Chapter 10
Standard Costs and Variances
Solutions to Questions
10-1 A quantity standard indicates how much 10-2 Separating an overall variance into a
of an input should be used to make a unit of price variance and a quantity variance provides
output. A price standard indicates how much the more information. Moreover, price and quantity
input should cost. variances are usually the responsibilities of
different managers.
, the standard hours allowed. That is, in each
10-3 The materials price variance is usually case the formula is:
the responsibility of the purchasing manager. Efficiency variance = SR(AH – SH)
The materials quantity and labor efficiency
variances are usually the responsibility of Only the ―SR‖ part of the formula, the standard
production managers and supervisors. rate, differs between the two variances.
10-4 The materials price variance can be 10-10 If labor is a fixed cost in the short run
computed when materials are purchased or and demand is insufficient to keep everyone
when they are placed into production. It is busy (and workers are not laid off), it will result
usually better to compute the variance when in an unfavorable labor efficiency variance. To
materials are purchased because that is when avoid this unfavorable variance, managers may
the purchasing manager, who has responsibility choose to produce at capacity (rather than
for this variance, has completed his work. In reducing output to match customer demand)
addition, recording the price variance when which leads to a build up of work in process and
materials are purchased allows the company to finished goods inventories.
carry its raw materials inventory at standard
cost, which simplifies bookkeeping.
10-5 This combination of variances may
indicate that inferior quality materials were
purchased at a discounted price, but the low-
quality materials created production problems.
10-6 If standards are used to find who to
blame for problems, they can breed resentment
and undermine morale. Standards should not be
used to find someone to blame for problems.
10-7 Several factors other than the
contractual rate paid to workers can cause a
labor rate variance. For example, skilled workers
with high hourly rates of pay can be given duties
that require little skill and that call for low hourly
rates of pay, resulting in an unfavorable rate
variance. Or unskilled or untrained workers can
be assigned to tasks that should be filled by
more skilled workers with higher rates of pay,
resulting in a favorable rate variance.
Unfavorable rate variances can also arise from
overtime work at premium rates.
10-8 If poor quality materials create
production problems, a result could be excessive
labor time and therefore an unfavorable labor
efficiency variance. Poor quality materials would
not ordinarily affect the labor rate variance.
10-9 If overhead is applied using direct labor-
hours, then the variable overhead efficiency
variance and the direct labor efficiency variance
will always be favorable or unfavorable together.
Both variances are computed by comparing the
number of direct labor-hours actually worked to
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
650 Managerial Accounting, 16th Edition
,
, Chapter 10: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 10
Standard Costs and Variances
Solutions to Questions
10-1 A quantity standard indicates how much 10-2 Separating an overall variance into a
of an input should be used to make a unit of price variance and a quantity variance provides
output. A price standard indicates how much the more information. Moreover, price and quantity
input should cost. variances are usually the responsibilities of
different managers.
, the standard hours allowed. That is, in each
10-3 The materials price variance is usually case the formula is:
the responsibility of the purchasing manager. Efficiency variance = SR(AH – SH)
The materials quantity and labor efficiency
variances are usually the responsibility of Only the ―SR‖ part of the formula, the standard
production managers and supervisors. rate, differs between the two variances.
10-4 The materials price variance can be 10-10 If labor is a fixed cost in the short run
computed when materials are purchased or and demand is insufficient to keep everyone
when they are placed into production. It is busy (and workers are not laid off), it will result
usually better to compute the variance when in an unfavorable labor efficiency variance. To
materials are purchased because that is when avoid this unfavorable variance, managers may
the purchasing manager, who has responsibility choose to produce at capacity (rather than
for this variance, has completed his work. In reducing output to match customer demand)
addition, recording the price variance when which leads to a build up of work in process and
materials are purchased allows the company to finished goods inventories.
carry its raw materials inventory at standard
cost, which simplifies bookkeeping.
10-5 This combination of variances may
indicate that inferior quality materials were
purchased at a discounted price, but the low-
quality materials created production problems.
10-6 If standards are used to find who to
blame for problems, they can breed resentment
and undermine morale. Standards should not be
used to find someone to blame for problems.
10-7 Several factors other than the
contractual rate paid to workers can cause a
labor rate variance. For example, skilled workers
with high hourly rates of pay can be given duties
that require little skill and that call for low hourly
rates of pay, resulting in an unfavorable rate
variance. Or unskilled or untrained workers can
be assigned to tasks that should be filled by
more skilled workers with higher rates of pay,
resulting in a favorable rate variance.
Unfavorable rate variances can also arise from
overtime work at premium rates.
10-8 If poor quality materials create
production problems, a result could be excessive
labor time and therefore an unfavorable labor
efficiency variance. Poor quality materials would
not ordinarily affect the labor rate variance.
10-9 If overhead is applied using direct labor-
hours, then the variable overhead efficiency
variance and the direct labor efficiency variance
will always be favorable or unfavorable together.
Both variances are computed by comparing the
number of direct labor-hours actually worked to
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
650 Managerial Accounting, 16th Edition
,
, Chapter 10: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 10
