Madzinga’s Draperies manufactures curtains. Curtain #4571 requires the following: Direct material standard 10 square yards at …………………………$5 per yard Direct labor standard 5 hours at ………………………………………..$10 per hour During the second quarter, the company purchased 17,000 square yards at a cost of $83,300 and used 16,500 square yards to produce 1,500 Curtain #4571s. Direct labor totaled 7,600 hours for $79,800. a. Compute the material price and usage variances. b. Prepare the journal entries for the purchase and use of direct material. c. Compute labor rate and labor efficiency variances. d. Prepare the journal entry to accrue direct labor cost and record the labor variances for the quarter. e. Comment on the above variances. Identify possible causes and relationships among the variances that you computed.
> Many managers believe that if all amounts in their spending budgets are not spent during a period, they will lose allocations in future periods and that they will receive little or no recognition for the cost savings. Prepare an essay that discusses the
> Alyssa Co. is planning to purchase a new piece of production equipment. The equipment will increase fixed overhead by $700,000 per year in depreciation but reduce variable expenses per unit by 20 percent. Budgeted 2011 sales of the company’s products are
> The operating results in summarized form for a retail computer store for 2010 are: Revenue: Hardware sales ………………………………………………….$ 4,800,000 Software sales ………………………………………………………2,000,000 Maintenance contracts ………………………………………….1,200,000 Total revenue .…………
> Last year’s income statement for Cooper Company is as follows: This year, unit sales are expected to increase by 25 percent; material and labor costs are expected to increase by 10 percent per unit. Overhead is applied to production bas
> Compute the required answer for each of the following independent situations. a. For next year, Penny Suits projects $8,000,000 of sales and total fixed manufacturing costs of $2,000,000. Variable manufacturing costs are estimated at 65 percent of sales.
> The following cash budget is for the third quarter of 2011. Solve for the missing numbers on the cash budget, assuming that the accountant has requested a minimum cash balance of $7,000 at the start of each month. All borrowings, repayments, and investme
> The following budgeted information about Reeves Co. is available for September 2010: Sales for September ………………………………………………………..$2,700,000 Gross profi t on sales ………………………………………………………………….40% Decrease in Merchandise Inventory during September …………$ 43,75
> The following budgeted May 2010 cash information is available for Salado Corp.: Net after-tax income …………………………………..$336,000 Depreciation expense ……………………………………..56,200 Accrued income tax expense ………………………….82,000 Increase in Accounts Receivable for mont
> Campbell Manufacturing intends to start business on January 1, 2011. Production plans for the first four months of operations are as follows: January …………………………..20,000 units February ………………………….50,000 units March ……………………………….70,000 units April ……………………
> The October 1, 2010, Accounts Receivable balance for Darin Landscaping is $632,500. Of that balance, $480,000 represents remaining accounts receivable from September billings. The normal collection pattern for the firm is 20 percent of billings in the mo
> Sunny Systems manufactures solar panels. The company has a theoretical capacity of 50,000 units annually. Practical capacity is 80 percent of theoretical capacity, and normal capacity is 80 percent of practical capacity. The firm is expecting to produce
> Total June 2010 sales for Roy’s Catering are expected to be $450,000. Of each month’s sales, 80 percent is expected to be on credit. The Accounts Receivable balance at May 31 is $119,600, of which $90,000 represents the remainder of May credit sales. The
> Miriam Irby is president of MI Corp. Irby has decided to take a month’s vacation with her family to South Africa, Zimbabwe, and Angola. Irby has researched the trip and determined that the total cost of the trip for her family will be approximately $50,0
> The treasurer of Homeyra Corp. needs to estimate cash collections from accounts receivable for September, October, and November 2011. Forty percent of the company’s customers pay in cash and the rest are credit customers. The collection pattern for the c
> Hard Core had budgeted sales of 190,000 feet of its concrete culvert products for June 2010. Each foot of product requires 4 pounds of concrete ($0.10 per pound) and 7.5 pounds of gravel ($0.04 per pound). Actual beginning inventories and projected endin
> What is meant by the term standard hours? Does the term refer to inputs or outputs?
