CH-16 Standard Costing, Variance Analysis, and Kaizen Costing – Cost Management: Strategies for Business Decisions : Book Guide

Chapter 16 Standard Costing, Variance Analysis and Kaizen Costing ANSWERS TO REVIEW QUESTIONS 16.1 Responsibility reporting systems identify variances or exceptions to budget plans and relate those exceptions to the manager responsible for them. The reported variances (and the analysis thereof) further isolates and identifies the cause of exceptions to budget plans. 16.2 Standard material prices include the purchase price of the material and any transportation costs incurred to obtain the material. The standard quantity of material is the amount required to be included in the finished product plus an allowance for normal waste expected in the production process. 16.3 An unfavorable direct-material price variance means that a higher price was paid for the material than was expected when the standard was set. A favorable variance has the opposite interpretation. 16.4 The manager in the best position to influence the direct-material price variance is the purchasing manager. 16.5 An unfavorable direct-material quantity variance means that a larger amount of material was used in the production process than should have been used in accordance with the standard. A favorable variance has the opposite interpretation. 16.6 The manager in the best position to influence the direct-material quantity variance usually is the production manager. 16.7 Several factors that managers often consider when determining the significance of a variance are as follows: size of variance, extent to which the variances are recurring, trends in the variances, controllability of the variances, and the perceived costs and benefits of investigating the variances. 16.8 An unfavorable direct-labor rate variance means that a higher labor rate was paid than was anticipated when the standard was set. One possible cause is that labor rate raises granted were above those anticipated in setting the standards. Another possible cause is that more highly skilled workers were used to perform tasks than were required or were anticipated at the time the standards were set. A favorable variance has the opposite interpretation. 16.9 In some cases, the manager in the best position to influence the direct-labor rate variance is the production manager. In other cases, the personnel manager or union negotiator would have greater influence. 16.10 The interpretation of an unfavorable direct-labor efficiency variance is that more labor hours were used to accomplish a given task than were required in accordance with the standards. A favorable variance has the opposite interpretation. 16.11 The manager in the best position to influence the direct-labor efficiency variance usually is the production manager. 16.12 Under a standard-costing system, standard costs are used for product-costing purposes as well as for control purposes. The costs entered into Work-in-Process Inventory are standard costs. From that point forward, standard costs flow through all the manufacturing accounts. When goods are finished, the standard cost of the finished goods is removed from the Work-in-Process Inventory account and transferred to the Finished-Goods Inventory account. When goods are sold, the standard cost of the goods sold is transferred from the Finished-Goods Inventory account to Cost of Goods Sold. 16.13 Kaizen costing is the process of cost reduction during the manufacturing phase of an existing product. The Japanese word kaizen refers to continual and gradual improvement through small betterment activities, rather than large or radical improvement made through innovation or large investments in technology. 16.14 Examples include: • Steel mills which can process both new steel and recycled scrap • Oil refineries which can process different grades of crude oil • Distilleries producing blended whiskeys • Chemical companies ANSWERS TO CRITICAL ANALYSIS 16.15 A perfection (or ideal) standard is the cost expected under perfect or ideal operating conditions. A practical (or attainable) standard is the cost expected under normal operating conditions. Many behavioral scientists question the effectiveness of perfection standards. They feel that employees are more likely to perform well when they strive to achieve an attainable standard than when they strive, often unsuccessfully, to achieve a perfection standard. 16.16 Variances represent differences between plans and actual outcomes. Capturing these variances can provide useful information regardless of whether inventories exist. Knowledge about differences between plans and actual outcomes can help managers improve planning or take steps to improve operations. 