Professor Authored Problem Solutions Advanced Cost Accounting Acct 647 Variances Solution to Problem 1 Material and labor variances 1. Compute material price and quantity variances Std Cost = applied cost Actual Purchased FB Purchases FB Inputs Used FB Units Produced AQ purch *AP AQ purch *SP AQ used *SP SQ*SP (30,000*0.4)*2 15,000*x 15,000*2 11,500*2 12,000*2 35,850 30,000 23,000 24,000 Material price var Material quantity var 5,850 U 1,000 F 2. Compute labor rate/price and efficiency variances. Actual Flex Budget / Inputs Flex Budget / Outputs ActualHrs*ActualRate ActualHrs*StdRate StdHrs*StdRate 350 * 14.8571428571 350 * 16 30,000*.01*160 5,200 5,600 4,800 Labor rate/price var Labor efficiency var 400 F 800 U 3. Journal entries for purchase and then usage. Material inventory 35,850 Accounts payable 35,850 Material price variance 5,850 Material inventory 5,850 WIP inventory 24,000 Material inventory 24,000 Material inventory 1,000 Materials quantity variance 1,000 164
4. Journal entries for addition of labor to work in process WIP inventory 4,800 Direct labor control 4,800 Direct labor efficiency variance 800 Direct labor price variance 400 Direct labor control 400 5. Journal entries for material and labor cost of 30,000 goods completed and transferred to finished goods. Finished goods inventory 28,800 WIP inventory 5,850 6. Prepare journal entries for recognition of the material and labor variances. CGS expense 5,250 Direct labor rate/price variance 400 Material quantity variance 1,000 Material price variance 5,850 Direct labor efficiency variance 800 165
1. Compute the labor price (or rate) variance 2. Compute the labor efficiency variance. Solution to Problem 2 Labor variances ActualFlex Budget / Inputs Flex Budgets / Outputs ActualHrs*ActualRate ActualHrs*StdRate StdHrs*StdRate 27,350*30 25,000*30 790,000 820,500 750,000 Labor rate/price var Labor efficiency var 30,500 F 70,500 U 3. Prepare a journal entry(ies) for the addition of labor to work in process. WIP inventory 750,000 Direct labor control 750,000 Direct labor efficiency variance 70,500 Direct labor price variance 30,500 Direct labor control 40,000 4. Prepare a journal entry(ies) for recognition of the labor variances, if not already included in above journal entries. CGS expense 40,000 Direct labor price variance 30,500 Direct labor efficiency variance 70,500 166
Solution to Problem 3 Material variances Given: Flex Budget usage / Inputs Flex Budget / Outputs ActPounds used *StdRate StdPounds*StdRate?*5 (units produced*0.5)*5 20,000? How many units of completed product are produced? 7,000 Material quantity var 2,500 U Flex Budget / Inputs Flex Budgets / Outputs ActPounds*StdRate StdPounds*StdRate 4,000*5 (7,000*0.5)*5 20,000 17,500 Material quantity var 2,500 U 167
1. Compute the labor price (or rate) variance 2. Compute the labor efficiency variance. Solution to Problem 4 Labor variances Actual Flex Budget / Inputs Flex Budgets / Outputs ActualHrs*ActualRate ActualHrs*StdRate StdHrs*StdRate (20,000*0.2)*40 5,000*34 5,000*40 4,000*40 170,000 200,000 160,000 Labor rate/price var Labor efficiency var 30,000 F 40,000 U 3. Prepare a journal entry(ies) for the addition of labor to work in process. WIP inventory 160,000 Direct labor control 160,000 Direct labor efficiency variance 40,000 Direct labor price variance 30,000 Direct labor control 10,000 4. Prepare a journal entry(ies) for recognition of the labor variances, if not already included in above journal entries. CGS expense 10,000 Direct labor price variance 30,000 Direct labor efficiency variance 40,000 168
Solution to Problem 5 Labor variances Required: How many units of completed product are produced? Given: Actual Flex Budget / Inputs Flex Budgets / Outputs ActualHrs*ActualRate ActualHrs*StdRate StdHrs*StdRate (?*0.1)*20 4,000*? 4,000*20?*20 90,250?? Labor price var Labor efficiency var 10,250 U 2,500 U How many units if completed product are produced? Actual Flex Budget / Inputs Flex Budgets / Outputs ActualHrs*ActualRate ActualHrs*StdRate StdHrs*StdRate (387,500*0.01)*20 4,000*22.5625 4,000*20 3,875*20 90,250 80,000 or 90,250 10,250 77,500 = 80,000 2,500 Labor price var Labor efficiency var 10,250 U 2,500 U 169
