Chapter 9 Assignment #2

T/F The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

True

T/F To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity.

True

T/F Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity.

True

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis): Raw Material // Standard Labor time Product / X442 / Y661 // Sintering / Finishing Alpha6 / 1.8 kilos / 2.0 liters // 0.20 hours / 0.80 hours Zeta7 / 3.0 kilos / 4.5 liters // 0.35 hours / 0.90 hours Information relating to materials purchased and materials used in production during May follows: Material / Purchases / Purchase Cost / StandardPrice / UIP X442 / 14,500 kilos / $52,200 / $3.50 per kilo /8,500 kilos Y661 / 15,500 liters / $20,925 / $1.40 per liter / 13,000 liters The following additional information is available: The company recognizes price variances when materials are purchased. The standard labor rate is $19.80 per hour in Sintering and $19.20 per hour in Finishing. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,000, and 2,850 direct labor-hours were worked in Finishing at a total labor cost of $59,850. Production during May was 1,500 Alpha6s and 2,000 Zeta7s. Required: 1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor. 2. Compute the materials price and quantity variances for each material. 3. Compute the labor rate and efficiency variances for each operation.

2. Compute the materials price and quantity variances for each material. Direct Materials Variances- Materials X442: Actual price= $52200/14500= $3.60 Materials price variance= (Standard price-Actual price)*Actual quantity = (3.50-3.60)*14500= $1450 U Standard quantity= (1.8*1500)+(3.0*2000)= 8700 Materials quantity variance= (Standard quantity-Actual quantity)*Standard price = (8700-8500)*$3.50= $700 F Direct Materials Variances- Materials Y661: Actual price= $20925/15500= $1.35 Materials price variance= (Standard price-Actual price)*Actual quantity = (1.40-1.35)*15500= $775 F Standard quantity= (2.0*1500)+(4.5*2000)= 12000 Materials quantity variance= (Standard quantity-Actual quantity)*Standard price = (12000-13000)*$1.40= $1400 U

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis): Raw Material // Standard Labor time Product / X442 / Y661 // Sintering / Finishing Alpha6 / 1.8 kilos / 2.0 liters // 0.20 hours / 0.80 hours Zeta7 / 3.0 kilos / 4.5 liters // 0.35 hours / 0.90 hours Information relating to materials purchased and materials used in production during May follows: Material / Purchases / Purchase Cost / StandardPrice / UIP X442 / 14,500 kilos / $52,200 / $3.50 per kilo /8,500 kilos Y661 / 15,500 liters / $20,925 / $1.40 per liter / 13,000 liters The following additional information is available: The company recognizes price variances when materials are purchased. The standard labor rate is $19.80 per hour in Sintering and $19.20 per hour in Finishing. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,000, and 2,850 direct labor-hours were worked in Finishing at a total labor cost of $59,850. Production during May was 1,500 Alpha6s and 2,000 Zeta7s. Required: 1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor. 2. Compute the materials price and quantity variances for each material. 3. Compute the labor rate and efficiency variances for each operation.

3. Compute the labor rate and efficiency variances for each operation. Direct Labor Variances- Sintering: Actual rate= $27000/1200= $22.50 Labor rate variance= (Standard rate-actual rate)*Actual hours = ($19.80-22.50)*$1200= $3240 U Standard hour= (0.20*1500)+(0.35*2000)= 1000 Labor efficiency variance= (Standard hour-Actual hour)*Standard rate = (1000-1200)*$19.80= $3960 U Direct Labor Variances- Finishing: Actual rate= $59850/2850= $21 Labor rate variance= (Standard rate-actual rate)*Actual hours = ($19.20-21.00)*2850= $5130 U Standard hour= (0.80*1500)+(0.90*2000)= 3000 Labor efficiency variance= (Standard hour-Actual hour)*Standard rate = (3000-2850)*$19.20= $2880 F

Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the company's cost formulas appear below: Fixed Cost per Month / Cost per Cruise / Cost per Passenger Vessel operating costs $ 5,200 / $ 480.00 / $ 2.00 Advertising $ 1,700 / x / x Administrative costs $ 4,300 / $ 24.00 / $ 1.00 Insurance $ 2,900 / x / x For example, vessel operating costs should be $5,200 per month plus $480 per cruise plus $2 per passenger. The company's sales should average $25 per passenger. In July, the company provided 24 cruises for a total of 1,400 passengers. Required: Prepare the company's flexible budget for July.

Alyeski Tours FlexibleBudget For the Month Ended July 31 Actual cruises 24 Actual passenger1,400 Revenue $35,000 (1400*25) Expenses: Vessel operating costs 19,520 ((1400*2)+(480*24)+5200) Advertising 1,700 Administrative costs 6,276 ((1400*1)+(24*24)+4300) Insurance 2,900 Total expense 30,396 Net operating income $4,604

SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company's products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 7,300 of these meals using 1,450 direct labor-hours. The company paid its direct labor workers a total of $14,500 for this work, or $10.00 per hour. According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $9.50 per hour. Required: 1. What is the standard labor-hours allowed (SH) to prepare 7,300 meals? 2. What is the standard labor cost allowed (SH × SR) to prepare 7,300 meals? 3. What is the labor spending variance? 4. What is the labor rate variance and the labor efficiency variance?

Answer: 1. 1,460 2.$13,870 3. $630 U 4. LRV:$725 U LEV: $95 F Explanation: 1. 7300*0.20=1460 2. (7300*0.20)9.50=$13,870 3. (1460*9.50)-(1450*10) 13870-14500 =$630 U 4. LRV: 1450*(9.50-10)= $725 U LEV: 9.50*(1460-1450)= $95 F

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company's products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,200 helmets, using 2,272 kilograms of plastic. The plastic cost the company $14,995. According to the standard cost card, each helmet should require 0.63 kilograms of plastic, at a cost of $7.00 per kilogram. Required: 1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,200 helmets? 2. What is the standard materials cost allowed (SQ × SP) to make 3,200 helmets? 3. What is the materials spending variance? 4. What is the materials price variance and the materials quantity variance?

Answer: 1.- 2,016 STD quantity 2.- $14,112 3.-$883 U 4.- MPV $909 F MQV $1792 U Explanation: 1. 3,200 helmet x 0.63 kilograms = 2,016 STD quantity 2. 2016 STD quantity*$7.00=14112 3. $14995-$14,112=$883 4. std cost $7.00 actual cost $6.60 (14995/2272) quantity 2,272 (7-6.60) x 2,272 difference $0.40 The actual cost for each kilogram is lower than expected. This means the company saved cash in the purchase. This variance is favorable. saved 0.40 per kilograms x 2272 purchased price variance $909.00 std quantity 2016 actual quantity 2272 std cost $7.00 (2016-2272)*7=-1792 difference -256 The actual quantity was less than expected, this variance will be unfavorable -256 kilograms x $7 each = quantity variance $1,792

Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours. In the most recent month, 160,000 items were shipped to customers using 6,500 direct labor-hours. The company incurred a total of $20,800 in variable overhead costs. According to the company's standards, 0.03 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.25 per direct labor-hour. Required: 1. What is the standard labor-hours allowed (SH) to ship 160,000 items to customers? 2. What is the standard variable overhead cost allowed (SH × SR) to ship 160,000 items to customers? 3. What is the variable overhead spending variance? 4. What is the variable overhead rate variance and the variable overhead efficiency variance?

Answer: 1.4800 2. $15,600 3.$5200 U 4. ORV: $325 F OEV: $5,525 U Explanation: 1.160,000*0.03= 4800 2. 4800*3.25=$15,600 3. (4800*3.25)-(6500*3.20) 15600-20800 =$5200 U 4.ORV: 6500(3.25-3.20)= $325 F OEV: 3.25(4800-6500)= $5,525 U

Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company's planning budget for May appears below: Budgeted diving-hours (q) 200 Revenue ($460.00q) $ 92,000 Expenses: Wages and salaries ($11,900 + $128.00q) 37,500 Supplies ($5.00q) 1,000 Equipment rental ($2,100 + $25.00q) 7,100 Insurance ($4,000) 4,000 Miscellaneous ($530 + $1.42q) 814 Total expense 50,414 Net operating income $ 41,586 During May, the company's actual activity was 190 diving-hours. Required: Prepare a flexible budget for May. (Round your answers to the nearest whole dollar.)

Puget Sound Divers Flexible Budget For the Month Ended May 31 Actual diving-hours 190 Revenue$87,400 Expenses: Wages and salaries36,220 Supplies950 Equipment rental6,850 Insurance4,000 Miscellaneous800 Total expense48,820 Net operating income$38,580

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis): Raw Material // Standard Labor time Product / X442 / Y661 // Sintering / Finishing Alpha6 / 1.8 kilos / 2.0 liters // 0.20 hours / 0.80 hours Zeta7 / 3.0 kilos / 4.5 liters // 0.35 hours / 0.90 hours Information relating to materials purchased and materials used in production during May follows: Material / Purchases / Purchase Cost / StandardPrice / UIP X442 / 14,500 kilos / $52,200 / $3.50 per kilo /8,500 kilos Y661 / 15,500 liters / $20,925 / $1.40 per liter / 13,000 liters The following additional information is available: The company recognizes price variances when materials are purchased. The standard labor rate is $19.80 per hour in Sintering and $19.20 per hour in Finishing. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,000, and 2,850 direct labor-hours were worked in Finishing at a total labor cost of $59,850. Production during May was 1,500 Alpha6s and 2,000 Zeta7s. Required: 1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor. 2. Compute the materials price and quantity variances for each material. 3. Compute the labor rate and efficiency variances for each operation.

Required: 1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor. Standard // Standard Price // Standard Cost Quantity or Hours Or rate Alpha6 Direct materials-X442 1.8 Kilos 3.50 6.30 Direct materials-Y661 2.0 Liters 1.40 2.80 Direct labor-Sintering 0.20 Hours 19.80 3.96 Direct labor-Finishing 0.80 Hours 19.20 15.36 Total 28.42 Zeta7 Direct materials-X442 3.0 Kilos 3.50 10.50 Direct materials-Y661 4.5 Liters 1.40 6.30 Direct labor-Sintering 0.35 Hours 19.80 6.93 Direct labor-Finishing 0.90 Hours 19.20 17.28 Total 41.01

A revenue variance is the difference between what the total sales revenue should be, given the actual level of activity of the period, and the actual total sales revenue.

True

The materials price variance is computed based on the amount of materials purchased during the period.

True