16.17 The action that management can take in response to price variances is probably quite different than the action that can be taken in response to efficiency variances. The latter is generally more subject to management control. Also, different departments may be responsible for each variance. For example, purchasing may be responsible for the materials price variance and production for the materials efficiency variance. 16.18 The direct-material price variance is based on the quantity purchased (PQ). Deviations between the actual and standard price, which are highlighted by the price variance, relate to the purchasing function in the firm. Timely action to follow up a significant price variance is facilitated by calculating this variance as soon as possible after the material is purchased. The direct-material quantity variance is based on the amount of material used in production (AQ). The quantity variance highlights deviations between the quantity of material actually used (AQ) and the standard quantity allowed (SQ). Therefore, it makes sense to compute this variance at the time the material is used in production. 16.19 The issue of quantity purchased versus quantity used does not arise in the context of direct labor, because direct labor is purchased and used at the same time. Unlike direct material, direct labor cannot be purchased and inventoried for later use. 16.20 Typically, the labor price variances are relatively small since the rates are usually determined in advance through the union negotiation process. However, if a line manager uses workers that are more skilled (and thus higher paid) than the labor that was considered when preparing the budget, an unfavorable price variance would arise that would be the responsibility of the line manager. Presumably, the manager would do this only when the manager expected efficiency improvements at least equal to the unfavorable price variance. If overtime premiums are not accounted for separately, then unbudgeted overtime premiums could be the cause of price variances. 16.21 Several ways in which standard-costing should be adapted in today’s advanced manufacturing environment are as follows: • Reduced importance of labor standards and variances: As direct labor occupies a diminished role in today’s manufacturing environment, the standards and variances used to control labor costs also decline in importance. • Emphasis on material and overhead costs: As labor diminishes in its importance, material and overhead costs take on greater significance. • Cost drivers: Identification of the factors that drive production costs takes on greater importance in the cost management system. • Shifting cost structure: Advanced manufacturing systems require large outlays for production equipment, which entail a shift in the cost structure from variable costs toward fixed costs. Overhead cost control becomes especially critical. • High quality and no defects: Total quality control programs that typically accompany a JIT approach strive for very high quality levels for both raw materials and finished products. One result should be very low material price and quantity variances and low costs of rework. • Non-value-added costs: A key objective of a cost management system is the elimination of non-value-added costs. As these costs are reduced or eliminated, standards must be revised frequently to provide accurate benchmarks for cost control. • New measures and standards: In today’s advanced manufacturing environment, new measures must be developed to control key aspects of the production process. As new measures are developed, standards should be established as benchmarks for performance. An example is the manufacturing cycle efficiency measure, which is defined as processing time divided by the sum of processing time, inspection time, waiting time, and move time. 16.22 Kaizen costing is most consistent with the saying "slow and steady wins the race." Kaizen costing is the process of cost reduction during the manufacturing phase of a product. The Japanese word kaizen refers to continual and gradual improvement through small betterment activities, rather than large or radical improvements made through innovation or large investments in technology. SOLUTIONS TO EXERCISES 16.23 (15 min) Direct-material variances Note: The quantities and prices of the direct-material input (both actual and standard) are unknown, and they are not needed to complete the exercise. The exercise states the total cost of the direct-material input (both actual and standard), so the exercise can be completed by filling in the total amounts in the table, as shown below. (y denotes yen, the Japanese national currency.) EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.24 (15 min) Direct-labor variances aNot needed, but can be calculated as $14.50 = $56,550 / 3,900 hours b3,800 hours = 1,900 units produced x 2 hours per unit EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.25 (15 min) Direct-labor variances aNot needed, but can be calculated as $7.00 = $47,600 / 6,800 hours b7,200 hours = 72,000 reservations made / 10 reservations per hour (standard) EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.26 (20 min) Ethics and standard costs Larry's behavior is unethical. Larry has an obligation to communicate information fairly and objectively. He must prepare complete and clear reports and recommendations. By misrepresenting the costs of the strawberries he is hoping to benefit his friend's strawberry farm at the expense of Farmco. Larry should avoid such conflicts of interest, and advise all parties of any potential conflicts. He should not be setting the standards and mandating from whom Farmco should purchase the goods. 