Assignment 7
Problem 11-11 – Barberry, Inc
Problem 11-12 – Landers Company
Problem 11-13 – Topaz Company
Problem 12-15 – Comparative Data
Examples: P11-10, P11-14, P11-15,
P11A-12, P12-14, P12-18, P12-20
Problem 11-11 – Barberry, Inc
PROBLEM 11-11 Basic Variance Analysis [LO1, LO2, LO3]
Barberry, Inc.,
manufactures a product called Fruta. The company uses a standard cost system
and
has established the
following standards for one unit of Fruta:
|
|
Standard Quantity
|
Standard price or
Rate
|
Standard Cost
|
|
Direct materials
|
1.5 pounds
|
$6.00 per pound
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$9.00
|
|
Direct labor
|
0.6 hours
|
$12 per hour
|
7.20
|
|
Variable manufacturing
overhead
|
0.6 hours
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$2.50 per hour
|
1.50
|
|
|
|
|
$17.70
|
During June, the company recorded
this activity related to production of Fruta:
a. The company produced 3,000
units during June.
b. A total of 8,000 pounds of
material were purchased at a cost of $46,000.
c. There was no beginning
inventory of materials; however, at the end of the month, 2,000 pounds of
material remained in ending inventory.
d. The company employs 10 persons
to work on the production of Fruta. During June, they worked an average of 160
hours at an average rate of $12.50 per hour.
e. Variable manufacturing overhead
is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing
overhead costs during June totaled $3,600.
The company’s management is
anxious to determine the efficiency of Fruta production activities.
Required:
1. For direct materials:
a. Compute the price and quantity
variances.
b. The materials were purchased from
a new supplier who is anxious to enter into a long term purchase contract.
Would you recommend that the company sign the contract?
Explain.
2. For labor employed in the production
of Fruta:
a. Compute the rate and efficiency
variances.
b. In the past, the 10 persons
employed in the production of Fruta consisted of 4 senior workers and 6
assistants. During June, the company experimented with 5 senior workers and 5
assistants. Would you recommend that the new labor mix be continued? Explain.
3. Compute the variable overhead
rate and efficiency variances. What relation can you see between this
efficiency variance and the labor efficiency variance?
Problem 11-12 – Landers Company
PROBLEM 11–12 Basic Variance Analysis; the Impact of Variances on Unit
Costs [LO1, LO2, LO3]
Landers Company
manufactures a number of products. The standards relating to one of these
products are shown below, along with actual cost data for May.
Standard
Actual
Cost
per Cost
Unit
per Unit
Direct materials:
Standard: 1.80 feet at $3.00 per
foot . . . . . . . . . . . . . $
5.40
Actual: 1.75 feet at $3.20 per
foot . . . . . . . . . . . . . . . $
5.60
Direct labor:
Standard: 0.90 hours at $18.00
per hour . . . . . . . . . 16.20
Actual: 0.95 hours at $17.40 per
hour . . . . . . . . . . . . 16.53
Variable overhead:
Standard: 0.90 hours at $5.00 per
hour . . . . . . . . . . 4.50
Actual: 0.95 hours at $4.60 per
hour . . . . . . . . . . . . .
4.37
Total cost per unit . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . $26.10
$26.50
Excess of actual cost over
standard cost per unit . . . . . $0.40
The production superintendent was
pleased when he saw this report and commented: “This $0.40 excess cost is well
within the 2 percent limit management has set for acceptable variances.
It’s obvious that there’s not
much to worry about with this product.”
Actual production for the month
was 12,000 units. Variable overhead cost is assigned to products on the basis
of direct labor-hours. There were no beginning or ending inventories of
materials.
Required:
1. Compute the following
variances for May:
a. Materials price and quantity
variances.
b. Labor rate and efficiency
variances.
c. Variable overhead rate and
efficiency variances.
2. How much of the $0.40 excess
unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.40 excess
unit cost is traceable to apparent inefficient use of labor time?
4. Do you agree that the excess
unit cost is not of concern?
Problem 11-13 – Topaz Company
PROBLEM 11–13 Materials and Labor Variances; Computations from Incomplete
Data [LO1, LO2]
Topaz Company makes
one product and has set the following standards for materials and labor:
Direct
Direct
Materials Labor
Standard quantity or
hours per unit . . . . ? pounds 2.5 hours
Standard price or
rate . . . . . . . . . . . . . . ?
per pound $9.00 per hour
Standard cost per
unit . . . . . . . . . . . . . . ?
$22.50
During the past
month, the company purchased 6,000 pounds of direct materials at a cost of
$16,500. All of this material was used in the production of 1,400 units of
product. Direct labor cost totaled $28,500 for the month. The following
variances have been computed:
Materials quantity
variance . . . . . . . . . . . . . . . $1,200 U
Total materials
spending variance . . . . . . . . . . $300 F
Labor efficiency
variance . . . . . . . . . . . . . . . . . $4,500 F
Required:
1. For direct materials:
a. Compute the standard price per
pound for materials.
b. Compute the standard quantity
allowed for materials for the month’s production.
c. Compute the standard quantity of
materials allowed per unit of product.
2. For direct labor:
a. Compute the actual direct labor
cost per hour for the month.
b. Compute the labor rate variance.
(Hint: In completing the problem,
it may be helpful to move from known to unknown data either by using the
variance formulas or by using the columnar format shown in Exhibits 10–5 and
10–6 .)
Problem 12-15 – Comparative Data
PROBLEM 12–15 Comparison of Performance Using Return on Investment (ROI) [LO1]
Comparative data on
three companies in the same service industry are given below:
Company
A
B C
Sales . . . . . . . .
. . . . . . . . . . . . . . . . $4,000,000
$1,500,000 $ ?
Net operating income
. . . . . . . . . . . . $
560,000 $ 210,000 $ ?
Average operating
assets . . . . . . . . . $2,000,000
? $3,000,000
Margin . . . . . . .
. . . . . . . . . . . . . . . . ?
? 3.5%
Turnover . . . . . .
. . . . . . . . . . . . . . . . ?
? 2
Return on investment
(ROI) . . . . . . . ? 7% ?
Required:
1. What advantages
are there to breaking down the ROI computation into two separate elements,
margin and turnover?
2. Fill in the
missing information above, and comment on the relative performance of the three
companies in as much detail as the data permit. Make specific
recommendations about how to improve the ROI.
Problem 12-16 – MacIntyre
Fabrications
PROBLEM 12–16 Measures of Internal Business Process Performance [LO3]
MacIntyre
Fabrications, Ltd., of Aberdeen, Scotland, has recently begun a continuous
improvement
campaign in
conjunction with a move toward Lean Production. Management has developed new
performance measures as part of this campaign. The following operating data
have been gathered over the last four months:
Month
1
2 3 4
Throughput time . . .
. . . . . . . . . . . . . . . . . . . ? ? ?
?
Manufacturing cycle
efficiency . . . . . . . . . . . ?
? ? ?
Delivery cycle time .
. . . . . . . . . . . . . . . . . . . ? ? ?
?
Percentage of on-time
deliveries . . . . . . . . . 72% 73% 78%
85%
Total sales (units) .
. . . . . . . . . . . . . . . . . . . . 10,540
10,570 10,550 10,490
Management would like
to know the company’s throughput time, manufacturing cycle efficiency, and
delivery cycle time. The data to compute these measures have been gathered and
appear below:
Month
1
2 3 4
Move time per unit,
in days . . . . . . . . . . . . 0.5 0.5 0.4
0.5
Process time per
unit, in days . . . . . . . . . . 0.6
0.5 0.5
0.4
Wait time per order
before start of
production, in days .
. . . . . . . . . . . . . . . 9.6
8.7 5.3
4.7
Queue time per unit,
in days . . . . . . . . . . . 3.6 3.6 2.6
1.7
Inspection time per
unit, in days . . . . . . . . 0.7 0.7 0.4
0.3
Required:
1. For each month, compute the
following:
a. The throughput time.
b. The manufacturing cycle
efficiency (MCE).
c. The delivery cycle time.
2. Using the performance measures
given in the problem and those you computed in (1) above, identify whether the
trend over the four months is generally favorable, generally unfavorable, or
mixed. What areas apparently require improvement and how might they be
improved?
3. Refer to the move time,
process time, and so forth, given for month 4.
a. Assume that in month 5 the move
time, process time, and so forth, are the same as for month 4, except that through
the implementation of Lean Production, the company is able to completely
eliminate the queue time during production. Compute the new throughput time and
MCE.
b. Assume that in month 6 the move
time, process time, and so forth, are the same as for month 4, except that the
company is able to completely eliminate both the queue time during production
and the inspection time. Compute the new throughput time and MCE.
TUTORIAL PREVIEW
1. a., b., and c.
Month
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1
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2
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3
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4
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Throughput time in days:
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Process time
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0.6
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0.5
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0.5
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0.4
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