Solved by verified expert :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.
JanuaryFebruar
$
yMarchAprilMayJune
500 F1,600 U1,400 U1,800 U2,100 U2,400 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.
b.
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.Based on the cutoff value, which of the month(s) will have their direct-labor efficiency variance investigated? (Select all that apply.)
January varianceFebruary varianceMarch varianceApril varianceMay varianceJune 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*Uni Ma Sta Actts chin nda ualPro e rd Dirduc Hou Dir ected rs ect- LabLab oror HouHou rs
Direct-LaborEfficiencyVariance
*Source of data: Alan S. Levitan and Sidney J. Baxendale, “Analyzing the Labor EfficiencyVariance to Signal Process Engineering Problems,” Journal of Cost Management 6, no. 2 (Summer 1992), p. 70.Required:1-a. Which of the following amounts did Colgate Palmolive use in calculating its standarddirect labor hours for the month of January? (Select all that apply.)Units producedMachine hoursActual direct-labor hoursStandard ratio of direct-labor hours to machine hours1-b. Which of the following amounts did Colgate Palmolive use in calculating its directlabor efficiency variance for the month of January? (Select all that apply.)Units producedStandard direct-labor hoursActual direct-labor hoursStandard 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.)
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 theStandardDirect-LaborCostJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctober
3.Suppose management investigates all variances in excess of (expression error) percent of standard cost. Which months contain a variance that would beinvestigated? (Select all that apply.)
JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctober6.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 CORPORATIONDirect-labor Variance ReportDirectLaborRateVariance
Direct-Labor Efficiency Variance
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.)PercentagVariancee ofMonthAmountTypeStandardCost%%%%%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 Favorable variances occur more often as activity levels rise
4. Starlight Glassware Company has the following standards and flexible-budget data.
Standardvariableoverhead rateStandardquantity of
$
7.00 per directlabor hour2 hours per unitof output
direct laborBudgetedfixed overheadBudgetedoutput
$
96,00024,000 units
Actual results for February are as follows:
Actual outputActual variable overheadActual fixed overheadActual direct labor
19,000 units$ 342,000$
93,00045,000 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).)1.2.3.4.
Variable-overheadspending varianceVariable-overheadefficiency varianceFixed-overhead budget varianceFixed-overhead volume variance
5.Starlight Glassware Company has the following standards and flexible-budget data.
Standard variableoverhead rateStandard quantity of direct laborBudgetedfixed overhead
$
per directlabor hour
16
hours per unitof output
2.5$
370,000
Budgetedoutput
28,500 units
Actual results for February are as follows:
ActualoutputActualvariableoverheadActualfixedoverheadActualdirectlabor
19,600 units$ 855,950$ 326,00050,350 hours
Required:Use the following diagrams below (similar to Exhibit 11-6 and Exhibit 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:
