Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
bartleby

Concept explainers

bartleby

Videos

Textbook Question
Book Icon
Chapter 10, Problem 69P

Phono Company manufactures a plastic toy cell phone. The following standards have been established for the toys materials and labor inputs:

Chapter 10, Problem 69P, Phono Company manufactures a plastic toy cell phone. The following standards have been established , example  1

During the first week of July, the company had the following results:

Chapter 10, Problem 69P, Phono Company manufactures a plastic toy cell phone. The following standards have been established , example  2

The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in July. Also, a new manufacturing layout was implemented on a trial basis. The new layout required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. Similarly, the new manufacturing approach has no effect on material usage. (Note: Round all variances to the nearest dollar.)

Required:

  1. 1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Assuming that the materials variances are essentially attributable to the higher quality of materials, would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly.
  2. 2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing layout, should it be continued or discontinued? Explain.
  3. 3. CONCEPTUAL CONNECTION Refer to Requirement 2. Suppose that the industrial engineer argued that the new layout should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 13,200 and the labor cost was $132,000. Should the new layout be adopted? Assume the variances are attributable to the new layout. If so, what would be the projected annual savings?

1.

Expert Solution
Check Mark
To determine

Calculate the value of material price variance and material usage variance. Identify whether the plant manger could continue to purchase this quality product or purchase the usual quality.

Explanation of Solution

Variance:

The amount obtained when actual cost is deducted from budgeted cost is known as variance. Variance is calculated to find whether the cost is over applied or under applied.

Use the following formula to calculate material price variance:

Material Price Variance=[(Actual Price×Actual Quantity)(Standard Price×Actual Quantity)]

Substitute $1.55 for actual price, 44,250 units for actual quantity and $1.50 for standard price in the above formula.

Material Price Variance=($1.55×44,250)($1.50×44,250)=$2,213(U)

Therefore, the material price variance is $2,213(U).

Use the following formula to calculate material usage variance:

Material Usage Variance=(Standard Price×Actual Quantity)(Standard Price×Standard Quantity1)

Substitute $1.50 for standard price, 44,250 units for actual quantity and 45,000 for standard quantity in the above formula.

Material Usage Variance=($1.50×44,250)($1.50×45,000)=$1,125(F)

Therefore, the material usage variance is $1,125(F).

The total variance is $1,088(U) ($2,213$1,125). Therefore, company should not purchase this quality of material and should continue with usual quality material.

Working Note:

1. Calculation of standard quantity:

Standard Quantity=Actual Quantity×Standard Rate=90,000×$0.50=$45,000

2.

Expert Solution
Check Mark
To determine

Calculate the value of labor rate variance and labor efficiency variance. Identify whether the labor variances are attributable to the new manufacturing process should be continued or discontinued.

Explanation of Solution

Use the following formula to calculate labor rate variance:

Labor Rate Variance=[Actual Cost(Standard Rate×Actual Hours)]

Substitute $138,000 for actual cost, 10,800 hours for actual hours and $10 for standard rate in the above formula.

Labor Rate Variance=$138,000($10×13,400 Hours)=$4,000(U)

Therefore, the labor rate variance is $4,000(U).

Use the following formula to calculate labor efficiency variance:

Labor Efficiency Variance=(Standard Rate×Actual Hours)(Standard Rate×Standard Hours)

Substitute $10.00 for standard rate, 13,400 hours for actual hours and 13,500 hours for standard hours in the above formula.

Labor Efficiency Variance=($10.00×13,400 Hours)($10.00×13,500 Hours)=$1,000(F)

Therefore, the labor efficiency variance is $1,000(F).

The total labor variance is $3,000 (U) ($4,000$1,000). Therefore; company should discontinue the new process.

Working Note:

1. Calculation of standard hours:

Standard Hours=Actual Output×Standard Rate=90,000×$0.15=13,500 Hours

3.

Expert Solution
Check Mark
To determine

Calculate the value of labor rate variance and labor efficiency variance. Identify whether the new process should be adopted.

