It is caused by differences in the prices paid for the items of overhead actually used i.e., the differences between the actual quantity at the actual price and the actual quantity at th
Trang 1CHAPTER 18
DISCUSSION QUESTIONS
18-1
Q18-1 Standard costs are the predetermined costs
of manufacturing products during a specific
period under current or anticipated operating
conditions Standards aid in planning and
controlling operations.
Q18-2 A few uses of standard costs are:
(a) establishing budgets
(b) controlling costs by motivating employees
and measuring efficiencies
(c) simplifying costing procedures and
expe-diting cost reports
(d) assigning costs to materials, work in
process, and finished goods inventories
(e) forming the basis for establishing contract
bids and for setting sales prices
Q18-3 To set sales prices, executives need cost
information furnished by the accounting
department Since standard costs represent
the cost that should be attained in a
well-managed plant operated at normal capacity,
they are ideally suited for furnishing
informa-tion that will enable the sales department to
price products.
Budgets are used for planning and
coordi-nating future activities and for controlling
cur-rent activities When budget figures are based
on standard costs, the accuracy of the
result-ing budget is strongly influenced by the
relia-bility of the standard costs With standards
available, production figures can be translated
into the manufacturing costs.
Q18-4 Standards are an integral part of job order
and process cost accumulation, but do not
comprise a system that could be utilized in
lieu of one of the accumulation methods.
Costs may be accumulated with or without the
use of standards.
Q18-5 Criteria to be used when selecting the
opera-tional activities for which standards are to be
set include the following:
(a) The activity should be repetitive in nature,
with the repetition occurring in relatively
short cycles.
(b) The input and output (product or service)
of the activity should be measurable and
uniform.
(c) The elements of cost, such as direct materials, direct labor, and factory over- head, must be defined clearly at the unit level of activity.
Q18-6 Normal or currently attainable standards are
preferable to theoretical or ideal standards for (a) performance evaluation and/or employee motivation, and (b) budgeting and planning Theoretical or ideal standards are not realistically attainable As a conse- quence of using such standards, employees may become discouraged rather than moti- vated, and budgets or plans are likely to be distorted and unreliable.
Q18-7 Behavioral issues that need to be considered
when selecting the level of performance to be incorporated into standards include the fol- lowing:
(a) The standards must be legitimate The standards need not reflect the actual cost
of a single item or cycle However, they ideally will represent the cost that should
be incurred in the production of a given product or the performance of a given operation.
(b) The standards must be attainable When the standards are set too high, the repeated failure to achieve them will tend
to reduce the motivation for attainment The converse is also true Standards that are too loose represent an invitation to relax.
(c) The participant should have a voice or influence in the establishment of stan- dards and resulting performance meas- ures Involvement in the formulation of standards gives the participant a greater sense of understanding and commitment Q18-8 (a) The role of the accounting department in
the establishment of standards is to determine their ability to be quantified and to provide dollar values for specific unit standards.
(b) In the establishment of standards, the role of the department in which the per- formance is being measured is to provide
Trang 2allow for subsequent performance
evalu-ation for the purpose of detecting
prob-lems and improving performance.
(c) The role of the industrial engineering
department in the establishment of
stan-dards is to provide reliable measures of
physical activities related to the standards
of performance, and to verify the
consis-tency of the performance between
departments.
Q18-9 The factory overhead variable efficiency
vari-ance is a measure of the efficient or inefficient
use of the “base” that was used in allocating
factory overhead to production To the extent
that the activity used as an allocation base
drives variable factory overhead, the variable
efficiency variance is a measure of the cost
savings or cost incurrence that is attributable
to the efficient or inefficient use of that activity.
Q18-10 The factory overhead spending variance is a
measure of the efficient or inefficient use of
the various items of factory overhead It is
caused by differences in the prices paid for
the items of overhead actually used (i.e., the
differences between the actual quantity at the
actual price and the actual quantity at the
standard price for all items of factory
over-head) and the differences in the quantities of
the various items of factory overhead actually
used (i.e., the differences between the
stan-dard quantity allowed for the actual level of
the activity base at the standard price and the
actual quantity used at the standard price for
all items of factory overhead).