16.27 (45 min) Setting standards for a new high-tech product 1. Hybrids boost fuel economy by adding an electric motor to a traditional internal combustion engine. 2. Developing standards for a radically new product is difficult at best. Manufacturers generally try to find aspects of the new product (and the processes needed to produce it) that are similar to products and processes with which they have experience. Initial standards then can be inferred from these more familiar products and processes. Also, using a target price analysis would allow auto makers to determine what price consumers would pay for a hybrid vehicle. The auto makers could then work backwards toward reducing their costs in order to make an economically viable product. 16.28 (25 min) Direct-material variances Direct-material price variance = PQ(AP – SP) = 239,000($.81 – $.79) = $4,780 Unfavorable Direct-material quantity variance = SP(AQ – SQ) = $.79(210,000 – 200,000*) = $7,900 Unfavorable *SQ = 200,000 kilograms = 50,000 units  4 kilograms per unit Direct-labor rate variance = AH(AR – SR) = 13,000($16.40* – $16.00) = $5,200 Unfavorable *AR = $213,200  13,000 hours Direct-labor efficiency variance = SR(AH – SH) = $16.00(13,000 – 12,500*) = $8,000 Unfavorable *SH = 12,500 hours = 50,000 units  .25 hours per unit 16.29 (30 min) Direct-material variances 16.29 (continued) 16.30 (30 min) Product costing and standard costing 16.31 (40 min) Use of internet to research standard setting for new products Students’ answers on this open-ended exercise will vary widely, depending on the company and product selected for discussion. Possibilities include the hydrogen-powered automobile being discussed by some of the auto makers or various new medicines being introduced by the pharmaceutical companies. 16.32 (10 min) Calculation of standard allowed input Good output = (7/8)  input = .875  input Good output ÷ .875 = standard allowed input 4,725 pounds ÷ .875 = 5,400 pounds of input The standard allowed input quantity in May was 5,400 pounds. 16.33 (20 min) Determining standard material cost Direct Material Initial Mix Unit Cost Standard Material Cost Lotrel 12  kg $1.61    $19.32    Salex 9.6 ltr 1.80    17.28    Protet 5  kg 2.40    12.00    Standard material cost for each 10-liter container $48.60    16.34 (20 min) Cost variance investigation a. (1) Statistical control chart: (2) Only the variances in May and June would be investigated, since they are the only ones that exceed 1 standard deviation, $950. 16.34 (continued) b. Rule of thumb: Standard cost $19,000 Cutoff percentage  6% Cutoff value for investigation $ 1,140 Only the June variance, $1,200 U, is equal to or greater than the cutoff value. Thus, only June's variance would be investigated. (U denotes unfavorable.) c. This is a judgment call, and there is no right or wrong answer. It would be reasonable to conclude that the consistent stream of relatively large unfavorable variances should be investigated before May. The three variances for February, March, and April would be cause for concern. 16.35 (40 min) Direct-labor variances: rate, efficiency, mix and yield a. Direct-labor rate and efficiency variances: 16.35 (continued) b. Direct-labor mix and yield variances: Direct-labor mix variance = Sum of direct-labor mix variances for each type of direct labor used Direct-labor mix variance for direct labor of type i = Standard rate of direct labor i  Actual input proportion for direct labor i - Standard input proportion for direct labor i  Actual total quantity of all direct labor used Using this formula, the direct-labor mix variances are computed as follows: S mix variance = $10.30  [(1,800/6,400)(4/14)]  6,400 = $294 F U mix variance = $ 6.50  [(4,600/6,400)(10/14)]  6,400 = 186 U Total $108 F Direct-labor yield variance = Sum of direct-labor yield variances for each type of direct labor used Direct-labor yield variance for direct labor of type i = Standard rate of direct labor i  Actual total quantity of all direct labor used - Standard allowed total quantity of all direct labor given actual output  Standard input proportion for direct labor i Using this formula, the direct-labor yield variances are computed as follows: S yield variance = $10.30  (6,4007,000)  (4/14) = $1,766 F U yield variance = $ 6.50  (6,4007,000)  (10/14) = 2,786 F Total $4,552 F EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.36 (40 min) Direct-material variances: price, quantity, mix and yield a. Direct-material price and quantity variances (AQ denotes actual quantity used, which is the same as the quantity purchased): *2,000 output units  10 units of material I per output unit = 20,000 †2,000 output units  20 units of material II per output unit = 40,000 b. Direct-material mix and yield variances: Using this formula, the direct-material mix variances are computed as follows: I mix variance = $100  [(22,000/60,000)(10/30)]  60,000 = $200,000 U II mix variance = $150  [(38,000/60,000)(20/30)]  60,000 = 300,000 F Total $100,000 F EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.36 (continued) Direct-material yield variance = Sum of direct-material yield variances for each direct material used Direct-material yield variance for direct material i = Standard price of direct material i  Actual total quantity of all direct materials used - Standard allowed total quantity of all direct materials given actual output  Standard input proportion for direct material i Using this formula, the direct-material yield variances are computed as follows: I yield variance = $100  (60,00060,000*)  (10/30) = 0 II yield variance = $150  (60,00060,000*)  (20/30) = 0 Total 0 *Total standard quantity = 20,000 + 40,000 = 60,000. EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE SOLUTIONS TO PROBLEMS 16.37 (25 min) Direct-material and direct-labor variances a. Direct-material price variance = (PQ  AP) – (PQ  SP) = $297,600 – (160,000  $1.80) = $297,600 – $288,000 = $9,600 Unfavorable b. Direct-material quantity variance = SP(AQ – SQ) = $1.80(142,500 – 161,500*) = $34,200 Favorable *Standard quantity allowed = 19,000 units  8.5 lbs. per unit = 161,500 lbs. c. Direct-labor rate variance = (AH  AR) – (AH  SR) = $40,500* – (5,000  $8.00) = $500 Unfavorable *90%  $45,000 = $40,500 d. Direct-labor efficiency variance = SR(AH – SH) = $8.00(5,000 – 4,750*) = $2,000 Unfavorable *19,000 units  .25 hour per unit = 4,750 hours EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.38  (35 min) Direct-material and direct-labor variances a. (1) Direct-labor efficiency variance = SR(AH – SH) $500 U = $7(AH – 1,400) $500 = $7AH - $9,800 $10,300 = $7AH 1,471.4 hours = AH The actual hours amount to 1,471.4 hours. (2) Direct-labor rate variance = AH(AR – SR) Direct-labor rate variance = 1,471.4*($7.20 - $7.00) Direct-labor rate variance = $294.28 U The direct-labor rate variance is $294.28 U. *From the solution to b (1) above. b. Direct-material price variance = PQ(AP – SP) $2,950 F = 420*(AP - $345) *Note that the purchased quantity is the same as the actual quantity used. The favorable variance means that AP is less than SP, so the variance is a negative number in the equation above. - $2,950 = 420AP - $144,900 $141,950 = 420AP $337.98 = AP The actual price is $337.98 per ounce. 16.39 (30 min) Direct-material and direct-labor variances a. Direct-material price variance = (PQ  AP) – (PQ  SP) = (18,000  $1.38) – (18,000  $1.35) = $24,840 – $24,300 = $540 Unfavorable b. Direct-material quantity variance = (AQ  SP) – (SQ  SP) = (9,500  $1.35) – (10,000*  $1.35) = $12,825 - $13,500 = $675 Favorable *500 units  20 yards per unit = 10,000 yards c. Direct-labor rate variance = (AH  AR) – (AH  SR) = (2,100  $9.15) – (2,100  $9.00) = $19,215 – $18,900 = $315 Unfavorable d. Direct-labor efficiency variance = (AH  SR) – (SH  SR) = (2,100  $9.00) – (2,000*  $9.00) = $18,900 – $18,000 = $900 Unfavorable *500 units  4 hours per unit = 2,000 hours EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.40 (20 min)  Behavioral impact of implementing standard cost system a. Standard costing allows for management by exception. Timely reporting of variances allows management to take corrective action before costs get out of hand. The breakdown of variances into various components helps management trace the source of potential cost problems. Standard costing may also motivate employees to operate more efficiently if they are allowed to participate in setting the standards. b. The standard costing system can have a negative impact on the motivation of employees if the standards are too easily attainable or too difficult to reach. If the standards are too easy then employees tend to reduce productivity. If they are too difficult then production workers become frustrated and ignore the standards. Also, standards that are set without production employee input may not be accepted as realistic by those employees. 16.41 (40 min) Developing standard costs; causes of variances a. Standard cost for a ten-gallon batch of raspberry sherbet: Direct material: Raspberries (7.5 qts.*  $.80) $ 6.00 Other ingredients (10 gal.  $.45)   4.50 $10.50 Direct labor: $ 2.70 Blending [(12 min.  60)  $9.00]   1.80 4.50 Packaging (40 qt.