Explanation of Solution

Use the following formula to calculate labor rate variance:

Labor Rate Variance=[Actual Cost(Standard Rate×Actual Hours)]

Substitute $132,000 for actual cost, 13,200 hours for actual hours and $10 for standard rate in the above formula.

Labor Rate Variance=$132,000($10×13,200 Hours)=$0

Therefore, the labor rate variance is $0.

Use the following formula to calculate labor efficiency variance:

Labor Efficiency Variance=(Standard Rate×Actual Hours)(Standard Rate×Standard Hours)

Substitute $10 for standard rate, 13,200 hours for actual hours and 13,500 hours for standard hours in the above formula.

Labor Efficiency Variance=($10×13,200 Hours)($10×13,500 Hours)=$3,000(F)

Therefore, the labor efficiency variance is $3,000(F).

The total labor variance is $3,000 (F) ($0$3,000). Therefore; company should continue with the new process because it helps the company in saving $156,000 per year (3,000×52 weeks).

Working Note:

1. Calculation of standard hours:

Standard Hours=Actual Output×Standard Rate=90,000×$0.15=13,500 Hours

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Phono Company manufactures a plastic toy cell phone. The following standards have been established for the toy’s materials and labor inputs: During the first week of July, the company had the following results:Units produced 90,000Actual labor costs $138,000Actual labor hours 13,400Materials purchased and used 44,250 lbs. @ $1.55 per lb.The purchasing agent located a new source of slightly higher-quality plastic, and this materialwas used during the first week in July. Also, a new manufacturing layout was implemented ona trial basis. The new layout required a slightly higher level of skilled labor. The higher-qualitymaterial has no effect on labor utilization. Similarly, the new manufacturing approach has noeffect on material usage. (Note: Round all variances to the nearest dollar.)Required:1. CONCEPTUAL CONNECTION Compute the materials price and usage variances.Assuming that the materials variances are essentially attributable to the higher quality ofmaterials, would you recommend…
Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.   The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were:   Cost Pools   Costs Activity Drivers Receiving $ 600,000 Direct material cost Manufacturing   5,500,000 Machine-hours Machine setup   900,000 Production runs Shipping   1,000,000 Units shipped…
Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.   The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were:   Cost Pools   Costs Activity Drivers Receiving $ 600,000 Direct material cost Manufacturing   5,500,000 Machine-hours Machine setup   900,000 Production runs Shipping   1,000,000 Units shipped…

