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Chapter 23: Q19RQ (page 1305)
Briefly describe how journal entries differ in a standard cost system.
The difference in journal entries are in raw material, WIP inventory, finished goods inventory and variances
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Matching terms
Match each term to the correct definition.
Terms Definitions
a. Benchmarking
b. Efficiency variance
c. Cost variance
d. Standard
1. Measures whether the quantity of materials or laborused to make the actual number of outputs is within thestandard allowed for the number of outputs.
2. Uses standards based on best practice.
3. Measures how well the business keeps unit costs ofmaterials and labor inputs within standards.
4. A price, cost, or quantity that is expected under normalconditions.
Identifying the benefits of standard costs
Setting standards for a product may involve many employees of the company. Identify some of the employees who may be involved in setting the standard costs, and describe what their role might be in setting those standards.
Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month鈥檚 production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.
Explain the difference between a favorable and an unfavorable variance.
Preparing a flexible budget and computing standard cost variances
McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates overhead based on yards of direct materials. The company鈥檚 performance report includes the following selected data:
Static Budget (1,025 recliners) | Actual Results (1,005 recliners) | ||
Sales | (1,025 recliners * \(500 each) | \)512,500 | |
(1,005 recliners * \(495 each) | \)497,475 | ||
Variable Manufacturing Costs: | |||
Direct Materials | (6,150 yds. @ \(8.50/yard) | 52,275 | |
(6,300 yds. @ \)8.30/yard) | 52,290 | ||
Direct Labor | (10,250 DLHr @ \(9.20/DLHr) | 94,300 | |
(9,850 DLHr @ \)9.40/DLHr) | 92,590 | ||
Variable Overhead | (6,150 yds. @ \(5.10/yard) | 31,365 | |
(6,300 yds. @ \)6.50/yard) | 40,950 | ||
Fixed Manufacturing Costs: | |||
Fixed Overhead | 62,730 | 64,730 | |
Total Cost of Goods Sold | 240,670 | 250,560 | |
Gross Profit | \(271,830 | \)246,915 |
Requirements
1. Prepare a flexible budget based on the actual number of recliners sold.
2. Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost, variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar.
3. Have McKnight鈥檚 managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how McKnight鈥檚 managers can benefit from the standard cost system.
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