Unit 7 - Wiley Plus Examples

AE11-3 Example
Kimm Company has gathered the following information about its product.
Direct materials. Each unit of product contains 4.5 pounds of materials. The average
waste and spoilage per unit produced under normal conditions is 0.5 pounds. Materials
cost $5 per pound, but Kimm always takes the 2% cash discount all of its suppliers
offer. Freight costs average $0.25 per pound.
Direct labor. Each unit requires 2 hours of labor. Setup, cleanup, and downtime
average 0.3 hours per unit. The average hourly pay rate of Kimms employees is $12.
Payroll taxes and fringe benefits are an additional $3 per hour.
Manufacturing overhead. Overhead is applied at a rate of $7 per direct labor hour.
Instructions
Compute Kimms total standard cost per unit.
Solution: AE11-3 Example

Compute Kimms total standard cost per unit.
From the problem, list the following:
Direct Materials:
Unit Requirement
Waste & Spoilage
Unit cost
Cash discount
Freight cost
5
0.6
$3
1.17%
$0.33
Direct Labor:
Labor hours
Setup, Cleanup, & downtime
Labor rate
Labor rate
3
0.1
$13
$3.70
Manufacturing Overhead
Overhead rate
$5.90
b) Compute the standard cost of one unit of product

Standard Cost
Direct materials
$3.29
6
$18.45
Direct labor
$17
2.8
$47.26
Manufacturing Overhead
$16.70
Total standard cost per unit
$82.41
formation about its product.
ins 4.5 pounds of materials. The average

ormal conditions is 0.5 pounds. Materials
e 2% cash discount all of its suppliers
bor. Setup, cleanup, and downtime

y pay rate of Kimms employees is $12.
onal $3 per hour.
ied at a rate of $7 per direct labor hour.
pounds of materials
per unit produced
per pound
per pound
hours
hours
Employee rate
Payroll taxes & fringe benefits
t of product
Cost per pound

Pounds per Unit
Cost per hour

Hours per unit
AE11-6 Example
Lewis Companys standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12
During August, 40,600 hours of labor are incurred at a cost of $12.15 per hour to produce 10,000 unit
Instructions
(a) Compute the total labor variance.
(b) Compute the labor price and quantity variances.
(c) Repeat (b), assuming the standard is 4.1 hours of direct labor at $12.25 per hour.

(a) Compute the total labor variance.
From the problem, list the following:
Actual Hours (AH)
Actual Rate (AR)
Standard Hours (SH)
Standard Rate (SR)
Hrs to produce one unit
41,500
$12.17
10,500
$12.00
3.90
Total Labor Variance = (AH x AR) - (SH x Hrs to produce one unit) x SR)
(b) Compute the labor price and quantity variances.

Labor Price Variance = (AH x AR) - (AH x SR)
Labor Quantity Variance = (AH x SR) - (SH x Hrs to produce one unit) x SR)
(c) Repeat (b), assuming the standard is 4.1 hours of direct labor at $12.25 per hour.
Actual Hours (AH)
Actual Rate (AR)
Standard Hours (SH)
Standard Rate (SR)
Hrs to produce one unit
41,500
$12.17
10,500
$12.37
4.3
Labor Price Variance = (AH x AR) - (AH x SR)

Labor Quantity Variance = (AH x SR) - (SH x Hrs to produce one unit) x SR)
is 4 hours at the rate of $12.00 per hour.

hour to produce 10,000 units of Product DD.
5 per hour.
Note: In the problem, standard hours = SH x Hrs to produce one unit (10,000 x 4 = 40,000)
hours
Answer
$13,655
Unfavorable
$7,055
Unfavorable
$6,600
Unfavorable
at $12.25 per hour.

Note: In the problem, standard hours = SH x Hrs to produce one unit (10,000 x 4 = 40,000)
hours
Answer
($8,300)
Favorable
($43,852)
Favorable
10,000 x 4 = 40,000)
10,000 x 4 = 40,000)
AE11-A Example
Costello Corporation manufactures a single product. The standard cost per unit of product is shown be
Direct materials1 pound plastic at $7.00 per pound
Direct labor1.6 hours at $12.00 per hour
Variable manufacturing overhead
Fixed manufacturing overhead
Total standard cost per unit
The predetermined manufacturing overhead rate is $10 per direct labor hour ($16.00/1.6). It was com
production of 8,000 direct labor hours (5,000 units) for the month. The master budget showed total va
of $20,000 ($2.50 per hour). Actual costs for October in producing 4,900 units were as follows:
Direct materials (5,100 pounds)
Direct labor (7,500 hours)
Variable overhead
Fixed overhead
Total manufacturing costs
The purchasing department buys the quantities of raw materials that are expected to be used in produ
Instructions
(a) Compute all of the materials and labor variances.
(Round answers to 0 decimal places, e.g. 125.)
All amounts are listed in the problem show each one here:
Actual Quantity (AQ)
Actual Price (AP)
Standard Quantity (SQ)
Standard Price (SP)
Actual Hours (AH)
Actual Rate (AR)
Standard Hours (SH)
Standard Rate (SR)
Total materials variance:
(AQ x AP)
(SQ x SP)
Materials price variance:

(AQ x AP)
(AQ x SP)
Materials quantity variance:

(AQ x SP)
(SQ x SP)
Total labor variance:

(AH x AR)
(SH x SR)
Labor Price Variance:
(AH x AR)
(AH x SR)
Labor Quantity Variance

(AH x SR)
(SH x SR)
(b) Compute the total overhead variance

Actual Overhead Applied (Variable overhead + Fixed Overhead)
Overhead Applied (SH x Predetermined manufacturing overhead rate - given in the problem)
wn below:
$7.56
24.00
14.00
14.00
$59.56
s computed from a master manufacturing overhead budget based on normal

tal variable costs of $60,000 ($7.50 per hour) and total fixed overhead costs
$37,052
112,262
97,757
33,003
$280,074
production each month. Raw materials inventories, therefore, can be ignored.
4,720
$7.85
4,600
$7.56
9,090
$12.35
9,200
$12.00
$37,052
$34,776
$2,276
$37,052
Direct materials
Direct materials dollars divided by 5,100 pounds
Producing units for October
Direct Materials dollars standard
Direct labor hours
Direct labor dollars divided by 7,500 hours
Standard Quantity x 1.6 hours (Direct labor)
Direct labor standard
Unfavorable
$35,683
$1,369
Unfavorable
$35,683
$34,776
$907
Unfavorable
$112,262
$110,400
$1,862
Favorable
$112,262
$109,080
$3,182
Unfavorable
$109,080
$110,400
($1,320)
Favorable
130,760
92,000
38,760

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AE11-3 Example

Solution: AE11-3 Example

b) Compute the standard cost of one unit of product

Total standard cost per unit

formation about its product.

ins 4.5 pounds of materials. The average

bor. Setup, cleanup, and downtime

ied at a rate of $7 per direct labor hour.

Cost per pound

Cost per hour

Solution: AE11-6 Example

(b) Compute the labor price and quantity variances.

Labor Price Variance = (AH x AR) - (AH x SR)

is 4 hours at the rate of $12.00 per hour.

at $12.25 per hour.

Materials price variance:

Materials quantity variance:

Total labor variance:

Labor Quantity Variance

(b) Compute the total overhead variance

s computed from a master manufacturing overhead budget based on normal

production each month. Raw materials inventories, therefore, can be ignored.

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