Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
bartleby

Concept explainers

bartleby

Videos

Textbook Question
Book Icon
Chapter 9, Problem 41P

Leather Works is a family-owned maker of leather travel bags and briefcases located in the northeastern part of the United States. Foreign competition has forced its owner, Heather Gray, to explore new ways to meet the competition. One of her cousins, Wallace Hayes, who recently graduated from college with a major in accounting, told her about the use of cost variance analysis to learn about efficiencies of production.

In May of last year, Heather asked Matt Jones, chief accountant, and Alfred Prudest, production manager, to implement a standard costing system. Matt and Alfred, in turn, retained Shannon Leikam, an accounting professor at Harding’s College, to set up a standard costing system by using information supplied to her by Matt’s and Alfred’s staff. To verify that the information was accurate, Shannon visited the plant and measured workers’ output using time and motion studies. During those visits, she was not accompanied by either Matt or Alfred, and the workers knew about Shannon’s schedule in advance. The cost system was implemented in June of last year.

Recently, the following dialogue took place among Heather, Matt, and Alfred:

HEATHER: How is the business performing?

ALFRED: You know, we are producing a lot more than we used to, thanks to the contract that you helped obtain from Lean, Inc., for laptop covers. (Lean is a national supplier of computer accessories.)

MATT: Thank goodness for that new product. It has kept us from sinking even more due to the inroads into our business made by those foreign suppliers of leather goods.

HEATHER: What about the standard costing system?

MATT: The variances are mostly favorable, except for the first few months when the supplier of leather started charging more.

HEATHER: How did the union members take to the standards?

ALFRED: Not bad. They grumbled a bit at first, but they have taken it in stride. We’ve consistently shown favorable direct labor efficiency variances and direct materials usage variances. The direct labor rate variance has been flat.

MATT: It should be since direct labor rates are negotiated by the union representative at the start of the year and remain the same for the entire year.

HEATHER: Matt, would you send me the variance report for laptop covers immediately?

The following chart summarizes the direct materials and direct labor variances from November of last year through April of this year (extracted from the report provided by Matt). Standards for each laptop cover are as follows:

  1. a. Three feet of direct materials at $7.50 per foot
  2. b. Forty-five minutes of direct labor at $14 per hour

Chapter 9, Problem 41P, Leather Works is a family-owned maker of leather travel bags and briefcases located in the , example  1

In addition, the data for May of this year, but not the variances for the month, are as follows:

Chapter 9, Problem 41P, Leather Works is a family-owned maker of leather travel bags and briefcases located in the , example  2

Actual direct labor cost per hour exceeded the budgeted rate by $0.10 per hour.

Required:

  1. 1. For May of this year, calculate the price and quantity variances for direct labor and direct materials.
  2. 2. Discuss the trend of the direct materials and labor variances.
  3. 3. What type of actions must the workers have taken during the period they were being observed for the setting of standards?
  4. 4. What can be done to ensure that the standards are set correctly? (CMA adapted)
Blurred answer
Students have asked these similar questions
Danielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle’s first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is very intent on purchasing the warehouse because be believes that more storage space is needed. Jerrod asks Danielle into his office and the following conversation takes place: Jerrod: Danielle, you’re new here, aren’t you? Danielle: Yes, I am. Jerrod: Well, Danielle, I’m not at all pleased with capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don’t get it, where am I going to place out output? Danielle: Well, we need to get product into our customer’s hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers don’t lie; the warehouse does not…
Danielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle's first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle to come to his office, where the following conversation takes place: Jerrod:  Danielle, you're new here, aren't you? Danielle:  Yes, I am. Jerrod:  Well, Danielle, I'm not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don't get it, where am I going to place our output?   Danielle:  Well, we need to get product into our customers' hands. Jerrod:  I agree, and we need a warehouse to do that. Danielle:  My analysis does not support constructing a new warehouse. The numbers…
Gary is the operating manager of Crane, a company that manufactures three different types of all-terrain vehicles: four-wheelers, personal watercraft, and snowmobiles. Naturally, Gary has the opportunity to test all of these products for quality-control purposes. At the end of the year, Gary needs to perform a profitability analysis for each product line to better evaluate the company's pricing strategy. He has a gut feeling that the company has room to increase selling prices in the snowmobile category, but he wants to see what the financials look like before he makes a case to the CEO. He has gathered the following information. The costs for the three support departments, Payroll, Maintenance, and IT, are allocated to the product lines according to number of employees, maintenance hours used, and IT hours used, respectively. Four-Wheelers Personal Watercraft Snowmobiles Sales $1,126,000 $1,416,000 $1,996,000 Payroll Maintenance IT Four-Wheelers Watercraft Snowmobiles Costs $95,000…

Chapter 9 Solutions

Cornerstones of Cost Management (Cornerstones Series)

Ch. 9 - Prob. 11DQCh. 9 - What is the cause of an unfavorable volume...Ch. 9 - Prob. 13DQCh. 9 - Explain how the two-, three-, and four-variance...Ch. 9 - Prob. 15DQCh. 9 - Prob. 1CECh. 9 - Direct Materials Usage Variance Refer to...Ch. 9 - Refer to Cornerstone Exercise 9.1. Guillermos Oil...Ch. 9 - Kavallia Company set a standard cost for one item...Ch. 9 - Yohan Company has the following balances in its...Ch. 9 - Standish Company manufactures consumer products...Ch. 9 - Variances Refer to Cornerstone Exercise 9.6....Ch. 9 - Standish Company manufactures consumer products...Ch. 9 - Mangia Pizza Company makes frozen pizzas that are...Ch. 9 - Mangia Pizza Company makes frozen pizzas that are...Ch. 9 - Refer to Cornerstone Exercise 9.9. Required: 1....Ch. 9 - Quincy Farms is a producer of items made from farm...Ch. 9 - During the year, Dorner Company produced 280,000...Ch. 9 - Zoller Company produces a dark chocolate candy...Ch. 9 - Oerstman, Inc., uses a standard costing system and...Ch. 9 - Refer to the data in Exercise 9.15. Required: 1....Ch. 9 - Chypre, Inc., produces a cologne mist using a...Ch. 9 - Refer to Exercise 9.17. Chypre, Inc., purchased...Ch. 9 - Delano Company uses two types of direct labor for...Ch. 9 - Jameson Company produces paper towels. The company...Ch. 9 - Madison Company uses the following rule to...Ch. 9 - Laughlin, Inc., uses a standard costing system....Ch. 9 - Responsibility for the materials price variance...Ch. 9 - Which of the following is true concerning labor...Ch. 9 - A company uses a standard costing system. At the...Ch. 9 - Relevant information for direct labor is as...Ch. 9 - Which of the following is the most likely...Ch. 9 - Haversham Corporation produces dress shirts. The...Ch. 9 - Plimpton Company produces countertop ovens....Ch. 9 - Algers Company produces dry fertilizer. At the...Ch. 9 - Misterio Company uses a standard costing system....Ch. 9 - Petrillo Company produces engine parts for large...Ch. 9 - Business Specialty, Inc., manufactures two...Ch. 9 - Vet-Pro, Inc., produces a veterinary grade...Ch. 9 - Refer to the data in Problem 9.34. Vet-Pro, Inc.,...Ch. 9 - Energy Products Company produces a gasoline...Ch. 9 - Nuevo Company produces a single product. Nuevo...Ch. 9 - Ingles Company manufactures external hard drives....Ch. 9 - As part of its cost control program, Tracer...Ch. 9 - Aspen Medical Laboratory performs comprehensive...Ch. 9 - Leather Works is a family-owned maker of leather...
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
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY