chapter 22 (fin man); chapter 7 (man) … content... · the factory overhead cost variance report...

PERFORMANCE EVALUATION USING VARIANCES

1. Standards are performance goals. Manufacturing companies normally use standard cost foreach of the three following product costs:a. Direct materialsb. Direct laborc. Factory overhead

Standard cost systems enable management to determine the following:a. How much a product should cost (standard cost)b. How much it does cost (actual cost)

2. Reporting by the “principle of exceptions” is the reporting of only variances (or “exceptions”) between standard and actual costs to the individual responsible for cost control. This reporting allows management to focus on correcting cost variances.

3. The two variances in direct materials cost are:a. Direct materials priceb. Direct materials quantity

4. The offsetting variances might have been caused by the purchase of low-priced, inferior materials. The low price of the materials would generate a favorable materials price variance, while the inferior quality of the materials would cause abnormal spoilage and waste, thus generating an unfavorable materials quantity variance.

5. a. The two variances in direct labor costs are:(1) Direct labor rate(2) Direct labor time

b. The direct labor cost variance is usually under the control of the production supervisor.

6. No. Even though the assembly workers are covered by union contracts, direct labor cost variances still might result. For example, direct labor rate variances could be caused by scheduling overtime to meet production demands or by assigning higher-paid workers to jobs normally performed by lower-paid workers. Likewise, direct labor time variances could result during the training of new workers or from a shortage of skilled employees.

7. Standards can be very appropriate in repetitive service operations. Fast-food restaurants can use standards for evaluating the productivity of the counter and food preparation employees. In addition, standards could be used to plan staffing patterns around various times of the day (e.g., increasing staff during the lunch hour).

CHAPTER 22 (FIN MAN); CHAPTER 7 (MAN)

FROM STANDARD COSTS

DISCUSSION QUESTIONS

22-1© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 22 Performance Evaluation Using Variances from Standard Costs

DISCUSSION QUESTIONS (Continued)

8. a. The variable factory overhead controllable variance results from incurring a total amount of variable factory overhead cost greater or less than the amount budgeted for the level of operations achieved. The fixed factory overhead volume variance results from operating at a level above or below 100% of normal capacity.

b. The factory overhead cost variance report presents the standard factory overhead cost variance data, including the volume and controllable variances.

9. Net unfavorable direct materials price variance.

10. Nonfinancial performance measures provide managers additional measures beyond the dollar impact of decisions. Nonfinancial considerations may help the organization include external customer perspectives about quality and service in performance measurements. These bring added perspectives in evaluating performance.



PE 22–1A (FIN MAN); PE 7–1A (MAN)a. Direct materials price –$10,800 [($33.25 – $34.00) × 14,400 gal.]

variance (favorable)

b. Direct materials quantity $13,600 [(14,400 gal. – 14,000 gal.) × $34.00]variance (unfavorable)

c. Direct materials cost $2,800 (–$10,800 + $13,600) orvariance (unfavorable) [($33.25 × 14,400 gal.) – ($34.00 × 14,000 gal.)]

= $478,800 – $476,000

PE 22–1B (FIN MAN); PE 7–1B (MAN)a. Direct materials price $2,250 [($3.00 – $2.50) × 4,500 lbs.]

variance (unfavorable)

b. Direct materials quantity –$1,250 [(4,500 lbs. – 5,000 lbs.) × $2.50]variance (favorable)

c. Direct materials cost $1,000 ($2,250 – $1,250) orvariance (unfavorable) [($3.00 × 4,500 lbs.) – ($2.50 × 5,000 lbs.)]

= $13,500 – $12,500

PE 22–2A (FIN MAN); PE 7–2A (MAN)a. Direct labor rate $8,850 [($30.50 – $30.00) × 17,700 hrs.]

variance (unfavorable)

b. Direct labor time $6,000 [(17,700 hrs. – 17,500 hrs.) × $30.00]variance (unfavorable)

c. Direct labor cost $14,850 ($8,850 + $6,000) orvariance (unfavorable) [($30.50 × 17,700 hrs.) – ($30.00 × 17,500 hrs.)]

= $539,850 – $525,000

PE 22–2B (FIN MAN); PE 7–2B (MAN)a. Direct labor rate –$1,400 [($16.50 – $17.00) × 2,800 hrs.]

variance (favorable)

b. Direct labor time –$3,400 [(2,800 hrs. – 3,000 hrs.) × $17.00]variance (favorable)

c. Direct labor cost –$4,800 (–$1,400 – $3,400) orvariance (favorable) [($16.50 × 2,800 hrs.) – ($17.00 × 3,000 hrs.)]

= $46,200 – $51,000

PRACTICE EXERCISES



PE 22–3A (FIN MAN); PE 7–3A (MAN)

PE 22–3B (FIN MAN); PE 7–3B (MAN)

PE 22–4A (FIN MAN); PE 7–4A (MAN)$1.80 × [17,000 hrs. – (3,500 units × 5 hrs.)]

PE 22–4B (FIN MAN); PE 7–4B (MAN)$0.60 × [3,500 hrs. – (1,000 units × 3 hrs.)]$300 unfavorable

Variable Factory OverheadControllable Variance =

Variable Factory OverheadControllable Variance = $4,000 – $4,200

= $2,150 UnfavorableVariable Factory OverheadControllable Variance

Variable Factory OverheadControllable Variance =

–$900 favorable

Variable Factory OverheadControllable Variance = $63,400 – [$3.50 × (3,500 units × 5 hrs.)]

= $63,400 – $61,250Variable Factory OverheadControllable Variance

$4,000 – [$1.40 × (1,000 units × 3.0 hrs.)]

–$200 Favorable




Work in Process (14,000* gal. × $34.00) 476,000Direct Materials Quantity Variance** 13,600

Materials (14,400 gal. × $34.00) 489,600

* 3,500 units × 4 standard gal. per unit** [(14,400 gal. – 14,000 gal.) × $34.00]


Work in Process (5,000* lbs. × $2.50) 12,500Direct Materials Quantity Variance** 1,250Materials (4,500 lbs. × $2.50) 11,250

* 1,000 units × 5 standard lbs. per unit** [(4,500 lbs. – 5,000 lbs.) × $2.50]


Sales (3,500 units × $400) $1,400,000Cost of goods sold—at standard* 1,093,750Gross profit—at standard $ 306,250

Favorable UnfavorableLess variances from standard cost:

Direct materials price (PE22–1A; PE7–1A) $10,800Direct materials quantity (PE22–1A; PE7–1A) $13,600Direct labor rate (PE22–2A; PE7–2A) 8,850Direct labor time (PE22–2A; PE7–2A) 6,000Factory overhead controllable

(PE22–3A; PE7–3A) 2,150Factory overhead volume (PE22–4A; PE7–4A) 900 (18,900)

Gross profit $ 287,350

* Direct materials (3,500 units × 4 gal. × $34.00)…………………………………………………… $ 476,000Direct labor (3,500 units × 5 hrs. × $30.00)………………………………………………………… 525,000Factory overhead [3,500 units × 5 hrs. × ($3.50 + $1.80)]………………………………………… 92,750Cost of goods sold at standard……………………………………………………………………… $1,093,750

GIOVANNI COMPANYIncome Statement Through Gross ProfitFor the Year Ended December 31, 2014




Sales (1,000 units × $90) $90,000Cost of goods sold—at standard* 69,500Gross profit—at standard $20,500


Direct materials price (PE22–1B; PE7–1B) $2,250Direct materials quantity (PE22–1B; PE7–1B) $1,250Direct labor rate (PE22–2B; PE7–2B) 1,400Direct labor time (PE22–2B; PE7–2B) 3,400Factory overhead controllable

(PE23–3B; PE7–3B) 200Factory overhead volume (PE23–4B; PE7–4B) 300 3,700

Gross profit $24,200

* Direct materials (1,000 units × 5 lbs. × $2.50)………………………………………………………… $12,500Direct labor (1,000 units × 3 hrs. × $17.00)…………………………………………………………… 51,000Factory overhead [1,000 units × 3 hrs. × ($1.40 + $0.60)]…………………………………………… 6,000Cost of goods sold at standard……………………………………………………………………….. $69,500

PE 22–7A (FIN MAN); PE 7–7A (MAN)Number of employee errors…………………………………………………………………InputNumber of times paper supply runs out…………………………………………………InputCopy machine downtime (broken)…………………………………………………………InputNumber of pages copied per hour…………………………………………………………OutputNumber of customer complaints………………………………………………………… OutputPercent jobs done on time…………………………..………………………………………Output

PE 22–7B (FIN MAN); PE 7–7B (MAN)Number of times ingredients are missing……………………………………………… InputNumber of customer complaints………………………………………………………… OutputNumber of hours kitchen equipment is down for repairs…………………………… InputNumber of server order mistakes…………………………………………………………InputPercent of meals prepared on time……………………………………………………… OutputNumber of unexpected cook absences……………………………………………………Input

DVORAK COMPANYIncome Statement Through Gross ProfitFor the Year Ended December 31, 2014



Ex. 22–1 (FIN MAN); Ex. 7–1 (MAN)

Quantity × Total

650 lbs. × $ 585200 lbs. × 300150 gals. × 315

$1,200

Standard direct materials cost per bar of chocolate:

Ex. 22–2 (FIN MAN); Ex. 7–2 (MAN)a. Direct labor…………………………………………… $18.00 × 2.0 hrs. $ 36.00

Direct materials……………………………………… $15.00 × 20 bd. ft. 300.00Variable factory overhead………………………… $2.75 × 2.0 hrs. 5.50Fixed factory overhead…………………………… $1.25 × 2.0 hrs. 2.50

Total cost per unit……………………………… $344.00

b. A standard cost system provides Wood Designs’ management a cost control tool using the principle of management by exception. Using this principle, costs thatdeviate significantly from standards can be investigated and corrected. Thestandard cost system also can be used to motivate employees to work efficientlywith their time, use of materials, and other factory overhead resources.

