ACCT20200 Chapter Notes - Chapter 10: Variable Cost

48 views2 pages

fuchsiahound508

3 Apr 2017

School

Department

Accountancy

Course

ACCT20200

Professor

O' Tousa

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

When quantity of materials purchased does not equal the amount. Standard costs are a key element in a management by exception approach. If costs conform to the standards, then managers can focus on other issues: 2. Standards that are viewed as reasonable by employees can promote economy and efficiency. Provide benchmarks that individuals can use to judge performance: 3. Instead of recording actual costs, standard costs can be charged to jobs: 4. Standard costs fit naturally in an integrated system of responsibility accounting . Establish what costs should be, who should be responsible for them, and whether actual costs are under control. Standard cost variance reports are usually prepared on a monthly basis and often are released days or even weeks after the end of the month. If managers use variances only to assign blame and punish subordinates, morale may suffer. If labor works faster, output will go up: assume that labor is a variable cost, 4.

Related Questions

Farm Labs, Inc. provides mad cow disease testing for both state andfederal governmental agricultural agencies. Because the company'scustomers are governmental agencies, prices are strictly regulated.Therefore, Farm Labs must constantly monitor and control itstesting costs. Shown below are the standard costs for a typicaltest.
Direct materials (2 test tubes @ $1.50 per tube) $3
Direct labor (1 hour @ $25 per hour) 25
Variable overhead (1 hour @ $5 per hour) 5
Fixed overhead (1 hour @ $10 per hour) 10

Total standard cost per test $43

The lab does not maintain an inventory of test tubes. Therefore,the tubes purchased each month are used that month. Actual activityfor the month of November 2008, when 1,500 tests were conducted,resulted in the following:

Direct materials (3,050 test tubes) $ 4,270
Direct labor (1,600 hours) 36,800
Variable overhead 7,400
Fixed overhead 14,000

Monthly budgeted fixed overhead is $14,000. Revenues for the monthwere $75,000, and selling and administrative expenses were$4,000.

Compute the price and quantity variances for direct materials anddirect labor.
Materials price variance $ FavorableUnfavorable
Materials quantity variance $ UnfavorableFavorable
Labor price variance $ UnfavorableFavorable
Labor quantity variance $ UnfavorableFavorable

Compute the total overhead variance.
$ FavorableUnfavorable

maroongnu586

Hart Labs, Inc. provides mad cow disease testing for both stateand federal governmental agricultural agencies. Because thecompanyâs customers are governmental agencies, prices are strictlyregulated. Therefore, Hart Labs must constantly monitor and controlits testing costs. Shown below are the standard costs for a typicaltest.

Direct materials (2 test tubes @ $1.90 per tube) $3.80

Direct labor (1 hour @ $30 per hour) 30.00

Variable overhead (1 hour @ $7.00 per hour) 7.00

Fixed overhead (1 hour @ $12.00 per hour) 12.00

Total standard cost per test $52.80

The lab does not maintain an inventory of test tubes. As aresult, the tubes purchased each month are used that month. Actualactivity for the month of November 2017, when 1,100 tests wereconducted, resulted in the following:

Direct materials (2,222 test tubes) $3,933

Direct labor (1,155 hours) 33,495

Variable overhead 7,106

Fixed overhead 13,101

Monthly budgeted fixed overhead is $17,400.

Revenues for the month were $73,700, and selling andadministrative expenses were $4,500.

Compute the price and quantity variances for direct materialsand direct labor. (Round answers to 0 decimal places, e.g.5,275.)

Materials price variance $

Materials quantity variance $

Labor price variance $

Labor quantity variance $

Compute the total overhead variance.

Total Overhead variance $

Prepare an income statement for management.

