You are on page 1of 3

Standard Costing

Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been
experiencing problems as shown by its June contribution format income statement below:

Budgeted Actual
 Sales (15,000 pools) ....................................... $450,000 $450,000
 Variable expenses:
o Variable cost of goods sold*....................... 180,000 196,290
o Variable selling expenses ............................ 20,000 20,000
 Total variable expenses................................... 200,000 216,290
 Contribution margin......................................... 250,000 233,710
 Fixed expenses:
o Manufacturing overhead .............................. 130,000 130,000
o Selling and administrative ............................ 84,000 84,000
 Total fixed expenses ........................................ 214,000 214,000
 Net operating income...................................... $36,000 $19,710

*Contains direct materials, direct labor, and variable manufacturing overhead.

Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given
instructions to “get things under control.” Upon reviewing the plant’s income statement, Ms. Dunn has
concluded that the major problem lies in the variable cost of goods sold. She has been provided with the
following standard cost per swimming pool:

Standard Quantity Standard Price Standard


or Hours or Rate Cost
Direct materials 0.30 pounds Tk.20 Tk.6.00
Direct labor 0.20 hours Tk.24 Tk.4.80
Variable manufacturing overhead 0.10 hours* Tk.12 Tk.1.20
Total standard cost Tk.12.00
*Based on machine-hours.

During June the plant produced 15,000 pools and incurred the following costs:

a) Purchased 6,000 pounds of materials at a cost of $19.50 per pound.


b) Used 4,920 pounds of materials in production. (Finished goods and work in process inventories are
insignificant and can be ignored.)
c) Worked 2950 direct labor-hours at a cost of $28 per hour.
d) Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 1475
machine-hours were recorded.
e) It is the company’s policy to close all variances to cost of goods sold on a monthly basis.

Required:

1. Compute the following variances for June:


a. Direct materials price and quantity variances.
b. Direct labor rate and efficiency variances.
c. Variable overhead spending and efficiency variances.
-CMA, December-2015
Standard Costing

Ricardo shirts inc. manufactures short and long sleeved men’s shirts for large stores. Produces a
single quality shirt in lots to each customer’s order and attaches the store’s level to each shirt.
The standard direct costs for a dozen long sleeved shirts include:

 Direct Materials: (24 yards@Tk.0.65 per yard) Tk.15.60


 Direct Labour: (3 hours@Tk.7.25 per hour) Tk.21.75

During April, Ricardo worked on three orders for sleeved shirts. Job cost records month disclose
the following:

Lot Units in lot (dozens) Materials used (yards) Hours worked


30 1,000 24,100 2,980
31 1,700 40,440 5,130
32 1,200 28,825 2,890

The following additional information is available:

a) Ricardo purchased 95,000 yards of material during April at a cost of Tk.66,500.


b) Direct Labour cost incurred amounted to Tk.80,740 during April.
c) There was no work in process at April -01, during April, lots 30 and 31 were completed at
April-30, lot 32 was 100% complete with respect to materials but only 80% complete with
respect to Labour.

Required:

1. Compute the materials price variance for April, and show whether the variance was
favorable or unfavorable.
2. Determine the materials quantity variance for April in both Yards and Taka:-
a) For the Company in Total.
b) For each Lot worked on during the month.
3. Compute the labour rate variance for April, and show whether the variance was favorable
or unfavorable.
4. Determine the labour efficiency variance for April in both Hours and Taka:-
a) For the Company in Total.
b) For each Lot worked on during the month.
5. In what situations might it be better to express variances in units (hours, years, and so on)
rather than in taka? In taka rather than in units.

-CMA, August-2015
Standard Costing

The emergency room at Apollo Hospital uses a flexible budget based on patients seen as a
measure of activity. An adequate staff of attending and on-call physicians must be maintained at
all times, so patient activity does not affect physician scheduling. Nurse scheduling varies as
volume changes. However a standard of ½ Nurse- Hours (30 minutes) per patient visit was set.
Average hourly pay for Nurses is Tk.150, ranging from Tk.90 to Tk.180 per hour.

All materials are considered to be supplies, a part of overhead; there no direct materials. A
statistical study showed that the cost of supplies and other variable overhead is more closely
associated with Nurse- Hours than with patient visits. The standard for supplies and other
variable overhead is Tk.100 per Nurse-Hour.

The head physician of the emergency room unit, Beverly Mossman, is responsible for control of
costs. During October, the emergency room unit treated 4,000 patients.

The Budget and Actual Costs were as follows:

Particulars Budget Actual Variance


Patient Visits (Nos.) 3,800 4,000 200
Nurse- Hours 1,900 2,075 175
Nursing Cost Tk.2,85,000 Tk.3,31,250 Tk.46,250
Supplies & other variable overhead Tk.1,90,000 Tk.2,03,200 Tk.13,200
Fixed Costs Tk.9,26,000 Tk.9,26,000 -
Total Costs Tk.14,01,000 Tk.14,60,450 Tk.59,450

Required:

1) Calculate the Prices & Usage variances for Nursing Costs.


2) Calculate the Spending & Efficiency variances for Supplies & other variable overhead.
3) As a chief accountant of the hospital, you are asked to explain the variances of the chief
of staff and provide possible explanations.

-CMA, April-2015

You might also like