$2.10 per gal.

= $0.25 per bar

MilkTotal cost

$1,200 per batch4,800 bars

EXERCISES

Ingredient

CocoaSugar

Price

$0.90 per lb.$1.50 per lb.



Ex. 22–3 (FIN MAN); Ex. 7–3 (MAN)

a.

Standard Cost atPlanned Volume(600,000 Bottles)

Manufacturing costs:Direct labor $10,800Direct materials 49,500Factory overhead 3,000

Total $63,300

$1.80 × (600,000 ÷ 100) = $10,800$8.25 × (600,000 ÷ 100) = $49,500$0.50 × (600,000 ÷ 100) = $3,000

Note: The cost standards are expressed as “per 100 bottles.”

b.

Standard Cost at Cost Variance—Actual Actual Volume (Favorable)Costs (610,000 Bottles) Unfavorable

Manufacturing costs:Direct labor $ 9,890 $10,980 $(1,090)Direct materials 48,450 50,325 (1,875)Factory overhead 3,460 3,050 410

Total manufacturing cost $61,800 $64,355 $(2,555)

$1.80 × (610,000 ÷ 100) = $10,980$8.25 × (610,000 ÷ 100) = $50,325$0.50 × (610,000 ÷ 100) = $3,050

c. Time in a Bottle Company’s actual costs were $2,555 less than budgeted. Favorabledirect labor and direct material cost variances more than offset a small unfavorable factory overhead cost variance.

Note to Instructors: The budget prepared in part (a) at the beginning of the month should not be used in the budget performance report because actual volumes were greater than planned (610,000 vs. 600,000).

For the Month Ended May 31, 2014

TIME IN A BOTTLE COMPANYManufacturing Costs—Budget Performance Report

TIME IN A BOTTLE COMPANYManufacturing Cost Budget




Ex. 22–4 (FIN MAN); Ex. 7–4 (MAN)a. Price variance:

Quantity variance:

Total direct materials cost variance:

b. The direct materials price variance should normally be reported to the Purchasing Department, which may or may not be able to control this variance. If materials of the same quality were purchased from another supplier at a price higher than the standard price, the variance was controllable. However, if the variance resulted from a market-wide price increase, the variance was not subject to control.

The direct materials quantity variance should be reported to the proper level of operating management. For example, if lower amounts of direct materials had been used because of production efficiencies, the variance would be reported to the production supervisor. However, if the favorable use of raw materials had been caused by the purchase of higher-quality raw materials, the variance should be reported to the Purchasing Department.

The total materials cost variance should be reported to senior plant management,such as the plant manager or materials manager.

Direct MaterialsCost Variance =

$1,300 Unfavorable

Direct MaterialsCost Variance


=

=

$5,350 – $4,050

Direct MaterialsPrice Variance



Direct MaterialsQuantity Variance

(Actual Price – Standard Price) × Actual Quantity

= ($2.60 per lb. – $2.50 per lb.) × 53,500 lbs.

=

$5,350 Unfavorable=

=

Direct Materials Price Variance +Direct Materials Quantity Variance


(Actual Quantity – Standard Quantity) × Standard Price

(53,500 lbs. – 55,120 lbs.) × $2.50 per lb.Direct MaterialsQuantity Variance =

= –$4,050 Favorable



Ex. 22–5 (FIN MAN); Ex. 7–5 (MAN)Price variance:

* $2,925 ÷ 450 units = $6.50 per unit

Quantity variance:




–$180 Favorable

(450 units – 430 units) × $6.90 per unit=

=

=





=

–$180 + $138

–$42 Favorable


$138 Unfavorable

(Actual Price – Standard Price) × Actual Quantity

= ($6.50 per unit* – $6.90 per unit) × 450

Direct MaterialsQuantity Variance =



=

=




Ex. 22–6 (FIN MAN); Ex. 7–6 (MAN)Product finished………………………………………………………… 1,400 unitsStandard finished product for direct materials used

(3,000 lbs. ÷ 2 lbs.)……………………………………………………… 1,500Deficiency of finished product for materials used…………… (100) units

Standard cost for direct materials:Quantity variance divided by deficiency of product

for materials used ($1,000 ÷ 100 units)………………………… $10.00 per unit

Alternate solution:Price variance, unfavorable………………………………………… $1,500Materials used………………………………………………………… 3,000 lbs.Price variance per lb.………………………………………………… $ 0.50

Unit price of direct materials……………………………………… $ 5.50Less price variance (unfavorable) per lb (from above).……… (0.50)Standard price per lb.……………………………………………… $ 5.00× Pounds per unit of product……………………………………… 2Standard direct materials cost per unit of product…………… $10.00

Proof:

Direct Materials Price Variance = (Actual Price – Standard Price) × Actual Quantity= ($5.50 – $5.00) × 3,000= $1,500 Unfavorable

Direct Materials Quantity Variance = (Actual Quantity – Standard Quantity) × Standard Price

= (3,000 lbs. – 2,800 lbs.) × $5.00= $1,000 Unfavorable

÷



Ex. 22–7 (FIN MAN); Ex. 7–7 (MAN)a.

× =

Whole tomatoes… 3,360 lbs. $ 0.50 per lb. $1,680Vinegar…………… 220 gal. 3.00 per gal. 660Corn syrup……… 20 gal. 12.00 per gal. 240Salt………………… 80 lbs. 3.00 per lb. 240

$2,820÷ Pounds per batch…………………………………………… 1,880 lbs.

$ 1.50 per lb.

b.

– = × =

3,556 lbs. 3,360 lbs. 196 lbs. $ 0.50 per lb. $98 U230 gal. 220 gal. 10 gal. 3.00 per gal. 30 U

18 gal. 20 gal. (2) gal. 12.00 per gal. –24 F75 lbs. 80 lbs. (5) lbs. 3.00 per lb. –15 F

$89 U

MaterialsQuantityVariance

StandardCost per

BatchStandardQuantity

StandardPrice

Batch K-54Quantity for

Actual StandardQuantity per

BatchQuantity

DifferenceStandard

Price



Ex. 22–8 (FIN MAN); Ex. 7–8 (MAN)a. Rate variance:

Time variance:

Total direct labor cost variance:

b. The employees may have been less experienced workers who were paid less than more experienced workers, or poorly trained, thereby resulting in a lower labor rate than planned. The lower level of experience or training may have resulted in less efficient performance. Thus, the actual time required was more than standard. Fortunately, the lost efficiency is more than offset by the lower labor rate.

(Actual Direct Labor Hours – Standard Direct Labor Hours)× Standard Rate per Hour

–$1,620 Favorable + $1,020 Unfavorable

–$600 Favorable

(4,050 hrs. – 4,000 hrs.) × $20.40 per hour

$1,020 Unfavorable

Direct Labor Rate Variance + Direct Labor Time Variance

($20.00 – $20.40) × 4,050 hours

–$1,620 Favorable=

(Actual Rate per Hour – Standard Rate per Hour)× Actual Hours=

Direct LaborRate Variance



=

=

Direct LaborTime Variance


=

Direct LaborCost Variance

=

=



=

Direct LaborCost Variance =



Ex. 22–9 (FIN MAN); Ex. 7–9 (MAN)a. Rate variance:

Time variance:

* 2.00 hrs. × 400 units


b. Debit to Work in Process: $12,800

Standard hours at actual production……………………………………… 800× Standard rate……………………………………………………………… $ 16.00Standard direct labor cost………………………………………………… $12,800

=


$800 Unfavorable

–$340 Favorable


=

=


=Direct LaborTime Variance (850 hrs. – 800 hrs.*) × $16.00 per hour

=


=

=

=





($15.60 – $16.00) × 850 hrs.


$460 Unfavorable

(Actual Rate per Hour – Standard Rate per Hour)× Actual Hours


–$340 Favorable + $800 Unfavorable



Ex. 22–10 (FIN MAN); Ex. 7–10 (MAN)a. (1) Cutting Department

Rate variance:

Time variance:

* 0.25 hr. × 25,000 units



=

Direct LaborTime Variance (6,380 hrs. – 6,250 hrs.*) × $11.00 per hour



=


= $792 Unfavorable

=

–$638 Favorable + $1,430 Unfavorable

=

=

Direct LaborRate Variance –$638 Favorable



=


=

Direct LaborRate Variance =

Direct LaborRate Variance ($10.90 – $11.00) × 6,380 hours


$1,430 Unfavorable



Ex. 22–10 (FIN MAN); Ex. 7–10 (MAN) (Concluded)(2) Sewing Department

Rate variance:

Time variance:

* 0.40 hr. × 25,000 units


b. The two departments have opposite results. The Cutting Department has a favorable rate and an unfavorable time variance, resulting in a total unfavorable cost variance of $792. In contrast, the Sewing Department has an unfavorable rate variance but has a favorable time variance, resulting in a total favorable cost variance of $190. The causes of this disparity are worthy of investigation. There are many possible causes including tight or loose standards, inferior or superior operating methods, and inappropriate or appropriate use of overtime. Combining both departments, the overall operation shows an unfavorable cost variance of $602 ($792 – $190), as a result of the weak performance in the Cutting Department.


