Exercise 10-1 (20 minutes) 1. Cost per 2 kilogram container . 6,000.00 Kr Less: 2% cash discount . 120.00 Net cost. 5,880.00 Add freight cost per 2 kilogram container (1,000 Kr + 10 containers)... 100.00 Total cost per 2 kilogram container (a) .. 5,980.00 Kr Number of grams per container (2 kilograms x 1000 grams per kilogram) (b) ..... 2,000 Standard cost per gram purchased (a) + (b)........ 2.99 Kr 2. Alpha SR40 required per capsule as per bill of materials. 6.00 grams Add allowance for material rejected as unsuitable (6 grams + 0.96 = 6.25 grams; 6.25 grams — 6.00 grams = 0.25 grams). 0.25 grams Total... 6.25 grams Add allowance for rejected capsules (6.25 grams + 25 capsules) ..... vos 0.25. grams Standard quantity of Alpha SR40 per salable capsule....... 6.50 grams 3. Standard Standard — Standard Quantity per Price per Cost per Item Capsule Gram Capsule Alpha SR40_ 6.50 grams 2.99 Kr 19.435 Kr © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 591Exercise 10-2 (20 minutes) 1. Number of chopping blocks... Number of board feet per chopping bloc! Standard board feet allowed . Standard cost per board foot. Total standard cost. Actual cost incurred. Standard cost above. Total variance—unfavorable 2. Actual Quantity of Actual Quantity of Standard Quantity Inputs, at Inputs, at Allowed for Output, Actual Price Standard Price at Standard Price (AQ x AP) (AQ x SP) (SQ x SP) $18,700 11,000 board feet x 10,000 board feet x $1.80 per board foot $1.80 per board foot = $19,800 = $18,000 Price Variance, Quantity Variance, $1,100 F $1,800 U Total Variance, $700 U Alternatively: Materials Price Variance = AQ (AP — SP) 11,000 board feet ($1.70 per board foot* — $1.80 per board foot) = $1,100 F *$18,700 + 11,000 board feet = $1.70 per board foot. Materials Quantity Variance = SP (AQ — SQ) $1.80 per board foot (11,000 board feet — 10,000 board feet) = $1,800 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 592Exercise 10-3 (20 minutes) 1. Number of meals prepared .... 6,000 Standard direct labor-hours per meal . x 0.20 Total direct labor-hours allowed 1,200 Standard direct labor cost per hour .. x $9.50 Total standard direct labor cost. $11,400 Actual cost incurred $11,500 Total standard direct labor cost (above) 11,400 Total direct labor variance .. $ 100 Unfavorable 2. _ Actual Hours of Standard Hours Input, at the Actual Actual Hours of Input, Allowed for Output, at Rate at the Standard Rate the Standard Rate (AH x AR) (AH x SR) (SH x SR) 1,150 hours x 1,150 hours x 1,200 hours x $10.00 per hour $9.50 per hour $9.50 per hour = $11,500 = $10,925 = $11,400 Rate Variance, Efficiency Variance, $575 U $475 F Total Variance, $100 U Alternatively, the variances can be computed using the formulas: H(AR - SR) 150 hours ($10.00 per hour — $9.50 per hour) 575 U Labor efficiency variance = SR(AH - SH) 9.50 per hour (1,150 hours ~ 1,200 hours) 75 F Labor rate variance © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 593Exercise 10-4 (20 minutes) 1. Number of items shipped... 140,000 Standard direct labor-hours per item x 0.04 Total direct labor-hours allowed 5,600 Standard variable overhead cost per hour.. x $2.80 Total standard variable overhead cost .... $15,680 Actual variable overhead cost incurred ... $15,950 Total standard variable overhead cost (above) 15,680 Total variable overhead varianc $_270 Unfavorable 2. _ Actual Hours of Standard Hours Input, at the Actual Actual Hours of Input, Allowed for Output, at Rate at the Standard Rate the Standard Rate (AH x AR) (AH x SR) (SH x SR) 5,800 hours x 5,800 hours x 5,600 hours x $2.75 per hour* $2.80 per hour $2.80 per hour = $15,950 = $16,240 = $15,680 Variable overhead Variable overhead spending variance, efficiency