1A. Compute the material variances FB = flexible budgets Q = quantity materials Hrs = number of hours P = price R = rate A = actual S = standard Brass Solution to Problem 6 Material, labor, variable OH & fixed OH variances Std Cost = applied cost Actual Purchased FB Purchases FB Inputs Used FB Units Produced AQ purch *AP AQ purch *SP AQ used *SP SQ*SP (38,000*0.5)*40 25,000*42 25,000*40 20,000*40 19,000*40 1,050,000 1,000,000 800,000 760,000 Material price var Material quantity var 50,000 U 40,000 U 2A. Journal entries for purchase and then usage. Material inventory 1,050,000 Accounts payable 1,050,000 Material price variance 50,000 Material inventory 50,000 WIP inventory 760,000 Material inventory 760,000 Materials quantity variance 40,000 Material inventory 40,000 170
1A. Material variances for steel Steel Std Cost = applied cost Actual Purchased FB Purchases FB Inputs Used FB Units Produced AQ purch *AP AQ purch *SP AQ used *SP SQ*SP (38,000*0.4)*40 25,000*19 25,000*18 13,500*18 15,200*18 475,000 450,000 243,000 273,600 Material price var Material quantity var 25,000 U 30,600 F 2A. Journal entries for purchase and then usage. Material inventory 475,000 Accounts payable 475,000 Material price variance 25,000 Material inventory 25,000 WIP inventory 273,600 Material inventory 273,600 Material inventory 30,600 Materials quantity variance 30,600 171
1B Compute the labor variances Std Cost = applied cost Actual used FB/ Inputs FB / Outputs AHrs*AR Ahrs*SR Shrs*SR (38,000*0.09)*45 3,000*52 3,000*45 3,420*45 156,000 135,000 153,900 Labor price var Labor efficiency var 21,000 U 18,900 F 2B Journal entries for direct labor WIP inventory 153,900 Direct labor control 153,900 Direct labor price variance 21,000 Direct labor efficiency variance 18,900 Direct labor control 2,100 172
1C. Compute the variable overhead variances Std Cost = applied cost Actual Flex Budget / Inputs Flex Budgets / Outputs ADLHrs*SVOHRate SDLHrs*SVOHRate 3,000*50 3,420*50 172,000 150,000 171,000 VOH spending/rate var VOH efficiency var 22,000 U 21,000 F 2C Journal entries for variable overhead VOH control 172,000 AP, Accum Deprec, etc. 172,000 WIP inventory 171,000 Variable OH control 171,000 VOH spending/rate variance 22,000 VOH efficiency var 21,000 Variable OH control 1,000 1D Compute the fixed overhead variances Actual Static Master budget applied cost SDLHrs*SFOHRate 252,000 = 35,000*.09*80 3,420*80 238,000 252,000 273,600 FOH spending/rate var FOH volume var 14,000 F 21,600 F (overapplied) 2D Journal entries for fixed overhead FOH control 238,000 AP, Accum Deprec, etc. 238,000 WIP inventory 273,600 Fixed OH control 273,600 FOH control 35,600 FOH spending/rate variance 14,000 FOH volume var 21,600 173
3 Journal entries for completing 38,000 doorknobs and transferring them to FG inventory FG inventory 1,244,500 WIP inventory 1,244,500 38,000*32.75 4. Journal entry for recognizing all variances. CGS expense 50,900 Material quantity variance (steel) 30,600 Direct labor efficiency variance 18.900 VOH efficiency variance 22,000 FOH spending/rate variance 14,000 FOH volume (application) variance 21,600 Material price variance (brass) 50,000 Material quantity variance (brass) 40,000 Material price variance (steel) 25,000 Direct labor rate/price variance 21,000 VOH spending/rate variance 22,000 174
1A. Compute the material variances Brass Solution to Problem 7 Material, labor, variable OH & fixed OH variances Std Cost = applied cost Actual Purchased FB Purchases FB Inputs Used FB Units Produced AQ purch *AP AQ purch *SP AQ used *SP SQ*SP (36,000*0.55)*70 30,000*74 30,000*70 19,000*70 19,800*70 2,220,000 2,100,000 1,330,000 1,386,000 Material price var Material quantity var 120,000 U 56,000 F 2A. Journal entries for purchase and then usage. Material inventory 2,220,000 Accounts payable 2,220,000 Material price variance 120,000 Material inventory 120,000 WIP inventory 1,386,000 Material inventory 1,386,000 Material inventory 56,000 Materials quantity variance 56,000 175
1A. Compute the material variances Steel Std Cost = applied cost Actual Purchased FB Purchases FB Inputs Used FB Units Produced AQ purch *AP AQ purch *SP AQ used *SP SQ*SP (36,000*0.42)*25 25,000*27 25,000*25 14,500*25 15,120*25 675,000 625,000 362,500 378,000 Material price var Material quantity var 50,000 U 15,500 F 2A. Journal entries for purchase and then usage. Material inventory 675,000 Accounts payable 675,000 Material price variance 50,000 Material inventory 50,000 WIP inventory 378,000 Material inventory 378,000 Material inventory 15,500 Materials quantity variance 15,500 1B Compute the labor variances Std Cost = applied cost Actual used FB/ Inputs FB / Outputs AHrs*AR Ahrs*SR Shrs*SR (36,000*0.12)*60 4,500*57 4,500*60 4,320*60 256,500 270,000 259,200 Labor price var Labor efficiency var 13,500 F 10,800 U 2B Journal entries for direct labor WIP inventory 259,200 Direct labor control 259,200 Direct labor efficiency variance 10,800 Direct labor control 2,700 Direct labor price variance 13,500 176
1C Compute the variable overhead variances Std Cost = applied cost Actual Flex Budget / Inputs Flex Budgets / Outputs ADLHrs*SVOHRate SDLHrs*SVOHRate 4,500*30 4,320*30 135,000 135,000 129,600 VOH spending/rate var VOH efficiency var 0 5,400 U 2C Journal entries for variable overhead VOH control 135,000 AP, Accum Deprec, etc. 135,000 WIP inventory 129,600 Variable OH control 129,600 VOH spending/rate variance 0 VOH efficiency var 5,400 Variable OH control 5,400 1D Compute the fixed overhead variances Not std cost Actual Master budget applied cost SDLHrs*SFOHRate 432000 = 40,000*.12*90 4,320*90 400,000 432,000 388,800 FOH spending/rate var FOH volume var 32,000 F 43,200 U (underapplied) 2D Journal entries for fixed overhead FOH control 400,000 AP, Accum Deprec, etc. 400,000 WIP inventory 388,800 Fixed OH control 388,800 FOH volume var 43,200 FOH control 11,200 FOH spending/rate variance 32,000 177
3 Journal entries for completing 38,000 doorknobs and transferring them to FG inventory FG inventory 2,541,600 WIP inventory 2,541,600 36,000*70.60 4. Journal entry for recognizing all variances. CGS expense 120,800 Material quantity variance (brass) 56,000 Material quantity variance (steel) 15,500 Direct labor rate/price variance 13,500 FOH spending/rate variance 32,000 Material price variance (brass) 120,000 Material price variance (steel) 50,000 Direct labor efficiency variance 10,800 VOH spending/rate variance 0 VOH efficiency variance 5,400 FOH volume (application) variance 43,200 178
Solutions to Homework Problems for Jobs from Cost Management, 2 nd, by Eldenburg and Wolcott 179
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Professor Authored Problem Solutions Advanced Cost Accounting Acct 647 Sales & Contribution Margin Variances Solution to Problem 8 Sales variances 36000 35000 35000 35000 Variance Flexible Bud Variance Flexible Bud Variance Static budget Volume @std mix Mix @actual mix Price/cost Actual Rev Ind 192,000 16 (5,333) 186,667 (74,667) 112,000 (7,000) 105,000 15 Rev Com 240,000 10 (6,667) 233,333 46,667 280,000 0 280,000 10 Total revenue 432,000 (12,000) 420,000 (28,000) 392,000 (7,000) 385,000 Var Cost Ind 144,000 12 4,000 140,000 56,000 84,000 31,500 52,500 7.5 Var Cost Com 192,000 8 5,333 186,667 (37,333) 224,000 (5,600) 229,600 8.2 Total Var Cost 336,000 9,333 326,667 18,667 308,000 25,900 282,100 CM Ind 48,000 4 (1,333) 46,667 (18,667) 28,000 24,500 52,500 7.5 CM Com 48,000 2 (1,333) 46,667 9,333 56,000 (5,600) 50,400 1.8 Total CM 96,000 (2,667) 93,333 (9,333) 84,000 18,900 102,900 Fixed Cost 40,000 40,000 Income 56,000 62,900 There are three things that combined to produce a 6,900 increase in actual income over the budgeted amount. First, the actual contribution margin for Industrial was $7.50, much more than the budgeted $4. This had a positive impact of $24,500 on the bottom line. This came about because variable costs were greatly reduced from budget. Commercial had an actual contribution margin of $1.80 instead of $2.00, which hurt the bottom line by $5,600. Secondly, sales of industrial were much less than anticipated and sales of commercial were much greater than anticipated, causing a decrease of $9,333 in contribution margin. Finally, total unit sales decreased slightly to 35,000 from a budgeted 36,000 to decrease net income by $2,667. It seems that sales of industrial can be increased if its sales price is lowered. This is justified by the huge decrease in Industrial s variable cost per unit. 186
