Exercise 8-1A

Type of
Item to Classify Standard Actual Variance
Sales volume 40,000 units 42,000 units Favorable
Sales price $3.60 per unit $3.63 per unit Favorable
Materials cost $2.90 per pound $3.00 per pound Unfavorable
Materials usage 91,000 pounds 90,000 pounds Favorable
Labor cost $10.00 per hour $9.60 per hour Favorable
Labor usage 61,000 hours 61,800 hours Unfavorable
Fixed cost spending $400,000 $390,000 Favorable
Fixed cost per unit (volume) $3.20 per unit $3.16 per unit Favorable

Exercise 8-2A
Item Budget Actual Variance F or U
Sales revenue $490,000 $506,000 $16,000 F
Cost of goods sold $385,000 $360,000 $25,000 F
Material purchases at 5,000 pounds $275,000 $280,000 $ 5,000 U
Materials usage $180,000 $178,000 $2,000 F
Sales price $500 $489 $11 U
Production volume 950 units 900 units 50 units U
Wages at 4,000 hours $60,000 $58,700 $1,300 F
Labor usage at $16 per hour $96,000 $97,000 $1,000 U
Research and development $22,000 $25,000 $3,000 U
expense
Selling and administrative $49,000 $40,000 $9,000 F
expenses

Exercise 8-10A

a. The variance is not calculated properly. The variance has

been calculated on the basis of the static budget (i.e., 4,000
sandwiches). The variance should be calculated on the
basis of a flexible budget (i.e., 4,500 sandwiches). Based on
a flexible budget the standard quantity of ham used should
be 27,000 ounces (i.e., 4,500 sandwiches x 6 ounces). The
flexible budget variance is $112.50 unfavorable [i.e., (27,450
− 27,000) x $0.25).
b. There are numerous explanations that could explain the
variance. Some of these explanations include: (1) sandwich
makers used too much meat on the sandwiches (2) sandwich
makers or other employees ate or otherwise stole some of the
ham, (3) the ham purchased was of a low quality and some of
it had to be thrown away, (4) the cashier failed to charge
customers for some sandwiches, (5) some sandwiches were
dropped on the floor and had to be thrown away.
Exercise 8-14A

a. Labor Variance Information Table Amounts

Standard cost per return ($50 x 4.0) $200.00
Actual cost per return ($46 x 4.4) $202.40
Actual no. of returns 600

|Actual cost – Standard cost| x Actual units

|$202.40 – $200.00| x 600 = $1,440 Unfavorable
b. |Actual price – Standard price| x Actual hours
|$46 – $50| x (4.4 x 600) = $10,560 Favorable
c. |Actual hours – Standard hours| x Standard price
| (4.4 x 600) – (4.0 x 600) | x $50
|2,640 – 2,400| x $50 = $12,000 Unfavorable
d. The lower than planned labor price suggests that the firm
may have hired less qualified personnel. These under-
qualified individuals took longer to accomplish the task of
preparing a tax return.

Exercise 8-15A
a. Standard hours are 210 (i.e., 840 x .25)
Actual hours are 252 (provided in the problem)
Usage variance =
[(Standard hours − Actual hours) x Standard price] =
$336
(210 − 252) x Standard price = $336
Standard price = $336 ÷ 42 = $8
b. Since the actual price ($7.50 per hour) used is less than the
standard price ($8.00 per hour), the variance is favorable.

Problem 8-22A
a. Employees should be evaluated on the basis of the work they
actually did rather than the work that was planned in the
static budget. Accordingly, the labor variances should be
based on the actual units made (i.e., 11,000 dolls).
b. Labor Variance Information Table Amounts
Standard price per hour $8.00
Actual price per hour
($123,816 / 15,400 hours) $8.04
Standard hours for flexible budget
(1.5 Hrs. per Doll x 11,000 Dolls) 16,500 Hrs.
Actual hours used 15,400 Hrs.

c. Labor price variance= Standard price – Actual price x

Actual hours
Labor price variance= $8.00 – $8.04 x 15,400 = $616
Unfavorable
d. Labor usage var.=Standard Hrs. – Actual Hrs.  x Standard
price
Labor usage var. =16,500 Hrs. – 15,400 Hrs.  x $8 = $8,800
Favorable

