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Question;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.;Required;a.;Determine the cutoff value for investigation if the;controller?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;direct-labor cost.(Round your final answers to the nearest whole dollar amount.);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;%;McKeag?s controller uses the following rule of thumb;Investigate all variances equal to or greater than $60,000, which is 6;percent of standard cost.;Required;1.;Which variances would have been investigated during the year?;(Indicate month and type of variance.)(Indicate the effect of each variance by;selecting "Favorable" or "Unfavorable". Select;None" and enter "0" for no effect (i.e., zero;variance). Round "Percentage of Standard Cost" to 2 decimal;places.);Variance Type;Month;Amount;Percentage of Standard Cost;%;%;%;%;%;2.;What characteristics of the variance pattern shown in the;report should draw the controller?s attention, regardless of the usual;investigation rule?(Select all that apply.);The company's;direct-labor efficiency variances exhibit a consistent unfavorable trend;through the year.;The;company's direct-labor rate variances exhibit a favorable trend through;most of the year.;The;unfavorable trend of the direct-labor efficiency is on the increase through;most of the year.;The;favorable trend of the direct-labor rate is on the increase through the;year.;The;unfavorable trend of the direct-labor efficiency is under control till July;with regard to the limits of the investigation rule.;None;of the above.;3.;Which of the following is the best reason to also follow up on;favorable variances?;Bias in investigation targets and subsequent reports is;reduced.;Production efficiencies may be able to be replicated;elsewhere in the organization.;Favorable variances occur more often as activity levels rise;4.Starlight Glassware Company has the;following standards and flexible-budget data.;Standard variable-overhead rate;$;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;$;93,000;Actual direct labor;45,000;hours;Required;Use the variance;formulas to compute the following variances.(Indicate the effect of each variance by;selecting "Favorable" or "Unfavorable". Select;None" and enter "0" for no effect (i.e., zero;variance).);1.;Variable-overhead spending;variance;2.;Variable-overhead efficiency;variance;3.;Fixed-overhead budget variance;4.;Fixed-overhead volume variance;5.;Starlight Glassware;Company has the following standards and flexible-budget data.;Standard;variable-overhead rate;$;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 toExhibit 11-6 andExhibit 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;Variable-Overhead Spending And Efficiency Variances;(Hours = Direct-Labor Hours);(1);(2);(3);(4);Actual;Variable Overhead;Projected;Variable Overhead;Flexible;Budget: Variable Overhead;Variable Overhead Applied To Work-In-Process;Actual Hours;(AQ);?;Actual Rate;(AVR);Actual;Hours (AQ);?;Standard;Rate (SVR);Standard;Allowed Hours (SQ);?;Standard;Rate (SVR);Standard;Allowed Hours (SQ);?;Standard;Rate (SVR);?;?;?;?;hours;per hour;hours;per hour;hours;per hour;hours;per hour;Variable-overhead spending variance;Variable-overhead efficiency variance;Fixed-Overhead;Budget And Volume Variances;(Hours = Direct-Labor Hours);(1);(2);(3);Actual Fixed Overhead;Budgeted;Fixed Overhead;Fixed Overhead Applied To Work In Process;Standard;Allowed Hours;?;Standard;Fixed-Overhead Rate;?;hours;per hour;Fixed-overhead;budget variance;Fixed-overhead;volume variance

 

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