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WEEK 7 BA 510 PROBLEMS ASSIGNMENT
Problem 11-11 BASIC VARIANCE ANALYSIS (LO 11-1, LO 11-2, LO 11-3)
Barberry , Inc. manufactures a product called Fruta. The company was standard
cost system and has established the following standards for one unit of Fruta.
Standard
Quantity

Direct materials…………………………………. 1.5 pounds
\$ 9.00

Standard
Price or Rate

Standard
Cost

\$ 6.00 per pound

0.6 hours

During June, the company recorded this activity, related to the production of Fruta:
a. The company produced 3000 units in June.
b. A total of 8,000 pounds of materials 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 materials remained in ending inventory.
d. The company employs 10 person 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. Compare the price and quantity variances.
b. The materials were purchased from a new supplier who is anxious to enter into a
long-term purchase. 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, 10 person 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 CORPORATION – Basic Variance Analysis; Impact of
Variances on the Unit costs (LO 11-1, LO 11-2, LO 11-3)
Landers Company manufactures a number of products. The standards relating to one of this
product are shown below, along with actual cost data for May.
Standard
Cost per unit

Actual Cost
per Unit

Direct materials:
Standards: 1.8 feet at \$3.00 per foot………………………. \$ 5.40
Actual: 1.75 feet at \$3.20 per foot…………………………..
Direct labor:
Standard: 0.90 hours at \$ 18.00 per hour……………….. \$16.20
Actual: 0.95 hours at \$17.40 per hour……………………..
Standard: 0.90 hours at \$5.00 per-hour…………………..\$ 4.50
Actual: 0.95 hours at \$4.60 per-hour………………………. ______

\$ 5.60
\$16.53
\$ 4.37

Total cost per unit………………………………………………………\$26.10
26.50
Excess actual cost over standard cost per unit…………..

\$

\$ 0.40

The Production Superintendent was pleased when he saw and commented “This \$0.40 excess
cost is well within the 2% 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 was no beginning or ending inventories of
materials.
REQUIRED:
1. Compute the following variance 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
timer?
4. Do you agree that the excess unit cost is not of concern?

PROBLEM 11-13, TOPAZ Company – Materials and Labor Variances: Computation
from Incomplete Data.( LO 11-1, LO 11-2 )
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
Standard price or Rate………………………………………………….? Per Pound
Standard cost per Unit………………………………………………….
?

2.5 hours
\$9.00 per hour
\$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 variances………………………………………….. \$ 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 f materials.
b. Compute the standard quantity allowed for materials for the month’s

production.
c. Compute for the standard quantity of materials per Unit of product.

2. For direct labor:
a. Compute the actual direct labor cost per hour for this month.

b. Compute the labor rate variance.(HINT: In completing the problem, it maybe

helpful to move from known to unknown data either by using the variance
formulas or by using the columnar format in Exhibit 11-5 and 11-6)

Exhibit 11-5 Standard Cost Variance Analysis – Direct Materials
(NOTE: The quantity of materials purchased equals the quantity used in
production.)
(1)
(2)
(3)
Standard Quantity
Actual Quantity
Actual
Quantity
Allowed for Actual Output
of Input
of Input
At Standard Price
At Standard Price
At Actual
Price
(SQ X SP)
(AQ X SP)
(AQ X AP)
6,000 pound* x \$4 per pound
6,500 pounds X \$4.00 per pound
6,500 pounds X \$3.80
per pound
= \$24,000
=\$26,000
=\$24,700
I
I
I
I
I
I
I__Quantity Variance = \$2000 U_____ I__Price Variance = \$1,300 F________I
I
I
I
Spending Variance = \$700 U
I
*2,000 unit X 3.0 pounds per Unit = 6,000 pounds
F= Favorable
U= Unfavorable

EXHIBIT 11-6 Standard Cost Variance Analysis –Direct Labor

(1)
(2)
(3)
Standard Hours
Actual Hours
Actual hours
Allowed for Actual Output
of Input
of Input
At Standard Rate
At Standard Rate
at Actual Rate
(SH X SR)
(AH X SR)
(AH X AR)
1,000 hours* X \$22.00 per hour 1,050hours X \$22.00 per hour 1,050 hours X \$21.60
per hour
= \$ 22, 000
= \$23, 100
= \$ 22, 680
I
I
I
I
I
I
I Labor efficiency Variance I
Labor rate Variance
I
I
= \$1,100 U
I
= \$ 420 F
I
*2000 Units X 0.5 hours per Unit = 1,000 hours
F= Favorable
U = Unfavorable

PROBLEM 12 -15 Comparison of performance Using Return on Investment (ROI)
(LO12-1)
Comparative data on three companies in the same service industry given below:
__________ Company ___________
A
B
Sales……………………………………………… \$4,000,000
\$1,500,000
Net operating Income…………………. \$ 560,000
\$ 210,000
Average operating assets…………….. \$2,000,000
?
Margin…………………………………………..
?
?
Turnover……………………………………….
?
?
Return on Investment (ROI)…………
?
7%

C
\$

?

\$ ?
\$3,000,000
3.5%
2
?

Required:
1. What advantages are there to breaking down the ROI computation into two separate
elements, margins and turn over?
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 recommendation
about how to improve the ROI.

PROBLEM 12-16 Measures of Internal Business Process Performance; (LO 12-3)
MacIntyre Fabrications, Ltd. Of Aberdeen, Scotland, has recently begun a continuous
improvement campaign in conjunction with a move toward Lean Production. Management
hasdeveloped new performance measures as part of the campaign. The following operating
data have been gathered over the last four months.

1

2

______ MONTH_________
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 improvements 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, move process and so forth are the same as
for month
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
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.