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Chapter 23: Q19RQ (page 1305)
Briefly describe how journal entries differ in a standard cost system.
The difference in journal entries are in raw material, WIP inventory, finished goods inventory and variances
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Question:Match the variance to the correct definition.
Variance Definition
2. Cost variance
3. Efficiency variance
4. Flexible budget variance
5. Sales volume variance
6. Static budget variance
a. The difference between the expected results in the flexible budget for the actual units sold and the static budget.
b. The difference between actual results and the expected results in the flexible budget for the actual units sold.
c. Measures how well the business keeps unit costs of material and labor inputs within standards.
d. The difference between actual results and the expected results in the static budget.
e. Measures how well the business uses its materials or human resources
Matching terms
Match each term to the correct definition.
Terms Definitions
a. Benchmarking
b. Efficiency variance
c. Cost variance
d. Standard
1. Measures whether the quantity of materials or laborused to make the actual number of outputs is within thestandard allowed for the number of outputs.
2. Uses standards based on best practice.
3. Measures how well the business keeps unit costs ofmaterials and labor inputs within standards.
4. A price, cost, or quantity that is expected under normalconditions.
Drew Castello, general manager of Sunflower Manufacturing, was frustrated. He wanted the budgeted results, and his staff was not getting them to him fast enough. Drew decided to pay a visit to the accounting office, where Jeff Hollingsworth was supposed to be working on the reports. Jeff had recently been hired to update the accounting system and speed up the reporting process.
鈥淲hat鈥檚 taking so long?鈥� Drew asked. 鈥淲hen am I going to get the variance reports?鈥� Jeff sighed and attempted to explain the problem. 鈥淪ome of the variances appear to be way off. We either have a serious problem in production, or there is an error in the spreadsheet. I want to recheck the spreadsheet before I distribute the report.鈥� Drew pulled up a chair, and the two men went through the spreadsheet together. The formulas in the spreadsheet were correct and showed a large unfavorable direct labor efficiency variance. It was time for Drew and Jeff to do some investigating.
After looking at the time records, Jeff pointed out that it was unusual that every employee in the production area recorded exactly eight hours each day in direct labor. Did they not take breaks? Was no one ever five minutes late getting back from lunch? What about clean颅up time between jobs or at the end of the day?
Drew began to observe the production laborers and noticed several disturbing items. One employee was routinely late for work, but his time card always showed him clocked in on time. Another employee took 10颅 to 15颅minute breaks every hour, averaging about 1 hours each day, but still reported eight hours of direct labor each day. Yet another employee often took an extra 30 minutes for lunch, but his time card showed him clocked in on time. No one in the production area ever reported any 鈥渄own time鈥� when they were not working on a specific job, even though they all took breaks and completed other tasks such as doing clean颅up and attending department meetings.
Requirements
1. How might the observed behaviors cause an unfavorable direct labor efficiency variance?
2. How might an employee鈥檚 time card show the employee on the job and working when the team member was not present?
3. Why would the employees鈥� activities be considered fraudulent?
Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month鈥檚 production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.
Identifying the benefits of standard costs
Setting standards for a product may involve many employees of the company. Identify some of the employees who may be involved in setting the standard costs, and describe what their role might be in setting those standards.
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