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

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 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 firmâ€™s monthly direct-labor variances have a standard deviation of
\$1,900.

 Required: a. Determine the cutoff value for investigation if the controllerâ€™s rule of thumb is to investigate all variances equal to or greater than 6 percent of standard cost. b. Based on the cutoff value, which of the month(s) will have their direct-labor efficiency variance investigated?(Select all that apply.) January variance February variance March variance April variance May variance June variance

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

 20% of the Standard Direct-Labor Cost January February March April May June July August September October

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?

 Production volume was significantly higher. The standard direct-labor rate was significantly higher. The actual direct-labor rate was significantly higher.

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 %

McKeagâ€™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.

 Required:

 1. Which variances would have been investigated during the year? (Indicate month and type of variance.)(Indicate the effect of each variance by selecting “Favorable” or “Unfavorable”. Select “None” and enter “0” for no effect (i.e., zero variance). Round “Percentage of Standard Cost” to 2 decimal places.) Variance Type Month Amount Percentage of Standard Cost % % % % %

2.

What characteristics of the variance pattern shown in the
report should draw the controllerâ€™s attention, regardless of the usual
investigation rule?(Select all that apply.)

The company’s
direct-labor efficiency variances exhibit a consistent unfavorable trend
through the year.

The
company’s direct-labor rate variances exhibit a favorable trend through
most of the year.

The
unfavorable trend of the direct-labor efficiency is on the increase through
most of the year.

The
favorable trend of the direct-labor rate is on the increase through the
year.

The
unfavorable trend of the direct-labor efficiency is under control till July
with regard to the limits of the investigation rule.

None of the
above.

3.

Which of the following is the best reason to also follow up on
favorable variances?

 Bias in investigation targets and subsequent reports is reduced. Production efficiencies may be able to be replicated elsewhere in the organization. Favorable variances occur more often as activity levels rise

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

 Standard variable-overhead rate \$ 7.00 per direct-labor hour Standard quantity of direct labor 2 hours per unit of output Budgeted fixed overhead \$ 96,000 Budgeted output 24,000 units
 Actual results for February are as follows:
 Actual output 19,000 units Actual variable overhead \$ 342,000 Actual fixed overhead \$ 93,000 Actual direct labor 45,000 hours

 Required:

 Use the variance formulas to compute the following variances.(Indicate the effect of each variance by selecting “Favorable” or “Unfavorable”. Select “None” and enter “0” for no effect (i.e., zero variance).)

1.

variance

2.

variance

3.

4.

5.

 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).)