Question 1 - When a company uses a standard cost system; are the inventory accounts- Finished Goods, Work in Process, and Materials-valued at actual cost or standard cost?
Question 2 - What variances from the four-variance method are included in the controllable variance from the two-variance method?
Question 3 - Standard unit cost; variance analysis; journal entries 1,000 units were started and finished.
Case 1: All prices and quantities are standard except for the labor rate, which is $10.20 per hour.
Case2: All prices and quantities are standard, except for labor hours which totaled 900.
Data to go by:
The standard operating capacity of Tecate Manufacturing Co. is 1,000 units. A detailed study of the manufacturing data relating to the standard production cost of one product revealed the following:
1. Two pounds of materials are needed to produce one unit
2. Standard unit cost of material is $8 per pound
3. It takes one hour of labor to produce one unit
4. Standard labor rate is $10 per hour
5. Standard overhead for this volume is $4,000
Required:
a. Set up a standard cost summary showing the standard unit cost
b. Analyze the variances for materials and labor
c. Make journal entries to record the transfer to Work in Process of:
1. Materials costs
2. Labor Costs
3. Overhead costs
When making these entries, include the variances.
d. Prepare the journal entry to record the transfer of costs to the finished goods account.
Question 4 - Calculating factory overhead
The standard capacity of a factory is 8,000 units per month. Cost and production data follow:
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Standard application rate for fixed overhead
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$0.50 per unit
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Standard application for variable overhead
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$11.50 per unit
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Production-Month 1
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7,400 units
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Production- Month 2
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8,200 units
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Actual factory overhead Month 1
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$15,100
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Actual factory overhead month 2
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$17,200
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Calculate the amount of factory overhead allowed for the actual volume of production each month and the variance between the budgeted and actual overhead for each month.
Question 5 - Analysis of materials and labor variances
TBA Products Company manufactures a variety of products made of plastic and aluminum components. During the winter months, substantially all of the production capacity is devoted to the production of lawn sprinklers for the following spring and summer seasons. Other products are manufactured during the remainder of the year.
The company has developed standard costs for its several products. Standard costs for each year are set in the preceding October. The standard cost of a sprinkler for the current year is $3.70, computed as follows:
Direct materials
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Aluminum-0.2 lb @$0.40 per lb
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$0.08
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Plastic-1.0lb @ $0.38 per lb
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0.38
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Production labor-0.3hr @$8.00 per hr
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2.40
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Factory Overhead
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0.84
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Total
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$3.70
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During February, TBA Products manufactured 8,500 good sprinklers. The company incurred the following costs, which it charged to production:
Materials requisitioned for production:
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Aluminum-1,900lb @$0.40 per lb
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$760
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Plastic-regular grade- 6,000 lb @$0.38 per lb
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2,280
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Low grade-3,500lb @ $0.38 per lb
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1,330
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Production labor- 2,700hr @ $8.60 per hr
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23,220
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Factory Overhead
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7,140
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Costs Charged to production
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$34,730
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Materials price variations are not determined by usage but are charged to a materials price variation account at the time the invoice is entered. All materials are carried in inventory at standard prices. Materials purchases for February were as follows:
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Aluminum-1,800lb @ $0.48 per lb
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$864
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Plastic-regular grade-3,000lb @ $0.50 per lb
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1,500
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Low grade*-6,000lb @ $0.29per lb
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1,740
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*Due to plastic shortages, the company was forced to purchase lower grade plastic than called for in the standards. This increased the number of sprinklers rejected on inspection.
Required:
Calculate price and usage variances for each type of material and for labor. using the following formulas:
Materials Price variance: (Actual unit price of materials-standard unit price of materials) x actual price quantity of materials used=Materials Price Variance
Materials quantity (usage) variance: (actual quantity of materials used-standard quantity of materials allowed) x standard unit price of material=Materials Quantity Variance
Labor rate (price) variance: (actual labor rate per hour-standard labor rate per hours) x actual number of labor hours worked= Labor rate Variance
Labor efficiency (usage) variance: (actual number of hours worked-standard number of labor hours allowed) x standard labor rate per hour=Labor Efficiency Variance.