HART LABS, INC. Income Statement $ $ $

Portland Company's Ironton Plant produces precast ingots forindustrial use. Carlos Santiago, who was recently appointed generalmanager of the Ironton Plant, has just been handed the plant%u2019scontribution format income statement for October. The statement isshown below:

	Budgeted		Actual
Sales (7,000 ingots)	$	255,000	$	255,000

Variable expenses:
Variable cost of goods sold*		85,400		104,590
Variable selling expenses		15,000		15,000

Total variable expenses		100,400		119,590

Contribution margin		154,600		135,410

Fixed expenses:
Manufacturing overhead		64,000		64,000
Selling and administrative		79,000		79,000

Total fixed expenses		143,000		143,000

Net operating income (loss)	$	11,600	$	(7,590)

*Contains direct materials, direct labor, and variablemanufacturing overhead.

Mr. Santiago was shocked to see theloss for the month, particularly because sales were exactly asbudgeted. He stated, "I sure hope the plant has a standard costsystem in operation. If it doesn't, I won't have the slightest ideaof where to start looking for the problem."

The plant does use a standard costsystem, with the following standard variable cost per ingot:

	Standard Quantity or Hours	Standard Price or Rate		Standard Cost
Direct materials	4.0 pounds	$	2.40 per pound	$	9.60
Direct labor	0.3 hours	$	7.00 per hour		2.10
Variable manufacturing overhead	0.2 hours*	$	2.50 per hour		0.50

Total standard variable cost				$	12.20

*Based on machine-hours.

During October the plant produced 7,000 ingots and incurred thefollowing costs:

a.	Purchased 33,000 pounds of materials at a cost of $2.85 per pound.There were no raw materials in inventory at the beginning of themonth.
b.	Used 27,800 pounds of materials in production. (Finished goods andwork in process inventories are insignificant and can beignored.)
c.	Worked 2,700 direct labor-hours at a cost of $6.70 per hour.
d.	Incurred total variable manufacturing overhead cost of $4,930 forthe month. A total of 1,700 machine-hours was recorded.

It is the company%u2019s policy to close all variances to cost ofgoods sold on a monthly basis.

1.	Compute the following variances for October:

a.	Direct materials price and quantity variances. (Input all amounts aspositive values. Leave no cells blank - be certain to enter "0"wherever required. Indicate the effect of each variance byselecting "F" for favorable, "U" for unfavorable, and "None" for noeffect (i.e., zero variance.)


Materials price variance	$	(Click to select)FUNone
Materials quantity variance	$	(Click to select)FNoneU

b.	Direct labor rate and efficiency variances. (Input all amounts aspositive values. Leave no cells blank - be certain to enter "0"wherever required. Indicate the effect of each variance byselecting "F" for favorable, "U" for unfavorable, and "None" for noeffect (i.e., zero variance.)


Labor rate variance	$	(Click to select)FUNone
Labor efficiency variance	$	(Click to select)NoneUF

Variable overhead rate and efficiency variances. (Input all amounts aspositive values. Do not round your intermediate calculations. Leaveno cells blank - be certain to enter "0" wherever required.Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance.)


Variable overhead rate variance	$	(Click to select)FNoneU
Variable overhead efficiency variance	$	(Click to select)FUNone

2a.

Summarize the variances that you computed in (1) above by showingthe net overall favorable or unfavorable variance for October.(Input the amount as apositive value. Leave no cells blank - be certain to enter "0"wherever required. Indicate the effect of variance by selecting "F"for favorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance.)

Net variance

(Click to select)UFNone

Pick out the two most significant variances that you computed in(1) above. (You may select morethan one answer. Single click the box with the question mark toproduce a check mark for a correct answer and double click the boxwith the question mark to empty the box for a wronganswer.)

	Materials price variance
	Labor efficiency variance
	Variable overhead efficiency variance
	Labor rate variance
	Variable overhead rate variance
	Materials quantity variance

ivorywallaby620

ACCT20200 Chapter Notes - Chapter 10: Variable Cost

Document Summary

Get access

Related Documents

ACCT20200 Chapter 10: Section 10.2

ACCT20200 Chapter 10: Section 10.3 and 10.4

ACTG 2020 Lecture Notes - Lecture 1: Standard Cost Accounting, International Labor Standards, Minivan

Related Questions