Q18-11 The factory overhead volume variance is a
measure of the under- or over-utilization of
plant facilities It is the difference between the
total budgeted fixed factory overhead and the
amount charged to (or chargeable to) actual
production based on the standard quantity
allowed for the activity base used to allocate
overhead The volume variance may be thought
of as the amount of under- or overapplied
bud-geted fixed factory overhead.
Q18-12 After variances have been determined,
man-agement should:
(a) decide whether each variance is
suffi-ciently significant to require investigation
and explanation
(b) investigate and obtain, from the
responsi-ble department head, explanations of
(2) An information system is designed to highlight the areas most in need of inves- tigation and possible corrective action (3) Variance ranges for areas and items are computed Management does not spend time on parts of the operations that produce satisfactory performance levels within these ranges.
(4) Management’s attention and efforts are concentrated on significant variances from expected results, which signal the presence of unplanned conditions need- ing investigation.
(b) Tolerance limits have potential benefits because they may result in more effective use of management time The manager’s time is not wasted on the process of iden- tifying important problems or in working
on unimportant ones The manager should be able to concentrate efforts on important problems, because the tech- nique highlights them.
(c) It may be difficult to determine which ances are significant Also, by focusing on variances above a certain level, other useful information, such as trends, may not be noticed at an early stage.
vari-If the evaluation system is in any way directly tied to the variances, subordinates may be tempted to cover up negative exceptions or not report them at all In addition, subordinates may not receive reinforcement for the reduction and main- tenance of cost levels, but only reprimands for those items which exceed the range Subordinate morale may suffer because of the lack of positive reinforcement for work well done Using tolerance limits may also affect supervisory employees in an unsat- isfactory manner Supervisors may feel that they are not getting a complete review of operations because they are always keying on problems In addition, supervisors may think that they are excessively critical of their subordinates.
Trang 3A negative impact on supervisory morale
may result.
Q18-14 Overemphasis on price variances can result
in a large number of low cost vendors, high
levels of inventory, and poor quality materials
and parts Since the emphasis is on price
rather than quality or reliability, purchasing will
likely have a large number of low cost vendors
available, who can be played one against the
other to get the lowest possible prices In
addition, purchasing will likely purchase
inventory in large quantities to take advantage
of purchase discounts and to reduce the need
to place rush orders that result in premium
prices Inventory tends to become
unneces-sarily large, resulting in excessive carrying
costs, and material quality tends to decline,
resulting in poor product quality and/or
exces-sive spoilage, scrap, and rework.
Overemphasis on efficiency variances can
result in long production runs, large work in
process inventories, and attempts to control
quality through inspection alone Long
pro-duction runs require fewer machine set ups
and reduce the amount of inefficiency ing from the learning required to change pro- duction from one product to another Large work in process inventories result from long production runs, and large inventories are likely to be viewed by department managers
result-as buffers that can be used to absorb machine breakdowns, employee absen- teeism, and slack demand for the product Although carrying large inventories is costly, the carrying costs do not affect the efficiency variance, which in turn encourages depart- mental managers to overproduce Since effi- ciency variances measure the use of inputs in relation to output volume, efforts to control quality tend to be oriented to inspection alone Stopping the process to experiment with alternative production methods to perma- nently correct a problem or improve quality can result in an unfavorable labor efficiency variance In contrast, increasing the volume of production and reworking or discarding defects has a smaller impact on the efficiency variance.
Trang 4Actual materials purchased
at actual cost 4,500 lbs $13.40 actual $ 60,300
Actual materials purchased
at standard cost 4,500 13.50 standard 60,750
Materials purchase price
variance 4,500 $ (.10) $ (450) fav.
Actual materials used at
actual cost 4,000 lbs $13.41 actual $ 53,640
Actual materials used at
standard cost 4,000 13.50 standard 54,000
Materials price usage
variance 4,000 $ (.09) $ (360) fav.
Actual materials used at
standard cost 4,000 lbs $13.50 standard $ 54,000
Standard quantity allowed
at standard cost 3,800 13.50 standard 51,300
Materials quantity variance 200 lbs 13.50 standard $ 2,700 unfav E18-2
Actual materials purchased
at actual cost 5,000 $22.00 actual $110,000
Actual materials purchased
at standard cost 5,000 22.50 standard 112,500
Materials purchase price
variance 5,000 $ (.50) $ (2,500) fav.
