ACCT 203 Lecture Notes - Lecture 10: European Cooperation In Science And Technology, Direct Labor Cost

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27 Jul 2016

School

George Mason University

Department

Accounting

Course

ACCT 203

Professor

Harley

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Document Summary

Using standard costs and the most common variances. When a variance occurs, favorable or unfavorable, management must determine the root cause and decide a course of action to pursue. Management most often creates the flexible budget using standard costs. Standard costs are the best available estimate of what it takes to deliver a good or service at a particular time under normal business conditions. When a variance occurs, it could be because management over or underestimated the price of a good or service in the flexible budget. It is often called a cost variance and of course it is always difficult to estimate costs. The way to investigate the variance is to break it into pieces: Standard cost = standard quantity x standard price (this is what was budgeted) Actual cost = actual quantity x actual price (this is what actually happened)

Related Questions

The following data were drawn from the records of StuartCorporation.


Planned volume for year (staticbudget)		4,100	units
Standard direct materials costper unit		3.00	pounds	@	$	1.60	per pound
Standard direct labor cost perunit		2.80	hours	@	$	4.50	per hour
Total expected fixed overheadcosts	$	15,580
Actual volume for the year(flexible budget)		4,300	units
Actual direct materials cost perunit		2.70	pounds	@	$	2.00	per pound
Actual direct labor cost perunit		3.20	hours	@	$	4.20	per hour
Total actual fixed overheadcosts	$	11,880

Required

Prepare a materials variance information table showing thestandard price, the actual price, the standard quantity, and theactual quantity.

Calculate the materials price and usage variances. Indicatewhether the variances are favorable (F) or unfavorable (U).

Prepare a labor variance information table showing the standardprice, the actual price, the standard hours, and the actualhours.

Calculate the labor price and usage variances. Indicate whetherthe variances are favorable (F) or unfavorable (U).

Calculate the predetermined overhead rate, assuming that Stuartuses the number of units as the allocation base.

Calculate the fixed cost spending variance. Indicate whether thevariance is favorable (F) or unfavorable (U).

Calculate the fixed cost volume variance. Indicate whether thevariance is favorable (F) or unfavorable (U).

Prepare a materials variance information table showing thestandard price, the actual price, the standard quantity, and theactual quantity. (Round "Standard price" and "Actual price" to 2decimal places.)

Materials Variance Information Table
Standardprice		perpound
Actualprice		perpound
Standardquantity for flexible budget		pounds
Actualquantity used		pounds

Calculate the materials price and usage variances. Indicatewhether the variances are favorable (F) or unfavorable (U). (Select"None" if there is no effect (i.e., zero variance).)


Materialprice variance
Materialusage variance

Prepare a labor variance information table showing the standardprice, the actual price, the standard hours, and the actual hours.(Round "Standard price" and "Actual price" to 2 decimalplaces.)

Labor Variance Information Table
Standardprice		perhour
Actualprice		perhour
Standardhours for flexible budget
Actualhours used

Calculate the labor price and usage variances. Indicate whetherthe variances are favorable (F) or unfavorable (U). (Select "None"if there is no effect (i.e., zero variance).)


Laborprice variance
Laborusage variance

Calculate the predetermined overhead rate, assuming that Stuartuses the number of units as the allocation base. Calculate thefixed cost spending variance and the fixed cost volume variance.Indicate whether the variance is favorable (F) or unfavorable (U).(Round "Predetermined overhead rate" answer to 2 decimal places.Select "None" if there is no effect (i.e., zero variance).)

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e.	Predetermined overhead rate	perunit
f.	Fixedcost spending variance
g.	Fixedcost volume variance

1. What is standard cost?
A. The total number of units times the budgeted amount expected
B. Any amount that appears on a budget
C. The total amount that appears on the budget for product costs
D. The amount management thinks should be incurred to produce a good or service

2. A standard cost is
A. the average cost in an industry.
B. a predetermined cost.
C. the historical cost of producing a product last year
D. a cost which is paid for a group of similar products.

