Chapter 10 Exercises

Step-by-Step Exercises

First, fill in the amounts in each column.

Question 1

Tero Industries based their operating budget on a sales volume of 30,000 units, but actually sold 34,000 units. Their operating budget and actual results were as follows:

The standard price of a gallon of material is $3, the standard wage rate is $15 per hour, and the standard variable overhead allocation rate is $10 per direct labor hour. Tero actually purchased 345,000 gallons of materials, and direct labor worked 75,000 hours.

Fill in the amounts in each column.

Question 2

Haschita Enterprises planned to sell 500,000 units last period for $5 per unit, but only sold 485,000 for total revenue of $2,600,000. Haschita’s production standards are 5 pounds of materials per unit at $0.24 per pound and 5 minutes of labor at $20 per hour. Variable overhead is applied at a rate of 110% of direct materials cost. Fixed costs are budgeted at $300,000. Haschita actually purchased and used 2,000,000 pounds of material for $500,000, and labor actually worked 45,500 hours at a total cost of $817,000. Haschita actually spent $650,000 on variable overhead and $280,000 on fixed costs.

Fill in the amounts in each column.

Question 3

Clemman Company planned to sell 2,000 units at $5,000 each. The product uses two kinds of direct materials: Material 1, which is used at a rate of 200 pounds per unit at $3.50 per pound, and Material 2, which is used at a rate of 50 pieces per unit at $20 per piece. Clemman anticipates using 75 hours per unit of direct labor, paid at $20 per hour. Clemman applies variable overhead to products at a rate of $750 per unit and has budgeted $1,500,000 in fixed costs for the period.

Actual results were as follows: 2,500 units were sold at $5,000 each. 520,000 pounds of Material 1 were used at a cost of $1,810,000, and 130,000 pieces of Material 2 were used at a cost of $2,500,000. Direct labor worked a total of 200,000 hours and was paid a total of $3,800,000. Variable overhead cost $1,800,000, and fixed costs were $1,470,000.

Fill in the amounts in each column.

Next, calculate the variances by finding the difference between the columns, and label each variance as favorable or unfavorable.

Question 4

Chickadee Corporation completed the following chart:

Calculate all nine variances and label them as favorable or unfavorable.

Question 5

Arte Corporation completed the following chart:

Calculate all nine variances and label them as favorable or unfavorable.

Question 6

Persephone Corporation completed the following chart:

Calculate all nine variances and label them as favorable or unfavorable.

Finally, double-check the accuracy of the variance calculations by ensuring that their net equals the difference between budgeted and actual income.

Question 7

Sparta Corporation had the following variances this period:

• Revenue sales price variance: $4,000 favorable
• Direct materials efficiency variance: $2,000 unfavorable
• Direct materials price variance: $1,000 unfavorable
• Direct labor efficiency variance: $2,400 unfavorable
• Direct labor price variance: $1,800 favorable
• Variable overhead efficiency variance: $700 unfavorable
• Variable overhead spending variance: $1,600 favorable
• Contribution margin sales volume variance: $3,000 unfavorable
• Fixed cost spending variance: $500 favorable

Income was budgeted to be $14,000. Actual income was $12,800.

Double-check the accuracy of the variance calculations by ensuring that their net equals the difference between budgeted and actual income.

Question 8

Starmer Company had the following variances this period:

• Revenue sales price variance: $12,000 unfavorable
• Direct materials efficiency variance: $800 favorable
• Direct materials price variance: $1,100 favorable
• Direct labor efficiency variance: $8,000 unfavorable
• Direct labor price variance: $6,000 favorable
• Variable overhead efficiency variance: $3,500 unfavorable
• Variable overhead spending variance: $4,000 favorable
• Contribution margin sales volume variance: $7,000 favorable
• Fixed cost spending variance: $10,000 unfavorable

Income was budgeted to be $171,000. Actual income was $156,400.

Double-check the accuracy of the variance calculations by ensuring that their net equals the difference between budgeted and actual income.

Question 9

Abingdon Corporation had the following variances this period:

• Revenue sales price variance: $5,000 favorable
• Direct materials efficiency variance: $3,000 favorable
• Direct materials price variance: $1,200 unfavorable
• Direct labor efficiency variance: $1,800 unfavorable
• Direct labor price variance: $1,500 favorable
• Variable overhead efficiency variance: $2,000 unfavorable
• Variable overhead spending variance: $2,100 favorable
• Contribution margin sales volume variance: $0
• Fixed cost spending variance: $2,400 favorable

Income was budgeted to be $250,000. Actual income was $259,000.

Double-check the accuracy of the variance calculations by ensuring that their net equals the difference between budgeted and actual income.

Complete Problems

Question 10

For Russell, Inc., direct materials standards are 5 pounds at $15 per pound, direct labor standards are 2 hours at $25 per hour, and variable overhead is applied at a rate of $50 per direct labor hour. Russell budgeted to manufacture and sell 280,000 units for $550 per unit, but actually manufactured and sold 300,000 units for total revenues of $163,000,000, spending $25,000,000 for 1,600,000 pounds of direct materials and $14,000,000 for 550,000 hours of direct labor. Fixed overhead was budgeted at $40,000,000, but actually cost $45,000,000. Variable overhead actually cost $25,000,000.

1. Calculate all nine variances and label them as favorable, unfavorable, or neutral.
2. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of 200% of direct labor costs.
3. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of 4/3 of direct materials costs.
4. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of $100 per unit.

Question 11

Loxelle Corporation has set the following standards for production:

• Direct materials: 20 gallons at $3.00 per gallon
• Direct labor: 2 hours at $17.00 per hour

Loxelle:

• Budgeted fixed costs at $200,000
• Applies variable overhead at a rate of $8 per direct labor hour
• Produced and sold 10,000 units this year for $155 per unit
• Budgeted to produce and sell 11,000 units this year for $150 per unit
• Purchased and used 210,000 gallons of direct materials for $2.80 per gallon
• Paid $342,000 for 19,000 hours of direct labor
• Spent $200,000 on variable overhead
• Spent $250,000 on fixed overhead

Calculate all nine variances and label them as favorable, unfavorable, or neutral.

Question 12

Bonchi Company produced 8,000 units this month, which they sold for $162,000, and incurred the following costs:

Bonchi budgeted to produce and sell 7,800 units this month for $20 per unit. Standards call for 1 pound of direct materials and ½ hour of direct labor per unit, costing $5 per pound of direct materials and $16 per hour of direct labor. Variable manufacturing overhead is applied at a rate of 50% of direct labor cost, and fixed manufacturing overhead was budgeted at $10,000.

1. Calculate all nine variances and label them as favorable, unfavorable, or neutral.
2. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of $8 per direct labor hour.
3. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of 80% of direct materials costs.

Question 13

Flommer Company has set the following standards for production:

• Direct materials: 10 pounds at $150 per pound
• Direct labor: 10 hours at $20 per hour

Flommer:

• Budgeted to produce and sell 4,800 units this year at $2,500 per unit
• Budgeted fixed overhead of $1,800,000
• Applied variable overhead at a rate of $24 per direct labor hour
• Produced and sold 4,500 units this year at $2,700 per unit
• Purchased and used 55,000 pounds of direct materials for $138 per pound
• Paid $1,100,000 for 45,000 hours of direct labor
• Spent $1,300,000 on variable overhead
• Spent $2,500,000 on fixed overhead

1. 1. Calculate all nine variances and label them as favorable, unfavorable, or neutral.
   2. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of 120% of direct labor costs.
   3. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of 16% of direct materials costs.
   4. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of $240 per unit.

Question 14

Nakamura Corporation had the following static budget:

Nakamura actually sold 120,000 units. Nakamura’s standard price for direct materials is $12.50 per pound, standard price for direct labor is $16 per hour, and standard rate for variable overhead is 150% of direct labor costs. Nakamura actually earned $20,000,000 in revenues, spent $3,500,000 for 250,000 pounds of materials, spent $4,500,000 for 282,500 direct labor hours, and spent $6,500,000 on variable overhead and $5,500,000 on fixed costs.

1. Calculate all nine variances and label them as favorable, unfavorable, or neutral.
2. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of $24 per direct labor hour.
3. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of 240% of direct materials costs.
4. Recalculate the variable overhead efficiency and spending variances if variable overhead is applied at a rate of $60 per unit.

Question 15

Selwyn, Inc. manufactures metal duck figurines that they sell for $50 each. Selwyn budgets for each figurine to contain 1 pound of metal, which costs $0.50 per pound, and to take 3 hours of direct labor, paid at $12 per hour. Variable overhead is budgeted at 20% of direct labor cost, and fixed overhead is budgeted to be $400,000 per year. Selwyn planned to sell 75,000 figurines this year, but actually sold 80,000, using 82,000 pounds of metal and 235,000 direct labor hours. Actual results were as follows:

Calculate all nine variances and label them as favorable, unfavorable, or neutral.

Assignment Problem

Note: Check figures are not provided for assignment problems so your instructor may use them for homework

Question 16

Nola Company manufactured and sold 10,000 units last year for $175 per unit, although they had budgeted to sell 12,000 units for $180 per unit. Nola purchased and used 20,000 feet of direct materials for $400,000. Nola paid direct labor $300,000 for 15,000 hours. Manufacturing overhead cost $650,000, half variable and half fixed. Variable overhead is usually applied at a rate of 100% of direct labor costs. Fixed overhead was budgeted to cost $400,000. Production standards call for each unit to use 2.5 feet of materials costing $18 per foot, and 2 hours of labor costing $18 per hour.

Calculate all nine variances and indicate whether they are favorable, unfavorable, or neutral.

Challenge Problem

Question 17

Cabonet Corporation provided the following information about units, selling price, and manufacturing costs this period:

Description	Units	Selling price
Budgeted	20,000	$ 25
Sold	15,000	$ 30

Description	Costs from master budget	Costs from actual income statement
Direct materials	300,0001	252,0003
Direct labor	60,0002	42,0004
Other variable	42,000	39,000
Total variable	402,000	333,000
Total fixed	30,000	21,000
Total costs	432,000	Single Line354,000Double Line

• ¹For 10,000 square feet
• ²For 2,500 hours
• ³At $28 per square foot
• ⁴At $20 per hour
• All overhead is allocated based on direct labor cost.

Calculate all nine variances and label them as favorable, unfavorable, or neutral.

Pre-Assessment Problem

Use this problem to check whether you are fully prepared for the assessment. Work the problem under assessment conditions – don’t use any notes or other materials!

Question 18

The master budget for Pietro, Inc. contained the following amounts last year:

Additional information:

• Budgeted sales were 20,000 units, but Pietro actually sold 22,000 units for $4,100,000.
• The standard price for direct materials is $15/pound, but Pietro actually spent $860,000 for 57,500 pounds of material.
• The standard price for direct labor is $20/hour, but Pietro actually spent $875,000 for 43,000 direct labor hours.
• The standard rate for variable overhead is 75% of direct labor costs, but Pietro actually spent $650,000 on variable overhead.
• Pietro actually spent $1,500,000 on fixed costs.

Calculate all nine variances and label them as favorable, unfavorable, or neutral.