1.

Sales budget
April May June
Sales (in sets) 10,000 12,000 15,000
Sales price per set *$50 *$50 *$50
Sale revenue ($) 500,000 600,000 750,000
2. Production budget (in sets)
April May June
Sales 10,000 12,000 15,000
Add: Desired ending inventory 2,400 3,000 3,000
Total requirements 12,400 15,000 18,000
Less: Projected beginning inventory 2,000 2,400 3,000
Planned production 10,400 12,600 15,000
3. Raw-material purchases
April May June
Planned production (sets) 10,400 12,600 15,000
Raw material required per set (board feet) *10 *10 *10
Raw material required for production (board feet) 104,000 126,000 150,000

Add: Desired ending inventory of raw material, in

board feet (10% of next month’s requirement) 12,600 15,000 16,000
Total requirements 116,600 141,000 166,000

Less: Projected beginning inventory of raw

material, in board feet (10% of current month’s
requirement) 10,400 12,600 15,000
Planned purchases of raw material (board feet) 106,200 128,400 151,000
Cost per board foot *$0.50 *$0.50 *$0.50
Planned purchases of raw material (dollars) 53,100 64,200 75,500
4. Direct labor budget
April May June
Planned production (sets) 10,400 12,600 15,000
Direct-labor hours per set *1.5 *1.5 *1.5
Direct-labor hours required 15,600 18,900 22,500
Cost per hour *$20 *$20 *$20
Planned direct-labor cost ($) 312,000 378,000 450,000
1. The production budget
Yarex Darol
Budgeted sales 60,000 40,000
Add desired ending inventory (8%) 5,200 2,800
Total needed 65,200 42,800
Less beginning inventory (8%) 4,800 3,200
Required production (gallons) 60,400 39,600
2. Conversion Cost Budget for 20x2
Conversion Cost = Total Conversion Hours × Cost per Hour = 12,252 hours × $20 = $245,040
Total Conversion Hours = Production Volume × Hours per Gallon
Yarex: 60,400 × 0.07 = 4,228 hours
Darol: 39,600 × 0.10 = 3,960 hours
Norex: 25,400 × 0.16 = 4,064 hours
Total hours = 12,252 hours
3. Raw Material (Islin) Purchases Budget for 20x2
Yarex Darol
Production 60,400 39,600
Materials per unit 1.0 0.7
Production needs 60,400 27,720
Add desired ending inventory (10% of current year usage of 100,820) 6,040 2,772
Total needed 66,440 30,492
Less beginning inventory (10% of prior year usage of 100,000) 10,000 -
Materials to be purchased 56,440 30,492
Purchase budget = 100,902 × $5 = $504,510
4. Philin vs. Islin Analysis
Current costs Islin Philin
Material cost ($) 504,100 604,920
Conversion cost ($) 245,040 220,536
Total cost ($) 749,140 825,456

Decision: Management should continue using Islin because it results in

lower total costs. Using Philin would cost $76,316 more ($825,456 -
$749,140)
Notes: despite the 10% reduction in production time.

Since Philin costs 20% more, we need to find out how much additional
cost this entails:
20% of $5 is calculated as: 0.20 × 5 = 1
Therefore, the cost of Philin per gallon is: 5 + 1 = 6

Using Philin reduces production times by 10%. Therefore, the

conversion cost, which is variable, is reduced to 90% of the original cost
(100% - 10% = 90%)
Norex
25,000
2,400
27,400
2,000
25,400

Norex Total
25,400 125,400
0.5 2.2
12,700 100,820
1,270 10,082
13,970 110,902
- 10,000
13,970 100,902
1. Sales budget

Sales (in sets)

Sales price per set ($)
Sale revenue ($)
2. Production Budget (in units)

Budgeted sales
Add desired ending inventory
Total needed
Less beginning inventory
Required production (units)
3. Raw Material Purchases Budget (quantities)