–$1,375 Favorable

$1,185 Unfavorable – $1,375 Favorable


=

= –$190 Favorable


=


Direct LaborRate Variance ($11.12 – $11.00) × 9,875 hours

= (9,875 hrs. – 10,000 hrs.*) × $11.00 per hour


=




=

=




$1,185 Unfavorable



Ex. 22–11 (FIN MAN); Ex. 7–11 (MAN)a. Actual weekly expenditure: 4 people × $15.00 per hour × 40 hrs. per week = $2,400

b. Standard time used for the volume of admissions:

Total

Number of admissions…… 140 350× Standard time…………… 30 min. 15 min.Total…………………………… 4,200 min. 5,250 min. 9,450 min. or

(157.5 hrs ÷ 60 min.)

c. Actual productive minutes available(4 employees × 40 hrs. × 60 min.)………………………… 9,600 minutes

Less standard minutes used at actual volume………… 9,450 minutesTime difference from standard…………………………… 150 minutes× Standard rate per minute1………………………………… $ 0.25Direct labor time variance—unfavorable………………… $37.50or[(4 × 40 hours) – 157.50 hours] × $15 per hour = $37.50or$2,400 [from (a)] – $2,362.502 = $37.50

1 Standard direct labor rate:$15 ÷ 60 min. = $0.25 per min.

2 Standard labor cost at actual volume:Productive time (9,450 ÷ 60) × $15 = $2,362.50

The Admissions Department was less efficient than standard by 150 minutes, or 2.5 hours. This is equal to $37.50 at the standard rate of $15 per hour.

Unscheduled Scheduled



Ex. 22–12 (FIN MAN); Ex. 7–12 (MAN)

a.

b. Actual pieces sorted = 41,220,000

Actual hours staffed……………………………………………………………… 5,760Standard hours for actual production………………………………………… 5,725Excess of actual over standard hours………………………………………… 35× Standard hourly rate…………………………………………………………… $ 15Direct labor time variance—unfavorable……………………………………… $ 525

Number of Hours Planned ÷Hours per Temporary Employee per Month

41,220,000 ÷ 7,200 standard sorts per hr. =

5,760 hrs. planned41,472,000 letters ÷ 7,200 sorts per hr.

5,760 hrs. ÷ 160 hrs. =

5,725 standard hrs. for actual production

=

Actual Pieces of Mail Sorted ÷Standard Sorts per Hour

Standard Sorts per Minute ×Standard Minutes per Hour =

120 sorts per min. × 60 min. per hr.

=Pieces of Mail ÷Standard Sorts per Hour

Standard Number of Hoursfor Actual Production

36 temporary hires for December

Standard Sorts per Hour(per employee)

= 7,200 standard sorts per hr.

=

Number of Hours Planned

Number of Hires

=



Ex. 22–13 (FIN MAN); Ex. 7–13 (MAN)Step 1: Determine the standard direct materials and direct labor per unit.

Standard direct materials quantity per unit:Direct materials lbs. budgeted for June:

$36,000$1.25 per lb.

Standard pounds per unit:

28,800 lbs.19,200 units

Standard direct labor time per unit:Direct labor hrs. budgeted for June:

$26,880$14.00 per hr.

Standard direct labor hrs. per unit:

1,920 hrs.19,200 units

Step 2: Using the standard quantity and time rates in step 1, determine the standard costs for the actual June production.

Standard direct materials at actual volume:18,000 units × 1.5 lbs. per unit × $1.25…………………………………………… $33,750

Standard direct labor at actual volume:18,000 units × 0.10 direct labor hr. per unit × $14.00………………………… 25,200

Total………………………………………………………………………………………… $58,950

Step 3: Determine the direct materials quantity and direct labor time variances,assuming no direct materials price or direct labor rate variances.

Actual direct materials used in production………………………………………… $34,500Standard direct materials (step 2)…………………………………………………… 33,750Direct materials quantity variance—unfavorable*………………………………… $ 750

* (27,600 lbs. – 27,000 lbs.) × $1.25 = 750 U$34,500 ÷ $1.25 = 27,600 lbs.$33,750 ÷ $1.25 = 27,000 lbs.

Actual direct labor……………………………………………………………………… $24,500Standard direct labor (step 2)………………………………………………………… 25,200Direct labor time variance—favorable**……………………………………………… $ (700)

** 18,000 units × 0.10 hr. = 1,800 standard hrs.$24,500 ÷ $14.00 = 1,750 actual hrs.(1,750 hrs. – 1,800 hrs.) × $14.00 = –$700 F

= 1,920 direct labor hrs.

=

= 28,800 lbs.

= 1.5 standard lbs. per unit

0.10 standard direct labor hr. per unit



Ex. 22–14 (FIN MAN); Ex. 7–14 (MAN)

Direct labor hours 18,000 20,000 22,000Variable overhead cost:

Indirect factory labor $162,000 $180,000 $198,000Power and light 10,800 12,000 13,200Indirect materials 57,600 64,000 70,400

Total variable factory overhead $230,400 $256,000 $281,600Fixed factory overhead cost:

Supervisory salaries $ 80,000 $ 80,000 $ 80,000Depreciation of plant and equipment 50,000 50,000 50,000Insurance and property taxes 32,000 32,000 32,000

Total fixed factory overhead $162,000 $162,000 $162,000 Total factory overhead $392,400 $418,000 $443,600

1 18,000 × ($180,000 ÷ 20,000)2 18,000 × ($12,000 ÷ 20,000)3 18,000 × ($64,000 ÷ 20,000)

LENO MANUFACTURING COMPANYFactory Overhead Cost Budget—Press Department

For the Month Ended November 30, 2014

1

2

3



Ex. 22–15 (FIN MAN); Ex. 7–15 (MAN)

a.

Direct labor hours 9,000 10,000 11,000

Variable factory overhead cost $ 40,500 $ 45,000 $ 49,500Fixed factory overhead cost 60,000 60,000 60,000Total factory overhead $100,500 $105,000 $109,500

b. Overhead applied at actual production:Actual hours…………………………………………………………………………… 9,000× Overhead application rate*……………………………………………………… $ 10.50Factory overhead applied…………………………………………………………… $94,500

* Total factory overhead rate to be applied to production:

Variable factory overhead………………………………………………… $ 4.50

Fixed factory overhead**…………………………………………………… 6.00

Total…………………………………………………………………………… $10.50

$60,00010,000 hrs.

Note: The fixed factory overhead rate is determined at normal production.

**

WIKI WIKI COMPANYMonthly Factory Overhead Cost Budget—Fabrication Department

Fixed factory overhead rate: = $6.00 per hr.



Ex. 22–16 (FIN MAN); Ex. 7–16 (MAN)Variable factory overhead controllable variance:

Actual variable factory overhead cost incurred……………… $262,000Budgeted variable factory overhead for 14,000 hrs.

[14,000 × ($25.00 – $6.00)]……………………………………… 266,000Variance—favorable…………………………………………… $(4,000)

Fixed factory overhead volume variance:Productive capacity at 100%…………………………………… 15,000 hrs.Standard for amount produced………………………………… 14,000 hrs.Productive capacity not used…………………………………… 1,000 hrs.× Standard fixed factory overhead rate……………………… $6.00

Variance—unfavorable……………………………………… 6,000Total factory overhead cost variance—unfavorable*…………… $ 2,000

* Actual Overhead – Applied Overhead = Total Overhead Variance:($262,000 + $90,000) – $350,000 = $2,000



Ex. 22–16 (FIN MAN); Ex. 7–16 (MAN) (Concluded)

Actual costs 352,000 Applied costs 350,000

Balance (underapplied) 2,000

Actual AppliedFactory Factory

Overhead Overhead

$352,000 Variable cost [14,000 × ($25.00 – $6.00)]……… $266,000 $350,000Fixed cost…………………………………………… 90,000Total………………………………………………… $356,000

–$4,000 F $6,000 UControllable Volume

Variance Variance

Cost Variance

ProducedOverhead for Amount

Alternative Computation of Overhead Variances

Factory Overhead

Budgeted Factory

$2,000 UTotal Factory Overhead



Ex. 22–17 (FIN MAN); Ex. 7–17 (MAN)a. Controllable variance:

Actual variable factory overhead($782,000 – $240,000)………………………… $542,000

Standard variable factory overhead at actual production:

Standard hours at actual production…… 92,500× Variable factory overhead rate1……… $6.00

Standard variable factory overhead……… 555,000Controllable variance—favorable……………… $(13,000)

b. Volume variance:Volume at 100% of normal capacity………………………… 100,000Less standard hours…………………………………………… 92,500Idle capacity……………………………………………………… 7,500× Fixed overhead rate2………………………………………… $2.40Volume variance—unfavorable……………………………… 18,000Total factory overhead cost

variance—unfavorable………………………………………… $ 5,000

$540,00090,000 hrs.

$240,000100,000 hrs.

3 Actual Overhead – Applied Overhead = Total Overhead Variance:$782,000 – [($6.00 + $2.40) × 92,500 hrs.] = $5,000

Fixed factory overhead rate: = $2.40 per hour

1

2

=Variable factory overhead rate: $6.00 per hour

3




Actual costs 782,000 Applied costs 777,000Balance (underapplied) 5,000

AppliedFactory

Overhead

Variable cost (92,500 × $6.00)………… $555,000 $777,000Fixed cost………………………………… 240,000Total………………………………………… $795,000

$18,000 UControllable Volume

Variance Variance

* [($6.00 + $2.40) × 92,500]

Cost Variance

Produced

–$13,000 F

ActualFactory

Overhead

$782,000

Overhead for Amount

Total Factory Overhead


Factory Overhead

Budgeted Factory

$5,000 U

*

*



Ex. 22–18 (FIN MAN); Ex. 7–18 (MAN)In determining the volume variance, the productive capacity overemployed (2,000 hours) should be multiplied by the standard fixed factory overhead rate of $3.80 ($7.30 – $3.50) to yield a favorable variance of $7,600. The variance analysis provided by the chief cost accountant incorrectly multiplied the 2,000 hours by the total factory overhead rate of $7.30 per hour and reported it as unfavorable.

A correct determination of the factory overhead cost variances is as follows:Variable factory overhead controllable variance:

Actual variable factory overhead cost incurred…………………… $458,000Budgeted variable factory overhead for 132,000 hours (132,000 × $3.50)………………………………………………… 462,000

Variance—favorable………………………………………………… $ (4,000)

Fixed factory overhead volume variance:Productive capacity at 100%…………………………………………… 130,000 hrs.Standard for amount produced………………………………………… 132,000 hrs.Productive capacity overemployed…………………………………… (2,000) hrs.× Standard fixed factory overhead rate……………………………… $3.80

Variance—favorable………………………………………………… (7,600)Total factory overhead cost variance—favorable……………………… $(11,600)

×





($458,000 + $494,000) [($3.50 + $3.80) × 132,000]Balance (overapplied) 11,600


Overhead Overhead

$952,000 Variable cost (132,000 × $3.50)………… $462,000 $963,600Fixed cost…………………………………… 494,000Total………………………………………… $956,000

$4,000 F $7,600 FControllable Volume

Variance Variance

Cost Variance



Factory Overhead

Budgeted Factory

$11,600 FTotal Factory Overhead



Ex. 22–19 (FIN MAN); Ex. 7–19 (MAN)

Productive capacity for the month 25,000 hrs.Actual productive capacity used for the month 22,000 hrs.

Budget(at actual

production) Actual Favorable Unfavorable

Variable factory overhead costs:1

Indirect factory labor $ 50,600 $ 49,700 $ (900)Power and light 13,200 13,000 $ (200)Indirect materials 22,000 24,000 $ 2,000

Total variable factory overhead cost $ 85,800 $ 86,700

Fixed factory overhead costs:Supervisory salaries $ 54,500 $ 54,500Depreciation of plant and

equipment 40,000 40,000Insurance and property taxes 35,500 35,500

Total fixed factoryoverhead cost $130,000 $130,000

Total factory overhead cost $215,800 $216,700Total controllable variances $(1,100) $ 2,000

Net controllable variance—unfavorable $ 900Volume variance—unfavorable:

Idle hours at the standard rate for fixed factory overhead2:(25,000 hrs. – 22,000 hrs.) × $5.20 15,600

Total factory overhead cost variance—unfavorable $16,500

1 The budgeted variable factory overhead costs are determined by multiplying22,000 hours by the variable factory overhead cost rate for each variable costcategory. These rates are determined by dividing each budgeted amount (estimated at the beginning of the month) by the planned (budgeted) volume of 20,000 hours. Thus, for example:

$50,600 = ($46,000 ÷ 20,000 hrs.) × 22,000 hrs.$13,200 = ($12,000 ÷ 20,000 hrs.) × 22,000 hrs.$22,000 = ($20,000 ÷ 20,000 hrs.) × 22,000 hrs.

$130,00025,000 hrs.

TANNIN PRODUCTS INC.Factory Overhead Cost Variance Report—Trim Department

For the Month Ended July 31, 2014

Variances

2 = $5.20 per hr.Fixed factory overhead rate:




Actual costs 216,700 Applied costs 200,200Balance (underapplied) 16,500 [22,000 × ($3.90* + $5.20)]


Overhead Overhead

$216,700 Variable cost (22,000 × $3.90)…………… $ 85,800 $200,200Fixed cost…………………………………… 130,000Total………………………………………… $215,800

$900 U $15,600 UControllable Volume

Variance Variance

*$78,000 ÷ 20,000 hours budgeted at the beginning of the month

Cost Variance



Factory Overhead

Budgeted Factory




Ex. 22–20 (FIN MAN); Ex. 7–20 (MAN)

a. Materials1 118,825Direct Materials Price Variance2 8,575

Accounts Payable3 127,400

1 2,450 × $48.502 2,450 × $3.50 ($52.00 – $48.50)3 2,450 × $52.00

b. Work in Process1 97,000Direct Materials Quantity Variance2 4,850

Materials3 92,1501 200 × 10 units × $48.502 (2,000 units – 1,900 units) × $48.503 1,900 × $48.50

Ex. 22–21 (FIN MAN); Ex. 7–21 (MAN)

31 Work in Process1 198,000Direct Labor Time Variance 9,000

Direct Labor Rate Variance 4,600Wages Payable2 202,400

1 5,000 × 2.20 hrs. × $18.00Direct labor time variance: (11,500 – 11,000) × $18.00 = $9,000 UDirect labor rate variance: ($17.60 – $18.00) × 11,500 = $4,600 F

2 11,500 hours × $17.60 per hour

Mar.



Ex. 22–22 (FIN MAN); Ex. 7–22 (MAN)

Sales $868,000Cost of goods sold—at standard 550,000Gross profit—at standard $318,000


Direct materials price $ — $ 1,680Direct materials quantity 560 —Direct labor rate 1,120 —Direct labor time — 490Variable factory overhead controllable 210 —Fixed factory overhead volume — 3,080 3,360

Gross profit $314,640Operating expenses:

Selling expenses $125,000Administrative expenses 100,800 225,800

Income from operations $ 88,840Other expense:

Interest expense 2,940Income before income tax $ 85,900

GRIGGS COMPANYIncome Statement

For the Month Ended December 31, 2014



Ex. 22–23 (FIN MAN); Ex. 7–23 (MAN)a. and b.

Average computer response X A measure of the speed of the time to customer “clicks” ordering process. If the speed is

too slow, we may lose customers.Dollar amount of returned X An important measure of customer goods satisfaction with the final product

that was ordered.Elapsed time between X An important overall measure of customer order and product process responsiveness. If thedelivery company is too slow in providing

product, we may lose customers.Maintenance dollars divided X A driver of the ordering system’s by hardware investment reliability and downtime. The

maintenance dollars should be divided by the amount of hardware in order to facilitate comparison across time.

Number of customer X An extreme measure of customer complaints divided by the dissatisfaction with the ordering number of orders process.Number of misfilled orders X Incorrectly filled orders reduce the divided by the number of orders customer’s satisfaction with the

order process. A measure of output quality of the process.

Number of orders per X This measure is related to the warehouse employee capacity of the warehouse relative

to the demands placed upon it. This relationship will impact the delivery cycle time.

Number of page faults or X The page errors will negatively errors due to software impact the customer’s ordering programming errors experience. It’s a measure of

process output quality.Number of software fixes X Software bugs reduce the per week effectiveness of the order

fulfillment system; thus, fixes are an input that will improve the performance of the order fulfillment system.

Server (computer) downtime X A measure of computer system reliability.

Training dollars per programmer X Trained programmers should enhance the software’s responsiveness and reliability.

ExplanationInput

MeasureOutput

Measure



Ex. 22–24 (FIN MAN); Ex. 7–24 (MAN)a. Possible Input Measures

Registration staffing per studentTechnology investment per period for registration processTraining hours per registration personnelAmount of faculty staffingAmount of technology capacity (size of computer, number of input lines)

for registration processMaintenance dollars spent on the registration systemEmployee satisfaction scoreNumber of hours per day registration is available

Possible Output MeasuresCycle time for a student to register for classesNumber of times a course is unavailableNumber of separate registration events or steps (log-ons or line waits)

per studentNumber of times a replacement course was used by a studentNumber of registration errorsStudent satisfaction score with the registration processNumber of student complaints about registration processNumber of registration rework steps per studentCost of registration per studentNumber of personnel overtime hours during registrationLabor time variance for registration process (standard hours less actual

hours at standard labor rate)Number of computer registration failures

b. Alpha University is interested in not only the efficiency of the process but also the quality of the process. This means that the process must meet multipleobjectives. The college wants this process to meet the needs of students,which means it should not pose a burden to students. Students should be able to register for classes quickly, get the courses they want, and avoid registration errors, hassles, and problems. Thus, the nonfinancial measures are used to balance the need for a cost-efficient process with one that will meet the needs of the student.



Prob. 22–1A (FIN MAN); Prob. 7–1A (MAN)a. Standard

Materials andLabor Costper Faucet

Direct materials ($22.00 × 2.6 lbs.)……………………………………………… $57.20Direct labor [$16.80 × (15 min. ÷ 60 min.)]……………………………………… 4.20

$61.40

b.Price variance:

Quantity variance:

* 12,000 units × 2.6 lbs.


Direct MaterialsQuantity Variance = (31,750 lbs. – 31,200 lbs.*) × $22.00 per lb.

–$4,762.50 Favorable=

= (Actual Quantity – Standard Quantity) × Standard PriceDirect MaterialsQuantity Variance


PROBLEMS

Direct Materials Cost Variance



= (Actual Price – Standard Price) × Actual Quantity

= ($21.85 per lb. – $22.00 per lb.) × 31,750 lbs.

= $12,100 Unfavorable

Direct MaterialsCost Variance = Direct Materials Price Variance +

Direct Materials Quantity Variance


–$4,762.50 + $12,100.00

$7,337.50 Unfavorable



=

=



Prob. 22–1A (FIN MAN); Prob. 7–1A (MAN) (Concluded)c.

Rate variance:

* 80 employees × 40 hrs.

Time variance:


** 12,000 units × (15 min. ÷ 60 min.)


Direct Labor Cost Variance

(3,200 hrs.* – 3,000 hrs.**) × $16.80 per hour

$3,360 UnfavorableDirect LaborTime Variance




= (Actual Rate per Hour – Standard Rate per Hour)× Actual Hours



=

=


($17.00 – $16.80) × 3,200 hrs.*

=

=

Direct LaborRate Variance = $640 Unfavorable


=

=

Direct LaborCost Variance = Direct Labor Rate Variance + Direct Labor Time Variance

$4,000 Unfavorable

$640 + $3,360



Prob. 22–2A (FIN MAN); Prob. 7–2A (MAN)1. a.Direct Materials Variance

Price variance:

Actual price……………………………………… $ 7.33 $ 1.35Standard price…………………………………… 7.25 1.40Variance…………………………………………… $ 0.08 $ (0.05)× Actual quantity………………………………… 140,300 188,000

Direct materials price variance…………… $ 11,224 U $ (9,400) F $1,824 U

Quantity variance:

Actual quantity used…………………………… 140,300 188,000Standard quantity1……………………………… 140,000 190,000Variance…………………………………………… 300 (2,000)× Standard price………………………………… $7.25 $1.40

Direct materials quantity variance………… $ 2,175 U $ (2,800) F (625) F

Total direct materials cost variance……………… $1,199 U

Alternatively, total direct materials cost variance:Actual cost 2……………………………………… $1,028,399 $253,800Standard cost 3…………………………………… 1,015,000 266,000

Total direct materials cost variance……… $ 13,399 U $ (12,200) F $1,199 U

1 140,000 = (12 lbs. × 5,000 actual production of dark chocolate) + (8 lbs. × 10,000 actual production of light chocolate)

190,000 = (10 lbs. × 5,000 actual production of dark chocolate) + (14 lbs. × 10,000 actual production of light chocolate)

2 $1,028,399 = $7.33 × 140,300 lbs.$253,800 = $1.35 × 188,000 lbs.

3 $1,015,000 = $7.25 × 140,000 lbs.$266,000 = $1.40 × 190,000 lbs.

Cocoa Sugar Total



Prob. 22–2A (FIN MAN); Prob. 7–2A (MAN) (Concluded)1. b.

Direct Labor Variance

Rate variance:

Actual rate………………………………………… $ 15.25 $ 15.80Standard rate…………………………………… 15.50 15.50Variance…………………………………………… $ (0.25) $ 0.30× Actual time……………………………………… 2,360 6,120

Direct labor rate variance………………… $ (590) F $ 1,836 U $1,246 U

Time variance:

Actual time……………………………………… 2,360 6,120Standard time 1…………………………………… 2,500 6,000Variance…………………………………………… (140) 120× Standard rate………………………………… $ 15.50 $ 15.50

Direct labor time variance………………… $ (2,170) F $ 1,860 U (310) F

Total direct labor cost variance…………………… $ 936 U

Alternatively, total direct labor cost variance:Actual cost 2……………………………………… $35,990 $96,696Standard cost 3…………………………………… 38,750 93,000

Total direct labor cost variance………… $ (2,760) F $ 3,696 U $ 936 U

1 2,500 = 0.50 hr. × 5,000 actual production of dark chocolate6,000 = 0.60 hr. × 10,000 actual production of dark chocolate

2 $35,990 = 2,360 hrs. × $15.25$96,696 = 6,120 hrs. × $15.80

3 $38,750 = 2,500 hrs. × $15.50$93,000 = 6,000 hrs. × $15.50

2. The variance analyses should be based on the standard amounts at actual volumes. The budget must flex with the volume changes. If the actual volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the amount of direct materials and direct labor that will be required for the actual production. In this way, spending from volume changes can be separated from efficiency and price variances.

Chocolate Chocolate TotalDark Light

××



Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN)a.

Price variance:

Quantity variance:





=

=






$1,750 Unfavorable


(3,500 lbs. – 3,700 lbs.) × $12.00 per lb.

Direct MaterialsQuantity Variance (Actual Quantity – Standard Quantity) × Standard Price

–$2,400 Favorable


$1,750 – $2,400

–$650 Favorable


= ($12.50 per lb. – $12.00 per lb.) × 3,500 lbs.

=

=



Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN) (Continued)b.

Rate variance:

Time variance:





=

=


=

=



(4,200 hrs. – 4,300 hrs.) × $20.00 per hour




=

=Direct LaborTime Variance


=

$1,680 Unfavorable


= ($20.40 – $20.00) × 4,200 hrs.

Direct Labor Time Variance + Direct Labor Rate Variance

–$2,000 Favorable

–$320 Favorable

$1,680 – $2,000



Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN) (Continued)c.

Variable factory overhead controllable variance:

Actual variable factory overhead cost incurred……………………… $16,800Budgeted variable factory overhead for 4,300 hrs.* ………………… 17,200

Variance—favorable…………………………………………………… $(400)

Fixed factory overhead volume variance:

Normal capacity at 100%………………………………………………… 4,500 hrs.Standard for amount produced………………………………………… 4,300Productive capacity not used…………………………………………… 200 hrs.× Standard fixed factory overhead cost rate………………………… $ 3.00

Variance—unfavorable……………………………………………… 600

Total factory overhead cost variance—unfavorable…………………… $ 200

* 10,750 units × 0.4 hour per unit

** 4,300 hrs. × $4.00

Factory Overhead Cost Variance

**



Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN) (Concluded)


($16,800 + $13,500) [4,300 × ($4.00 + $3.00)]Balance (underapplied) 200


Overhead Overhead

$30,300 Variable cost (4,300 × $4.00)…………… $17,200 $30,100Fixed cost…………………………………… 13,500Total………………………………………… $30,700

–$400 F $600 UControllable Volume

Variance Variance

Cost Variance



Factory Overhead

Budgeted Factory

$200 UTotal Factory Overhead



Prob. 22–4A (FIN MAN); Prob. 7–4A (MAN)

Normal capacity for the month 8,400 hrs.Actual production for the month 8,860 hrs.

Budget Actual Favorable Unfavorable

Variable costs:1

Indirect factory wages $ 31,896 $ 32,400 $ 504Power and light 21,264 21,000 $(264)Indirect materials 17,720 18,250 530

Total variable cost $ 70,880 $ 71,650Fixed costs:

Supervisory salaries $ 20,000 $ 20,000Depreciation of plant and


Total fixed cost $ 71,400 $ 71,400Total factory overhead cost $142,280 $143,050Total controllable variances $(264) $ 1,034

Net controllable variance—unfavorable $ 770Volume variance—favorable:

Excess hours used over normal at the standard rate for fixed factory overhead2:(8,400 hrs. – 8,860 hrs.) × $8.50 (3,910)

Total factory overhead cost variance—favorable $(3,140)

1 The budgeted variable costs are determined by multiplying the 8,860 actual hours by the variable overhead rate (the May budget divided by 8,400 hours for each variable overhead cost). Thus,

Indirect factory wages, $31,896 = 8,860 hrs. × ($30,240 ÷ 8,400 hrs.)Power and light, $21,264 = 8,860 hrs. × ($20,160 ÷ 8,400 hrs.)Indirect materials, $17,720 = 8,860 hrs. × ($16,800 ÷ 8,400 hrs.)

$71,4008,400 hrs.

= $8.50 per hr.

TIGER EQUIPMENT INC.Factory Overhead Cost Variance Report—Welding Department


Variances

2 Fixed factory overhead rate:



Prob. 22–4A (FIN MAN); Prob. 7–4A (MAN) (Concluded)

Actual costs 143,050 Applied costs* 146,190

[8,860 × ($8.00 + $8.50)]Balance (overapplied) 3,140


Overhead Overhead


$770 U –$3,910 FControllable Volume

Variance Variance

$67,200 ÷ 8,400 hrs. = $8.00$71,400 ÷ 8,400 hrs. = $8.50

Cost Variance



Factory Overhead

Budgeted Factory

–$3,140 FTotal Factory Overhead

*



Prob. 22–5A (FIN MAN); Prob. 7–5A (MAN)1. Actual hours provided (5 × 40 hrs.)………………………………………………… 200

Standard hours required for the original plan*…………………………………… 186Labor time difference………………………………………………………………… 14× Standard labor rate………………………………………………………………… $ 32Direct labor time variance—unfavorable…………………………………………… $ 448

4,650 lines25 lines per hr.

2. Actual hours provided (5 × 40 hrs.)………………………………………………… 200Standard hours required for the actual results*………………………………… 226Labor time difference………………………………………………………………… (26)× Standard labor rate………………………………………………………………… $ 32Direct labor time variance—favorable……………………………………………… $ (832)


3. Actual labor rate………………………………………………………………………… $ 40Standard labor rate…………………………………………………………………… 32Difference………………………………………………………………………………… $ 8× Actual hours provided (5 × 40 hrs.)……………………………………………… 200Direct labor rate variance—unfavorable…………………………………………… $1,600

The labor cost variance is $768 unfavorable [–$832 favorable time variance + $1,600 unfavorable rate variance].

4. The labor rate and time variances fail to consider the number of errors in the code from programmer fatigue. A program that has many errors will require significant time for debugging at a later date. In addition, hidden errors can cause possible field failures with customers. Thus, managers should consider not only the efficiency of doing the work, but also the quality of the work.

5. Actual hours provided (6 × 40 hrs.)………………………………………………… 240Standard hours required for the actual results*………………………………… 226Labor time difference………………………………………………………………… 14× Standard labor rate………………………………………………………………… $32Direct labor time variance—unfavorable…………………………………………… $448

* From part (2) above

6. Hiring an extra employee is less costly than the bonus by $320. The direct labor cost variance for paying the bonus was $768 unfavorable, which is the sum of the rate variance and the time variance (–$832 F + $1,600 U) shown in parts (2) and (3) above. The cost variance that would result from hiring another employee would have been $448 unfavorable, shown in part (5) above. Thus, the net benefit for hiring another employee over paying the bonus is $320 ($768 U – $448 U).

* = 226 hrs.

=* 186 hrs.

×

×

×

×



Prob. 22–1B (FIN MAN); Prob. 7–1B (MAN)a. Standard

Materials andLabor Cost

per Unit

Direct materials ($5.00 × 5.0 yds.)………………………………………………… $25.00Direct labor [$12.00 × (12 min. ÷ 60 min.)]……………………………………… 2.40

$27.40

b.Price variance:

Quantity variance:

* 5,220 units × 5.0 yds.




= ($5.10 per yd. – $5.00 per yd.) × 26,200 yds.

$500 Unfavorable




$2,620 + $500

$3,120 Unfavorable



=

=


(26,200 yds. – 26,100 yds.*) × $5.00 per yd.

$2,620 Unfavorable





=

=

=




Prob. 22–1B (FIN MAN); Prob. 7–1B (MAN) (Concluded)c.

Rate variance:


Time variance:

* (12 min. ÷ 60 min.) × 5,220



(1,000 hrs. – 1,044 hrs.*) × $12.00 per hour

Direct LaborRate Variance –$200 Favorable


=


=

= ($11.80 – $12.00) × 1,000 hrs.*

=

=

–$528 FavorableDirect LaborTime Variance





=

Direct LaborCost Variance = Direct Labor Rate Variance + Direct Labor Time Variance


=

=


–$728 Favorable

–$200 – $528



Prob. 22–2B (FIN MAN); Prob. 7–2B (MAN)1. a.Direct Materials Variance

Price variance:

Actual price…………………………………… $ 1.90 $ 8.20Standard price……………………………… 2.00 8.00Variance……………………………………… $ (0.10) $ 0.20× Actual quantity…………………………… 48,000 85,100

Direct materials price variance……… $ (4,800) F $ 17,020 U $12,220 U

Quantity variance:

Actual quantity used………………………… 48,000 85,100Standard quantity used 1…………………… 47,760 85,320Variance……………………………………… 240 (220)× Standard price…………………………… $2.00 $8.00

Direct materials quantity variance…… $ 480 U $ (1,760) F (1,280) F

Total direct materials cost variance………… $10,940 U

Alternatively total direct materials cost variance:Actual cost 2………………………………… $91,200 $697,820Standard cost 3……………………………… 95,520 682,560

Total direct materials cost variance… $ (4,320) F $ 15,260 U $10,940 U

1 47,760 = (4.0 lbs. × 4,400 actual production of women's coats) + (5.2 lbs. × 5,800 actual production of of men’s coats)

85,320 = (7.0 yds. × 4,400 actual production of women's coats) + (9.4 yds. × 5,800 actual production of men’s coats)

2 $91,200 = $1.90 × 48,000 lbs.$697,820 = $8.20 × 85,100 yds.

3 $95,520 = $2.00 × 47,760 lbs.$682,560 = $8.00 × 85,320 yds.

Filler Liner Total

× ×

××



Prob. 22–2B (FIN MAN); Prob. 7–2B (MAN) (Concluded)1. b.

Direct Labor Variance

Rate variance:

Actual rate…………………………………… $ 14.10 $ 13.30Standard rate………………………………… $ 14.00 $ 13.00Variance……………………………………… $ 0.10 $ 0.30× Actual time………………………………… 1,825 2,800

Direct labor rate variance……………… $182.50 U $ 840 U $1,022.50 U

Time variance:

Actual time…………………………………… 1,825 2,800Standard time 1……………………………… 1,760 2,900Variance……………………………………… 65 (100)× Standard rate……………………………… $ 14.00 $ 13.00

Direct labor time variance……………… $ 910 U $ (1,300) F (390) F

Total direct labor cost variance……………… $ 632.50 U

Alternatively, total direct labor cost variance:Actual cost 2………………………………… $25,732.50 $37,240Standard cost 3……………………………… 24,640 37,700

Total direct labor cost variance……… $ 1,092.50 U $ (460) F $ 632.50 U

1 1,760 = 0.40 hr. × 4,400 actual production of women’s coats2,900 = 0.50 hr. × 5,800 actual production of men’s coats

2 $25,732.50 = 1,825 hrs. × $14.10$37,240.00 = 2,800 hrs. × $13.30

3 $24,640.00 = 1,760 hrs. × $14.00$37,700.00 = 2,900 hrs. × $13.00

2. The variance analyses should be based on the standard amounts at actualvolumes. The budget must flex with the volume changes. If the actual volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the change in direct materials and direct labor that will be required for the actual production. In this way, spending from volume changes can be isolated from efficiency and price variances.

Coats Coats TotalWomen's Men's

× ×

× ×



Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN)a.

Price variance:

Quantity variance:




=

=

= $6,400 Unfavorable

$10,100 Unfavorable + $6,400 Unfavorable

$16,500 Unfavorable



Direct MaterialsCost Variance = Direct Materials Price Variance +

Direct Materials Quantity Variance

Direct MaterialsQuantity Variance = (101,000 lbs. – 100,000 lbs.) × $6.40 per lb.




$10,100 Unfavorable=


= ($6.50 per lb. – $6.40 per lb.) × 101,000 lbs.





Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN) (Continued)b.

Rate variance:

Time variance:



=

=


–$1,960 Favorable

–$700 – $1,260

=

= Direct Labor Rate Variance + Direct Labor Time Variance


–$1,260 FavorableDirect LaborTime Variance




(2,000 hrs. – 2,080 hrs.) × $15.75 per hour




=

=


=

–$700 Favorable


= ($15.40 – $15.75) × 2,000 hrs.



Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN) (Continued)c.

Variable factory overhead controllable variance:

Actual variable factory overhead cost incurred……………………… $8,200Budgeted variable factory overhead for 2,080 hrs.* ………………… 8,320

Variance—favorable…………………………………………………… $(120)

Fixed factory overhead volume variance:

Normal capacity at 100%………………………………………………… 2,000 hrs.Standard for amount produced………………………………………… 2,080Productive capacity not used…………………………………………… (80) hrs.× Standard fixed factory overhead cost rate………………………… $ 6.00

Variance—favorable…………………………………………………… (480)

Total factory overhead cost variance—favorable……………………… $(600)

* 4,160 units × 0.5 hr.

** 2,080 hrs. × $4.00

Factory Overhead Cost Variance

**

×



Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN) (Concluded)


($8,200 + $12,000) [2,080 × ($4.00 + $6.00)]Balance (overapplied) (600)


Overhead Overhead


–$120 F –$480 FControllable Volume

Variance Variance

Cost Variance



Factory Overhead

Budgeted Factory

–$600 FTotal Factory Overhead



Prob. 22–4B (FIN MAN); Prob. 7–4B (MAN)

Normal capacity for the month 30,000 hrs.Actual production for the month 28,500 hrs.

Budget Actual Favorable Unfavorable

Variable costs:1

Indirect factory wages $235,125 $234,000 $(1,125)Power and light 179,550 178,500 (1,050)Indirect materials 49,875 50,600 $ 725

Total variable cost $464,550 $463,100Fixed costs:

Supervisory salaries $126,000 $126,000Depreciation of plant and


Total fixed cost $240,000 $240,000Total factory overhead cost $704,550 $703,100Total controllable variances $(2,175) $ 725

Net controllable variance—favorable $ (1,450)Volume variance—unfavorable:

Idle hours at the standard rate for fixed factory overhead2—(30,000 hrs. – 28,500 hrs.) × $8.00 12,000

Total factory overhead cost variance—unfavorable $10,550

1 The budgeted variable costs are determined by multiplying 28,500 actual hoursby the variable overhead rate (the October budget divided by 30,000 hours foreach variable overhead cost). Thus,

Indirect factory wages, $235,125 = 28,500 hrs. × ($247,500 ÷ 30,000 hrs.)Power and light, $179,550 = 28,500 hrs. × ($189,000 ÷ 30,000 hrs.)Indirect materials, $49,875 = 28,500 hrs. × ($52,500 ÷ 30,000 hrs.)

$240,00030,000 hrs.

2 Fixed factory overhead rate: = $8.00 per hr.

FEELING BETTER MEDICAL INC.Factory Overhead Cost Variance Report—Assembly Department

For the Month Ended October 31, 2014

Variances



Prob. 22–4B (FIN MAN); Prob. 7–4B (MAN) (Concluded)

Actual costs 703,100 Applied costs* 692,550

[28,500 × ($16.30 + $8.00)]Balance (underapplied) 10,550


Overhead Overhead

$703,100 Variable cost (28,500 × $16.30)………… $464,550 $692,550Fixed cost…………………………………… 240,000Total………………………………………… $704,550

–$1,450 F –$12,000 UControllable Volume

Variance Variance

$489,000 ÷ 30,000 hrs. = $16.30$240,000 ÷ 30,000 hrs. = $8.00

Cost Variance



Factory Overhead

Budgeted Factory


*



Prob. 22–5B (FIN MAN); Prob. 7–5B (MAN)1. Actual hours provided (3 × 40 hrs.)………………………………………………… 120

Standard hours required for the original plan*…………………………………… 117Labor time difference………………………………………………………………… 3× Standard labor rate………………………………………………………………… $ 23Direct labor time variance—unfavorable…………………………………………… $ 69


2. Actual hours provided (3 × 40 hrs.)………………………………………………… 120Standard hours required for the actual results*………………………………… 127Labor time difference………………………………………………………………… (7)× Standard labor rate………………………………………………………………… $ 23Direct labor time variance—favorable……………………………………………… $(161)


3. Actual labor rate………………………………………………………………………… $ 30Standard labor rate…………………………………………………………………… 23Difference………………………………………………………………………………… $ 7× Actual hours provided (3 × 40 hrs.)……………………………………………… 120Direct labor rate variance—unfavorable…………………………………………… $ 840

The labor cost variance is $679 unfavorable [–$161 favorable time variance + $840 unfavorable rate variance].

4. Actual hours provided (4 × 40 hrs.)………………………………………………… 160Standard hours required for the actual results…………………………………… 127Labor time difference………………………………………………………………… 33× Standard labor rate………………………………………………………………… $ 23Direct labor time variance—unfavorable…………………………………………… $ 759

5. The bonus is the better approach by $80. The direct labor cost variance for paying the bonus was $679 unfavorable which is the sum of the time variance and rate variance from parts (2) and (3) above (– $161 F + $840 U). The cost variance that would result from hiring another employee would have been $759 unfavorable from part (4) above. Thus, the net benefit for paying the bonus over hiring another employee is $80 ($679 U – $759 U).

6. The labor rate and time variances fail to consider the number of errors in the report from typist fatigue. A report that has many errors will require significant time for correction at a later date. In addition, report errors can cause doctors to draw incorrect conclusions from the test analyses. Thus, managers should consider not only the efficiency of doing the work but also the quality of the work.

* = 127 hrs.

=* 117 hrs.

×

×

×

×



Part A

Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost

At the high point: At the low point:$740 = ($0.20 × 1,200 units) + Fixed Cost $600 = ($0.20 × 500 units) + Fixed CostFixed Cost = $500 Fixed Cost = $500

2. Selling price……………………………………………………………… $100.00Less variable costs per case:

Direct materials……………………………………………………… $17.00Direct labor…………………………………………………………… 7.20Utilities [see part (1)]………………………………………………… 0.20Selling expenses…………………………………………………… 20.00

Total variable costs per case………………………………………… 44.40Contribution margin per case………………………………………… $ 55.60

3. Total fixed costs:Utilities [see part (1)]……………………………………………………………… $ 500Facility lease………………………………………………………………………… 14,000Equipment depreciation…………………………………………………………… 4,300Supplies……………………………………………………………………………… 660

$19,460

4.

$19,460$55.60

COMPREHENSIVE PROBLEM 5

Variable Cost per Unit1. =Difference in Total CostDifference in Production

=Variable Cost per Unit = $0.20 per case$740 – $600

1,200 cases – 500 cases

Break-Even Sales (units) =

Break-Even Sales (units) = = 350 cases

Fixed CostsUnit Contribution Margin



COMPREHENSIVE PROBLEM 5 (Continued)Part B

5.

Cases

Expected cases to be sold 1,500Plus desired ending inventory 175Total 1,675Less estimated beginning inventory 300Total units to be produced 1,375

6.

Cream NaturalBase Oils Bottles Total(ozs.) (ozs.) (bottles)

Units required for production 137,500 41,250 16,500Plus desired ending inventory 1,000 360 240Less estimated beginning inventory (250) (290) (600)Direct materials to be purchased 138,250 41,320 16,140× Unit price $0.02 $0.30 $0.50Total direct materials to be purchased $2,765 $12,396 $8,070 $23,231

1 Cream base: 1,375 cases × 100 ozs. = 137,500 ozs.2 Natural oils: 1,375 cases × 30 ozs. = 41,250 ozs.3 Bottles: 1,375 cases × 12 bottles = 16,500 bottles

7.

Mixing Filling Total

Hours required for production of:Hand and body lotion 458 115× Hourly rate $18.00 $14.40Total direct labor cost $8,244 $1,656 $9,900

1 Mixing: (1,375 cases × 20.00 min.) ÷ 60 min. = 458 hrs.2 Filling: (1,375 cases × 5.00 min.) ÷ 60 min. = 115 hrs.

For the Month Ended August 31, 2014Production Budget

GENUINE SPICE INC.

Direct Labor BudgetFor the Month Ended August 31, 2014

GENUINE SPICE INC.Direct Materials Purchases Budget

For the Month Ended August 31, 2014

GENUINE SPICE INC.

2 31

21



COMPREHENSIVE PROBLEM 5 (Continued)

8.

Fixed1 Variable2 Total

Factory overhead:Utilities $ 500 $275 $ 775Facility lease 14,000 14,000Equipment depreciation 4,300 4,300Supplies 660 660Total $19,460 $275 $19,735

1 Fixed costs [from part (3)]2 Variable utility cost: $0.20 × 1,375 cases = $275

9.

Sales1 $150,000Finished goods inventory, August 1 $ 12,000

Direct materials inventory, August 12 $ 392Direct materials purchases [from part (6)] 23,231Less direct materials inventory, August 313 248Cost of direct materials for production $23,375Direct labor [from part (7)] 9,900Factory overhead [from part (8)] 19,735 53,010

Less finished goods inventory, August 31 7,000Cost of goods sold 58,010Gross profit $ 91,990Selling expenses4 30,000Income before income tax $ 61,990

1 Sales: 1,500 cases × $100 per case = $150,0002 Direct materials inventory, August 1: (250 × $0.020) + (290 × $0.300) + (600 × $0.500) = $3923 Direct materials inventory, August 31: (1,000 × $0.020) + (360 × $0.300) + (240 × $0.500) = $2484 Selling expenses: 1,500 cases × $20 per case = $30,000


GENUINE SPICE INC.

GENUINE SPICE INC.Factory Overhead Budget


Budgeted Income Statement



COMPREHENSIVE PROBLEM 5 (Continued)Part C

10. Direct Materials Price Variance:

Actual price……………………………… $ 0.016 $ 0.32 $ 0.42Standard price…………………………… 0.020 0.30 0.50Difference………………………………… $ (0.004) $ 0.02 $ (0.08)× Actual quantity (units)*……………… 153,000 ozs. 46,500 ozs. 18,750 btls.Direct materials price variance……… $ (612) F $ 930 U $ (1,500) F

* Actual quantity:Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.Natural oils: 1,500 cases × 31 ozs. = 46,500 ozs.Bottles: 1,500 cases × 12.5 bottles = 18,750 bottles

The fluctuation in market prices caused the direct material price variances. Pricesincreased for natural oils compared to standard and declined for cream base and bottles compared to standard.

BaseCream Natural

BottlesOils



COMPREHENSIVE PROBLEM 5 (Continued)Direct Materials Quantity Variance:

Actual quantity1………………………… 153,000 ozs. 46,500 ozs. 18,750 btls.Standard quantity2…………………… 150,000 45,000 18,000Difference……………………………… 3,000 ozs. 1,500 ozs. 750 btls.× Standard price……………………… $ 0.020 $ 0.300 $ 0.500Direct materials quantity variance… $ 60 U $ 450 U $ 375 U

Note: All the direct materials quantity variances were unfavorable, indicating some material losses, scrap, and quality rejections. All the quantity variances were unfavorable because the standards were set at ideal quantity amounts. Thus, only unfavorable variances were possible. The standard quantities were ideal standards for 12 8-ounce bottles per case (96 ozs. total), as shown below.

1 Actual quantity:Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.Natural oils: 1,500 cases × 31 ozs. = 46,500 ozs.Bottles: 1,500 cases × 12.5 bottles = 18,750 bottles

2 Standard quantity:Cream base: 1,500 cases × 100 ozs. = 150,000 ozs.Natural oils: 1,500 cases × 30 ozs. = 45,000 ozs.Bottles: 1,500 cases × 12 bottles = 18,000 bottles

BottlesOilsBaseCream Natural



COMPREHENSIVE PROBLEM 5 (Continued)11. Direct Labor Rate Variance:

Actual rate……………………………………………………… $18.20 $ 14.00Standard rate………………………………………………… 18.00 14.40Difference……………………………………………………… $ 0.20 $ (0.40)× Actual time (hours)1……………………………………… 488 140.00Direct labor rate variance…………………………………… $97.60 U $ (56.00) F

The Mixing Department has an unfavorable direct labor rate variance from using a higher classification of labor. The higher labor classification cost anadditional $0.20 per hour. The Filling Department has a favorable direct laborrate variance due to using a lower classification of labor. The lower labor classification saved $0.40 per hour.

Direct Labor Time Variance:

Actual time (hours)1………………………………………… 488 140Standard time (hours)2……………………………………… 500 125Difference……………………………………………………… (12) 15× Standard rate……………………………………………… $ 18 $14.40Direct labor time variance…………………………………… $(216) F $216 U

1 Actual time:Mixing: (1,500 units × 19.50 min.) ÷ 60 min. = 488 hrs.Filling: (1,500 units × 5.60 min.) ÷ 60 min. = 140 hrs.

2 Standard time:Mixing: (1,500 units × 20.00 min.) ÷ 60 min. = 500 hrs.Filling: (1,500 units × 5.00 min.) ÷ 60 min. = 125 hrs.

The Mixing Department is producing at a labor time that is slightly better than standard, thus producing a favorable direct labor time variance. This may be the result of using a higher grade of labor. The net impact for the Mixing Departmentis favorable by $118.40 ($97.60 – $216). The Filling Department had an unfavorable direct labor time variance. This may be the result of using a lower grade of labor in the department. The net impact for the department is unfavorable by $160.00 ($216.00 – $56.00). Thus, the savings in the labor rate from using a lower grade classification of labor was insufficient to offset the loss of efficiency from such labor.

Mixing FillingDepartment Department

FillingDepartmentDepartment

Mixing



COMPREHENSIVE PROBLEM 5 (Continued)12. Factory Overhead Controllable Variance:

Actual variable overhead……………………………………………………… $305Variable overhead at standard cost*……………………………………… 300Factory overhead controllable variance…………………………………… $ 5 U

* Variance overhead (utility cost) at standard cost: $0.20 × 1,500 cases = $300

13. Factory Overhead Volume Variance:Normal volume (cases)………………………………………………………… 1,600Actual volume (cases)………………………………………………………… 1,500Difference………………………………………………………………………… 100× Fixed factory overhead rate*……………………………………………… $ 12.1625

$1,216.25 U

* Fixed factory overhead rate: $19,460** ÷ 1,600 cases = $12.16 per case** Total fixed factory overhead shown in part (8)

The unfavorable volume variance indicates the cost of underused capacity of 100 cases per month.



COMPREHENSIVE PROBLEM 5 (Concluded)

Actual costs 19,765.00 Applied costs 18,543.75

($19,460 + $305) [1,500 × ($12.1625 + $0.20)]Balance (underapplied) 1,221.25

AppliedFactory

Overhead

Variable cost (1,500 × $0.20)……………$ 300 $18,543.75Fixed cost………………………………… 19,460.00Total…………………………………………$19,760.00

$5 U $1,216 UControllable Volume

Variance Variance

14. The production volume of 1,375 cases determined in part (5) was planned at the beginning of August. The variances compare the actual cost and the standard cost of actual production for the month. Thus, the standard cost must be based on the 1,500 units of actual production. This amount is compared with an actual cost also based on 1,500 units. The variable costs of the budget must flex to the actual production volume so that variances are compared across the same production volume.

$1,221.25 UTotal Factory Overhead

Cost Variance

ProducedOverhead

$19,765.00

Overhead for Amount


Factory Overhead

Budgeted FactoryActualFactory



CP 22–1 (FIN MAN); CP 7–1 (MAN)The use of ideal standards is a legitimate concern for Henry. It is likely that such standards are too tight and do not include the necessary fatigue factors that are likely in this type of operation. It seems as though Henry is arguing for practical standards that can be attained if the operation is running well. Maybe some standard in between is warranted, but that is not the issue. The issue is Dash’s method of operation. Dash has effectively agreed to have this dispute arbitrated with a seniorofficial. However, Dash is trying to seal the fate of the argument behind the scenes,before the issue is discussed openly, as agreed. Moreover, Dash is attributing poormotives to Henry behind his back. Dash may have short-term success with this method of operation, but in the long term he will likely alienate himself within the organization. He may create a distrustful environment that would eventually hamper his ability to provide open, honest feedback. People may eventually avoid him and hide the truth from him.

CP 22–2 (FIN MAN); CP 7–2 (MAN)Although the Tungston Company performance measurement system uses both financial and nonfinancial measures, there may still be some serious performance omissions. The financial measures are good measures of financial performance. Likewise, employee satisfaction should be measured, since satisfied employees may lead to overall business success. There is, however, at least one major shortcoming to the proposed measures. None of the three measures has a customer orientation. The management of Tungston Company should also select a performance measure that reflects how well the business is performing from a customer’s perspective. Thus, measures about customer satisfaction, product quality, warranty experience, or on-time delivery would be excellent additions to the three measures already proposed.

CASES & PROJECTS



CP 22–3 (FIN MAN); CP 7–3 (MAN)This is a case where there is strong evidence that the poor performance that is occurring inside the Assembly Department may be the result of behaviors outside of the department. This is one of the classic problems with variance analysis. Often,the variances reflect causes outside of the responsibility center manager’s control. That is what appears to be happening here. The Assembly supervisor complains that both the purchased parts and incoming material from the Fabrication Department have been giving trouble. A review of performance reports reveals the following: (1) the materials price variance is very favorable; (2) the Fabrication Department’s labor time variance is also very favorable. A possible explanation is that the Purchasing Department found a low-price supplier. The low price translated into a favorable variance. Unfortunately, it appears the company is “getting what it paid for.” Specifically, it appears that the quality of the purchased parts has gone down, thus making assembly much more difficult in the Assembly Department. The Fabrication Department may be performing work faster than standard—again, resulting in a favorable labor time variance. It may be that the department is working too fast. Specifically, the speed is resulting in poor fabrication quality. Again, the Assembly Department is bearing the cost of poorly fabricated parts. The problem in both instances is that the variances measure only productivity and price savings butnot quality. As a result, there are strong incentives to purchase from lowest bidders, work fast, cut corners, and push work on through. Unfortunately, the company is worse off, as a whole, due to this set of situations. The sum of the unfavorable variances in Assembly exceeds the favorable variances in the other departments. The analyst will need to confirm these suspicions. If they are supported, the company may wish to introduce quality measures in addition to the variance information in order to avoid the counterproductive behaviors in Purchasing and Fabrication.



CP 22–4 (FIN MAN); CP 7–4 (MAN)The plant manager is placing pressure on the controller because the controllable variance is very unfavorable. The claim is that these costs are not really variable at all. This is a very difficult claim to accept. This is a small company, so it purchases its power from the outside. The power and light bill is variable to the amount of energy used in the plant. Energy usage is likely a function of the number of units produced except for the power required to keep the business open. Likewise, the supplies are likely variable to machine usage, which is also related to the number of units produced. However, these two costs are not where the problem lies. The problem is with the indirect factory wages.

The indirect wages may not be completely variable. However, the variance is $8,500,or 28% higher than the standard. This is much greater than the 10% difference between the existing production volume and full capacity. In other words, even granting the plant manager’s position on the indirect wages still does not explain the overall size of the variance. More is being spent on indirect wages than would be implied by even 100% production. Something appears amiss.

The controller should discuss these matters with the plant manager and attempt to discover why the indirect labor costs are so completely out of line with the standards. The plant manager has not complained about the standards yet but may do so in the future. It’s very common for the standards to be criticized as too tight.



CP 22–5 (FIN MAN); CP 7–5 (MAN)Use this activity to compare performance measures from different groups and their selected cities.

The following are examples of performance measures from Worcester, Massachusetts:

ECONOMIC DEVELOPMENTIndicator Outcome Type Measured AsGrowth of commercial and Performance Change in total assessed value

residential tax base over timeJob growth Performance Jobs created (and lost) by categoryAmount of private investment Performance Total annual new construction, business

expansion, and R&D investment

PUBLIC SAFETYIndicator Outcome Type Measured As

Level of crime Performance Crime rate and clearance rate by typeof crime

Police community relations Performance Responses to annual citizen survey questions, performance of personnel on tests of courtesy, professionalism,and respect

Allegations of police misconduct Performance The annual number of complaints ofexcessive force received by the policedepartment

Level of fire activity Performance # of structure fires; # of fire inspections performed; # of arson cases

Responses to fire calls Performance # of fire calls answered as a % of total calls for service, average response time, % of responses < 5 minutes

All measured both citywide and by neighborhood



CP 22–5 (FIN MAN); CP 7–5 (MAN) (Continued)

IMPROVED MUNICIPAL SERVICESIndicator Outcome Type Measured AsCleanliness of streets Performance Responses to questions on the annual

citizen survey, objective resident ratingsCleanliness of streets Efficiency Cost per mile of street sweptSnow clearance Performance Miles of road cleared to pavement

within 6 hours of a snowstormCondition of streets and roads Performance Responses to questions on the annual

citizen survey, Pavement ConditionIndex (PCI)

Effectiveness of recycling program Performance % of trash recycledEffectiveness of anti-graffiti Performance # of graffiti incident responses, response

program time from call for service to cleanupCost effectiveness of solid Efficiency Cost per ton of waste collected

waste collectionLibrary usage Performance Circulation per capitaCitizen involvement (citywide Performance % of eligible voters registered;

and by neighborhood) % of registered voters voting

EDUCATIONIndicator Outcome Type Measured AsStudent and school achievement Performance MCAS test scoresGraduation rate Performance Percent graduatingDropout rate Performance Percent dropoutsEmployer satisfaction with Performance Employer survey

graduatesPost-graduate plans Percent of graduates going to college;

percent going to workParent involvement in schools Performance Attendance at parent-teacher conferences;

survey of parents, teachers, and principals



CP 22–5 (FIN MAN); CP 7–5 (MAN) (Concluded)

IMPROVED YOUTH SERVICESIndicator Outcome Type Measured AsPresence of “at risk youth” Performance Responses to questions from the Youth

Risk Behavior Survey (includes questions on drug and alcohol use and violent behavior) by high school

Extent of juvenile crime Performance Juvenile crime rate, citywide and byneighborhood

Teen pregnancies Performance Teen pregnancy rateInfant mortality Performance Infant mortality rateTeen youth services Program availability Number of programs and participation

rates (by race, ethnicity, and gender) by neighborhood

Source: Benchmarking Municipal Performance: A Tool for Streamlining Municipal Government ; Michael D. Goodman and Roberta R. Schaefer, Worcester Municipal Research Bureau.


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