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Chapter 7 Problem (With Solutions)

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38 views3 pages

Chapter 7 Problem (With Solutions)

Uploaded by

九.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCT 2121: Ch 7.

Problem
Student ID:
Student Name:

Problem 1
Angel’s Sausages begins business in March. In planning his business, Angel sets the
following materials standard: Each sausage should take 250 grams of pork, and pork should
cost $10 per kilogram, therefore each sausage should contain $2.50 of direct material.
In March, Angel purchases 80 kilograms of pork for $750. Angel makes and sells 300
sausages and has 2 kilograms of pork remaining on hand at the end of the month.
Required:
Compute the company’s direct materials price and quantity variances.

Solution:
AP of pork = 750/80 = 9.375
AQ for DM Price Variance is actual quantity of purchase. → 80kg
AQ for DM Efficiency Variance is actual quantity of usage. → 80kg – 2kg = 78kg
SQ is Standard direct inputs for actual quantity outputs = 300 sausages * 0.25kg

DM Price variance = (AP-SP)*AQ = 80*(9.375 – 10) = $50 F


DM Efficiency variance = (AQ-SQ)*SP = ((80-2)–300*0.25)*10 = $30 U

Problem 2
Antonios’ Bikes makes fixed gear bicycles. The company set the following standards related
to labor: Each bike should take four direct labor hours to manufacture at a cost of $15 per
hour.
For August, the company produced 160 bicycles and employees worked 700 direct labor
hours. The company’s total labor cost for the month was $10,000.
Required:
Compute the company’s direct labor rate and efficiency variances.

Solution:
standard quantity: 4hours/bike
standard price: $15/hour
Direct labor rate variance = (AP-SP)*AQ = ((10,000)/700 - $15/hour) * 700 = 10,000-10,500
= $500 F
Direct labor rate efficiency variance= (AQ-SQ)*SP = (700 – 160 bicycles*4 hrs/bike) *$15 =
$900 U

Problem 3
The cost formulas for Trone Company’s overhead costs are given below. The costs cover a
range of 8,000 to 10,000 direct labor-hours.
Cost Cost formula
Supplies $0.20 per direct labor-hour
Indirect labor 1,400 plus $0.25 per direct labor-hour
Utilities 0.15 per direct labor-hour
Maintenance 1,850 plus $0.10 per direct labor-hour
Depreciation 2,500

Required:
Prepare a flexible budget in increments of 1,000 direct labor-hours. Include the fixed costs in
your flexible budget.

Solution:

Problem 4
Direct materials and direct manufacturing labor variances with missing data. The Shirt
Company produces cotton/polyester blend T-shirts to supply a custom T-shirt customer. The
company experienced a computer failure and some of the data were lost and could not be
recovered. The data the company were able to recover are shown below:
Direct materials used 800,000 sq. yds
Direct materials purchased 820,000 sq. yds
Direct materials price variance $24,600 F
Direct materials efficiency variance $16,000 U
Direct manufacturing labor price variance $26,500 U
Direct manufacturing labor efficiency variance $30,000 U
Standard price of direct materials $2 per sq. yd.
Standard quantity of direct materials per T-shirt 1.2 sq. yds
Actual direct manufacturing labor cost $7,976,500
Actual direct manufacturing labor rate $15.05/hr

Required:
Calculate the following:
1.Actual price per square yard of direct materials
2.Actual quantity of shirts produced
3.Actual direct manufacturing labor hours worked
4.Standard direct manufacturing labor rate
5.Standard direct manufacturing labor hours per shirt

Solution:
1. DM price variance= (AP-SP)*AQ purchased
-24,600 = (AP-$2/sq.yd)*820,000
AP-2 = (-24,600)/820,000 = -0.03
AP= $1.97
2. DM Efficiency variance =(AQ used – SQ)*SP
16,000 = (800,000 – 1.2sq.yds/output * O) * 2
8000 = 800,000 – 1.2 * O
1.2 * O = 792,000
O= 660,000
3. Actual Labor cost / Actual labor rate = $7,976,500 / $15.05 = 530,000 DLH
4. DL price variance = (AP-SP)*AQ
26,500 = (15.05-SP)*530,000
15.05 – SP = 26,500/530,000 = 0.05
SP = $15/hr
5. DL efficiency variance = (AQ-SQ)*SP
30,000 = (530,000 - 660,000 * SQ/shirt) * 15
2,000 = 530,000- 660,000 * SQ/ shirt
660,000 * SQ/shirt = 528,000
SQ/output = 0.8 DL/ shirt

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