Production
Materials per unit
Production needs
Add desired ending inventory
Total needed
Less beginning inventory
Materials to be purchased
4. Raw Material Purchases Budget (dollars)
Sheet metal: 469,000 lb × $8 = $3,752,000
Copper wire: 256,000 lb × $5 = $1,280,000
Platforms: 66,000 units × $3 = $198,000
Total Raw Material Purchases = $5,230,000
5. Direct Labor Budget (dollars)
Light coil: 65,000 units × 2 hours × $15 = $1,950,000
Heavy coil: 41,000 units × 3 hours × $20 = $2,460,000
Total Direct Labor Budget = $4,410,000
6. Production Overhead Budget (dollars)
Purchasing and material handling of sheet metal and copper
Material purchased = 469,000 lb + 256,000 lb = 725,000 lb
Cost = 725,000 × $0.25 = $181,250
Depreciation, utilities, inspection of light coil and heavy coil:
Total units produced = 65,000 + 41,000 = 106,000
Cost = 106,000 × $4 = $424,000
Shipping of light coil and heavy coil:
Total units shipped = 60,000 + 40,000 = 100,000
Cost = 100,000 × $1 = $100,000
General production overhead:
Total labor hours = (65,000 × 2) + (41,000 × 3) = 253,000
Cost = 253,000 × $3 = $759,000
Total Production Overhead Budget = $1,464,250
 Light coil Heavy coil Total
60,000 40,000 100,000
*120 *170 290
7,200,000 6,800,000 14,000,000

Light coil Heavy coil

60,000 40,000
25,000 9,000
85,000 49,000
20,000 8,000
65,000 41,000
s Budget (quantities)

Copper wire Platforms

Sheet metal (Light
(Light coil and (Light coil and
coil and Heavy coil)
Heavy coil) Heavy coil)

65,000 & 41,000 65,000 & 41,000 65,000

4lb & 5lb 2lb & 3lb 1 unit
465,000 253,000 65,000
36,000 32,000 7,000
501,000 285,000 72,000
32,000 29,000 6,000
469,000 lb 256,000 lb 66,000 units
s Budget (dollars)
$8 = $3,752,000
$5 = $1,280,000
$3 = $198,000
ases = $5,230,000

hours × $15 = $1,950,000

3 hours × $20 = $2,460,000
= $4,410,000
Budget (dollars)
handling of sheet metal and copper wire:
,000 lb + 256,000 lb = 725,000 lb

pection of light coil and heavy coil:

,000 + 41,000 = 106,000

00 + 40,000 = 100,000

0 × 2) + (41,000 × 3) = 253,000
d Budget = $1,464,250
1. Sales Budget (First Quarter 2019)
Youth bats Adult bats Total
Sales (in sets) 1,200 2,600 3,800
Sales price per set ($) 40 65 105
Sale revenue ($) 48,000 169,000 217,000
2. Production Budget (in units)
Youth bats Adult bats
Budgeted sales 1,200 2,600
Add desired ending inventory 350 300
Total needed 1,550 2,900
Less beginning inventory 300 950
Required production (units) 1,250 1,950
3. Direct Materials Budget
Youth bats Adult bats Total
Production 1,250 1,950 3,200
Materials per ounces 48 56 104
Production needs 60,000 109,200 169,200
Add desired ending inventory (ounces) - - 24,000
Total needed 60,000 109,200 193,200
Less beginning inventory (ounces) - - 24,000
Materials to be purchased 60,000 109,200 169,200
Direct marial cost per ounce = 169,200 x $0.25 = $42,300
4. Direct Labor Budget
Youth bats Adult bats Total
Production 1,250 1,950 3,200
Direct labor hours 0.7 0.7 0.7
Labor hours required 875 1,365 2,240
Direct labor cost per hour ($) 18 18 18
Budgeted direct labor cost ($) 15,750 24,570 40,320
5. Manufacturing Overhead Budget
Youth bats Adult bats Total
Production 1,250 1,950 3,200
Variable MOH rate ($) 0.3 0.3 0.3
Variable MOH costs ($) 375 585 960
Fixed MOH costs:
Depreciation ($) - - 1,300
Other Costs ($) - - 20,140
Add total Fixed MOH costs - - 21,440
Budgeted MOH costs ($) - - 22,400

