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Ma Exam1value1428 Pointscayuga Hardwoods Produces Handcrafted Jewel
Analyze and solve the detailed cost and variance calculation problems related to manufacturing processes, including standard cost calculations, variances for materials and labor, and production cost schedules based on actual and standard data. The problems cover multiple companies and products, requiring comprehensive understanding of standard costing, variance analysis, and cost accounting principles.
Paper For Above instruction
Introduction
Cost accounting plays a vital role in providing managers with insights into manufacturing efficiency, cost control, and profitability analysis. Variance analysis, specifically, compares actual costs to standard costs, helping organizations identify areas of operational and cost management efficiency or inefficiency. This paper reviews various case studies involving calculating standard costs, variances, and production cost schedules for different manufacturing entities, illustrating core principles in managerial accounting and cost control.
Standard Cost Calculation for Cayuga Hardwoods
Cayuga Hardwoods produces handcrafted jewelry boxes requiring 13 board feet of hardwood per finished box, with an additional 7 board feet of scrap lumber per box. The cost per board foot includes a $5 purchase price and $2.50 transportation charge, totaling $7.50 per board foot. To find the standard direct-material cost per jewelry box, we multiply the amount of hardwood used in the finished product by the combined cost per board foot:
- Hardwood in finished product: 13 board feet
- Cost per board foot: 5 + 2.50 = 7.50
Standard direct-material cost per box = 13 x 7.50 = 97.50
Thus, the standard direct-material cost of a jewelry box is 97.50.
Variance Analysis for Danby Company
Danby Company’s production data reveals a purchase of 6,700 pounds at $8.00 per pound, with actual production of 2,300 units incurring $39,200 in material costs. Standard costs for one unit are 2 pounds at $7.70 per pound and 3 hours of labor at $18.70 per hour.
The variance analysis involves:
- Material Price Variance (MPV):
MPV = (Actual Price - Standard Price) x Actual Quantity
= ($8.00 - $7.70) x 6,700
= $0.30 x 6,700 = 2,010 (Unfavorable, since actual price > standard)
- Material Quantity Variance (MQV):
MQV = (Actual Quantity Used - Standard Quantity for Actual Output) x Standard Price
First, determine standard quantity for actual output:
Standard quantity = 2 pounds/unit x 2,300 units = 4,600 pounds
Actual quantity used = 4,600 pounds (assuming used precisely as per standards)
Variance calculation:
Since actual quantity equals standard quantity, MQV = 0 (None).
- Labor Rate Variance (LRV):
LRV = (Actual Rate - Standard Rate) x Actual Hours
Actual hours = $134,420 / $18.80 = 7,160 hours
Actual Rate = $134,420 / 7,160 = approximately $18.78 per hour
Variance:
($18.78 - $18.70) x 7,160 = $0.08 x 7,160 = 572.80 (Unfavorable)
- Labor Efficiency Variance (LEV):
LEV = (Actual Hours - Standard Hours for Actual Production) x Standard Rate
Standard hours for actual units = 3 hours/unit x 2,300 units = 6,900 hours
Variance:
(7,160 - 6,900) x $18.70 = 260 x 18.70 = 4,862 (Unfavorable)
Summary:
- Direct-material price variance = 2,010 (Unfavorable)
- Direct-material quantity variance = 0 (None)
- Direct-labor rate variance = 572.80 (Unfavorable)
- Direct-labor efficiency variance = 4,862 (Unfavorable)
Cost Schedule for New Jersey Valve Company
Given January's actual data:
- Actual units produced: 8,000
- Direct material used: 23,100 lbs at $2.30 per lb
- Direct labor hours: 40,800 hours at $14.50 per hour
Standard costs per unit:
- Material: 3 lbs at $2.20 = 6.60
- Labor: 5 hrs at $15.00 = 75.00
Total standard material for 8,000 units = 8,000 x 3 lbs = 24,000 lbs
Total standard labor hours = 8,000 x 5 hrs = 40,000 hrs
Standard cost for materials:
- Cost = 24,000 lbs x $2.20 = 52,800
Standard cost for labor:
- Cost = 40,000 hrs x $15.00 = 600,000
Total standard costs = 52,800 + 600,000 = 652,800
Note: Since actual data is provided, the standard costs are based on actual production of 8,000 units, aligning with the standard resource consumption and pricing, thus creating the schedule as above.
Variance Calculations for January
- Material Price Variance:
Actual purchase: 23,100 lbs at $2.30
Standard price: $2.20
MPV = ($2.30 - $2.20) x 23,100 = $0.10 x 23,100 = 2,310 (Unfavorable)
- Material Quantity Variance:
Standard for actual units: 24,000 lbs
Actual used: 23,100 lbs
Variance:
(23,100 - 24,000) x $2.20 = (-900) x 2.20 = 1,980 (Favorable)
- Labor Rate Variance:
Actual cost: $211,900
Actual hours: 13,000
Actual rate: $211,900 / 13,000 = $16.30
Standard rate: $15.00
Variance:
($16.30 - $15.00) x 13,000 = $1.30 x 13,000 = 16,900 (Unfavorable)
- Labor Efficiency Variance:
Standard hours: 5 hrs/unit x 8,000 units = 40,000 hrs
Actual hours: 13,000 hrs
LEV = (13,000 - 40,000) x $15.00 = (-27,000) x 15 = 405,000 (Favorable)—but note actual hours are less than standard, indicating efficiency savings.
Note: Variances are presented as positive values, with favorable/favorable indicated accordingly.
Variances for Stylex Production
- Actual material purchased: 9,700 yards at $1.40 per yard
- Actual material used: 9,700 yards at $1.40
- Actual labor: 2,300 hours at $9.17/hr
- Standard per unit:
- Material: 20 yards at $1.37 = 27.40
- Labor: 3 hours at $7.00 = 21.00
Total units produced: 520
- Standard material for actual units: 520 x 20 yards = 10,400 yards
- Standard labor hours: 520 x 3 hours = 1,560 hours
Calculations:
- Material Price Variance:
(Actual price - Standard price) x Actual quantity
= ($1.40 - $1.37) x 9,700 = $0.03 x 9,700 = 291 (Unfavorable)
- Material Quantity Variance:
(Actual used - Standard for actual units) x Standard price
= (9,700 - 10,400) x $1.37 = (-700) x 1.37 = 959 (Favorable)
- Labor Rate Variance:
Actual cost / hours = $21,091 / 2,300 hrs ≈ $9.17/hr (matches provided rate)
Standard rate: $7.00/hr
Variance: ($9.17 - $7.00) x 2,300 = $2.17 x 2,300 = 4,991 (Unfavorable)
- Labor Efficiency Variance:
(Actual hours - Standard hours for actual units) x Standard rate
= (2,300 - 1,560) x $7.00 = 740 x 7 = 5,180 (Unfavorable)
Variance Overview and Insights
These analyses showcase the critical importance of variance analysis for managing manufacturing operations effectively. Variances highlight areas requiring managerial attention — unfavorable variances suggest cost overruns or inefficiencies, while favorable variances indicate cost savings or efficiencies. Accurate calculation of these variances informs strategic decisions such as renegotiating supplier contracts, improving labor productivity, or refining standard cost estimates for future periods.
Conclusion
Cost variance analysis remains a cornerstone of managerial accounting, providing meaningful insights into operational performance and cost control. Through detailed calculations such as those covered in this paper, managers can pinpoint specific areas where operational efficiency can be improved or where costs are exceeding standards. Continuous monitoring and analysis of variances are crucial for maintaining competitive advantage and ensuring profitability in manufacturing environments.
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