
Part–A
(1)
Direct material variances:
The difference between the actual material cost per unit and the standard material cost per unit for the direct material purchased is known as direct material cost variance. The direct material variance can be classified as follows:
- Direct materials price variance.
- Direct materials quantity variance.
Direct labor variances:
The difference between the actual labor cost in the production and the
- Labor rate variance.
- Labor time variance.
Variable factory overhead controllable variances:
The difference between the actual variable overhead costs and the standard overhead for actual production is known as the variable factory overhead controllable variances. The variable factory overhead controllable variance is computed as follows:
Fixed factory overhead volume variances:
Factory overhead volume variances refers to the difference between the budgeted fixed
The fixed and variable portion of the utility cost using the high-low method.
Part–A
(1)

Explanation of Solution
The fixed, and variable portion of the utility cost using the high-low method is $500,and $240 in the high cost method, and $500,and $100 in the low cost method respectively.
Working Notes:
Calculate the variable cost per unit.
Calculate the fixed and variable portion of the utility cost using high method:
Calculate the fixed and variable portion of the utility cost using low method:
Hence, using the high method, the fixed and variable portion of the utility cost is $500, and $240. On the other hand, using the low method, the fixed and variable portion of the utility cost is $500, and $100 respectively.
Part–B
5.
To prepare: The August production budget.
Part–B
5.

Answer to Problem 5CP
Incorporation GS For the month ended August 31 | |||
Sales (9) | $ 150,000 | ||
Finished goods inventory, August 1 | $ 12,000 | ||
Direct materials: | |||
Direct materials inventory, August 1 (10) | $ 392 | ||
Direct materials purchases (Table 4) | 23,231 | ||
Cost of direct materials available for use | $ 23,623 | ||
Less: Direct materials inventory, August 31 (11) | 248 | ||
Cost of direct materials used in production | $ 23,375 | ||
Direct labor (Table 5) | 9,900 | ||
Factory overhead (Table 6) | 19,735 | ||
Cost of goods manufactured | 53,010 | ||
Cost of finished goods available for sale | $ 65,010 | ||
Less: Finished goods inventory, August 31 | 7,000 | ||
Cost of goods sold | 58,010 | ||
Gross profit | $ 91,990 | ||
Less: Selling expenses | 30,000 | ||
Income from operations | $ 61,990 |
Table (7)
Explanation of Solution
Prepare the production budget for the month of August.
Incorporation GS | |
Production Budget | |
For the month ended August 31 | |
Particulars | Cases |
Expected cases to be sold | 1,500 |
Plus desired ending inventory | 175 |
Total units required | 1,675 |
Less: Estimated beginning inventory | 300 |
Total units to be produced | 1,375 |
Table (3)
Part–C
10.
To determine and interpret: The direct materials price and quantity variances for the three materials.
Part–C
10.

Explanation of Solution
Determine the direct materials price variances for the three materials.
Cream Base | Natural oils | Bottles | |
Actual price | $ 0.016 | $0.32 | $0.42 |
Less: Standard price | 0.020 | 0.30 | 0.50 |
Difference | $(0.004) | 0.02 | $(0.08) |
Multiply: Actual quantity | 153,000 (13) | 46,500 (14) | 18,750 (15) |
Direct materials price variance | $(612) Favorable |
$930 (Unfavorable) | $(1,500) Favorable |
Table (8)
Working Note:
Interpretation:
It can be understood from the above data that there is variances in the direct materials prices due to the fluctuations in the market prices. The actual price for natural oils got increased when compared to its standard price, whereas, the actual prices for the cream base, and bottles got decreased when compared to their respective standard prices.
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Chapter 8 Solutions
Managerial Accounting, Loose-leaf Version
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