Overhead Rate = Total Budgeted MOH Cost / Total Direct Labor Hours = 22,400 / 2,240 = $10.00 / hour
6. Cost of Goods Sold (COGS) Budget
Cost per Unit of Adult Bats
Direct Materials Cost per Unit = 56oz × 0.25 = $14
Direct Labor Cost per Unit = 0.7×18 = $12.6
Variable MOH rate = $0.30
Direct Labor Hours = (1,200 youth bats × 0.7) + (2,600 adult bats × 0.7) = 2,660 hours
Fixed Overhead = 1,300 + 20,140 = $21,440
→ Rate per Labor Hour = $21,440/ 2,660 hours ≈ $8.06 per hour
→ Fixed Overhead per Unit = 0.7 hours × 8.06 ≈ $5.64
Total Cost per Unit = 14 + 12.6 + 0.30 + 5.64 = $32.54

We have: Units Sold = 2,600

Cost per Unit = $32.54

→ COGS for Adult Bats = 2,600 × $32.54 = $72,604

Cost per Unit of Youth Bats
Direct Materials Cost per Unit = 48oz × 0.25 = $12
Direct Labor Cost per Unit = 0.7×18 = $12.6
Variable MOH rate = $0.30
Direct Labor Hours = (1,200 youth bats × 0.7) + (2,600 adult bats × 0.7) = 2,660 hours
Fixed Overhead = 1,300 + 20,140 = $21,440
→ Rate per Labor Hour = $21,440/ 2,660 hours ≈ $8.06 per hour
→ Fixed Overhead per Unit = 0.7 hours × 8.06 ≈ $5.64
Total Cost per Unit = 12 + 12.6 + 0.30 + 5.64 = $30.54

We have: Units Sold = 1,200

Cost per Unit = $30.54

→ COGS for Adult Bats = 1,200 × $30.54 = $36,648

COGS Budget = $72,604 + $36,648 = $109,252
7. Selling and Administrative Expense Budget
Fixed Expenses:
Salaries $9,000
Rent $2,500
Insurance $1,000
Depreciation $200
Total Fixed Expenses $12,700
Variable Expenses: $4,340
2% of Sales ($217,000)
Total Selling and Administrative Expenses $17,040
1. Sales Budget
Q1 Q2
Budgeted sales (units) 1,000 1,200
Selling price per unit ($) 70 70
Total sales ($) 70,000 84,000
Cash (10%) 7,000 8,400
Credit (90%) 63,000 75,600
Production Budget
Q1 Q2
Budgeted sales 1,000 1,200
Add desired ending inventory (40%) 480 560
Total needed 1,480 1,760
Less beginning inventory 300 480
Required production (units) 1,180 1,280
Direct Materials Budget
Q1 Q2
Production 1,180 1,280
Materials per unit ($) 2.5 2.5
Production needs 2,950 3,200
Add desired ending inventory (40%) 1,280 1,480
Total needed 4,230 4,680
Less beginning inventory 750 1,280
Materials to be purchased 3,480 3,400
Cost per unit of raw materials ($) 4 4
Budgeted purchase of raw materials ($) 13,920 13,600
Direct Labor Budget
Q1 Q2
Production 1,180 1,280
Direct labor hours 0.3 0.3
Labor hours required 354 384
Direct labor cost per hour ($) 20 20
Budgeted direct labor cost ($) 7,080 7,680
Manufacturing Overhead Budget
Q1 Q2
Production 1,180 1,280
Variable MOH rate ($) (h) 3 3
Total variable MOH costs ($) 3,540 3,840
Fixed MOH costs:
Fixed overhead-dep ($) (i) 6,000 6,000
Fixed overhead-cash ($) 10,860 10,860
Add total Fixed MOH costs ($) 16,860 16,860
Total MOH costs ($) 20,400 20,700
Less depreciation ($) (i) 6,000 6,000
Cash payments for MOH ($) 14,400 14,700
Fixed MOH rate = Total fixed MOH costs/ Production units = 67,440/ 5,620 = $12 per unit
Selling and Administrative Expense Budget
Q1 Q2
Variable selling and administrative expense (2% of sale) ($) (k) 1,400 1,680
Fixed selling and administrative expense - dep ($) (j) 2,000 2,000
Fixed selling and administrative expense - cash ($) 14,750 14,750
Total bugeted selling and administrative expense ($) 18,150 18,430
Less depreciation ($) 2,000 2,000
Cash payments for selling and administrative expense ($) 16,150 16,430
Cost of Goods Sold Budget
Hours/ Units Rate ($)
Material 2.5 4
Labor 0.3 20
Variable overhead
Fixed overhead
COGS per unit
Q1 Q2
Beginning inventory ($) (300 tires at $36 each) 10,800
Tire produced and sold during the year ($) 21,700 37,200
Budgeted COGS ($) 32,500 37,200
Cash budget
Q1 ($) Q2 ($)
Beginning balance 20,000 20,010
Add cash collections (I96) 81,100 80,220
Total cash available 101,100 100,230
Less cash disbursement for:
Material purchase (I106) 22,960 13,760
Direct labor(I32) 7,080 7,680
MOH(I44) 14,400 14,700
Selling and Administrative Expense (i53) 16,150 16,430
Income tax (p) 3,500 3,500
Capital expenditures (l) 25,000 0
Interest expense (12%) (q) 0 240
Total cash payment 89,090 56,310
Ending cash balance before financing 12,010 43,920
Minimum cash balance desired (q) 20,000 20,000
Projected cash excess (deficiency) ( âm thì phải vay) -7,990 23,920
Financing:
Borrowing ( làm tròn khoản vay từ 7990) 8,000 0
Repayment (khoản phải trả) 0 -8000
Total effects of financing 8,000 -8,000
Ending cash balance 20,010 15,920

Schedule of collection from customers

Credit sale ($) Q1 ($)
Last year receivable
2018 Q4 sale ( account receivable trong bảng) 30,000
Q1 sale ( lấy từ sale budget phần 1) 63,000 44,100
Q2 sale 75,600
Q3 sale 88,200
Q4 sale 100,800
Cash sale ( lấy từ cash 10% ở sale budget) 7,000
Budgeted cash receipt 81,100

Schedule of payment for purchase

Credit purchase ($) Q1 ($)
Last year payable 16,000
Q1 purchase (Budgeted purchase of raw materials ($)) 13,920 6,960
Q2 purchase 13,600
Q3 purchase 15,600
Q4 purchase 13,080
Total payment for purchase 22,960
Q3 Q4 Total
1,400 1,600 5,200
70 70 70
98,000 112,000 364,000
9,800 11,200 36,400
88,200 100,800 327,600

Q3 Q4 Total
1,400 1,600 5,200
640 720 720
2,040 2,320 5,920
560 640 300
1,480 1,680 5,620

Q3 Q4 Total
1,480 1,680 5,620
2.5 2.5 2.5
3,700 4,200 14,050
1,680 750 750
5,380 4,950 14,800
1,480 1,680 750
3,900 3,270 14,050
4 4 4
15,600 13,080 56,200

Q3 Q4 Total
1,480 1,680 5,620
0.3 0.3 0.3
444 504 1,686
20 20 20
8,880 10,080 33,720

Q3 Q4 Total
1,480 1,680 5,620
3 3 3
4,440 5,040 16,860

6,000 6,000 24,000

10,860 10,860 43,440
16,860 16,860 67,440
21,300 21,900 84,300
6,000 6,000 24,000
15,300 15,900 60,300
Q3 Q4 Total
1,960 2,240 7,280
2,000 2,000 8,000
14,750 14,750 59,000
18,710 18,990 74,280
2,000 2,000 8,000
16,710 16,990 66,280

Per finished goods cost ($)

10
6
3
12
31
Q3 Q4 Total
10,800
43,400 49,600 151,900
43,400 49,600 162,700

Q3 ($) Q4 ($) Total ($)

15,920 31,150 20,000
94,220 108,220 363,760
110,140 139,370 383,760

14,600 14,340 65,660

8,880 10,080 33,720
15,300 15,900 60,300
16,710 16,990 66,280
3,500 3,500 14,000
0 0 25,000
0 0 240
58,990 60,810 265,200
51,150 78,560 118,560
20,000 20,000 20,000
31,150 58,560 98,560

0 0 8,000
0 0 -8,000
0 0 0
31,150 58,650 98,560

Q2 ($) Q3 ($) Q4 ($) Total ($)

 30,000
18,900 63,000
52,920 22,680 75,600
61,740 26,460 88,200
70,560 70,560
8,400 9,800 11,200 36,400
80,220 94,220 108,220 363,760

Q2 ($) Q3 ($) Q4 ($) Total ($)

16,000
6,960 13,920
6,800 6,800 13,600
7,800 7,800 15,600
6,540 6,540
13,760 14,600 14,340 65,660
FINAL EXAM STRUCTURE
4 Questions
Time: 125 minutes
Master budget Operational budget
High-low method
Learning curve
Flexible budget
Variance Direct variance
Indirect variance
Cell Plus Technologies
1+3

Units
Sales Revenue
Variable Expenses
Contribution Margin
Fixed Expenses
Operating Income

Flexible Budget Variance = $79,900 - $75,000 = $900 (F)

Sales Volume Variance = $75,000 - $53,000 = $22,000 (F)

2
Contribution margin per unit = Sales price - variable cost = $2
Effect on operating income of selling 2,000 more than the sta
Hence:
Effect on operating income of selling 2,000 more than the sta
Increase in operating income by = $22,000

4
The flexible budget adjusts for the actual level of activity (uni
The static budget variance only compares results to the exp
The flexible budget isolates the impact of operational efficie
Insights for Managers:
Sales revenue was $7,000 favorable, suggesting better prici
Variable costs were $5,100 unfavorable, potentially due to
Fixed costs were $1,000 unfavorable, possibly from unexpe
The flexible budget helps managers identify controllable facto
 Flexible Budget Performance Report
For the Month Ended July 31,2018
Budget Amounts per Unit Actual Results Flexible Budget Variance Flexible Budget
12,000 12,000
$24 $295,000 7,000 F $288,000
$13 161,100 5,100 U 156,000
133,900 1,900 F 132,000
58,000 1,000 U 57,000
$75,900 900 F $75,000

get Variance = $79,900 - $75,000 = $900 (F) $24 per unit x 10,000 units = $240,000
e Variance = $75,000 - $53,000 = $22,000 (F) $13 per unit x 10,000 units = $130,000

n margin per unit = Sales price - variable cost = $24 - $13 = $11
erating income of selling 2,000 more than the static budget level of sales = 2000 * $11 = $22,000

erating income of selling 2,000 more than the static budget level of sales:
operating income by = $22,000

budget adjusts for the actual level of activity (units sold), making it a more realistic and accurate comparison of performance.
budget variance only compares results to the expected sales level (10,000 units), ignoring changes in activity. This can lead to misleading c
e budget isolates the impact of operational efficiency, cost control, and pricing effectiveness from the effect of sales volume changes.

nue was $7,000 favorable, suggesting better pricing or higher sales volume.
osts were $5,100 unfavorable, potentially due to increased input costs or inefficiencies.
s were $1,000 unfavorable, possibly from unexpected expenses.
budget helps managers identify controllable factors (e.g., cost control) versus external factors (e.g., volume changes).
 Sales Volume Variance Static Budget
10,000
55,000 F $240,000
31,100 U 130,000
23,900 F 110,000
1,000 U 57,000
22,900 F 53,000

arison of performance.
tivity. This can lead to misleading conclusions.
effect of sales volume changes.

ume changes).
1

Particulars
Sales
Variable costs
Direct Material

Direct Labor
Variable Overheads
Fixed Manufacturing Costs
Fixed Overheads
Total Cost of Goods Sold
Gross Profit
2. Variances
Direct Materials:
Price Variance = (Actual Price - Standard Price) ×
= ($8.30 - $8.50) × 6,300 = -$1,260 Favorable

Quantity Variance = (Actual Quantity - Standard Q

= (6,300 - 6,030) × $8.50 = $2,295 Unfavorable

Direct Labor:
Rate Variance = (Actual Rate - Standard Rate) × Act
= ($9.40 - $9.20) × 9,850 = $1,970 Unfavorable

Efficiency Variance = (Actual Hours - Standard Hou

= (9,850 - 10,050) × $9.20 = -$1,840 Favorable

Variable Overhead:
Cost Variance = (Actual Rate - Standard Rate) × Act
= ($6.50 - $5.10) × 6,300 = $8,820 Unfavorable

Efficiency Variance = (Actual Quantity - Standard Q

= (6,300 - 6,030) × $5.10 = $1,377 Unfavorable

Fixed Overhead:
Cost Variance = Actual Fixed OH - Budgeted Fixed O
= $64,730 - $62,730 = $2,000 Unfavorable

Volume Variance = (Budgeted Units - Actual Units)

= (1,025 - 1,005) × ($62,730/1,025) = $1,224 Unfa

3. Assessment of management's control

Materials: Mixed performance
Favorable price variance ($1,260)
Unfavorable quantity variance ($2,295)
 Shows good purchasing but poor usage control
Labor: Good performance
Despite unfavorable rate variance ($1,970)
Achieved favorable efficiency variance ($1,840)
Shows good labor productivity
Overhead: Poor performance
All overhead variances are unfavorable
Significant variable overhead rate variance ($8,82
Poor control of fixed costs ($2,000 unfavorable)
4. Benefits of the standard cost system
Provides early warning signals of cost control prob
Helps identify specific areas needing improvement
Enables performance evaluation of different depar
Facilitates cost planning and budgeting
Helps in setting pricing strategies
Provides basis for variance analysis and corrective
Motivates employees to achieve standards
Simplifies cost accounting procedures
 McKnight Recliners
Flexible Budget - 1,005 recliners
Working Budgeted Amount
1,005 recliners * $500 each $502,500

6,150 yds/ 1,025 * 1,005 * $8.50 51,255

10,250 DLHr/ 1,025 * 1,005 *
$9.20 92,460
6,150 yds/ 1,025 * 1,005 * $5.10 30,753

62,730
237,198
$265,302

= (Actual Price - Standard Price) × Actual Quantity

0) × 6,300 = -$1,260 Favorable

nce = (Actual Quantity - Standard Quantity) × Standard Price

0) × $8.50 = $2,295 Unfavorable

(Actual Rate - Standard Rate) × Actual Hours

× 9,850 = $1,970 Unfavorable

ce = (Actual Hours - Standard Hours) × Standard Rate

) × $9.20 = -$1,840 Favorable

Actual Rate - Standard Rate) × Actual Quantity

× 6,300 = $8,820 Unfavorable

ce = (Actual Quantity - Standard Quantity) × Standard Rate

× $5.10 = $1,377 Unfavorable

Actual Fixed OH - Budgeted Fixed OH

730 = $2,000 Unfavorable

e = (Budgeted Units - Actual Units) × Fixed OH per unit

) × ($62,730/1,025) = $1,224 Unfavorable

f management's control
d performance
e variance ($1,260)
uantity variance ($2,295)
urchasing but poor usage control

able rate variance ($1,970)

ble efficiency variance ($1,840)
or productivity
performance
ariances are unfavorable
able overhead rate variance ($8,820)
fixed costs ($2,000 unfavorable)
he standard cost system
arning signals of cost control problems
ecific areas needing improvement
ance evaluation of different departments
lanning and budgeting
pricing strategies
r variance analysis and corrective action
oyees to achieve standards
ccounting procedures
1. Direct Materials and Direct Labor Variances
Direct Materials:
Standard Quantity for Actual Production = 106,000
Standard Cost = $0.16 per part
Price Variance = (Actual Price - Standard Price) × A
= ($0.21 - $0.16) × 209,000 = $10,450 Unfavorable
Quantity Variance = (Actual Quantity - Standard Qu
= (209,000 - 212,000) × $0.16 = -$480 Favorable
Direct Labor:
Standard Hours for Actual Production = 106,000 ca
Standard Rate = $8.00 per hour
Rate Variance = (Actual Rate - Standard Rate) × Act
= ($8.10 - $8.00) × 1,620 = $162 Unfavorable
Efficiency Variance = (Actual Hours - Standard Hou
= (1,620 - 2,120) × $8.00 = -$4,000 Favorable
2. Manufacturing Overhead Variances
Standard Variable OH Rate = $11.00 per hour
Standard Hours = 2,120 hours
Standard Variable OH = 2,120 × $11.00 = $23,320
Actual Variable OH = $9,000
Variable Overhead:
Variable OH Cost Variance = (Actual Rate − Standar
= (9,000/ 1,620 - $11.00) x 1,620 = (5.56−$11.00) ×
Variable OH Efficiency Variance = (Actual Hours - S
= (1,620 - 2,120) × $11.00 = -$5,500 Favorable
Fixed Overhead:
Standard Fixed OH Rate = $16.00 per hour ($30,72
Actual Fixed OH = $30,000
Budgeted Fixed OH = $30,720
Fixed OH Cost Variance = Actual Fixed OH - Budget
= $30,000 - $30,720 = -$720 Favorable
Fixed OH Volume Variance = (Budgeted Hours - Sta
= (1,920 - 2,120) × $16 = -$3,200 Favorable
3. Trade-off Between Direct Material Variances
The material price variance is significantly unfavora
A favorable quantity variance (-$480) due to less
Improved labor efficiency (favorable -$4,000)
Better variable overhead efficiency (favorable -$5
While the higher material cost increased total cost
Less material waste
More efficient labor usage
Better overhead utilization
Potentially higher quality products
Possible reduction in defects and rework
The trade-off appears beneficial overall since the e
The total favorable variances (-$4,000 labor efficie
 nd Direct Labor Variances

