CHAPTER 23 ALTERNATE PROBLEMS

Problem 23.1A
Understanding Materials Cost Variances

The cost accountant for Blue Pharmaceuticals has informed you that the company’s materials
quantity variance for the drug Allegro was exactly equal to its materials price variance for the
year. The company’s normal level of production is 50 batches of Allegro per year. However,
due to uncertainties regarding foundation funding, it produced only 25 batches during the current
year. Other cost information regarding Allegro’s direct materials is as follows:

Standard price per gram of material.......................................... $60

Actual kilograms purchased and used during the year....... 100 kg
Actual cost of material purchased during the period.......... $6,000,000
Number of grams per kilogram................................................. 1,000 grams

Instructions
a. Compute Blue’s materials price variance.
b. Compute the standard quantity of material allowed per batch of Allegro produced.
c. Why would you not expect Blue to have a large materials quantity variance?

Alternate Problems for use with Financial and Managerial Accounting, 12e 23-1
© The McGraw-Hill Companies, 2002
Problem 23.2A
Understanding Materials Cost Variances

Denton’s materials quantity variance for the current month was exactly one-half of its materials
price variance. Both variances were unfavorable. The company’s cost accountant has supplied
us with the following standard cost information:

Standard price per pound of material........................................ $12

Actual pounds purchased and used during the month........ 800 pounds
Actual cost per pound of material purchased and used....... $15
Actual units manufactured during this month..................... 600 units
Normal productive output per month.................................. 700 units

Instructions
a. Compute Denton’s materials price variance.
b. Compute the standard quantity of material allowed for producing 700 units of product.
c. Record the journal entry to charge work in process for the cost of materials used during
the month.
d. Compute Denton’s overhead volume variance if it is twice the amount of its materials
quantity variance. Is the volume variance favorable or unfavorable? How do you know?

23-2 Alternate Problems for use with Financial and Managerial Accounting, 12e
© The McGraw-Hill Companies, 2002
Problem 23.3A
Computing and Journalizing Cost Variances

Dyelot Industries manufactures dyes and uses cost standards. The concrete produced in 1,000
pound batches; the normal level of production is 500 batches of dye per month. The standard
costs per batch are as follows:

Standard
Costs per
Batch
Direct materials:
Various chemicals (1,000 pounds
per batch at $0.80/pound).............................. $ 800
Direct labor:
Preparation and blending (20 hours
per batch at $8.00/hour)................................. 160
Manufacturing overhead:
Fixed ($150,000 per month  500 batches)...... $300
Variable (per batch).......................................... 20 320
Total standard cost per batch of fertilizer............... $2,380

During January, the company temporarily reduced the level of production to 400 batches of dye.
Actual costs incurred in January were as follows:

Direct materials (410,000 pounds at $0.75).............................. $307,500

Direct labor (7,950 hours at $7.80/hour).................................. 62,010
Manufacturing overhead........................................................... 150,490
Total actual costs (400 batches)................................................ $520,000
Standard cost of 400 batches
(400 batches x $1,280 per batch)............................................ 512,000
Net unfavorable cost variance................................................... $ 8,000

Instructions
You have been engaged to explain in detail the elements of the $8,000 net unfavorable cost
variance and to record the manufacturing costs for January in the company’s standard cost
accounting system.
a. As a first step, compute the materials price and quantity variances, the labor rate and
efficiency variances, and the overhead spending the volume variances for the month.
b. Prepare journal entries to record the flow of manufacturing costs through the standard
cost system and the related cost variances. Make separate entries to record the costs of
direct materials used, direct labor, and manufacturing overhead. Work in Process
Inventory is to be debited only with standard costs.

Alternate Problems for use with Financial and Managerial Accounting, 12e 23-3
© The McGraw-Hill Companies, 2002
Problem 23.4A
Computing and Journalizing Cost Variances

Latin Silk Products uses standard costs in a process cost system. At the end of the current
month, the following information is prepared by the company’s cost accountant:

Direct Direct Manufacturing

Materials Labor Overhead
Actual costs incurred................................. $108,000 $96,000 $120,000
Standard costs............................................ 100,000 94,000 112,800
Materials price variance (favorable).......... 2,000
Materials quantity variance (unfavorable) 10,000
Labor rate variance (favorable)................. 6,000
Labor efficiency variance (unfavorable)... 8,000
Overhead spending variance (unfavorable) 1,200
Overhead volume variance (unfavorable). 6,000

The total standard cost per unit of finished product is $15. During the current month, 2,000 units
were completed and transferred to the finished goods inventory and 18,000 units were sold. The
inventory of work in process at the end of the month consists of 3,000 units that are 70%
completed. There was no inventory in process at the beginning of the month.