> How are actual and standard costs recorded in a standard cost system?
> The overhead spending and overhead efficiency variances are said to be controllable, but the volume variance is said to be noncontrollable. Explain.
> A total variance can be calculated for each cost component of a product. Into what variances can this total be separated and to what does each relate? (Discuss separately for material and labor.)
> How is the material standard developed? Why are the quantities shown in the bill of materials not always the same quantities shown in the standard cost card?
> What is a standard cost card? What information does it contain? How does it relate to a bill of materials and an operations flow document?
> Last June, Lacy Dalton had just been appointed CFO of Garland & Wreath when she received some interesting reports about the profitability of the company’s three most important product lines. One of the products, GW1, was produced in
> (Appendix) What variances can be computed for direct material and direct labor when some materials or labor inputs are substitutes for others? What information does each of these variances provide? Appendix: Most companies combine many materials and var
> Why do managers care about capacity utilization? Are managers controlling costs when they control utilization?
> What is management by exception? Why is a standard cost system useful when managers control “by exception”?
> What are the three primary uses of a standard cost system? In a business that routinely manufactures the same products or performs the same services, why are standards helpful?
> How are insignificant variances closed at the end of an accounting period? How are significant variances closed at the end of an accounting period? Why is there a difference in treatment?
> Surgical Products produces latex surgical gloves. Machines perform the majority of the processing for 1,000 pairs of gloves per hour. Each pair of gloves requires 0.85 square foot of latex, which has a standard price of $0.80 per square foot. Machine ope
> Aquatica uses a standard cost system for materials and labor in producing small fishing boats. Production requires three materials: fiberglass, paint, and a purchased trim package. The standard costs and quantities for materials and labor are as follows:
> Griffon Corp. makes small plastic dog toys with the following material and labor standards: During October, 60,000 pounds of material were acquired on account at $4.15 per pound. During October, 50,120 pounds of that were used in production during the mo
> Schmidt Co. has the following standard material and labor quantities and costs for one unit of Product SWK#468: Material 1.85 pounds @ ……….…………………….$3.50 per pound Labor 0.04 hours @ ………………………………………..$12 per hour During July, the purchasing agent found a
> Haddas Ltd. makes Healthy Life, a nutritional aid. For a 50-pound batch, standard material and labor costs are as follows: During June, the following materials and labor were used in producing 600 batches of Healthy Life: Wheat 18,000 pounds at â&#
> Tomm’s T’s is a New York–based company that produces and sells t-shirts. The firm uses variable costing for internal purposes and absorption costing for external purposes. At year-end, financial infor
> Polermo Inc. produces three-topping, 18-inch frozen pizzas and uses a standard cost system. The three pizza toppings (in addition to cheese) are onions, olives, and mushrooms. To some extent, discretion may be used to determine the actual mix of these to
> Kieffer Company makes men’s suit alterations for a major clothing store chain. No direct materials are used in the alterations process and overhead costs are primarily variable and relate very closely to direct labor charges. The company owner has decide
> The May budget for the Auberage Company shows $1,080,000 of variable conversion costs, $360,000 of fixed conversion costs, and 72,000 machine hours for the production of 24,000 units of product. During May, 76,000 machine hours were worked and 24,000 uni
> Ripper Corp. uses a standard cost system for its aircraft component manufacturing operations. Recently, the company’s direct material supplier went out of business, but Ripper’s purchasing agent found a new source that produces a similar ma
> Namathe Industries manufactures children’s footballs with the following standard costs per unit: Material: one square foot of leather at …………â€&b
> The following variances existed at year-end 2010 for Muckstadt Production Company: Material price variance …………………………………….$23,400 U Material quantity variance ………………………………….24,900 F Labor rate variance ………………………………………………5,250 F Labor efficiency variance
> Hellier Contractors paints interiors of residences and commercial structures. The firm’s management has established cost standards per 100 square feet of area to be painted. Direct material ($18 per gallon of paint) ………………………………..$1.50 Direct labor ……………
