The director of cost management for Odessa Company uses a statistical control chart to help management

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The director of cost management for Odessa Company uses a statistical control chart to help management

Question # 00011122 Posted By: vikas Updated on: 03/28/2014 01:40 PM Due on: 04/12/2014

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1.The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current year.


January	$	500	F
February		1,600	U
March		1,400	U
April		1,800	U
May		2,100	U
June		2,400	U

The standard direct-labor cost during each of these months was $38,000. The controller has estimated that the firm’s monthly direct-labor variances have a standard deviation of $1,900.

	Required:
	a.	Determine the cutoff value for investigation if the controller’s rule of thumb is to investigate all variances equal to or greater than 6 percent of standard cost.
	b.	Based on the cutoff value, which of the month(s) will have their direct-labor efficiency variance investigated?(Select all that apply.)
January variance
February variance
March variance
April variance
May variance
June variance

2.The following data pertain to Colgate Palmolive's liquid filling line during the first 10 months of a particular year. The standard ratio of direct-labor hours to machine hours is 4:1. The standard direct-labor rate is $15.98.

Colgate Palmolive: Direct-Labor Efficiency Variance Data*

	Units Produced	Machine Hours	Standard Direct-Labor Hours	Actual Direct-Labor Hours	Direct-Labor Efficiency Variance
January		50,658			174.5	698.00	392.00	$	4,890
February		32,123			109.3	437.20	232.00		3,279
March		186,079			570.0	2,280.00	1,104.00		18,792
April		214,074			726.4	2,905.60	1,522.75		22,098
May		49,290			169.0	676.00	382.00		4,698
June		83,066			250.0	1,000.00	572.50		6,831
July		36,568			113.0	452.00	301.00		2,413
August		33,843			105.0	420.00	356.50		1,015
September		32,010			105.0	420.00	354.50		1,047
October		28,641			81.0	324.00	194.00		2,077

*Source of data: Alan S. Levitan and Sidney J. Baxendale, "Analyzing the Labor Efficiency Variance to Signal Process Engineering Problems," Journal of Cost Management6, no. 2 (Summer 1992), p. 70.

Required:

1-a.	Which of the following amounts did Colgate Palmolive use in calculating its standard direct labor hours for the month of January?(Select all that apply.)
Units produced
Machine hours
Actual direct-labor hours
Standard ratio of direct-labor hours to machine hours
	1-b.	Which of the following amounts did Colgate Palmolive use in calculating its direct-labor efficiency variance for the month of January? (Select all that apply.)
Units produced
Standard direct-labor hours
Actual direct-labor hours
Standard direct-labor rate
	2.	Calculate the following amounts.

	a.	The standard direct-labor cost for each of the 10 months.(Round intermediate calculation to 2 decimal places and final answers to nearest whole dollar amount.)
Standard Direct-Labor Cost
January
February
March
April
May
June
July
August
September
October

b.

For each month, (expression error) percent of the standard direct-labor cost.(Round your final answers to the nearest whole dollar amount.)

	20% of the Standard Direct-Labor Cost
January
February
March
April
May
June
July
August
September
October

3.

Suppose management investigates all variances in excess of (expression error) percent of standard cost. Which months contain a variance that would be investigated?(Select all that apply.)

January

February

March

April

May

June

July

August

September

October

6.

Which of the following could be a reason why the direct-labor efficiency variances for March, April and June are larger than in the other months?

	Production volume was significantly higher.
	The standard direct-labor rate was significantly higher.
	The actual direct-labor rate was significantly higher.

3.McKeag Corporation manufactures agricultural machinery. At a recent staff meeting, the following direct-labor variance report for the year just ended was presented by the controller.