Exercise 8-1B

Type of
Item to Classify Standard Actual Variance
Sale volume 38,000 units 36,750 units Unfavorable
Sales price $6.90 per unit $6.78 per unit Unfavorable
Materials cost $2.10 per pound $2.30 per pound Unfavorable
Materials usage 102,400 pounds 103,700 pounds Unfavorable
Labor cost $8.25 per hour $8.80 per hour Unfavorable
Labor usage 56,980 hours 55,790 hours Favorable
Fixed cost spending $249,000 $244,000 Favorable
Fixed cost per unit (volume) $2.51 per unit $3.22 per unit Unfavorable

Exercise 8-2B

Item Budget Actual Variance F or U

Sales revenue $620,000 $650,000 $30,000 F
Cost of goods sold $450,000 $400,000 $50,000 F
Material purchases at 10,000 pounds $260,000 $290,000 $30,000 U
Materials usage $270,000 $260,000 $10,000 F
Sales price $550 $560 $10 F
Production volume 890 units 900 units 10 units F
Wages at 7,600 hours $91,200 $90,800 $400 F
Labor usage 7,600 8,000 400 hours U
Research and development expense $81,000 $90,000 $9,000 U
Selling and administrative expenses $75,000 $71,000 $4,000 F

Exercise 8-14B

a. Labor Variance Information Table Amounts

Standard cost per lawn ($12 x 2 hours) $24.00
Actual cost per lawn ($14 x 1.75 hours) $24.50
Actual number of lawns serviced 500
|Actual cost – Standard cost| x Actual units
|$24.50 – $24.00| x 500 = $250 Unfavorable

b. |Actual price – Standard price| x Actual hours

|$14 – $12| x (1.75 x 500) = $1,750 Unfavorable
c. |Actual hours – Standard hours| x Standard price
|(1.75 x 500) – (2 x 500)| x $12 = $1,500 Favorable
d. The unfavorable price variance could have been due to a
failure to conduct a proper search for employees. It could
also have been due to poor planning that resulted in
overtime pay. Other explanations are possible.
The favorable usage variance could be due to hiring better
employees who worked harder than planned. The fact that
employees were paid more than the standard labor price
 supports this explanation. Alternatively, the production
supervisor could have motivated the employees to work
harder than expected.

Exercise 8-15B

a. |Actual price – Standard price| x Actual quantity = Price variance

|$14.80 – $15.00| x (125 x Act. labor hrs. used per treatment) = $15
125 x Actual labor hrs. used per treatment = 15 / .2
125 x Actual labor hrs. used per treatment = 75
Actual labor hrs. used per treatment = 75 / 125
Actual labor hrs. used per treatment = .6
b. Since the actual hours per treatment (.6) is greater than the
standard hours (.5) the labor usage variance would be
unfavorable.

Exercise 8-16B

a. |Actual cost – Standard cost| x Actual hours

|$9.50 – $10.00| x 152,000 = $76,000 Favorable

b. If particular variable overhead costs are significant companies may

choose to isolate the variances associated with these particular
costs. Analyzing specific variable overhead cost variances would
require that a company establish multiple predetermined overhead
rates, each relating to specific overhead costs, to overcome the
interpretation problem inherent in using a single companywide
rate.

Problem 8-22B

a. Employees should be evaluated on the basis of the work they

actually did rather than the work that was planned in the
static budget. Accordingly, the labor variances should be
based on the actual units made (i.e., 102,000 swimsuits).

b. Labor Variance Information Table Amounts

Standard price per hour $15.00
 Actual price per hour
($1,647,800 / 107,000 hours) $15.40
Standard hours for flexible budget
(1.0 Hrs. per swimsuit x 102,000 swimsuits) 102,000 Hrs.
Actual hours used 107,000 Hrs.

c. Labor price variance = Standard price – Actual price x Actual

hours
Labor price variance = $15 – $15.40x 107,000 = $42,800
Unfavorable
d. Labor usage var. =Standard Hrs. – Actual Hrs.  x Standard
price
Labor usage var. = 102,000 Hrs. – 107,000 Hrs.  x $15.00
=$75,000 Unfavorable