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Chapter 23: Q9RQ (page 1305)
Question:Explain the difference between a cost standard and an efficiency standard. Give an example of each.
Answer
A cost standard is related to estimating the total cost used, whereas an efficiency standard is related to the direct material and direct labor hours.
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Question:Mills, Inc. is a competitor of Murry, Inc. from Exercise E2318. Mills also uses a standard cost system and provides the following information:
Static budget variable overhead \( 1,200
Static budget fixed overhead \) 1,600
Static budget direct labor hours 800 hours
Static budget number of units 400 units
Standard direct labor hours 2 hours per unit
Mills allocates manufacturing overhead to production based on standard direct labor hours. Mills reported the following actual results for 2018: actual number of units produced, 1,000; actual variable overhead, \(4,000; actual fixed overhead, \)3,100; actual direct labor hours, 1,600.
Requirements
1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances.
2. Explain why the variances are favorable or unfavorable
Computing and journalizing standard cost variances
Middleton manufactures coffee mugs that it sells to other companies for customizing with their own logos. Middleton prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:
Direct Materials (0.2 lbs. @ \(0.25 per lb.) \) 0.05 Direct Labor (3 minutes @ \(0.14 per minute) 0.42 Manufacturing Overhead: Variable (3 minutes @ \)0.06 per minute) \( 0.18 Fixed (3 minutes @ \)0.13 per minute) 0.39 0.57 Total Cost per Coffee Mug \( 1.04 |
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.
d. Actual direct labor usage of 197,000 minutes at a cost of \(33,490.
e. Actual overhead cost was \)10,835 variable and \(29,965 fixed.
f. Selling and administrative costs were \)130,000.
Requirements
1. Compute the cost and efficiency variances for direct materials and direct labor.
2. Journalize the purchase and usage of direct materials and the assignment of direct
labor, including the related variances.
3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production from Work in Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. Middleton intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
Question: List the variable overhead variances, and briefly describe each
Question:What is management by exception?
What is a variance?
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