Actual materials purchased
at standard cost 5,000 $22.50 standard $112,500
Actual materials issued at
standard cost 4,400 22.50 standard 99,000
Materials inventory variance 600 22.50 standard $ 13,500 unfav.
Trang 5E18-2 (Concluded)
Actual materials issued at
standard cost 4,400 $22.50 standard $99,000
Actual materials purchased
at actual cost 6,000 $4.20 actual $25,200
Actual materials purchased
at standard cost 6,000 4.00 standard 24,000
Materials purchase price
variance 6,000 $ 20 $ 1,200 unfav.
Actual materials used at
standard cost 7,100 $4.00 standard $28,400
Standard quantity allowed
at standard cost 6,900 4.00 standard 27,600
Actual materials used at
actual average cost 7,100 $4.18 average $29,678
Actual materials used at
standard cost 7,100 4.00 standard 28,400
Materials price usage
variance 7,100 $ 18 $ 1,278 unfav.
Trang 6(3) Quantity × Unit Cost = Amount
Actual materials used at
actual cost 2,000 $4.12 oldest $ 8,240
Actual materials used at
standard cost 7,100 4.00 standard 28,400
Materials price usage
Actual materials used at
actual cost 6,000 $4.20 newest $25,200
Actual materials used at
standard cost 7,100 4.00 standard 28,400
Materials price usage
Trang 7Standard hours allowed
(1,200 units × 1/2 hour
labor) 600 10.00 standard 6,000
E18-5
Materials purchase price
variance 1,500 $ (.20) $ (300) fav.
Actual materials used 1,350 $ 3.80 actual $5,130
Actual materials used 1,350 4.00 standard 5,400
Materials price usage
variance 1,350 $ (.20) $ (270) fav.
Actual materials used 1,350 $ 4.00 standard $5,400
Standard labor hours
allowed 340 12.00 standard 4,080
Labor efficiency variance (30) 12.00 standard $ (360) fav.
Trang 8Actual factory overhead $166,000
Standard overhead chargeable to actual production
(11,000 standard hours allowed × $12.50 overhead rate) 137,500
Overall factory overhead variance $ 28,500 unfav Actual factory overhead $166,000
Budget allowance based on standard hours allowed:
Variable overhead (11,000 standard machine
hours allowed × $4.50 variable overhead rate) $49,500
Fixed overhead budgeted 96,000 145,500
Controllable variance $ 20,500 unfav Budget allowance based on standard hours allowed
(from above) $145,500
Standard factory overhead chargeable to production
(11,000 standard hours allowed × $12.50 overhead rate) 137,500
Volume variance $ 8,000 unfav Controllable variance $20,500 unfav.
Volume variance 8,000 unfav.
Overall factory overhead variance $28,500 unfav.
E18-7
Actual factory overhead $130,000
Standard overhead chargeable to actual production
(5,700 standard hours allowed × $22 overhead rate) 125,400
Overall factory overhead variance $ 4,600 unfav Actual factory overhead $130,000
Budget allowance based on standard hours:
Variable overhead (5,700 standard hours × $6) $34,200
Fixed overhead 96,000 130,200
Controllable variance $ (200) fav.
Budget allowance based on standard hours
Trang 9Actual factory overhead $121,000
Standard overhead chargeable to actual production
(4,200 standard hours allowed × $24.80 overhead rate) 104,160
Overall factory overhead variance $ 16,840 unfav Actual factory overhead $121,000
Budget allowance based on actual machine hours:
Variable overhead (4,600 actual machine
hours × $5.80 variable overhead rate) $26,680
Fixed overhead budgeted 85,500 112,180
Spending variance $ 8,820 unfav.
Budget allowance based on standard hours allowed:
Variable overhead (4,200 standard machine hours
allowed × $5.80 variable overhead rate) $24,360
Fixed overhead budgeted 85,500 109,860
Variable efficiency variance $ 2,320 unfav.
Standard overhead chargeable to actual production
(4,200 standard hours allowed × $24.80 overhead rate) 104,180
Volume variance $ 5,700 unfav Spending variance $ 8,820 unfav Variable efficiency variance 2,320 unfav Volume variance 5,700 unfav Overall factory overhead variance $ 16,840 unfav.
Trang 10Actual factory overhead $ 10,500
Standard overhead chargeable to actual production
(2,050 standard hours allowed × $5 overhead rate) 10,250
Overall factory overhead variance $ 250 unfav Actual factory overhead $ 10,500
Budget allowance based on actual hours:
Variable overhead (1,900 actual hours × $1.50) $ 2,850
Fixed overhead 7,000 9,850
Spending variance $ 650 unfav.
Budget allowance based on standard hours:
Variable overhead (2,050 standard hours × $1.50) $ 3,075
Fixed overhead 7,000 10,075
Variable efficiency variance $ (225) fav.
Budget allowance based on standard hours (from above) $ 10,075
Standard factory overhead chargeable to production
(from above) 10,250
Volume variance $ (175) fav.
Spending variance $ 650 unfav Variable efficiency variance (225) fav.
Volume variance (175) fav.
Overall factory overhead variance $ 250 unfav E18-10
Actual factory overhead $700,000
Standard overhead chargeable to actual production (38,000
units × 2 standard hours per unit × $9 overhead rate) 684,000
Overall factory overhead variance $ 16,000 unfav E18-10 (Concluded)
Trang 11(1) Two-variance method:
Actual factory overhead $700,000
Budget allowance based on standard hours allowed:
Variable overhead (38,000 units × 2 standard
hours per unit × $6 variable rate) $456,000
Fixed overhead 240,000 696,000
Controllable variance $ 4,000 unfav Budget allowance based on standard hours allowed
(from above) $696,000
Standard overhead chargeable to actual production (38,000
units × 2 standard hours per unit × $9 overhead rate) 684,000
Volume variance $ 12,000 unfav Controllable variance $ 4,000 unfav Volume variance 12,000 unfav Overall factory overhead variance $ 16,000 unfav (2) Three-variance method:
Actual factory overhead $700,000
Budget allowance based on actual hours worked:
Variable overhead (77,500 actual hours
× $6 variable rate) $465,000
Fixed overhead 240,000 705,000
Spending variance $ (5,000) fav.
Budget allowance based on actual hours worked
Standard overhead chargeable to actual production (38,000
units × 2 standard hours per unit × $9 overhead rate) 684,000
Volume variance $ 12,000 unfav Spending variance $ (5,000) fav.
Variable efficiency variance 9,000 unfav Volume variance 12,000 unfav Overall factory overhead variance $ 16,000 unfav.
Trang 12Materials price variance:
$1,007,500 $983,000 $(24,500) fav Materials mix variance:
Standard Formula
Materials yield variance:
Expected yield: 2,000,000 lbs input ÷ 5,000 lbs = 400
Actual yield in one-ton batches 387
Unfavorable yield in batches 13
Standard cost per one-ton batch $ 2,530
Materials yield variance $32,890 unfav.
Trang 13(1) Materials purchase price variance:
(2) Materials mix variance:
Standard
*Echol = (200 ÷ 600) × 84 000 liters
Protex = (100 ÷ 600) × 84 000 liters
Benz = (250 ÷ 600) × 84 000 liters
CT-40 = (50 ÷ 600) × 84 000 liters
Materials yield variance:
Expected yield: 84 000 liters input ÷ 600 liters = 140
Actual yield in 500-liter batches 136
Unfavorable yield in batches 4
Standard cost per 500-liter batch $135
Materials yield variance $540 unfav.
Trang 14BENJAMIN PRODUCTS COMPANY
Department 2 Factory Overhead Variance Report For Month Ending June 30
Direct labor hours 6,000 5,100
Capacity 100% 85%
Variable factory overhead:
Indirect labor $ 2,400 $ 2,040 $ 2,100 $ 60 Manufacturing supplies 2,100 1,785 1,805 20 Repairs 800 680 650 (30)
Total variable cost $ 5,400 $ 4,590 $ 4,660
Fixed factory overhead:
Supervision $ 6,000 $ 6,000 $ 6,200 200 Indirect labor 5,400 5,400 5,400 0 Manufacturing supplies 1,020 1,020 1,020 0 Maintenance 960 960 960 0
Total fixed cost $14,400 $14,400 $14,612
Total factory overhead $19,800 $18,990 $19,272 $282
unfav Standard factory overhead chargeable to
work in process (5,100 standard hours
× $3.30 rate) 16,830
Volume variance $ 2,160 unfav.