Instructions
a. Prepare journal entries to record all variances and the costs incurred (at standard) in the
Work in Process account. Prepare separate compound entries for (1) direct materials, (2)
direct labor, and (3) manufacturing overhead.
b. Prepare journal entries to record (1) the transfer of units finished to the Finished Goods
Inventory account and (2) the cost of goods sold (at standard) for the month.
c. Assuming that the company operated at 80% of its normal capacity during the current
month, what is the amount of the budgeted fixed manufacturing overhead per month?

23-4 Alternate Problems for use with Financial and Managerial Accounting, 12e
© The McGraw-Hill Companies, 2002
Problem 23.5A
Computing and Journalizing Cost Variances

Hans Enterprises is a large producer of bird seeds. During June, it produced 160 batches of crow
bait. Each batch weights 1,000 pounds. To produce this quantity of output, the company
purchased and used 170,000 pounds of direct material at a cost of $816,000. It also incurred
direct labor costs of $20,000 for the 2,500 hours worked by employees on the crow bait crew.
Manufacturing overhead incurred at the crow bait plant during June totaled $4,200, of which
$3,100 was considered fixed. Hans’s standard cost information for 1,000-pound batches of crow
bait is as follows:

Direct materials standard price................................................. $5.00 per pound

Standard quantity allowed per batch......................................... 1,025 pounds
Direct labor standard rate.......................................................... $8.25 per hour
Standard hours allowed per batch............................................. 15 direct labor hours
Fixed overhead budgeted.......................................................... $3,200 per month
Normal level of production.......................................................150 batches per month
Variable overhead application rate........................................... $10.00 per batch
Fixed overhead application rate
($3,300  150 batches)........................................................... $22.00 per batch
Total overhead application rate................................................. $32.00 per batch

Instructions
a. Compute the materials price and quantity variances.
b. Compute the labor rate and efficiency variances.
c. Compute the manufacturing overhead spending and volume variances.
d. Record the journal entry to charge materials (at standard) to work in process.
e. Record the journal entry to charge direct labor (at standard) to work in process.
f. Record the journal entry to charge manufacturing overhead (at standard) to work in
process.
g. Record the journal entry to transfer the 160 batches of crow bait produced in June to
finished goods.
h. Record the journal entry to close any over- or underapplied overhead to cost of goods
sold.

Alternate Problems for use with Financial and Managerial Accounting, 12e 23-5
© The McGraw-Hill Companies, 2002
Problem 23.6A
Computing and Journalizing Cost Variances

Smooth Corporation is a small producer of paint. During June, the company produced 10,000
cases of paint. Each case contains twelve quarts of paint. To achieve this level of production,
Smooth purchased and used 34,000 gallons of direct material at a cost of $43,520. It also
incurred average direct labor costs of $14 per hour for the 8,300 hours worked in June by its
production personnel. Manufacturing overhead for the month totaled $21,000 of which $4,500
was considered fixed. Smooth’s standard cost information for each case of paint is as follows:

Direct material standard price....................................................... $1.32 per gallon

Standard quantity allowed per case............................................... 3.00 gallons
Direct labor standard rate.............................................................. $15 per hour
Standard hours allowed per case................................................... 0.80 direct labor hours
Fixed overhead budgeted............................................................... $5,252 per month
Normal level of production........................................................... 10,100 cases per month
Variable overhead application rate................................................ 1.60 per case
Fixed overhead application rate
($5,252  10,100 cases).............................................................. 0.52 per case
Total overhead application rate..................................................... $2.12 per case

Instructions
a. Compute the materials price and quantity variances.
b. Compute the labor rate and efficiency variances.
c. Compute the manufacturing overhead spending and volume variances.
d. Prepare the journal entries to:
1. Charge materials (at standard) to work in process.
2. Charge direct labor (at standard) to work in process.
3. Charge manufacturing overhead (at standard) to work in process.
4. Transfer the cost of the 10,000 cases of synthetic motor oil produced in June to
finished goods.
5. Close any over- or underapplied overhead into the cost of goods sold.

