Chapter 21: Q13DQ (page 967)
What are the relations among standard costs, flexible budgets, variance analysis, and management by exception?
Standard costs, flexible budgets, variance analysis, and management by exceptions are the tools for effective operations of a business concern.
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After evaluating Null Company’s manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and \(15 per hour for the labor rate. During October, the company uses 16,250 hours of direct labor at a \)247,000 total cost to produce 5,600 units of product. In November, the company uses 22,000 hours of direct labor at a $335,500 total cost to produce 6,000 units of product.
1. Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable.
2. Interpret the October direct labor variances.
What is the purpose of using standard costs?
Comp Wiz sells computers. During May 2017, it sold 350 computers at a \(1,200 average price each. The May 2017 fixed budget included sales of 365 computers at an average price of \)1,100 each.
1. Compute the sales price variance and the sales volume variance for May 2017.
2. Interpret the findings.
Refer to Exercise 21-13. Hart Company records standard costs in its accounts and its materials variances in separate accounts when it assigns materials costs to the Work in Process Inventory account.
1. Show the journal entry that both charges the direct materials costs to the Work in Process Inventory account and records the materials variances in their proper accounts.
2. Assume that Hart’s materials variances are the only variances accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period-end.
3. Identify the variance that should be investigated according to the management by exception concept. Explain.
Brodrick Company expects to produce 20,000 units for the year ending December 31. A flexible budget for 20,000 units of production reflects sales of \(400,000; variable costs of \)80,000; and fixed costs of $150,000. If the company instead expects to produce and sell 26,000 units for the year, calculate the expected level of income from operations.
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