The director of cost management for Odessa Company uses a statistical control chart to help management

1.The director of cost management for Odessa
Company uses a statistical control chart to help management determine when to
investigate variances. The critical value is 1 standard deviation. The
company incurred the following direct-labor efficiency variances during the
first six months of the current year.

January

$

500

F

February

1,600

U

March

1,400

U

April

1,800

U

May

2,100

U

June

2,400

U

The standard direct-labor cost
during each of these months was $38,000. The controller has estimated that
the firm’s monthly direct-labor variances have a standard deviation of
$1,900.

2.The following data pertain to Colgate
Palmolive’s liquid filling line during the first 10 months of a particular
year. The standard ratio of direct-labor hours to machine hours is 4:1. The
standard direct-labor rate is $15.98.

Colgate Palmolive: Direct-Labor Efficiency Variance Data*

Units
Produced

Machine
Hours

Standard
Direct-Labor
Hours

Actual
Direct-Labor
Hours

Direct-Labor
Efficiency
Variance

January

50,658

174.5

698.00

392.00

$

4,890

February

32,123

109.3

437.20

232.00

3,279

March

186,079

570.0

2,280.00

1,104.00

18,792

April

214,074

726.4

2,905.60

1,522.75

22,098

May

49,290

169.0

676.00

382.00

4,698

June

83,066

250.0

1,000.00

572.50

6,831

July

36,568

113.0

452.00

301.00

2,413

August

33,843

105.0

420.00

356.50

1,015

September

32,010

105.0

420.00

354.50

1,047

October

28,641

81.0

324.00

194.00

2,077

*Source of data: Alan S. Levitan and Sidney J. Baxendale,
“Analyzing the Labor Efficiency Variance to Signal Process Engineering
Problems,” Journal of Cost Management6, no. 2 (Summer 1992), p.
70.

Required:

1-a.

Which of the following amounts did Colgate Palmolive use in
calculating its standard direct labor hours for the month of January?(Select all that apply.)

Units produced

Machine hours

Actual direct-labor hours

Standard ratio of direct-labor
hours to machine hours

1-b.

Which of the following amounts did Colgate Palmolive use in
calculating its direct-labor efficiency variance for the month of January?
(Select all that apply.)

Units produced

Standard direct-labor hours

Actual direct-labor hours

Standard direct-labor rate

2.

Calculate the following amounts.

a.

The standard direct-labor cost for each of the 10 months.(Round intermediate
calculation to 2 decimal places and final answers to nearest whole dollar
amount.)

Standard Direct-Labor Cost

January

February

March

April

May

June

July

August

September

October

b.

For each month, (expression error) percent of the standard
direct-labor cost.(Round your final answers to the nearest whole dollar amount.)

3.

Suppose management investigates all variances in excess of
(expression error) percent of standard cost. Which months contain a
variance that would be investigated?(Select all that apply.)

January

February

March

April

May

June

July

August

September

October

6.

Which of the following could be a reason why the direct-labor
efficiency variances for March, April and June are larger than in the other
months?

3.McKeag Corporation manufactures agricultural
machinery. At a recent staff meeting, the following direct-labor variance
report for the year just ended was presented by the controller.

MCKEAG CORPORATION
Direct-labor Variance Report

Direct-Labor Rate Variance

Direct-Labor Efficiency Variance

Amount

Standard Cost, %

Amount

Standard Cost, %

January

$

1,600

F

0.16

%

$

10,000

U

1.00

%

February

9,800

F

0.98

%

15,000

U

1.50

%

March

200

U

0.02

%

19,400

U

1.94

%

April

4,000

U

0.40

%

25,600

U

2.56

%

May

7,600

F

0.76

%

40,200

U

4.02

%

June

7,800

F

0.78

%

34,000

U

3.40

%

July

8,400

F

0.84

%

57,000

U

5.70

%

August

10,200

F

1.02

%

76,000

U

7.60

%

September

9,600

F

0.96

%

74,000

U

7.40

%

October

11,400

F

1.14

%

84,000

U

8.40

%

November

8,400

F

0.84

%

120,000

U

12.00

%

December

8,600

F

0.86

%

104,000

U

10.40

%

McKeag’s controller uses the following rule of thumb:
Investigate all variances equal to or greater than $60,000, which is 6
percent of standard cost.

1.

Variable-overhead spending
variance

2.

Variable-overhead efficiency
variance

3.

Fixed-overhead budget variance

4.

Fixed-overhead volume variance

Starlight Glassware
Company has the following standards and flexible-budget data.

Standard
variable-overhead rate

$

16

per direct-labor
hour

Standard
quantity of direct labor

2.5

hours per unit
of output

Budgeted
fixed overhead

$

370,000

Budgeted
output

28,500

units

Actual results for
February are as follows:

Actual
output

19,600

units

Actual
variable overhead

$

855,950

Actual
fixed overhead

$

326,000

Actual
direct labor

50,350

hours

Required:

Use the following diagrams below (similar to.mhhe.com/connect/0077632451/Exhibit%2011%E2%80%936.jpg”>Exhibit 11-6 and.mhhe.com/connect/0077632451/Exhibit%2011%E2%80%938.jpg”>Exhibit 11-8 to compute (1) the
variable-overhead spending and efficiency variances, and (2) the
fixed-overhead budget and volume variances.(Round your “per hour” answers to
2 decimal places. Indicate the effect of each variance by selecting
“Favorable” or “Unfavorable”. Select “None” and
enter “0” for no effect (i.e., zero variance).)

Variable overhead
variances: