Chapte 12 B exercise questions

Question 1

E12-17
Lov company is planning to produce 2,000 units of product in 2o12. each unit requires 2.5 kg of materials at $5 per kg and 1/2 hour of labour at $16/ hour. the overhead rate is 70% of DL
a) calculate the bugeted amounts for 2012 for DM to be used, DL and applied OH
b) calculate the standard cost of one unit of product

Answer 1

(a) Direct materials: (2,000 × 2.5) × $5 = $25,000
Direct labour: (2,000 × 0.50) × $16 = $16,000
Overhead: $16,000 × 70% = $11,200

(b) Standard cost

unit
Material
2.50kg×   $5.00      $12.50
Labour
0.50hrs  ×  $16.00    8.00
Manufacturing overhead*
0.50hrs × $11.20    5.60
                        total $26.10
* Manufacturing overhead = $16.00 × 70%

Question 2

E12-18
Raul mondesi manufactures and sells homemade wine and he wants to develp a standard cost per litre. the following are required for production of a 200 litre batch
- 90 litres of grape $1.25 per litre
- 27 kg of sugar at $0.60 per Kg
- 60 lemons at $0.60 each
- 50 yeast tablets at .25
- 50 nuturient tablests .20 each
- 75 ltires of water at .10 per liter
- estimates that 4% of grape is wasted, 10% of sugar is lost and 20% of lemons cannot be used
a) calculate the standard cost of ingeredients for one litre of drink (to 3 decimal places)

Answer 2

1.  waste
Grape concentrate (90 ÷ 200)
0.45 ltr    4%     0.4687 ltrs
Sugar (27 ÷ 200)
0.135 kg   10%    0.1500 kg
Lemons (60 ÷ 200)
0.3 units    20%  0.3750 units

2.  Per unit cost
Grape concentrate (litres)
0.4687
$1.35
$0.6328
Sugar (kilograms)
0.1500
0.60
0.0900
Lemons (units)
0.3750
0.60
0.2250
Yeast tablets (units)
0.2500
0.25
0.0625
Nutrient tablets (units)
0.2500
0.20
0.0500
Water (litres)
0.3750
0.10
0.0375
Total standard cost per litre       $1.0978

Question 3

E12-20
the standard cost of product B manufacutured by B co. includes two units of DM at $4.00 per unit. During June, the co purchases 27,000 units of DM at a cost of $3.80 per unit and uses 27,000 units of DM to produce 13,000 units of product B.

a) calculate the materials variance, the price and quanity variances
b) repaeat a) assuming the purchase price is $4.20 and the quantity purchased and used is 25,200 units

Answer 3

a) Material variance 
(AQ x AP) - (SQA - SP) 
(27,000 x 3.8)-( (13,000 x2)x 4)
= 102,600 - 104,000 = 1,400 F
Material price variance 
(AQ x AP0 - (AQ x SP)
(27,000 x 3.80) - (27,000x 4)
= 102,600 - 108,000 = 5,400 F

Material quantity variance
(AQ x SP) - (SQA x SP)
(27,000 x 4) - (26,000 x 4)
= 108,000 - 104,000 = 4,000 U

b) material variance
(25,200 x 4.20) - (25,200 x 2) x 4)
= 105,840 - 104,000 = 1,840 U

Material price variance
(25,200 x 4.20) - (25,200 x 4)
= 105,840 - 100,800 = 5,040 U

Material quantity variance
(25,200 x 4) - (26,000 x 4)
= 100,800 - 104,000 = 3,200 F

Question 4

E12-21
Pag co. standard labour cost of producing one unit of product is 4 hours at a rate of $12. per hour. during August 40,800 hours of labour are incurred at a cost of $12.10 per hour to produce 10,000 units.

a) calculate the total labour variance
b) calculate the labour price and quantity variances

Answer 4

(a) Total labour variance: (AH × AR) – (SHA × SR)
(40,800 × $12.10) – [(10,000 × 4) × $12.00]
= $493,680 – $480,000 = $13,680 U
(b) Labour price variance: (AH × AR) – (AH × SR)
(40,800 × $12.10) – (40,800 × $12.00)
= $493,680 – $489,600 = $4,080 U
Labour quantity variance: (AH × SR) – (SHA × SR)
(40,800 × $12.00) – (40,000 × $12.00)
= $489,600 – $480,000 = $9,600 U

Question 5

Brief Exercise 131
Go Mix Company uses both standards and budgets. The company estimates that production for the year will be 125,000 units of Product Fast. To produce these units of Product Fast, the company expects to spend $406,250 for materials and $1,875,000 for labour.

