Highland Company Executive Report March Performance

Case 10-20

Highland Co. – March Overview

1. Standard Cost of Single Backpack = $31.50– $16,800 DM + $10,500 DL + $4,200 VMOH = $31,500– $31,500 / 1,000 units produced

2. Actual Cost of Single Backpack = $31.35– Given: that actual cost was $0.15 Favorable ($31.50 - $0.15)

3. Standard Yards of Material per Backpack = 2.8– ($16,800 Total Standard Material) / 1,000 units = $16.80– $16.80 / $6 per yard Standard Cost (Given) = 2.8 yd– 1,000 units at Standard Quantity = 2,800 yds

Highland Co. – March Overview

4. Direct Material Price Variance = $3,000 Favorable– Solve for AQ: DMQV = SP(AQ – SQ)– $1,200 U (Given) = $6(AQ – 2,800); AQ = 3,000 yd– DMPV = AQ(AP – SP) where AP = $15,000 DM / 3,000 yd– DMPV = 3,000($5 - $6)

5. Standard Direct Labor Rate per Hour = $7.50– Given: VMOH is applied on basis of Direct Labor Hours– $4,200 VMOH (Given) / $3 per hour rate (Given) = 1,400 hrs– $10,500 DL (Given) / 1,400 hrs = $7.50 DL rate per hour

Highland Co. – March Overview

6. Direct Labor Rate Variance = $1,500 Unfavorable– Given: Actual Total Cost = $31,350 ($31.35 each unit)– Given: Actual Direct Labor Hours = 1,500– Actual Direct Labor Cost: $31,350 - $15,000 - $3,600 = $12,750– Solve for DLRV = AH(AR – SR)– DLRV = 1,500(AR – SR) where AR = $12,750/ 1,500 hr– DLRV = 1,500($8.50 - $7.50)

a. Direct Labor Efficiency Variance = $750 Unfavorable– Solve for DLEV = SR(AH – SH)– DLEV = $7.50(AH – SH) where SH = 1,400 hr (See 5.)– DLEV = $7.50(1,500 - 1,400)

Highland Co. – March Overview

7. Variable Overhead Rate Variance = $900 Favorable– Given: Actual Costs Incurred = $3,600– Given: Actual Direct Labor Hours = 1,500– Solve for VOHRV = AH(AR – SR)– VOHRV = 1,500(AR – SR) where AR = $3,600 / 1,500– VOHRV = 1,500($2.40 - $3.00)

a. Variable O.H. Efficiency Variance = $300 Unfavorable– Solve for VOHEV = SR(AH – SH)– VOHEV = $3.00(AH – SH) where SH = 1,400 hr (See 5.)– VOHEV = $3.00(1,500 - 1,400)

Highland Co. – March Overview

8. Standard Cost Card of Single Backpack

 

Standard Quantity or Hours Standard Price or Rate Standard

Cost

Direct Materials 2.8 Yards $6.00 per Yard $16.80

Direct Labor 1.4 Hours $7.50 per direct labor hour $10.50

Variable Manufacturing Overhead 1.4 Hours $3.00 per direct labor hour $4.20

Total Standard Cost   

$31.50

Highland Co. – Summary

Direct Materials Total Variance = $1,800 Favorable• $3,000 DMPV (F) - $1,200 DMQV (U)

Direct Labor Total Variance = $2,250 Unfavorable• $1,500 DLRV (U) + $750 DLEV (U)

Variable Overhead Total Variance = $600 Favorable• $900 VOHRV (F) - $300 VOHEV (U)

Highland Co. – Appendix Calculations

Highland Co. – Appendix Calculations

ColdKing Company Executive Report Standard Cost Development

Case 10-21

ColdKing Co. – Standard Costing Project

1. Standard Cost Card 10 Gallon Batch Raspberry Sherbet

 

Standard Quantity or Hours Standard Price or Rate Standard

Cost

Direct Materials 10 Gallon $1.05 per Gallon $10.50

Direct Labor 0.5 Hours $9.00 per direct labor hour $4.50

Variable Cost (Packaging/other) 10 Gallons $1.52 per Gallon $15.20

Total Standard Cost   

$30.20

ColdKing Co. – Standard Costing Project

1a. Standard Direct Material Cost Raspberries = $6.00– Given: Purchase price is $0.80 per quart– Given: 6 quarts required per 10 gallon Batch – Given: Loss of 1 quart per 4 accepted quarts = 1.25 ratio – Solve: 6 quarts x 1.25 loss ratio = 7.5 quarts per 10 gallon– 7.5 qt x $0.80 = $6.00

1a. Standard Direct Material Cost Other = $4.50– Given: All other ingredients are $0.45 per gallon– Solve: $0.45 x 10 gallon batch = $4.50 per batch other

ColdKing Co. – Standard Costing Project

1a. Standard Direct Material Cost Total= $10.50– Direct Material Raspberries + Direct Material Other– $6.00 + $4.50 = $10.50– $10.50 per 10 gal / 10 = $1.05 per gal Standard Price

1b. Standard Direct Labor Cost = $4.50– Given: Direct Labor is paid at $9.00 per hour– Given: 3 minutes per quart sort time – Given: 12 minutes per 10 gallon Batch – Solve: 6 quarts x 3 minutes + 12 minutes per 10 gallon (1/2 Hr)

ColdKing Co. – Standard Costing Project

1c. Standard Variable Costs = $15.20– Given: Packaging is $0.38 per quart– Solve: 40 quarts x $0.38 = $15.20 per batch packaging– $15.20 per 10 gal / 10 = $1.52 per gal Standard Price

ColdKing Co. – Standard Costing Project

2a. Unfavorable Direct Material Price Variance– Purchasing Agent responsibility

• Did they order at a higher price than $0.80 per quart?• Did they have to pay a premium for out of season?• Did they use an alternate, higher price source?• Did they order at lower (higher priced) volumes?• Did supplier change packaging to increase damage?

– Production Manager responsibility• Did they have to pay expedited shipping because they ran out?• Did plant incorrectly store materials to cause high spoilage?• Did plant mishandle material to cause excess damage?

ColdKing Co. – Standard Costing Project

2b. Unfavorable Direct Labor Efficiency Variance– Purchasing Agent responsibility

• Did they order extremely poor quality ingredients?• Did they forget to place order so insufficient production?

– Production Manager responsibility• Did they properly train workers?• Is the equipment working properly?• Are they providing motivation and guidance?• Are they properly placing workers?• Do they follow procedures?• Are the rates properly set and realistic?• Is there a bottleneck not being addressed?