23-6 Alternate Problems for use with Financial and Managerial Accounting, 12e
© The McGraw-Hill Companies, 2002
Problem 23.7A
Computing and Journalizing Cost Variances

The accountants for Monoglut, Inc. have developed the following information regarding the
standard cost and the actual cost of a product manufactured in March:

Standard Actual
Cost Cost
Direct materials:
Standard: 12 ounces at $0.20 per ounce............... $2.40
Actual: 13 ounces at $0.22 per ounce.................. $2.86
Direct labor:
Standard: .60 hours at $12.00 per hour................ 7.20
Actual: .50 hours at $13.00 per hour.................... 6.50
Manufacturing overhead:
Standard: $6,000 fixed cost and $4,000
variable cost for 10,000 units normal
monthly volume................................................. 1.00
Actual: $6,000 fixed cost and $2,540
variable cost for 7,000 units actually
produced in March............................................. _____ 1.20
Total unit cost............................................................ $10.60 $10.58

Instructions
a. Compute the materials price variance and the material quantity variance, indicating
whether each is favorable or unfavorable. Prepare the journal entry to record the cost of
direct materials used during March in the Work in Process account (at standard).
b. Compute the labor rate variance and the labor efficiency variance, indicating whether each
is favorable or unfavorable. Prepare the journal entry to record the cost of direct labor
used during March in the Work in Process account (at standard).
c. Compute the overhead spending variance and the overhead volume variance, indicating
whether each is favorable or unfavorable. Prepare the journal entry to assign overhead
cost to production in March.

Alternate Problems for use with Financial and Managerial Accounting, 12e 23-7
© The McGraw-Hill Companies, 2002
Problem 23.8A
Computing, Journalizing, and Analyzing Cost Variances

Colonial Furniture Co. uses a standard cost system. One of the company’s most popular
products is a cherry wood desk. The per-unit standard costs of the desk, assuming a “normal”
volume of 2,000 units per month, are as follows:

Direct materials, 100 board-feet of wood at $1.50 per foot...................... $150,000

Direct labor, 4 hours at $10.00 per hour.................................................... 40.00
Manufacturing overhead (applied at $22 per unit)
Fixed ($20,000  2,000 units of normal production)................ $15.00
Variable..................................................................................... 8.00 18.00
Total standard unit cost......................................................................... $208.00

During May, 1,800 desks were scheduled and produced at the following actual unit costs:

Direct materials, 105 feet at $1.40 per foot.............................. $147.00

Direct labor, 4½ hours at $9.00 per hour.................................. 40.50
Manufacturing overhead, $34,200  1,800 units...................... 19.00
Total actual unit cost.............................................................. $206.50

Instructions
a. Compute the following cost variances for the month of May:
1. Materials price variance.
2. Materials quantity variance.
3. Labor rate variance.
4. Labor efficiency variance.
5. Overhead spending variance.
6. Volume variance.
b. Prepare journal entries to assign manufacturing costs to the Work in Process Inventory
account and to record cost variances for May. Use separate entries for (1) direct
materials, (2) direct labor, and (3) overhead costs.
c. Comment on any significant problems or areas of cost savings revealed by your
computation of cost variances. Also comment on any possible casual relationships
between significant favorable and unfavorable cost variances.

23-8 Alternate Problems for use with Financial and Managerial Accounting, 12e
© The McGraw-Hill Companies, 2002
Problem 23.9A
Understanding Cost Variances: Solving for Missing Data

Viking Corporation has supplied us with the following information:

Standard production costs allowed

for actual level of output achieved...................................... $420,000

Variances:
Total materials variance (favorable)................................... $ 4,000
Total direct labor variance (favorable)............................... 1,000
Total overhead variances (unfavorable).............................. 4,200

Other Information:
Actual units produced............................................................... 20,000 units
Normal or expected production................................................ 20,000 units
Actual cost per pound of materials........................................... $2.50/pound

Direct labor averaged .80 hours per unit produced, which was .05 hours above the standard time
allowed per unit produced. Actual total direct labor cost was $224,000.
The materials price variance equals the overhead volume variance. The actual quantity of
materials used during the period was 90% of the standard quantity allowed:

Instructions
Compute the following for Viking:
a. Materials quantity variance.
b. Standard quantity of materials allowed to produce 20,000 units.
c. Actual quantity of materials used to produce 20,000 units.
d. Actual direct labor rate per hour.
e. Standard direct labor rate per hour.
f. Labor rate variance.
g. Labor efficiency variance.
h. Overhead spending variance.