> For 2010, Riguilio Inc. set predetermined variable and fixed overhead rates, respectively, of $6.50 and $9.35 based on an expected monthly capacity of 4,000 machine hours. Each unit of product requires 1.25 machine hours. During August 2010, the company
> Terkelsen Mfg. produces comforter sets with the following standard cost information: • Each comforter set requires 0.5 hours of machine time to produce. • Variable overhead is applied at the rate of $9 per machine hour. • Fixed overhead is applied at the
> During December 2010, Amin Corp. manufactured products requiring 8,000 standard labor hours. The following variance and actual information is available: Labor rate variance ………………………………………..$ 4,500 U Labor efficiency variance ………………………………….12,000 U Actua
> Prior to the start of fiscal 2010, managers of MultiTech hosted a Web conference for their shareholders, financial analysts, and members of the financial press. During the conference, the CEO and CFO released the following financial projections for 2010
> N Joy makes wooden picnic tables, swings, and benches. Standard hours for each product are as follows: Picnic table ………………………………………….10 standard direct labor hours Swing ……………………………………………………3 standard direct labor hours Bench ……………………………………………………7 standa
> ALOHA Corp., started in January 2004, manufactures Hawaiian muumuus. At that time, the following material and labor standards were developed: Material ………………………………….3.0 yards at $4 per yard Labor ……………………………………….1.5 hours at $6 per hour In January 2010,
> Quinan Carpentry Co. makes wooden shelves. A small fire on October 1 partially destroyed the records relating to September’s production. The charred remains of the standard cost card appear here. From other fragments of records and seve
> Edina Co. manufactures a product that requires 3.5 machine hours per unit. The variable and fixed overhead rates were computed using expected capacity of 144,000 units (produced evenly throughout the year) and expected variable and fixed overhead costs,
> Green Tee produces 100 percent cotton t-shirts, with the following standard direct material and labor quantities and costs: Direct material 2.0 yards……………
> In July 2010, Zinger Corp. purchased 20,000 gallons of Numerol for $61,000 to use in the production of product #43MR7. During July, Zinger Corp. manufactured 3,900 units of product #43MR7. The following information is available about standard and actual
> For each independent case, fill in the missing figures. Case A Case B Case C Case D Units produced 1,000 ? 240 1,500 Standard hours per unit 3.5 0.9 ? Standard hours ? 900 600 Standard rate per hour $ 7.25 $ 10.50 7 Actual hours worked 3,400 975 4,90
> Calista & Lane, CPAs, set the following standard for its inventory audit of Triumph Co.: 350 hours at an average hourly billing rate of $250. The firm actually worked 330 hours during the inventory audit process. The total labor variance for the audit wa
> Information on Hanley’s direct labor costs for January 2010 is as follows: Actual direct labor rate …………………………………………..$7.50 Standard direct labor hours allowed ……………………..11,000 Actual direct labor hours ……………………………………..10,000 Direct labor rate variance …
> Since opening in 2009, Akron Aviation has built light aircraft engines and has gained a reputation for reliable and quality products. Factory overhead is applied to production using direct labor hours and any underapplied or overapplied overhead is close
> Heath Construction builds standard prefabricated wooden frames for walls. Each frame requires 10 direct labor hours and the standard hourly direct labor rate is $18. During July, the company produced 670 frames and worked 6,800 direct labor hours. Payrol
> A&G makes wrought iron table and chair sets. During April, the purchasing agent bought 25,600 pounds of scrap iron at $1.94 per pound. During the month, 21,400 pounds of scrap iron were used to produce 600 table and chair sets. Each set requires a standa
> Ayesha Inc. manufactures a product that requires 5 pounds of material. The purchasing agent has an opportunity to purchase the necessary material at a vendor’s bankruptcy sale at $1.40 per pound rather than the standard cost of $2.10 pe
> Cave Company produces a product called Lem. The standard direct material cost to produce one unit of Lem is 4 quarts of raw material at $2.50 per quart. During May 2010, 4,200 quarts of raw material were purchased at a cost of $10,080. All the purchased
> In November 2010, DayTime Publishing Company’s costs and quantities of paper consumed in manufacturing its 2011 Executive Planner and Calendar were as follows: Actual unit purchase price ………………………………………….$0.13 per page Standard unit price ………………………………………
> One of Sure-Bet Sherbet’s bestselling products is raspberry sherbet, which is manufactured in 10-gallon batches. Each batch requires 6 quarts of raspberries. The raspberries are sorted by hand before entering the production process and, because of imperf