Reconciliation of variances:
Actual factory overhead $19,272
Standard factory overhead chargeable
to work in process 16,830
Overall factory overhead variance $ 2,442 unfav.
Controllable variance $ 282 unfav.
Volume variance 2,160 unfav.
Overall factory overhead variance $ 2,442 unfav.
Trang 15E18-14 APPENDIX
$15,000 budgeted overhead
2,500 budgeted machine hours
2,500 budgeted machine hours
Actual factory overhead $16,500
Standard overhead chargeable to actual production
Overall factory overhead variance $ 2,100 unfav Actual factory overhead $16,500
Budget allowance based on actual hours:
Variable overhead (2,700 actual hours × $2) $ 5,400
Fixed overhead 10,000 15,400
Spending variance $ 1,100 unfav Budget allowance based on actual hours (from above) $15,400
2,700 actual hours × $6 factory overhead rate 16,200
Idle capacity variance $ (800) fav.
2,700 actual hours × $6 factory overhead rate (from above) $16,200
Standard factory overhead chargeable to production (from
above) 14,400
Efficiency variance $ 1,800 unfav Spending variance $ 1,100 unfav Idle capacity variance (800) fav.
Efficiency variance 1,800 unfav Overall factory overhead variance $ 2,100 unfav.
Trang 16$16,800 budgeted overhead
1,200 budgeted labor hours
Actual factory overhead $15,800
Standard overhead chargeable to actual production
(1,170 standard hours allowed × $14 overhead rate) 16,380
Overall factory overhead variance $ (580) fav.
Actual factory overhead $15,800
Budget allowance based on actual hours:
Variable overhead (1,120 actual hours × $4) $ 4,480
Fixed overhead 12,000 16,480
Spending variance $ (680)fav.
1,120 actual hours × $14 factory overhead rate 15,680
Idle capacity variance $ 800 unfav 1,120 actual hours × $4 variable factory overhead rate $ 4,480
1,170 standard hours × $4 variable factory overhead rate 4,680
Variable efficiency variance $ (200) fav.
1,170 standard hours × $10 fixed factory overhead rate 11,700
Fixed efficiency variance $ (500) fav.
Spending variance $ (680)fav.
Idle capacity variance 800 unfav Variable efficiency variance (200)fav.
Fixed efficiency variance (500)fav.
Overall factory overhead variance $ (580)fav.
Trang 17PROBLEMS P18-1
(1) Factory overhead per unit:
on normal monthly capacity.
Materials purchase price
variance 18,000 $ 03 $ 540 unfav.
Actual quantity used 9,500 $1.35 standard $12,825
Materials quantity variance (500) 1.35 standard $ (675) fav.
Actual hours worked 2,100 $9.15 actual $19,215
Actual hours worked 2,100 9.00 standard 18,900
Actual hours worked 2,100 $9.00 standard $18,900
Actual factory overhead $16,650
Budget allowance based on standard hours allowed:
Variable overhead (2,000 standard hours allowed
× $5 variable overhead rate) $10,000
Fixed overhead budgeted 6,000 16,000
Controllable variance $ 650 unfav.
Volume variance $ 1,000 unfav.
Variable factory overhead per unit
Direct labor hours per un nit ==$20 ==
4
$5 variable overhead rate per direct labor hour
Trang 18(1) Materials Direct Factory
Units completed and transferred out
this period 4,600 4,600 4,600 4,600
Equivalent units started and completed
this period 4,100 4,100 4,100 4,100
Add equivalent units required to complete
Standard quantity allowed per unit of
product 3 units 2 units 1/2 hr 1 hr Standard quantity allowed for current
production 14,700 10,400 2,465 5,150
Actual material A purchased at
actual cost 16,000 $4.60 actual $73,600
Actual material A purchased at
standard cost 16,000 4.50 standard 72,000
Material A purchase price
variance 16,000 $ 10 $ 1,600 unfav.
Actual material A used at
standard cost 14,800 $4.50 standard $66,600
Standard quantity of material
Actual material B purchased
at actual cost 12,000 $1.95 actual $23,400
Actual material B purchased
at standard cost 12,000 2.00 standard 24,000
Material B purchase price
variance 12,000 $ (.05) $ (600) fav.