†  $.41)  16.40 Standard cost per 10-gallon batch $31.40 *6 quarts  (5  4) = 7.5 quarts required to obtain 6 acceptable quarts. †4 quarts per gallon  10 gallons = 40 quarts. EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.41 (continued) b. (1) In general, the purchasing manager is held responsible for unfavorable material price variances. Causes of these variances include the following: • Failure to correctly forecast price increases. • Purchasing nonstandard or uneconomical lots. • Purchasing from suppliers other than those offering the most favorable terms. (2) In general, the production manager is held responsible for unfavorable labor efficiency variances. Causes of these variances include the following: • Poorly trained labor. • Substandard or inefficient equipment. • Inadequate supervision. • Substandard material. c. Teresa Adams’ behavior regarding the cost information is unethical because it violates the following ethical standards: Competence. Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information. Integrity. Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflicts. Refrain from either actively or passively subverting the attainment of the organization's legitimate and ethical objectives. Refrain from engaging in or supporting any activity that would discredit the profession. Objectivity. Communicate information fairly and objectively. 16.42 (45 min) Variances; journal entries; missing data a. (1) Direct-labor rate variance = (AH  AR) – (AH  SR) = (36,500  $8.26*) – (36,500  $8.20) = $2,190 Unfavorable *$301,490  36,500 hours (2) Direct-labor efficiency variance = (AH  SR) – (SH  SR) = (36,500  $8.20) – (37,200*  $8.20) = $5,740 Favorable *Standard allowed direct-labor hours: Completed units 5,600 units  6 hours per unit 33,600 hours Partially completed units 800 units  75%  6 hours per unit 3,600 hours Total standard hours allowed 37,200 hours (3) Actual quantity of material used: Direct-material quantity variance = (AQ  SP) – (SQ  SP) = (AQ  $5.00) – (51,200*  $5.00) = $1,500 Unfavorable Therefore: $5(AQ – 51,200) = $1,500 AQ – 51,200 = 300 AQ = 51,500 kilograms *Standard quantity of material allowed: Completed units 5,600 units  8 kilograms 44,800 kilograms Partially completed units 800 units  8 kilograms  6,400 kilograms Total standard quantity allowed 51,200 kilograms 16.42 (continued) (4) Actual price paid per kilogram of direct material: Actual price = $248,000/50,000 = $4.96 per kilogram (5) Direct-material and direct-labor cost transferred to finished goods: Direct-material cost transferred 5,600 units  $40 $224,000 Direct-labor cost transferred 5,600 units  $49.20 275,520 Total cost transferred $499,520 (6) Direct-material and direct-labor cost in November 30 balance of Work-in-Process Inventory: Direct material 800 units  $40 per unit $32,000 Direct labor 800 units  75%  $49.20 29,520 Total cost in ending Work-in-Process Inventory $61,520 16.42 (continued) b. Raw-Material Inventory 250,000 Direct-Material Price Variance 2,000* Accounts Payable 248,000   *Direct-material price variance = PQ(AP – SP) = 50,000($4.96 – $5.00) = $2,000 Favorable To record the purchase of raw material and the direct-material price variance. Work-in-Process Inventory 256,000* Direct-Material Quantity Variance 1,500   Raw-Material Inventory 257,500† *51,200  $5.00 = $256,000 †51,500  $5.00 = $257,500 To add the direct-material cost to work in process and record the direct-material quantity variance. Work-in-Process Inventory 305,040* Direct-Labor Rate Variance 2,190   Direct-Labor Efficiency Variance 5,740 Wages Payable 301,490 *37,200  $8.20 = $305,040 To add the direct-labor cost to work-in-process, record the direct-labor rate and efficiency variances, and recognize the actual direct-labor cost. 16.43 (40 min) Investigating cost variances a. Variances to be investigated using rule of thumb: Variance Type Month Amount Percentage of Standard Cost Efficiency August £38,000 U 7.60% Efficiency September 37,000 U 7.40% Efficiency October 42,000 U 8.40% Efficiency November 60,000 U 12.00% Efficiency December 52,000 U 10.40% b. The company's direct-labor efficiency variances exhibit a consistent unfavorable trend throughout the year. Beginning in January with an unfavorable variance of £4,900, the variances gradually increase to unfavorable variances of £60,000 and £52,000 in November and December, respectively. When to investigate the trend in the variances is a judgment call. A reasonable investigation point would be July, when the unfavorable trend has persisted for six months and the variance is just under the $30,000 threshold value. It would also be reasonable to investigate the direct-labor rate variance. Although the variances are relatively small, they remain consistently favorable over the eight-month period from May through December. Once again, this is a judgment call. c. It is important to follow up on favorable variances. In this case, we have favorable rate variances in all but two months, and consistently unfavorable efficiency variances. One plausible explanation is that less skilled workers were used, resulting in the favorable rate variances, but also requiring more time to do the work, resulting in the unfavorable efficiency variances. In other situations, a consistent pattern of favorable variances, a favorable trend, or a large favorable variance may indicate that employees have discovered a more efficient production method. Management should learn about such a development and may wish to implement the method elsewhere in the company. 