MANAGERIAL ACCOUNTING – CHAPTER # 10

Exercise 10-28 (Straightforward Computation of Variances)

Saskatewan Can Company manufactures recyclable soft-drink cans. A unit of production is a case of 12
dozen cans. The following standards have been set by the production-engineering staff and the controller.

Direct labor: Direct material:

Quantity, .25 hour Quantity, 4 kilograms
Rate, Rs. 16 per hour Price, Rs. 0.80 per kilogram

Actual material purchases amounted to 240,000 kilograms at Rs. 0.81 per kilogram. Actual costs incurred
in the production of 50,000 units were as follows:

Direct labor: Rs. 211,900 for 13,000 hours

Direct material: Rs. 170,100 for 210,000 kilograms
Required:

1. Use the variance formulas to compute the direct-material price and quantity variances and the
direct-labor rate and efficiency variances. Indicate whether each variance is favorable or
unfavorable.

Exercise 10-29 (Determination of Variances Using Diagrams)

Refer to the data in the preceding exercise. Use diagrams similar to those in Exhibits 10-2 and 10-3 to
determine the direct-material and direct-labor variances. Indicate whether each variance is favorable or
unfavorable.

Exercise 10-31 (Computing Standard Direct-Material Cost)

Cayuga Hardwoods produces handcrafted jewelry boxes. A standard-size box requires 8 board feet of
hardwood in the finished product. In addition, 2 board feet of scrap lumber are normally left from the pro -
duction of one box. Hardwood costs Rs. 4.00 per board foot, plus Rs. 1.50 in transportation charges per
board foot.

Required: Compute the standard direct-material cost of a jewelry box.

Exercise 10-32 (Straightforward Calculation of Variances)

During June, Danby Company's material purchases amounted to 6,000 pounds at a price of Rs. 7.30 per
pound. Actual costs incurred in the production of 2,000 units were as follows:

Direct labor: Rs. 116,745 (Rs. 18.10 per hour)

Direct material: Rs. 30,660 (Rs. 7.30 per pound)

The standards for one unit of Danby Company's product are as follows:
Direct labor: Direct material:
Quantity, 3 hours per unit Quantity, 2 pounds per unit
Rate, Rs. 18 per hour Price, Rs. 7 per pound

Required: Compute the direct-material price and quantity variances and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.

Exercise 10-33 (Diagramming Direct-Material and Direct-Labor Variances)

Refer to the data in the preceding exercise. Draw diagrams depicting the direct-material and direct-labor
variances similar to the diagrams in Exhibits 10-2 and 10-3.

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Exercise 10-36 (Reconstructing Standard-Cost Information from Partial)

Part of your company's accounting database was destroyed when Godzilla attacked the city. You have been
able to gather the following data from your files. Reconstruct the remaining information using the available
data. All of the raw material purchased during the period was used in production. (Hint: It is helpful to
solve for the unknowns in the order indicated by the letters in the following table.)

Direct Labor Direct Material

Standard price or rate per unit of input e Rs. 8 per pound
Standard quantity ptr unit of output f c
Actual quantity used per unit of output 3.5 hours a
Actual price or rate per unit of input Rs. 21 per hour Rs. 7 per pound
Actual output 10,000 units 10,000 units
Direct-material price variance - Rs. 30,000 F
Direct-material quantity variance - b
Total of direct-material variances - Rs. 10,000 F
Direct-labor rate variance d -
Direct-labor efficiency variance Rs. 100,000 F -
Total of direct-labor variances Rs. 65,000 F -

Problem 10-43 (Determining Standard Material Cost)

South Atlantic Chemical Company manufactures industrial chemicals in Rio de Janeiro, Brazil. The
company plans to introduce a new chemical solution and needs to develop a standard product cost. The new
chemical solution is made by combining a chemical compound (nyclyn) and a solution (salex), heating the
mixture, adding a second compound (protet), and bottling the resulting solution in 10-liter containers. The
initial mix, which is 11 liters in volume, consists of 12 kilograms of nyclyn and 9.6 liters of salex. A 1-liter
reduction in volume occurs during the boiling process. The solution is cooled slightly before 5 kilograms of
protet are added. The addition of protet does not affect the total liquid volume.

The purchase price of the direct materials used in the manufacture of this new chemical solution are given
below. (The real is Brazil's national currency. On the day this problem was written, the real was equivalent
to .4378 Pak rupees.)
Nyclyn 1.45 real per kilogram
Salex 1.80 real per liter
Protet 2.40 real per kilogram

Required: Determine the standard material cost of a 10-liter container of the new product.
(Remember to express your answer in terms of the real, the Brazilian national currency.)

Problem 10-44 (Direct-Material and Direct-Labor Variances)

During May, Joliet Fabrics Corporation manufactured 500 units of a special multilayer fabric with the trade
name Stylex. The fallowing information from the Stylex production department also pertains to May.
(Rs.)
Direct material purchased: 18,000 yards at Rs. 1.38 per yard 24,840
Direct material used: 9,500 yards at Rs. 1.38 per yard 13,110
Direct labor: 2,100 hours at Rs. 9.15 per hour 19,215

The standard prime costs for one unit of Stylex are as follows:

Direct material: 20 yards at Rs. 1.35 per yard 27

Direct labor: 4 hours at Rs. 9.00 per hour 36
Total standard prime cost per unit of output 63

Required: Compute the following variances for the month of May, indicating whether each variance
is favorable or unfavorable.

1. Direct-material price variance.

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2. Direct-material quantity variance.
3. Direct-labor rate variance.
4. Direct-labor efficiency variance.

Problem 10-46 (Variance Computation: Analysis of Performance and Responsibility)

Santa Rosa Industries uses a standard-costing system to assist in the evaluation of operations. The company
has had considerable trouble in recent months with suppliers and employees, so much so that management
hired a new production supervisor (Frank Schmidt). The new supervisor has been on the job for five
months and has seemingly brought order to an otherwise chaotic situation.

The vice president of manufacturing recently commented that ". . . Schmidt has really done the trick. The
change to a new direct-material supplier and Schmidt's team-building/morale-boosting training exercises
have truly brought things under control." The VP's comments were based on both a plant tour, where he
observed a contented workforce, and a review of the following data, which was excerpted from a
performance report:

Direct-material variances, favorable Rs. 4,620

Direct-labor variances, favorable 6,175

These variances are especially outstanding, given that the amounts are favorable and small. (Santa Rosa's
budgeted material and labor costs generally each average about Rs. 350,000 for similar periods.) Additional
data follow.
• The company purchased and consumed 45,000 pounds of direct materials at Rs. 7.70 per pound,
and paid Rs. 16.25 per hour for 20,900 direct-labor hours of activity. Total completed production
amounted to 9,500 units.
• A review of the firm's standard cost records found that each completed unit requires 4.2 pounds of
direct material at Rs. 8.80 per pound and 2.6 direct-labor hours at Rs. 14 per hour.

Required:
1. On the basis of the information contained in the performance report, should Santa Rosa be con-
cerned about its variances? Why?
2. Calculate the company's direct-material variances and direct-labor variances.
3. On the basis of your answers to requirement (2), should Santa Rosa be concerned about its
variances? Why?
4. Are things going as smoothly as the vice president believes? Evaluate the company's variances and
determine whether the change to a new supplier and Schmidt's team-building/morale-boosting
training exercises appear to be working. Explain.
5. Is it possible that some of the company's current problems lie outside Schmidt's area of
responsibility? Explain.

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