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Chapter 23: Q20RQ (page 1305)
Question:What is a standard cost income statement?
Answer
The standard cost income statement focuses on variances for the management
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Computing and journalizing standard cost variances
Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:
Direct material (0.2 lbs. @\(0.25 per lb) | \)0.05 | |
Direct Labor (3 minutes @ \(0.11 per minute) | 0.33 | |
Manufacturing Overhead: | ||
Variable (3 minutes @ \)0.06 per minute) | \(0.18 | |
Fixed (3 minutes @ \)0.13 per minute) | 0.39 | 0.57 |
Total Cost per Coffee Mug | \(0.95 |
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.
d. Actual direct labor usage was 197,000 minutes at a total cost of \(25,610.
e. Actual overhead cost was \)10,835 variable and \(29,765 fixed.
f. Selling and administrative costs were \)95,000.
Requirements
1. Compute the cost and efficiency variances for direct materials and direct labor.
2. Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.
3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work颅-in颅-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
Question:Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance
20. Direct materials efficiency variance
21. Direct labor cost variance
22. Fixed overhead cost variance
23. Direct materials cost variance
a. Human resources
b. Purchasing
c. Production
Kellogg Company manufacturers and markets ready-to-eat cereal and convenience foods including Raisin Bran, Pop Tarts, Rice Krispies Treats, and Pringles. In addition to the raw materials used when producing its products, Kellogg Company also has significant labor costs associated with the products. As of January 2, 2016, Kellogg Company had approximately 33,577 employees. A shortage in the labor pool, regulatory measures, and other pressures could increase the company鈥檚 labor cost, having a negative impact on the company鈥檚 operating income.
Requirements
1. Suppose Kellogg Company noticed an increase in its actual direct labor costs compared to the budgeted amount. How could Kellogg Company investigate this?
2. What is the direct labor cost variance and how would a company calculate this variance?
3. What is the direct labor efficiency variance and how would a company calculate this variance?
4. Suppose that Kellogg Company found an unfavorable total direct labor variance that was due completely to the direct labor cost variance. What measures could Kellogg Company take to control this variance?
5. Suppose that Kellogg Company found an unfavorable total direct labor variance that was due completely to the direct labor efficiency variance. What measures could Kellogg Company take to control this variance?
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.
Question:What is a standard cost system?
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