Solution to Problem 9 Sales variances 41000 44000 44000 44000 Variance Flexible Bud Variance Flexible Bud Variance Static budget Volume @std mix Mix @actual mix Price/cost Actual Rev Ind 288,000 16 21,073 309,073 (5,073) 304,000 (3,000) 301,000 15.84 Rev Com 989,000 43 72,366 1,061,366 13,634 1,075,000 145,000 1,220,000 48.80 Total revenue 1,277,000 93,439 1,370,439 8,561 1,379,000 142,000 1,521,000 Var Cost Ind 162,000 9 (11,854) 173,854 2,854 171,000 (21,000) 192,000 10.10 Var Cost Com 391,000 17 (28,610) 419,610 (5,390) 425,000 (175,000) 600,000 24.00 Total Var Cost 553,000 (40,463) 593,463 (2,537) 596,000 (196,000) 792,000 CM Ind 126,000 7 9,220 135,220 (2,220) 133,000 (24,000) 109,000 5.73 CM Com 598,000 26 43,756 641,756 8,244 650,000 (30,000) 620,000 24.80 Total CM 724,000 52,976 776,976 6,024 783,000 (54,000) 729,000 Fixed Cost 500,000 500,000 Income 224,000 229,000 There are three things that contribute to an actual income $5,000 greater than budgeted. First, an actual volume 3,000 units greater than expected created $52,976 of profit. Second, a slight shift in sales mix from the lower contribution margin Industrial to the higher contribution margin Commercial added $6,024. Finally, variable costs for both products were higher than expected, contributing to a 54,000 drag on profit. 187
Solution to Problem 10 Sales variances 81000 104000 104000 104000 Variance Flexible Bud Variance Flexible Bud Variance Static budget Volume @std mix Mix @actual mix Price/cost Actual Rev Ind 357,000 21 101,370 458,370 (143,370) 315,000 26,000 341,000 22.73 Rev Com 462,000 42 131,185 593,185 (215,185) 378,000 (8,000) 370,000 41.11 Rev Exp 477,000 9 135,444 612,444 107,556 720,000 (71,000) 649,000 8.11 Total revenue 1,296,000 368,000 1,664,000 (251,000) 1,413,000 (53,000) 1,360,000 Var Cost Ind 153,000 9 (43,444) 196,444 61,444 135,000 (27,000) 162,000 10.80 Var Cost Com 187,000 17 (53,099) 240,099 87,099 153,000 (2,000) 155,000 17.22 Var Cost Exp 318,000 6 (90,296) 408,296 (71,704) 480,000 60,000 420,000 5.25 Total Var Cost 658,000 (186,840) 844,840 76,840 768,000 31,000 737,000 CM Ind 204,000 12 57,926 261,926 (81,926) 180,000 (1,000) 179,000 11.93 CM Com 275,000 25 78,086 353,086 (128,086) 225,000 (10,000) 215,000 23.89 CM Exp 159,000 3 45,148 204,148 35,852 240,000 (11,000) 229,000 2.86 Total CM 638,000 181,160 819,160 (174,160) 645,000 (22,000) 623,000 Fixed Cost 450,000 460,000 Income 188,000 163,000 Income is 25,000 less than budgeted. This is due to (1) less of the higher margin industrial and commercial, and more of the lower margin experiential. This decreased profit by 174,160, nearly wiping out the positive increase in margin from having more production (104,000) than the budgeted production (81,000). Moreover, unit contribution margins for Commercial and Experiential are less than budgeted (actual of 23.89 and 2.86, compared to budget of 25 & 3). This contributed to another decline in profit of 22,000. 188
Solution to Problem 11 Mix and yield variances Actual Flex Budget Flex Budget Flex Budget Variance based on inputs Variance based on inputs Variance based on outputs AR*AHrs*AMix Rate SP*AQ*AMix Mix SP*AQ*SMix Yield SP*SQ*SMix 43*180000*0.5*2.15 42*180000*0.5*2.15 42*180000*0.6*2.15 42*180000*0.6*2.4 26*180000*0.5*2.15 28*180000*0.5*2.15 28*180000*0.4*2.15 28*180000*0.4*1.6 8,320,500 8,127,000 9,752,400 10,886,400 5,031,000 5,418,000 4,334,400 3,225,600 13,351,500 13,545,000 14,086,800 14,112,000 193,500 541,800 25,200 Favorable Favorable Favorable 189