or Actual Production = 106,000 cases × 2 parts = 212,000 parts

ual Price - Standard Price) × Actual Quantity

09,000 = $10,450 Unfavorable
(Actual Quantity - Standard Quantity) × Standard Price
) × $0.16 = -$480 Favorable

Actual Production = 106,000 cases × 0.02 hours = 2,120 hours

ual Rate - Standard Rate) × Actual Hours

620 = $162 Unfavorable
(Actual Hours - Standard Hours) × Standard Rate
8.00 = -$4,000 Favorable
verhead Variances
H Rate = $11.00 per hour

H = 2,120 × $11.00 = $23,320

riance = (Actual Rate − Standard Rate) × Actual Hours

1.00) x 1,620 = (5.56−$11.00) × 1,620 = (−5.44) × 1,620 = -$8,813 Favorable
cy Variance = (Actual Hours - Standard Hours) × Standard Rate
11.00 = -$5,500 Favorable

ate = $16.00 per hour ($30,720/ 1,920 hours)

nce = Actual Fixed OH - Budgeted Fixed OH

= -$720 Favorable
riance = (Budgeted Hours - Standard Hours) × Standard Fixed Rate
16 = -$3,200 Favorable
n Direct Material Variances
ariance is significantly unfavorable ($10,450) due to using higher quality materials ($0.21 vs. $0.16 per part). However, this investment in b
ty variance (-$480) due to less waste (209,000 parts used vs. 212,000 standard)
ciency (favorable -$4,000)
rhead efficiency (favorable -$5,500)
terial cost increased total costs, the benefits include:

quality products
in defects and rework
s beneficial overall since the efficiency gains in labor and overhead more than offset the additional material cost.
ariances (-$4,000 labor efficiency, -$5,500 VOH efficiency) exceed the net unfavorable materials variance ($10,450 - $480 = $9,970).
However, this investment in better materials resulted in:
10,450 - $480 = $9,970).
1. Direct Materials and Direct Labor Variances
Direct Materials:
Standard Quantity = 62,500 mugs × 0.2 lbs = 12,50
Standard Cost = $0.25 per lb
Actual Quantity = 11,000 lbs
Actual Cost = $0.17 per lb
Price Variance = (Actual Price - Standard Price) × A
= ($0.17 - $0.25) × 11,000 = -$880 Favorable
Quantity Variance = (Actual Quantity - Standard Qu
= (11,000 - 12,500) × $0.25 = -$375 Favorable
Direct Labor:
Standard Hours = 62,500 mugs × (3/60) hours = 3,1
Standard Rate = $0.14 per minute
Actual Hours = 197,000 minutes
Actual Cost = $33,490
Actual Rate = $33,490/197,000 = $0.17 per minute
Rate Variance = (Actual Rate - Standard Rate) × Act
= ($0.17 - $0.14) × 197,000 = $5,910 Unfavorable
Efficiency Variance = (Acrual Hours - Standard Hou
= (197,000 - 187,500) × $0.14 = $1,330 Unfavorabl
2. Journal Entries
For Materials:
Materials Inventory 1,870
Accounts Payable 1,870
(11,000 × $0.17)

Work in Process 3,125

Materials Price Variance 880 (F)
Materials Inventory 1,870
Materials Quantity Variance 375 (F)
For Labor:
Work in Process 26,250
Labor Rate Variance 5,910
Labor Efficiency Variance 1,330
Wages Payable 33,490
3. Manufacturing Overhead Variances
Variable Overhead:
Standard Rate = $0.06 per minute
Standard Minutes = 187,500 minutes (62,500 mug
Actual Variable OH = $10,835
Variable overhead Cost Variance = Actual Variable
= $10,835 - (197,000 × $0.06) = -$985 Favorable
Variable Overhead Efficiency Variance = (Actual Ho
= (197,000 - 187,500) × $0.06 = $570 Unfavorable
Fixed Overhead:
Standard Fixed Rate = $0.13 per minute
Budgeted Fixed OH = 59,800 × 3 × $0.13 = $23,322
Actual Fixed OH = $29,965
Fixed Overhead Cost Variance = Actual Fixed Overh
= $29,965 - $23,322 = $6,643 Unfavorable
Fixed Overhead Volume Variance = (Budgeted Hou
= (179,400 - 187,500) × $0.13 = -$1,053 Favorable
4. Journal Entries
Manufacturing Overhead 40,800
Accounts Payable 40,800
(For actual overhead incurred)

Work in Process 35,625

Manufacturing Overhead 35,625
(For applied overhead)

Finished Goods 65,000

Work in Process 65,000
(For transfer of completed production)

Manufacturing Overhead Variance 5,175

Manufacturing Overhead 5,175
(To close manufacturing overhead account)
5. Analysis of Labor Decision
The hiring of highly skilled workers resulted in:
Unfavorable labor rate variance ($5,910) due to h
Unfavorable efficiency variance ($1,330)
However, material usage was more efficient (favo
Variable overhead showed mixed results
6. Standard Cost Income Statement for July 2018
Sales (62,500 × $5) $31
Standard Cost of Goods Sold (62,500 × $1.04) (65,
Standard Gross Margin 247
Total Variances:
Materials Price Variance (880) F
Materials Quantity Variance (375) F
Labor Rate Variance 5,910 U
Labor Efficiency Variance 1,330 U
VOH Cost Variance (985) F
VOH Efficiency Variance 570 U
FOH Cost Variance 6,643 U
FOH Volume Variance (1,053) F
Net Unfavorable Variance 11
Actual Gross Margin 23
Selling and Administrative Expenses 13
Operating Income $1
nd Direct Labor Variances

62,500 mugs × 0.2 lbs = 12,500 lbs

ual Price - Standard Price) × Actual Quantity

1,000 = -$880 Favorable
(Actual Quantity - Standard Quantity) × Standard Price
$0.25 = -$375 Favorable

,500 mugs × (3/60) hours = 3,125 minutes

14 per minute
00 minutes

0/197,000 = $0.17 per minute

ual Rate - Standard Rate) × Actual Hours
97,000 = $5,910 Unfavorable
(Acrual Hours - Standard Hours) × Standard Rate
) × $0.14 = $1,330 Unfavorable

1,870
1,870

3,125
ariance 880 (F)
1,870
y Variance 375 (F)

26,250
5,910
ance 1,330
33,490
verhead Variances

06 per minute
187,500 minutes (62,500 mugs × 3 minutes)

ost Variance = Actual Variable Overhead - (Actual Hours × Standard Rate)

× $0.06) = -$985 Favorable
fficiency Variance = (Actual Hours - Standard Hours) × Standard Rate
) × $0.06 = $570 Unfavorable
 = $0.13 per minute
= 59,800 × 3 × $0.13 = $23,322

Variance = Actual Fixed Overhead - Budgeted Fixed Overhead

= $6,643 Unfavorable
me Variance = (Budgeted Hours - Standard Hours) × Fixed Rate
) × $0.13 = -$1,053 Favorable

head 40,800
40,800

35,625
erhead 35,625

65,000
65,000
pleted production)

head Variance 5,175

erhead 5,175
ring overhead account)

killed workers resulted in:

rate variance ($5,910) due to higher wages
ncy variance ($1,330)
usage was more efficient (favorable -$375)
showed mixed results
ome Statement for July 2018
$312,500
ods Sold (62,500 × $1.04) (65,000)
gin 247,500

ance (880) F
Variance (375) F
e 5,910 U
iance 1,330 U
(985) F
ance 570 U
6,643 U
ce (1,053) F
iance 11,160
236,340
rative Expenses 130,000
$106,340