> Bernie Services has three labor classes: administrative assistants, paralegals, and attorneys. Standard wage rates are as follows: administrative assistants, $30 per hour; paralegals, $60 per hour; and attorneys, $125 per hour. For October, the numbers o
> Coffen Corp. employs engineers and draftspeople. The average hourly rates are $60 for engineers and $30 for draftspeople. For one project, the standard was set at 400 hours of engineer time and 600 hours of draftsperson time. Actual hours worked on this
> Hennessey Company produces 12-ounce cans of mixed pecans and cashews. Standard and actual information follows. Standard Quantities and Costs (12-oz. can) Pecans: 6 ounces at $6.00 per pound ………………….$2.25 Cashews: 6 ounces at $8.00 per pound ………………..3.00
> Svenson Technology considers direct labor cost too insignificant to separately account for, and, therefore, uses a $22.50 per machine hour predetermined conversion cost rate (of which $16 is related to fixed overhead costs). The conversion rate was estab
> Bird’s Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for v
> Auto Brakes Inc. manufactures brake rotors and has always applied overhead to production using direct labor hours. Recently, company facilities were automated, and the accounting system was revised to show only two cost categories: direct material and co
> An HMO medical program began reimbursing hospitals according to diagnostic-related groups (DRGs). Each DRG has a specified standard “length of stay.” If a patient leaves the hospital early, the hospital is financially impacted favorably, but a patient st
> Many companies face the prospect of paying workers overtime wages; some of these payments are at time-and-a-half wages. a. How does overtime pay affect direct labor cost? Variable overhead? b. Obviously, paying overtime to already employed workers makes
> McNeal Concrete makes precast concrete steps for use with manufactured housing. The company had the following 2010 budget based on expected production of 6,400 units: Actual production for 2010 was 7,000 units, and actual costs for the year were as follo
> At year-end 2010, the trial balance of Pennopscott Corp. showed the following accounts and amounts: Assume that, taken together, the variances are believed to be significant. Prepare the journal entries to close the variances at year-end. Round any neces
> Bobcat Inc.’s total predetermined overhead rate is $50 per hour based on a monthly capacity of 58,000 machine hours. Overhead is 30 percent variable and 70 percent fixed. During September 2010, Bobcat Inc. produced 5,100 units of product and recorded 60,
> Li Corporation’s flexible budget formula for total overhead is $360,000 plus $8 per direct labor hour. The combined overhead rate is $20 per direct labor hour. The following data have been recorded for 2010: Actual total overhead ……………………………..$580,000 To
> Munich Ltd. uses a combined overhead rate of $2.90 per machine hour to apply overhead to products. The rate was developed at an expected capacity of 264,000 machine hours; each unit of product requires two machine hours to produce. At 264,000 machine hou
> Kemp Manufacturing set 70,000 direct labor hours as the 2010 capacity measure for computing its predetermined variable overhead rate. At that level, budgeted variable overhead costs are $315,000. Kemp will apply budgeted fixed overhead of $140,400 on the
> The manager of the Texas Department of Transportation has determined that it typically takes 30 minutes for the department’s employees to register a new car. In Bexar County, the predetermined fixed overhead rate was computed on an estimated 10,000 direc
> Georgia Shacks produces small outdoor buildings. The company began operations in 2010, producing 2,000 buildings and selling 1,500. A variable costing income statement for 2010 follows. During the year, variable production costs per unit were $800 for di
> Refer to the information in Exercise 22 for Wyoming Wholesale. a. Using the least squares method, develop the equation for predicting weekly receiving report costs based on the number of shipments received. b. What is the predicted amount of receiving re
> As a three-person team, choose an activity that is commonly performed every day, such as taking a shower/bath, preparing a meal, or doing homework. Have each team member time him- or herself performing that activity for two days and then develop a standa
> Contact a local company that uses a standard cost system. Make an appointment with a manager at that company to interview her or him on the following issues: • the characteristics that should be present in a standard cost system to encourage positive emp
> What is an “equivalent unit of production,” and why is it a necessary concept to employ in a process costing system?