16.43 (continued) d. Statistical control chart: investigate August (£5,100 F) and October (£5,700 F) variances. 16.44 (40 min) Kaizen costing chart Requirements (a) through (e): See the following graph. 16.44 (continued) f. Kaizen costing seeks to lower costs during the manufacturing phase through continuous improvement in the production process. Costs are lowered through constant small betterment activities, which every employee in the company is trying to achieve. By lowering its costs and improving quality through continuous improvement efforts, Brisbane Video Corporation will be in a better position to compete in the global market on both price and quality. 16.45 (45 min) Direct-labor variances: rate, efficiency, mix and yield a. Total direct-labor variance: Direct Labor (AH)(AR)  (SH)(SR) Variance III (550)($8.20)  (500)($8.00) $ 510 U II (650)($7.10)  (500)($7.00) 1,115 U I (375)($5.20)  (500)($5.00) 550 F Total $11,075 $10,000 $1,075 U (1) Direct-labor rate and efficiency variances: Direct Labor (AH)(ARSR) Rate Variance SR(AHSH) Efficiency Variance III (550)($8.20$8.00) $110 U ($8.00)(550500) $ 400 U II (650)($7.10$7.00) 65 U ($7.00)(650500) 1,050 U I (375)($5.20$5.00) 75 U ($5.00)(375500) 625 F Total $250 U $ 825 U 16.45 (continued) (2) Direct-labor mix and yield variances Direct-labor mix variance = Sum of direct-labor mix variances for each class of direct labor used Direct-labor mix variance for direct labor class i = Standard rate of direct labor i  Actual input proportion for direct labor i - Standard input proportion for direct labor i  Actual total quantity of all direct labor used Using this formula, the direct-labor mix variances are computed as follows: EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.45 (continued) b. APRIL DIRECT-LABOR VARIANCES: CONFIDENTIAL INSURANCE COMPANY 16.46 (45 min) Direct-material variances: price, quantity, mix and yield a. Total direct-material variance (AQ denotes actual quantity used, which is the same as the quantity purchased): Purchased Direct Material (AQ)(AP)*  (SQ)(SP) Variance Kalex (K) $17,808  (8,000a)($2.00) $1,808 U Salite (S) 16,380  (24,000b)($ .75) 1,620 F Crayolite (C) 17,613  (18,000c)($1.00) 387 F Total $51,801  $52,000 $ 199 F *The actual cost, which is equal to (AQ)(AP) is given in the problem. a(40,000 gal. of good output/500 gal. per batch)  100 gal. per batch = 8,000 gal. b(40,000 gal. of good output/500 gal. per batch)  300 gal. per batch = 24,000 gal. c(40,000 gal. of good output/500 gal. per batch)  225 gal. per batch = 18,000 gal. (1) Direct-material price and quantity variances: EXCEL SOLUTIONS ARE FOUND IN EXCEL SOLUTIONS FILE 16.46 (continued) (2) Direct-material mix and yield variances: 16.46 (continued) b. NOVEMBER DIRECT-MATERIAL VARIANCES: PANHANDLE CHEMICAL COMPANY SOLUTIONS TO CASES 16.47 (50 min) Comprehensive direct-material and direct-labor variances a. Standard cost of lots A43, A44 and A45: METRO CLASSIC FASHIONS, INC. STANDARD COST OF PRODUCTION FOR JUNE Lot Quantity (boxes) Standard Cost per Box Total Standard Cost A43 1,000 $106.50   $106,500 A44 1,700 106.50   181,050 A45 1,200 90.48* 108,576 Standard cost of production $396,126 *Standard material cost plus 80 percent of standard cost of labor and overhead: $26.40 + (80%)($44.10 + $36.00). b. Variances (U denotes unfavorable; F denotes favorable): METRO CLASSIC FASHIONS, INC. DIRECT-MATERIAL PRICE VARIANCE FOR JUNE Actual cost of materials purchased $109,250 Standard cost of materials purchased (95,000  $1.10) 104,500 Direct-material price variance $   4,750 U 16.47 (continued) 16.47 (continued) To add direct-labor cost to work-in-process inventory, record the direct-labor variances, and record the incurrence of direct-labor cost. 16.48 (60 min) Comprehensive direct-material and direct-labor variances 16.48 (continued) 16.48 (continued) 16.48 (continued) 16.49 (40 min) Standard-costing systems and product costing 16.49 (continued) 16.49 (continued) Solution Manual for Cost Management: Strategies for Business Decisions Ronald W. Hilton, Michael W. Maher, Frank H. Selto 9780073526805, 9780072430332, 9780072830088, 9780072299021, 9780072881820, 9780072882551, 9780070874664, 9780072388404, 9780072343533