The director of cost management for Odessa Company uses a statistical control chart to help management determine when toinvestigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variancesduring the first six months of the current year.JanuaryFebruaryMarchAprilMayJune$ 300 F850 U750 U950 U1,100 U1,480 UThe standard direct-labor cost during each of these months was $24,000. The controller has estimated that the firm's monthly direct-labor variances have a standard deviation of $1,000.Required:2-a. Determine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater than 6percent of standard cost.2-b. Based on the cutoff value, which month will have its direct-labor efficiency variance investigated?Complete this question by entering your answers in the tabs below.Req 2AReg 2BDetermine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greaterthan 6 percent of standard cost.Cutoff value1,350< Prev2 of 3Next >MacBook Pro"1350"9689M.0OPH.CN

The question is based on the concept of Cost Accounting.

Answered: The director of cost management for…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter8: Standard Costs And Variances

Section: Chapter Questions

Problem 5EB: Smith Industries uses a cost system that carries direct materials inventory at a standard cost. The...

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Kavallia Company set a standard cost for one item at 328,000; allowable deviation is 14,500. Actual costs for the past six months are as follows: Required: 1. Calculate the variance from standard for each month. Which months should be investigated? 2. What if the company uses a two-part rule for investigating variances? The allowable deviation is the lesser of 4 percent of the standard amount or 14,500. Now which months should be investigated?
Using variance analysis and interpretation Last year, Wrigley Corp. adopted a standard cost system. Labor standards were set on the basis of time studies and prevailing wage rates. Materials standards were determined from materials specifications and the prices then in effect. On June 30, the end of the current fiscal year, a partial trial balance revealed the following: Standards set at the beginning of the year have remained unchanged. All inventories are priced at standard cost. What conclusions can be drawn from each of the four variances shown in Wrigleys trial balance?
At the end of the current fiscal year, the trial balance of Big Apple Inc. revealed the following debit (unfavorable) balances: Flexible-Budget Variance — $2,000 Production–Volume Variance — $75,000 What conclusions can be drawn from these two variances?
Ellis Companys labor information for September is as follows: A. Compute the standard direct labor rate per hour. B. Compute the direct labor time variance. C. Compute the standard direct labor rate if the direct labor rate variance was $2,712.30 (unfavorable).
Anker Company had the data below for its most recent year, ended December 31: Required: Prepare a performance report that shows the variances on an item-by-item basis.
Marten Company has a cost-benefit policy to investigate any variance that is greater than 1,000 or 10% of budget, whichever is larger. Actual results for the previous month indicate the following: The company should investigate: a. neither the materials variance nor the labor variance. b. the materials variance only. c. the labor variance only. d. both the materials variance and the labor variance.
Georgia Gasket Co. budgets 8,000 direct labor hours for the year. The total overhead budget is expected to amount to 20,000. The standard cost for a unit of the companys product estimates the variable overhead as follows: The actual data for the period follow: Using the four-variance method, calculate the overhead variances. (Hint: First compute the budgeted fixed overhead rate.)
Madison Company uses the following rule to determine whether direct labor efficiency variances ought to be investigated. A direct labor efficiency variance will be investigated anytime the amount exceeds the lesser of 12,000 or 10 percent of the standard labor cost. Reports for the past five weeks provided the following information: Required: 1. Using the rule provided, identify the cases that will be investigated. 2. Suppose that investigation reveals that the cause of an unfavorable direct labor efficiency variance is the use of lower quality direct materials than are usually used. Who is responsible? What corrective action would likely be taken? 3. Suppose that investigation reveals that the cause of a significant favorable direct labor efficiency variance is attributable to a new approach to manufacturing that takes less labor time but causes more direct materials waste. Upon examining the direct materials usage variance, it is discovered to be unfavorable, and it is larger than the favorable direct labor efficiency variance. Who is responsible? What action should be taken? How would your answer change if the unfavorable variance were smaller than the favorable?
Dickinsen Company gathered the following data for December: a.Compute the revenue price variance. b.Compute the revenue volume variance. c.Compute the total revenue variance.
Rockport Industries Inc. gathered the following data for March: a.Compute the revenue price variance. b.Compute the revenue volume variance. c.Compute the total revenue variance.
Warner Company has the following data for the past year: Warner uses the overhead control account to accumulate both actual and applied overhead. Required: 1. Calculate the overhead variance for the year and close it to cost of goods sold. 2. Assume the variance calculated is material. After prorating, close the variances to the appropriate accounts and provide the final ending balances of these accounts. 3. What if the variance is of the opposite sign calculated in Requirement 1? Provide the appropriate adjusting journal entries for Requirements 1 and 2.
Recompute the variances from the second Acme Inc. exercise using $0.0725 as the standard cost of the material and $14 as the standard labor cost per hour. How has your explanation of the variances changed?

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