variance, $290 F $560 U Total variance, $270 U *$15,950+ 5,800 hours =$2.75 per hour Alternatively, the variances can be computed using the formulas: Variable overhead spending variance: AH(AR — SR) = 5,800 hours ($2.75 per hour — $2.80 per hour) = $290 F Variable overhead efficiency variance: SR(AH ~ SH) = $2.80 per hour (5,800 hours — 5,600 hours) = $560 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 594Exercise 10-6 (20 minutes) 1. Throughput time = Process time + Inspection time + Move time + Queue time = 2.8 days + 0.5 days + 0.7 days + 4.0 days = 8.0 days 2. Only process time is value-added time; therefore the manufacturing cycle efficiency (MCE) is: E= Value-added time _ 2.8 days =0.35 Throughput time 8.0days ~ 3. If the MCE is 35%, then the complement of this figure, or 65% of the time, was spent in non-value-added activities. 4. Delivery cycle time = Wait time + Throughput time 5. If all queue time in production is eliminated, then the throughput time drops to only 4 days (0.5 + 2.8 + 0.7). The MCE becomes: _ Value-added time _ 2.8 days _, Throughput time 4.0days Thus, the MCE increases to 70%. This exercise shows quite dramatically how the lean production approach can improve operations and reduce throughput time. © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 598Exercise 10-7 (20 minutes) 1. The general ledger entry to record the purchase of materials for the month is: Raw Materials (15,000 meters at $5.40 per meter) .. 81,000 Materials Price Variance (15,000 meters at $0.20 per meter U) . 3,000 Accounts Payable (15,000 meters at $5.60 per meter) .. 84,000 2. The general ledger entry to record the use of materials for the month is: Work in Process (12,000 meters at $5.40 per meter) . 64,800 Materials Quantity Variance (100 meters at $5.40 per meter F). 540 Raw Materials (11,900 meters at $5.40 per meter) .. 64,260 3. The general ledger entry to record the incurrence of direct labor cost for the month is: Work in Process (2,000 hours at $14.00 per hour) 28,000 Labor Rate Variance (1,950 hours at $0.20 per hour U).. Labor Efficiency Variance 390 (50 hours at $14.00 per hour F) 700 Wages Payable (1,950 hours at $14.20 per hour)... 27,690 © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 599Exercise 10-8 (20 minutes) . The standard price of a kilogram of white chocolate is determined as follows: Purchase price, finest grade white chocolate... . £9.00 Less purchase discount, 5% of the purchase price of £9.00.. (0.45) Shipping cost from the supplier in Belgium. . 0.20 Receiving and handling cost..... Standard price per kilogram of white chocolate . 0.05 N The standard quantity, in kilograms, of white chocolate in a dozen truffles is computed as follows: Material requirements... 0.80 Allowance for waste 0.02 Allowance for rejects 0.03, Standard quantity of white chocolate. 0.85 3. The standard cost of the white chocolate in a dozen truffles is determined as follows: Standard quantity of white chocolate (a) .. 0.85 kilogram Standard price of white chocolate (b)... £8.80 per kilogram Standard cost of white chocolate (a) x (b).. £7.48 © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 600Exercise 10-9 (30 minutes) 1. a. Notice in the solution below that the materials price variance is computed on the entire amount of materials purchased, whereas the materials quantity variance is computed only on the amount of materials used in production. Actual Quantity of Actual Quantity of + Standard Quantity Inputs, at Inputs, at Allowed for Output, at Actual Price Standard Price Standard Price (AQ x AP) (AQ x SP) (SQ x SP) 70,000 diodes x 70,000 diodes x 40,000 diodes* x $0.28 per diode $0.30 per diode $0.30 per diode = $19,600 = $21,000 = $12,000 Price Variance, | $1,400 F 50,000 diodes x $0.30 per diode = $15,000 Quantity Variance, $3,000 U *5,000 toys x 8 diodes per toy = 40,000 diodes Alternative Solution: Materials Price Variance = AQ (AP - SP) 70,000 diodes ($0.28 per diode — $0.30 per diode) = $1,400 F Materials Quantity Variance = SP (AQ — SQ) $0.30 per diode (50,000 diodes — 40,000 diodes) = $3,000 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 601Exercise 10-9 (continued) b. Direct labor variances: Actual Hours of Actual Hours of Standard Hours Input, at the Actual Input, at the Allowed for Output, Rate Standard Rate at the Standard Rate (AH x AR) (AH x SR) (SH x SR) $48,000 6,400 hours x 6,000 hours* x $7 per hour $7 per hour = $44,800 = $42,000 * , “ Rate Variance, Efficiency Variance, $3,200 U $2,800 U Total Variance, $6,000 U *5,000 toys x 1.2 hours per toy = 6,000 hours Alternative Solution: Labor Rate Variance = AH (AR — SR) 6,400 hours ($7.50* per hour — $7.00 per hour) = $3,200 U *$48,000 + 6,400 hours = $7.50 per hour Labor Efficiency Variance = SR (AH — SH) $7 per hour (6,400 hours - 6,000 hours) = $2,800 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 602Exercise 10-9 (continued) 2. A variance usually has many possible explanations. In particular, we should always keep in mind that the standards themselves may be incorrect. Some of the other possible explanations for the variances observed at Topper Toys appear below: Materials Price Variance Since this variance is favorable, the actual price paid per unit for the material was less than the standard price. This could occur for a variety of reasons including the purchase of a lower grade material at a discount, buying in an unusually large quantity to take advantage of quantity discounts, a change in the market price of the material, and particularly sharp bargaining by the purchasing department. Materials Quantity Variance. Since this variance is unfavorable, more materials were used to produce the actual output than were called for by the standard. This could also occur for a variety of reasons. Some of the possibilities include poorly trained or supervised workers, improperly adjusted machines, and defective materials. Labor Rate Variance Since this variance is unfavorable, the actual average wage rate was higher than the standard wage rate. Some of the possible explanations include an increase in wages that has not been reflected in the standards, unanticipated overtime, and a shift toward more highly paid workers. Labor Efficiency Variance Since this variance is unfavorable, the actual number of labor hours was greater than the standard labor hours allowed for the actual output. As with the other variances, this variance could have been caused by any of a number of factors. Some of the possible explanations include poor supervision, poorly trained workers, low-quality materials requiring more labor time to process, and machine breakdowns. In addition, if the direct labor force is essentially fixed, an unfavorable labor efficiency variance could be caused by a reduction in output due to decreased demand for the company’s products. © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 603Exercise 10-10 (20 minutes) 1. Actual Quantity of Actual Quantity of Standard Quantity Inputs, at Inputs, at Allowed for Output, Actual Price Standard Price at Standard Price (AQ x AP) (AQ x SP) (SQ x SP) 20,000 ounces x 20,000 ounces x 18,000 ounces* x $2.40 per ounce $2.50 per ounce $2.50 per ounce = $48,000 = $50,000 = $45,000 + Price Variance, Quantity Variance, $2,000 F $5,000 U Total Variance, $3,000 U *2,500 units x 7.2 ounces per unit = 18,000 ounces Alternatively: Materials Price Variance = AQ (AP - SP) 20,000 