Instructions
Calculate the estimates for (a) a standard cost and (b) a budgeted cost.

Answer 5

Solution 131 (5 min.)
(a) Standards are stated as a per unit amount. Thus, the standards are
materials $3.25, ($406,250 ÷ 125,000), and labour $15, ($1,875,000 ÷ 125,000).

(b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are materials $406,250 and labour $1,875,000.

Question 6

Brief Exercise 132
During March, Tile Company purchases and uses 15,125 kilograms of materials costing $22,990 to make 5,000 tiles. Tile Company’s standard material cost per tile is $4.50 (3 kilograms of material x $1.50).

Instructions
Calculate the total, price, and quantity material variances for Tile Company for March.

Answer 6

Solution 132 (5 min.)
Total materials variance = $490 U, (15,125 X $1.52) – (15,000 X $1.50).
Materials price variance = $302.50 U, (15,125 X $1.52) – (15,125 X $1.50).
Materials quantity variance = $187.50 U, (15,125 X $1.50) – (15,000 X $1.50).

Question 7

Brief Exercise 133
During January, Ray Company incurs 2,250 hours of direct labour at an hourly cost of $10.10 in producing 1,250 units of its finished product. Ray’s standard labour cost per unit of output is $18.45 (1.75 hours x $10.25).

Instructions
Calculate the total, price, and quantity labour variances for Ray Company for January.

Answer 7

Solution 133 (5 min.)
Total labour variance = $303.13 U, (2,250 X $10.10) – (2,187.50 X $10.25).
Labour price variance = $337.50 F, (2,250 X $10.10) – (2,250 X $10.25).
Labour quantity variance = $640.63 U, (2,250 X $10.25) – (2,187.50 X $10.25).

Question 8

Brief Exercise 134
In October, Halo Inc. reports 35.000 actual direct labour hours, and it incurs $168,750 of manufacturing overhead costs. Standard hours allowed for the work completed during October is 36,000 hours. Halo’s predetermined overhead rate is $4.70 per direct labour hour.

Instructions
Calculate the total manufacturing overhead variance for Halo Inc. for October.

Answer 8

Solution 134 (5 min.)
The formula is:

	Actual
Overhead
$168,750	
–	Overhead
Applied
*$169,200*	
=	Total Overhead
Variance
$450 F

*36,000 X $4.70 = $169,200

Question 9

*Brief Exercise 135
EKPN Co. purchased 5,000 units of raw material on account for $14,750, when the standard cost was $15,000. Later in the month, EKPN Co. issued 4,700 units of raw materials for production, when the standard units were 4,800.

Instructions
Journalize the transactions for EKPN Co. to account for this activity.

Answer 9

Solution 135 (5 min.)
(a) Raw Mat Inv (DR) 15,000
Materials Price Variance (CR)   250
Accounts Payable (CR)14,750

(b) Work in Process Inventory (4,800 X $3*) (DR)14,400
Materials Quantity Variance  (CR)  300
Raw Materials Inventory (4,700 X $3) (CR) 14,100

*$3 = $15,000 ÷ 5,000 units

Question 10

Brief Exercise 137
KMV Ltd. makes only one item and has a standard direct labour cost of $24 calculated as 2 hours at $12 per hour.
In the recent month, 1,000 units were produced using 2,200 hours at $12.75 per hour.

Instructions
Calculate the direct labour efficiency variance. Is it favourable or unfavourable?

Answer 10

Solution 137 (5 min.)
$12.00 x (2,200 – 2,000) = $2,400    Unfavourable

Question 11

Brief Exercise 138
KMV Ltd. makes only one item and has a standard direct material cost of $8 per kg and uses 10 kgs to make one unit.
The expected production for the year was 5,000 units using 50,000 kg of material. During 2011 KMV produced 5,100 units and used 52,000 kgs purchased at $8.25 per kg.

Instructions
Calculate the direct materials quantity variance. Is it favourable or unfavourable?

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Answer 11

Solution 138 (5 min.)
$8.00 x (52,000 – (5,100 x 10)) = $8,000 Unfavourable   
(50,000 ÷ 5,000 = 10)