MCKEAG CORPORATION Direct-labor Variance Report
	Direct-Labor Rate Variance	Direct-Labor Efficiency Variance

	Amount	Standard Cost, %	Amount	Standard Cost, %
January	$	1,600	F		0.16	%	$	10,000	U	1.00	%
February		9,800	F		0.98	%		15,000	U	1.50	%
March		200	U		0.02	%		19,400	U	1.94	%
April		4,000	U		0.40	%		25,600	U	2.56	%
May		7,600	F		0.76	%		40,200	U	4.02	%
June		7,800	F		0.78	%		34,000	U	3.40	%
July		8,400	F		0.84	%		57,000	U	5.70	%
August		10,200	F		1.02	%		76,000	U	7.60	%
September		9,600	F		0.96	%		74,000	U	7.40	%
October		11,400	F		1.14	%		84,000	U	8.40	%
November		8,400	F		0.84	%		120,000	U	12.00	%
December		8,600	F		0.86	%		104,000	U	10.40	%

McKeag’s controller uses the following rule of thumb: Investigate all variances equal to or greater than $60,000, which is 6 percent of standard cost.

Required:

	1.	Which variances would have been investigated during the year? (Indicate month and type of variance.)(Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round "Percentage of Standard Cost" to 2 decimal places.)
Variance Type	Month	Amount	Percentage of Standard Cost
				%
				%
				%
				%
				%

2.

What characteristics of the variance pattern shown in the report should draw the controller’s attention, regardless of the usual investigation rule?(Select all that apply.)

The company's direct-labor efficiency variances exhibit a consistent unfavorable trend through the year.

The company's direct-labor rate variances exhibit a favorable trend through most of the year.

The unfavorable trend of the direct-labor efficiency is on the increase through most of the year.

The favorable trend of the direct-labor rate is on the increase through the year.

The unfavorable trend of the direct-labor efficiency is under control till July with regard to the limits of the investigation rule.

None of the above.

3.

Which of the following is the best reason to also follow up on favorable variances?

	Bias in investigation targets and subsequent reports is reduced.
	Production efficiencies may be able to be replicated elsewhere in the organization.
	Favorable variances occur more often as activity levels rise

4.Starlight Glassware Company has the following standards and flexible-budget data.


Standard variable-overhead rate	$	7.00	per direct-labor hour
Standard quantity of direct labor		2	hours per unit of output
Budgeted fixed overhead	$	96,000
Budgeted output		24,000	units

Actual results for February are as follows:


Actual output		19,000	units
Actual variable overhead	$	342,000
Actual fixed overhead	$	93,000
Actual direct labor		45,000	hours

Required:

Use the variance formulas to compute the following variances.(Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

1.

Variable-overhead spending variance

2.

Variable-overhead efficiency variance

3.

Fixed-overhead budget variance

4.

Fixed-overhead volume variance

5.

Starlight Glassware Company has the following standards and flexible-budget data.


Standard variable-overhead rate	$	16	per direct-labor hour
Standard quantity of direct labor		2.5	hours per unit of output
Budgeted fixed overhead	$	370,000
Budgeted output		28,500	units

Actual results for February are as follows:


Actual output		19,600	units
Actual variable overhead	$	855,950
Actual fixed overhead	$	326,000
Actual direct labor		50,350	hours

Required:

Use the following diagrams below (similar toExhibit 11-6 andExhibit 11-8 to compute (1) the variable-overhead spending and efficiency variances, and (2) the fixed-overhead budget and volume variances.(Round your "per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Variable overhead variances:

Variable-Overhead Spending And Efficiency Variances

(Hours = Direct-Labor Hours)

(1)

(2)

(3)

(4)

Actual Variable Overhead

Projected Variable Overhead

Flexible Budget: Variable Overhead

Variable Overhead Applied To Work-In-Process

Actual Hours (AQ)

×

Actual Rate (AVR)

Actual Hours (AQ)

×

Standard Rate (SVR)

Standard Allowed Hours (SQ)

×

Standard Rate (SVR)

Standard Allowed Hours (SQ)

×

Standard Rate (SVR)

×

hours

per hour

hours

per hour

hours

per hour

hours

per hour

Variable-overhead spending variance

Variable-overhead efficiency variance

Fixed-Overhead Budget And Volume Variances

(Hours = Direct-Labor Hours)

(1)

(2)

(3)

Actual Fixed Overhead

Budgeted Fixed Overhead

Fixed Overhead Applied To Work In Process

Standard Allowed Hours

×

Standard Fixed-Overhead Rate

×

hours

per hour

Fixed-overhead budget variance

Fixed-overhead volume variance

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Tutorial # 00010688 Posted By: vikas Posted on: 03/28/2014 01:41 PM

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