Alternate Problems for use with Financial and Managerial Accounting, 12e 23-9
© The McGraw-Hill Companies, 2002
Problem 23.10A
Understanding Cost Variances: Solving for Missing Data

The Foding’s Corporation has supplied us with the following information obtained from its
standard cost system in May:

Standard price of direct materials............................................. $7 per pound

Actual price of direct materials................................................. $6 per pound
Standard direct labor rate.......................................................... $10 per pound
Actual direct labor hours in May.............................................. 4,000 hours

The following journal entries were made during May with respect to Foding’s standard cost
system:

Work in Process Inventory (at standard cost)........................... 9,500

Materials Quantity Variance..................................................... 1,000
Direct Materials Inventory (at actual cost)......................... 9,000
Materials Price Variance..................................................... 1,500
To record the cost of direct materials used in May.

Work in Process Inventory (at standard cost)........................... 35,000

Labor Rate Variance................................................................. 8,000
Labor Efficiency Variance........................................................ 5,000
Direct Labor (at actual cost)............................................... 4,800
To record the cost of direct labor charged to production in May.

Work in Process Inventory (at standard cost)........................... 28,000

Overhead Spending Variance................................................... 3,000
Overhead Volume Variance................................................ 6,000
Manufacturing Overhead (at actual cost)............................ 25,000
To apply overhead to production in May.

Instructions
a. Determine the actual quantity of materials purchased and used in production during May.
b. Determine the standard quantity of materials allowed for the productive output achieved
during May.
c. Determine the actual average direct labor rate in May.
d. Determine the standard direct labor hours allowed the production output achieved during
May.
e. Determine the total overhead costs allowed for the production output achieved during
May.
f. Prepare a journal entry to record the transfer of all work in process to finished goods at
the end of May.
g. Close all cost variances directly to the Cost of Goods Sold account at the end of May.
h. Was Foding’s production output in May more or less than its normal level of output?
How can you tell?

23-10 Alternate Problems for use with Financial and Managerial Accounting, 12e
© The McGraw-Hill Companies, 2002
Problem 23.11A
Understanding Cost Variances: Solving for Missing Data

The Ninna Company manufactures wooden shelves. An accountant for Ninna just finished
completing the variance report for the current month. After printing the report, his computer’s
hard disk crashed, effectively destroying most of the actual results for the month. Al that the
accountant remembers is that actual production was 250 shelves and that all materials purchased
were used in production. The following information is also available:

Current Month: Budgeted Amounts

Budgeted production: 225 magazine stands
Direct materials: Wood
Usage................................................................................ 4 square feet per shelf
Price................................................................................. $0.20 per square foot
Direct labor:
Usage................................................................................ .4 hours per stand
Rate.................................................................................. $12 per hour
Variable overhead (allocated based on direct labor hours)
Rate per labor hour........................................................... $5
Rate per stand................................................................... $2
Fixed overhead (allocated based on direct labor hours)
Rate per labor hour........................................................... $10
Rate per stand................................................................... $4

Current Month: Variances

Direct materials price variance.............................................. 40 Unfavorable
Direct materials quantity variance......................................... -0-
Direct labor rate variance....................................................... 200 Favorable
Direct labor efficiency variance............................................. 300 Unfavorable
Overhead volume variance.................................................... 50 Favorable
Overhead spending variance.................................................. 100 Unfavorable

Instructions
Using the budget for the current month and the variance report, construct the items below:
a. What was the actual purchase price per square foot of wood?
b. How many labor hours did it actually take to produce each shelf?
c. What was the actual wage rate paid per hour?
d. What was the actual total overhead for the month?

Alternate Problems for use with Financial and Managerial Accounting, 12e 23-11
© The McGraw-Hill Companies, 2002
23-12 Alternate Problems for use with Financial and Managerial Accounting, 12e
© The McGraw-Hill Companies, 2002