ounces ($2.40 per ounce — $2.50 per ounce) = $2,000 F Materials Quantity Variance = SP (AQ — SQ) $2.50 per ounce (20,000 ounces — 18,000 ounces) = $5,000 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 604Exercise 10-10 (continued) 2. Actual Hours of Actual Hours of Standard Hours Input, at the Input, at the Allowed for Output, Actual Rate Standard Rate at the Standard Rate (AH x AR) (AH x SR) (SH x SR) $10,800 900 hours x 1,000 hours* x $10 per hour $10 per hour = $9,000 = $10,000 + Rate Variance, Efficiency Variance, $1,800 U $1,000 F Total Variance, $800 U *2,500 units x 0.4 hour per unit = 1,000 hours Alternatively: Labor Rate Variance = AH (AR — SR) 900 hours ($12 per hour* — $10 per hour) = $1,800 U *10,800 + 900 hours = $12 per hour Labor Efficiency Variance = SR (AH - SH) $10 per hour (900 hours — 1,000 hours) = 1,000 F © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 605Exercise 10-11 (15 minutes) Notice in the solution below that the materials price variance is computed on the entire amount of materials purchased, whereas the materials quantity variance is computed only on the amount of materials used in production. Actual Quantity of Actual Quantity of Standard Quantity Inputs, at Inputs, at Allowed for Output, Actual Price Standard Price at Standard Price (AQ x AP) (AQ x SP) (SQ x SP) 20,000 ounces x 20,000 ounces: x 14,400 ounces* x $2.40 per ounce $2.50 per ounce $2.50 per ounce = $48,000 = $50,000 = $36,000 | Price Variance, $2,000 F 16,000 ounces x $2.50 per ounce = $40,000 Quantity Variance, $4,000 U *2,000 bottles: x 7.2 ounces per bottle = 14,400 ounces Alternatively: Materials Price Variance = AQ (AP — SP) 20,000 ounces ($2.40 per ounce — $2.50 per ounce) = $2,000 F Materials Quantity Variance = SP (AQ — SQ) $2.50 per ounce (16,000 ounces — 14,400 ounces) = $4,000 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 606Exercise 10-12 (30 minutes) 1. Number of units manufactured 20,000 Standard labor time per unit (24 minutes + 60 minutes per hour). x 04 Total standard hours of labor time allow 8,000 Standard direct labor rate per hour. x $6 Total standard direct labor cost ... $48,000 Actual direct labor cost... $49,300 Standard direct labor cost.. 48,000 Total variance—unfavorable . $1,300 2. Actual Hours of Actual Hours of Standard Hours Input, at the Input, at the Allowed for Output, Actual Rate Standard Rate at the Standard Rate (AH x AR) (AH x SR) (SH x SR) $49,300 8,500 hours x 8,000 hours* x $6 per hour $6 per hour = $51,000 = $48,000 , Rate Variance, Efficiency Variance, $1,700 F $3,000 U Total Variance, $1,300 U *20,000 units x 0.4 hour per unit = 8,000 hours Alternative Solution: Labor Rate Variance = AH (AR — SR) 8,500 hours ($5.80 per hour* - $6.00 per hour) = $1,700 F *$49,300 + 8,500 hours = $5.80 per hour Labor Efficiency Variance = SR (AH — SH) $6 per hour (8,500 hours - 8,000 hours) = $3,000 U Solutions Manual, Chapter 11 © The McGraw-Hill Companies, Inc., 2008. All rights reserved. 607Exercise 10-12 (continued) 3. Actual Hours of Actual Hours of Standard Hours Input, at the Input, at the Allowed for Output, Actual Rate Standard Rate at the Standard Rate (AH x AR) (AH x SR) (SH x SR) $39,100 8,500 hours x 8,000 hours x $4 per hour $4 per hour = $34,000 = $32,000 , Spending Variance, Efficiency Variance, $5,100 U $2,000 U Total Variance, $7,100 U Alternative Solution: Variable Overhead Spending Variance = AH (AR — SR) 8,500 hours ($4.60 per hour* — $4.00 per hour) = $5,100 U *$39,100 + 8,500 hours = $4.60 per hour Variable Overhead Efficiency Variance = SR (AH — SH) $4 per hour (8,500 hours - 8,000 hours) = $2,000 U © The McGraw-Hill Companies, Inc., 2008. All rights reserved. Solutions Manual, Chapter 11 608