1. Explanation Direct Material Price Variance: Direct material price variance in the difference between the budgeted per unit cost of raw material and the actual per unit cost multiplied by the number of units purchased. Direct Material Efficiency Variance: Direct material efficiency variance is the difference between the budgeted quantities and the actual quantities purchased at a specific price. Direct Material Price Variance: Calculated values, Actual input price of SP is $20.00 per unit Actual input price of LCD is $49.3873 per unit. Actual input price of P is $2.9412 per unit. Price variance of direct labor Particulars NS LCD P Unit Value Budgeted input price 20.00 50.00 3.00 $ Per ounce Actual input price 20.00 49.39 2.94 $ Per ounce Actual quantity of input 4,450 816 4,250 Ounces Price variance 0 499.9632 249.9 Table (1) Here, the direct material price variance for NS is 0, LCD is 499.6932 favorable and P is 249.9 favorable. Direct Material Efficiency Variance: Calculated values: Budgeted price of input for NS is $20.00 per unit. Budgeted price of input for LCD is $50.00 per unit. Budgeted price of input for P is $3 per unit. Efficiency variance of direct material Particulars NS LCD P Unit Value Budgeted quantity of input 4,080 800 4,000 Ounces Actual quantity of input 4,450 816 4,250 Ounces Budgeted price of input 20.73 50.00 3.00 $ Per ounce Efficiency variance -7670.10 -800 -750 Table (2) Here, the direct material efficiency variance for NS is $7,400 unfavorable, LCD is 800 unfavorable and P is 750 unfavorable. Working notes: Calculate actual input price of NS Actual input price (NS) = Actual direct material cost Actual quantity of input = $ 89 , 000 4 , 450 = $ 20.00 per unit Here, the actual input price of SP is $20.00 per unit. Calculate actual input price of LCD Actual input price (LCD) = Actual direct material cost Actual quantity of input = $ 40 , 300 816 = $ 49 2. To determine Explain the types of actions taken by works of S plant to reduce the accuracy of standards, reasons for these actions and ethical issues relating to it. 3. To determine Explain the violation of standards of ethical conduct by W in accordance with the IMA Statement of Ethical Professional Practice. 4. To determine Explain the actions to be taken by W. 5. To determine Describe the advantages and disadvantages of using CII information as benchmark.

15th Edition

ISBN: 9780133428704

Author: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan

Publisher: PEARSON

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Question

Chapter 7, Problem 7.42P

To determine

Calculate the price and efficiency variance of direct material.

To determine

Explain the types of actions taken by works of S plant to reduce the accuracy of standards, reasons for these actions and ethical issues relating to it.

To determine

Explain the violation of standards of ethical conduct by W in accordance with the IMA Statement of Ethical Professional Practice.

To determine

Explain the actions to be taken by W.

To determine

Describe the advantages and disadvantages of using CII information as benchmark.

Expert Solution & Answer

Chapter 7 Solutions

Cost Accounting (15th Edition)

Ch. 7 - What is the relationship between management by...Ch. 7 - What are two possible sources of information a...Ch. 7 - Distinguish between a favorable variance and an...Ch. 7 - What is the key difference between a static budget...Ch. 7 - Why might managers find a flexible-budget analysis...Ch. 7 - Describe the steps in developing a flexible...Ch. 7 - List four reasons for using standard costs.Ch. 7 - How might a manager gain insight into the causes...Ch. 7 - List three causes of a favorable direct materials...Ch. 7 - Describe three reasons for an unfavorable direct...

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