> (Appendix 2) In a process costing system, how are normal and abnormal spoilage typically treated? Why are normal and abnormal spoilage treated differently? Appendix 2: Spoilage The chapter examples assumed that all units to be accounted for have been tr
> Which cost component can be found in a downstream department of a multidepartment production process that will not be present in the first upstream department? Discuss.
> Is one equivalent unit computation sufficient for all cost components? Explain your answer.
> How do the weighted average and first-in, first-out methods of process costing differ in their treatment of beginning Work in Process Inventory units?
> What are the characteristics of a company that would be more likely to use process costing than job order costing?
> (Appendix 2) What is meant by the “method of neglect”? How does the use of this method affect cost of good production? Appendix 2: Spoilage The chapter examples assumed that all units to be accounted for have been tra
> What is a hybrid costing system? In what circumstances are hybrid costing systems typically employed?
> Tom Snider is a staff accountant for BigBiz. Snider was recently given the task of developing a monthly flexible budget formula for several manufacturing costs. He was told that his equations would be used as an aid in developing future budgets for these
> Why does standard costing make process costing more clerically and computationally efficient?
> A company has two sequential processing departments. On the cost of production reports for the departments, will the cost per unit transferred out of the first department always be equal to the cost per unit transferred in to the second department? Expla
> How is the cost of ending inventory calculated in a process costing system?
> What is meant by the term transferred-out cost? Why does the transferred-out cost under the WA method include only one computation but the FIFO method includes multiple computations?
> What is meant by the phrase units started and completed? Why is this phrase more closely associated with the first-in, first-out method of process costing than with the weighted average method?
> Use the information from Problem 4 for Delacroix Co. a. Prepare a cost of production report for March using the FIFO method. b. In general, what differences exist between the WA and FIFO methods of process costing and why do these differences exist? Inf
> Use the Fresh Seasons information from Problem 4, except assume that the company uses a FIFO process costing system. Information form Problem 4: Delacroix Co. had 800 units of inventory at the beginning of March 2010. Other information about that beginn
> Itzgood makes a variety of healthy snack foods. The following information for January 2010 relates to a trail mix. Materials are added at the beginning of processing; overhead is applied based on direct labor. The mix is transferred to a second departmen
> Delacroix Co. had 800 units of inventory at the beginning of March 2010. Other information about that beginning Work in Process Inventory is as follows: Direct labor costs were extremely high during February, because the company had a labor strike and pa
> Fresh Seasons is a contract manufacturer for Delectable Dressing Company. Fresh Seasons uses a weighted average process costing system to account for its salad dressing production. All ingredients are added at the start of the process. Delectable provide
> The Splash makes large fiberglass swimming pools and uses machine hours and direct labor hours to apply overhead in the Production and Installation departments, respectively. The monthly cost formula for overhead in Production is y = $7,950 + $4.05 MH; t
> Spangenberg Products manufactures computer cases. All material is added at the start of production and overhead is applied to each product at the rate of 70 percent of direct labor cost. At the beginning of July, there were no units in the Finished Goods