Trang 19P18-2 (Continued)
Actual material B used at
standard cost 11,000 $2.00 standard $22,000
Standard quantity of material
Actual labor hours worked at
actual labor rate 2,550 $10.20 actual $26,010
Actual labor hours worked at
standard labor rate 2,550 10.00 standard 25,500
Actual labor hours worked at
standard labor rate 2,550 $10.00 standard $25,500
Standard labor hours allowed
at standard labor rate 2,465 10.00 standard 24,650
Actual factory overhead $75,000
Standard overhead chargeable to actual production
(5,150 standard hours allowed × $15 overhead rate) 77,250
Overall factory overhead variance $ (2,250) fav Actual factory overhead $75,000
Budget allowance based on standard hours:
Variable overhead (5,150 standard hours × $5) $25,750
Fixed overhead 50,000 75,750
Controllable variance $ (750) fav.
Standard factory overhead chargeable to production
(from above) 77,250
Volume variance $ (1,500) fav.
Controllable variance $ (750) fav Volume variance (1,500) fav Overall factory overhead variance $ (2,250) fav.
Trang 20Standard cost of units transferred to finished goods:
(4,600 units × $37.50 standard cost per unit of product $172,500
Standard cost of spoiled units charged to factory overhead:
Material A (200 units of product × 100% complete × 3 units
each × $4.50) $ 2,700
Material B (200 units of product × 0% complete × 2 units
each × $2.00) 0
Direct labor (200 units × 70% complete × 1/2 hr each × $10.00) 700
Factory overhead (200 units × 100% complete × 1 hr each
× $15.00) 3,000
Total cost of spoiled units $ 6,400
Work in process, ending inventory:
Material A (600 units of product × 100% complete × 3 units
each × $4.50) $ 8,100
Material B (600 units of product × 100% complete × 2 units
each × $2.00) 2,400
Direct labor (600 units × 90% complete × 1/2 hr each × $10.00) 2,700
Factory overhead (600 units × 100% complete × 1 hr each ×
$15.00) 9,000
Total standard cost of work in process, ending inventory $ 22,200
P18-3
(1) January equivalent production:
Transferred out 8,000 8,000 8,000
Add beginning inventory (work this
11,000 units 9,000 units 10,000 units
Trang 21P18-3 (Continued)
Actual quantity of Material A
used 50,000 $1.00 actual $ 50,000
Actual quantity of Material A
used 50,000 1.20 standard 60,000
Actual quantity of Material A
used 50,000 $1.20 standard $60,000
Standard quantity of Material
A allowed 44,000 1.20 standard 52,800
Material A quantity variance 6,000 1.20 standard $ 7,200 unfav.
Actual quantity of Material B
Actual quantity of Material B
used 18,000 $.70 standard $ 12,600
Standard quantity of Material
B allowed 18,000 70 standard 12,600
Actual hours worked 10,200 $12.00 actual $122,400
Actual hours worked 10,200 11.50 standard 117,300
Actual hours worked 10,200 $11.50 standard $117,300
Standard hours allowed 10,000 11.50 standard 115,000
Labor efficiency variance 200 11.50 standard $ 2,300 unfav.
Trang 22Actual factory overhead $ 60,100
Budget allowance based on standard hours allowed:
Variable overhead (10,000 equivalent units ×
1 standard hour per unit × $1.80 variable rate) $18,000
Fixed overhead budgeted (7,800 labor hours
at normal capacity × $5 fixed rate) 39,000 57,000
Controllable variance $ 3,100 unfav Budget allowance based on standard
hours allowed (above) $ 57,000
Standard overhead chargeable to actual production
(10,000 standard hours allowed × $6.80 overhead rate) 68,000
Volume variance $(11,000) fav.
CGA-Canada (adapted) Reprint with permission P18-4
Actual materials purchased at
actual cost 60 000 kg $3.95 actual $237,000
Actual materials purchased at
standard cost 60 000 4.00 standard 240,000
Materials purchase price
variance 60 000 $(.05) $ (3,000) fav.
Actual materials used at
standard cost 50 000 kg $4.00 standard $200,000 unfav Standard quantity allowed at
Materials quantity variance 2 000 kg 4.00 standard $ 8,000 unfav.