per gallon = $2.60 ($2.30 + $.20 + $.10).

(b) Standard direct materials quantity per gallon = 4 pounds (3.6 + .4).

(c) Standard materials cost per gallon = $10.40 ($2.60 X 4).

BRIEF EXERCISE 11-3

(a) Standard direct labor rate per hour = $16.00 ($14.00 + $.80 + $1.20).

(b) Standard direct labor hours per gallon = 1.5 hours (1.1 + .25 + .15).

(c) Standard labor cost per gallon = $24.00 ($16.00 X 1.5).

BRIEF EXERCISE 11-4

Total materials variance = $1,192 U (3,200 X $5.06*) – (3,000** X $5.00).

Materials price variance = $192 U (3,200 X $5.06) – (3,200 X $5.00).

Materials quantity variance = $1,000 U (3,200 X $5.00) – (3,000 X $5.00).

*$16,192 ÷ 3,200 **1,500 X 2

BRIEF EXERCISE 11-5

Total labor variance = $1,220 U (2,150 X $10.80) – (2,000* X $11.00).

Labor price variance = $430 F (2,150 X $10.80) – (2,150 X $11.00).

Labor quantity variance = $1,650 U (2,150 X $11.00) – (2,000 X $11.00).

*1,000 X 2

BRIEF EXERCISE 11-6

The formula is: Actual

Overhead

$118,000

–

– Overhead

Applied

*$123,600*

=

Total Overhead Variance

$5,600 F

*20,600 X $6 = $123,600

BRIEF EXERCISE 11-7

1.

2.

3.

4. financial

customer

internal process

learning and growth (c)

(d)

(a)

(b) return on assets

brand recognition

plant capacity utilization

employee work days missed due

to injury

*BRIEF EXERCISE 11-8

(a) Raw Materials Inventory 12,000

Materials Price Variance 500

Accounts Payable 11,500

(b) Work in Process Inventory (5,800 X $2*) 11,600

Materials Quantity Variance 400

Raw Materials Inventory (5,600 X $2) 11,200

*$12,000 ÷ 6,000

*BRIEF EXERCISE 11-9

(a) Factory Labor 24,900

Labor Price Variance 900

Factory Wages Payable 24,000

(b) Work in Process Inventory (3,150 X $8.30*) 26,145

Labor Quantity Variance 1,245

Factory Labor 24,900

*$24,900 ÷ 3,000

*BRIEF EXERCISE 11-10

The formula is:

Actual Overhead

$118,000

–

– Overhead

Budgeted

*$132,400*

= Overhead

Controllable Variance

$14,400 F

*(20,600 X $4) + $50,000 = $132,400

*BRIEF EXERCISE 11-11

The formula is:

Fixed

Overhead

Rate

X

(Normal Capacity Hours – Standard Hours Allowed)

= Overhead

Volume

Variance

$2.00*/hr.

X

(25,000 – 20,600)

=

$8,800 U

*($50,000 ÷ 25,000 hrs.)

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 11-1

Manufacturing Cost

Element Standard Quantity X Standard Price = Standard Cost

Direct materials 2 pounds $ 5.00 $10.00

Direct labor 0.2 hours 16.00 3.20

Manufacturing overhead 0.2 hours 20.00* 4.00

Total $17.20

DO IT! 11-2

The variances are:

Total materials variance = (29,000 X $6.30) – (32,000* X $6.00) = $9,300 favorable

Materials price variance = (29,000 X $6.30) – (29,000 X $6.00) = $8,700 unfavorable

Materials quantity variance = (29,000 X $6.00) – (32,000* X $6.00) = $18,000 favorable

*(16,000 X 2)

DO IT! 11-3

The variances are:

Total labor variance = (4,000 X $14.30) – (3,800* X $14.00) = $4,000 unfavorable

Labor price variance = (4,000 X $14.30) – (4,000 X $14.00) = $1,200 unfavorable

Labor quantity variance = (4,000 X $14.00) – (3,800* X $14.00) = $2,800 unfavorable

Total overhead variance = $81,300 – $83,600** = $2,300 favorable

*2,000 X 1.9

**3,800 hours X $22.00

DO IT! 11-4

Sales revenue $92,100

Cost of goods sold (at standard) 51,600

Standard gross profit 40,500

Variances

Materials price $350 U

Materials quantity 1,700 F

Labor price 800 F

Labor quantity 500 F

Overhead 1,200 U

Total variance favorable 1,450

Gross profit (actual) $41,950

SOLUTIONS TO EXERCISES

EXERCISE 11-1

(a) Direct materials: (2,000 X 3) X $5 = $30,000

Direct labor: (2,000 X 1/2) X $16 = $16,000

Overhead: $16,000 X 70% = $11,200

(b) Direct materials: 3 X $5 = $15.00

Direct labor: 1/2 X $16 = 8.00

Overhead: $8.00 X 70% = 5.60

Standard cost: $28.60

(c) The advantages of standard costs which are carefully established and prudently used are:

1. Management planning is facilitated.

2. Greater economy is promoted by making employees more cost-conscious.

3. Setting selling prices is facilitated.

4. Management control is enhanced by having a basis for evaluation of cost control.

5. Variances are highlighted in management by exception.

6. Costing of inventories is simplified and clerical costs are reduced.

EXERCISE 11-2

Ingredient Amount

Per

Gallon

Standard

Waste

Standard

Usage

Standard

Price Standard

Cost Per

Gallon

Grape concentrate

Sugar (54 ÷ 50)

Lemons (60 ÷ 50)

Yeast

Nutrient

Water (2,600 ÷ 50) 60* oz.

1.08 lb.

1.2

1 tablet

1 tablet

52 oz. 4%

10%

25%

0%

0%

0% (a)

(b)

(c) 62.5 oz.

1.20 lb.

1.6

1 tablet

1 tablet

52 oz. $.06

.30

.60

.25

.20

.005 $3.75

.36

.96

.25

.20

.26

$5.78

*3,000 ÷ 50

(a) .96X = 60 ounces; or X = (60 ounces)/.96.

(b) .90X = 1.08 pounds; or X = (1.08 pounds)/.90.

(c) .75X = 1.2 lemons; or X = (1.2 lemons)/.75.

EXERCISE 11-3

Direct materials

Cost per pound [($5 – (2% X $5)) + $0.25] $5.15

Pounds per unit (4.5 + 0.5) X 5 $25.75

Direct labor

Cost per hour ($12 + $3) $ 15

Hours per unit (2 + .4) X 2.4 36.00

Manufacturing overhead

2.4 hours X $7 16.80

Total standard cost per unit $78.55

EXERCISE 11-4

(a) Actual service time

Setup and downtime

Cleanup and rest periods

Standard direct labor hours per oil change 1.0 hours

0.2 hours

0.3 hours

1.5 hours

(b) Hourly wage rate

Payroll taxes ($12 X 10%)

Fringe benefits ($12 X 25%)

Standard direct labor hourly rate $12.00

1.20

3.00

$16.20

(c) Standard direct labor cost per oil change =

= 1.50 hours X $16.20 per hour

$24.30

(d) Direct labor quantity variance =

=

= (1.60 hours X $16.20) – (1.50 hours X $16.20)

$25.92 – $24.30

$1.62 U

EXERCISE 11-5

(a) Total materials variance:

( AQ X AP )

(29,000 X $4.70)

$136,300 –

– ( SQ X SP )

(28,200* X $5.00)

$141,000

=

$4,700 F

*9,400 X 3

Materials price variance:

( AQ X AP )

(29,000 X $4.70)

$136,300 –

– ( AQ X SP )

(29,000 X $5.00)

$145,000

=

$8,700 F

Materials quantity variance:

( AQ X SP )

(29,000 X $5.00)

$145,000 –

– ( SQ X SP )

(28,200 X $5.00)

$141,000

=

$4,000 U

(b) Total materials variance:

( AQ X AP )

(28,000 X $5.15)

$144,200 –

– ( SQ X SP )

(28,200 X $5.00)

$141,000

=

$3,200 U

Materials price variance:

( AQ X AP )

(28,000 X $5.15)

$144,200 –

– ( AQ X SP )

(28,000 X $5.00)

$140,000

=

$4,200 U

Materials quantity variance:

( AQ X SP )

(28,000 X $5.00)

$140,000 –

– ( SQ X SP )

(28,200 X $5.00)

$141,000

=

$1,000 F

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