3. The difference between a budget and a standard is that
A. a budget expresses what costs were, while a standard expresses what costs should be.
B. a budget expresses a total amount, while a standard expresses a unit amount.
C. a budget expresses management's plans, while a standard reflects what actually happened.
D. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

4. Standard costs may be used by
A. universities.
B. governmental agencies.
C. charitable organizations.
D. all of these answers are correct

5. The final decision as to what standard costs should be is the responsibility of
A. management.
B. the quality control engineer.
C. the purchasing agent.
D. the managerial accountants.

6. The most rigorous of all standards is the
A. normal standard.
B. realistic standard.
C. conceivable standard.
D. ideal standard.

7. An unfavorable materials quantity variance would occur if
A. more materials were purchased than were used.
B. actual pounds of materials used were greater than the standard pounds allowed
C. actual pounds of materials used were less than the standard pounds allowed
D. actual labor hours used were greater than the standard labor hours allowed

8. Which of the following statements is true?
A. Variances are the differences between total actual costs and total standard costs.
B. When actual costs exceed standard costs, the variance is favorable.
C. An unfavorable variance results when actual costs are decreasing but standards are not changed.
D. all of the above are true

10. Labor efficiency is measured by the
A. materials quantity variance.
B. labor quantity variance.
C. labor rate variance.
D. total labor variance.

tanpanda195

âWonderful! Not only did our salespeople do a good job inmeeting the sales budget this year, but our production people did agood job in controlling costs as well,â said Kim Clark, presidentof Martell Company. âOur $42,400 overall manufacturing costvariance is only 4% of the $1,536,000 standard cost of productsmade during the year. Thatâs well within the 3% parameter set bymanagement for acceptable variances. It looks like everyone will bein line for a bonus this year.â

The company produces and sells a single product. The standardcost card for the product follows:

Standard Cost Cardâper Unit

Direct materials,5.00 feet at $3.50 per foot

17.50

Direct labor, 2.4direct labor-hours at $15 per direct labor-hour

36.00

Variable overhead,2.4 direct labor-hours at $1.50 per direct labor-hour

3.60

Fixed overhead, 2.4direct labor-hours at $7.50 per direct labor-hour

18.00

Standard cost perunit

75.10

The following additional information is available for the yearjust completed:

a.	The company manufactured 30,000units of product during the year.

b.	A total of 147,000 feet of material was purchased during theyear at a cost of $3.70 per foot. All of this material was used tomanufacture the 30,000 units. There were no beginning or endinginventories for the year.

c.	The company worked 75,000 direct labor-hours during the year ata direct labor cost of $14.80 per hour.

Overhead is applied to products on the basis of standard directlabor-hours. Data relating to manufacturing overhead costsfollow:


Denominator activitylevel (direct labor-hours)		70,000
Budgeted fixedoverhead costs	$	525,000
Actual variableoverhead costs incurred	$	120,000
Actual fixedoverhead costs incurred	$	521,500

Required:

Compute the materials price and quantity variances for the year.(Round Standard Price and Actual Price to 2 decimal places.Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance).)


	â	Ã	=	Variance
Materials price variance
	â	Ã	=	Variance
Materials quantityvariance

Compute the labor rate and efficiency variances for the year.(Round Standard Rate and Actual Rate to 2 decimal places.Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance).)


	â	Ã	=	Variance
Labor rate variance
	â	Ã	=	Variance
Labor efficiency variance

3.	For manufacturing overheadcompute:

The variable overhead rate and efficiency variances for theyear. (Round Standard Rate and Actual Rate to 2 decimalplaces. Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance).)


	â	Ã	=	Variance
Rate variance
	â	Ã	=	Variance
Efficiency variance

The fixed overhead budget and volume variances for the year.(Indicate the effect of each variance by selecting "F"for


Budget variance
Volume variance

favorable, "U" for unfavorable, and "None" for no effect(i.e., zero variance).)

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ACCT 203 Lecture Notes - Lecture 10: European Cooperation In Science And Technology, Direct Labor Cost

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