Chapter 10 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making

Ch. 10 - What are control limits, and how are they set?Ch. 10 - Explain why the materials price variance is often...Ch. 10 - The materials usage variance is always the...Ch. 10 - The labor rate variance is never controllable. Do...Ch. 10 - Prob. 15DQCh. 10 - What is kaizen costing? On which part of the value...Ch. 10 - What is target costing? Describe how costs are...Ch. 10 - Prob. 18DQCh. 10 - The variable overhead efficiency variance has...Ch. 10 - Describe the difference between the variable...Ch. 10 - What is the cause of an unfavorable volume...Ch. 10 - Does the volume variance convey any meaningful...Ch. 10 - Which do you think is more important for control...Ch. 10 - Prob. 1MCQCh. 10 - A currently attainable standard is one that a....Ch. 10 - An ideal standard is one that a. uses only...Ch. 10 - The underlying details for the standard cost per...Ch. 10 - The standard quantity of materials allowed is...Ch. 10 - The standard direct labor hours allowed is...Ch. 10 - Investigating variances from standard is a. always...Ch. 10 - Prob. 8MCQCh. 10 - The materials price variance is usually computed...Ch. 10 - Responsibility for the materials usage variance is...Ch. 10 - Responsibility for the labor rate variance...Ch. 10 - Responsibility for the labor efficiency variance...Ch. 10 - (Appendix 10A) Which of the following items...Ch. 10 - (Appendix 10A) Which of the following is true...Ch. 10 - The total variable overhead variance is the...Ch. 10 - A variable overhead spending variance can occur...Ch. 10 - The total variable overhead variance can be...Ch. 10 - The total fixed overhead variance is a. the...Ch. 10 - The total fixed overhead variance can be expressed...Ch. 10 - An unfavorable volume variance can occur because...Ch. 10 - Prob. 21BEACh. 10 - Control Limits During the last 6 weeks, the actual...Ch. 10 - Use the following information to complete Brief...Ch. 10 - Use the following information to complete Brief...Ch. 10 - Use the following information to complete Brief...Ch. 10 - Use the following information to complete Brief...Ch. 10 - Rath Company showed the following information for...Ch. 10 - Variable Overhead Spending and Efficiency...Ch. 10 - Performance Report for Variable Variances Humo...Ch. 10 - Total Fixed Overhead Variance Bradshaw Company...Ch. 10 - Fixed Overhead Spending and Volume Variances,...Ch. 10 - Prob. 32BEBCh. 10 - Control Limits During the last 6 weeks, the actual...Ch. 10 - Prob. 34BEBCh. 10 - Use the following information to complete Brief...Ch. 10 - Use the following information to complete Brief...Ch. 10 - Use the following information to complete Brief...Ch. 10 - Mulliner Company showed the following information...Ch. 10 - Variable Overhead Spending and Efficiency...Ch. 10 - Performance Report for Variable Variances Potter...Ch. 10 - Bulger Company provided the following data:...Ch. 10 - Fixed Overhead Spending and Volume Variances,...Ch. 10 - Standard Quantities of Labor and Materials...Ch. 10 - Sommers Company uses the following rule to...Ch. 10 - Use the following information for Exercises 10-45...Ch. 10 - Refer to the information for Cinturon Corporation...Ch. 10 - Refer to the information for Cinturon Corporation...Ch. 10 - Materials Variances Manzana Company produces apple...Ch. 10 - Labor Variances Verde Company produces wheels for...Ch. 10 - At the beginning of the year, Craig Company had...Ch. 10 - Jackie Iverson was furious. She was about ready to...Ch. 10 - 10-52 Materials and Labor Variances Refer to the...Ch. 10 - Refer to the information for Deporte Company...Ch. 10 - Esteban Products produces instructional aids,...Ch. 10 - Escuchar Products, a producer of DVD players, has...Ch. 10 - Use the following information for Exercises 10-56...Ch. 10 - Refer to the information for Rostand Inc. above....Ch. 10 - At the beginning of the year, Lopez Company had...Ch. 10 - Zepol Company is planning to produce 600,000 power...Ch. 10 - Last year, Gladner Company had planned to produce...Ch. 10 - Anker Company had the data below for its most...Ch. 10 - Cabanarama Inc. designs and manufactures...Ch. 10 - Basuras Waste Disposal Company has a long-term...Ch. 10 - Tom Belford and Tony Sorrentino own a small...Ch. 10 - Mantenga Company provides routine maintenance...Ch. 10 - Buenolorl Company produces a well-known cologne....Ch. 10 - The management of Golding Company has determined...Ch. 10 - Phono Company manufactures a plastic toy cell...Ch. 10 - Botella Company produces plastic bottles. The unit...Ch. 10 - The Lubbock plant of Morrils Small Motor Division...Ch. 10 - Moleno Company produces a single product and uses...Ch. 10 - The Lubbock plant of Morrils Small Motor Division...Ch. 10 - Extrim Company produces monitors. Extrims plant in...Ch. 10 - Lynwood Company produces surge protectors. To help...Ch. 10 - Shumaker Company manufactures a line of high-top...Ch. 10 - Paul Golding and his wife, Nancy, established...Ch. 10 - Prob. 79CCh. 10 - Prob. 1MTCCh. 10 - The Two Cost Systems Sacred Heart Hospital (SHH)...Ch. 10 - Prob. 3MTCCh. 10 - Prob. 4MTCCh. 10 - The Two Cost Systems Sacred Heart Hospital (SHH)...Ch. 10 - Prob. 6MTCCh. 10 - Prob. 7MTCCh. 10 - Prob. 8MTCCh. 10 - Prob. 9MTCCh. 10 - Sacred Heart Hospital (SHH) faces skyrocketing...
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Text book image
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Text book image
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Text book image
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY