Solutions Guide: Please do not present as your own. This is only meant as a solutions guide for you to answer the problem on your own. I recommend doing this with any content you buy online whether from me or from someone else.

EXERCISE 15 LO.3 (DM variances) In November 2008, Day Time Publishing Company’s costs and quantities of paper consumed in manufacturing its 2009 Executive Planner and Calendar were as follow: Actual unit purchase price $0.065 per page Standard unit price $0.070 per page Standard quantity for good production 195,800 pages Actual quantity purchased during November 230,000 pages Actual quantity used in November 200,000 pages a. Calculate the total cost of purchases for November. b. Compute the material price variance (based on quantity purchased). c. Calculate the material quantity variance.

a. Total purchases = AP × AQp = $0.065 × 230,000 = $14,950

b. Material price variance = (AP × AQp) (SP × AQ)

= $14,950 ($.07 × 230,000)

= $14,950 $16,100

= $1,150 F

c. Material quantity variance = (SP × AQu) (SP × SQ)

= ($0.07 × 200,000) ($0.07 × 195,800)

= $14,000 $13,706

= $294 U

EXERCISE 21 LO.3 (OH variances) Joy Ride Corp. has a fully automated production facility in which almost 97 percent of overhead costs are driven by machine hours. As the company’s cost accountant, you have computed the following overhead variances for May: Variable overhead spending variance $17,000F Variable overhead efficiency variance 20,000F Fixed overhead spending variance 14,000U Fixed overhead volume variance 10,000U The company’s president is concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions. Budgeted fixed overhead for the month is $500,000; the predetermined variable and fixed overhead rates are, respectively, $10 and $20 per machine hour. Budgeted capacity is 10,000 unites. a. Using the four-variance approach, prepare an overhead analysis in as much detail as possible. b. What is the standard number of machine hours allowed for each unit of output? c. How many actual hours were worked in May? d. What is the total spending variance? e. What additional information about the manufacturing overhead variances is gained by inserting detailed computations into the variable and fixed manufacturing overhead variance analysis? f. How would the overhead variances be closed it the three-variance approach were used?

a. Budgeted machine hours = 500,000 ÷ $20 = 25,000 MHs

Actual machine hours = $224,400 ÷ $10 = 22,440 MHs

Machine hours applied = $490,000 ÷ $20 = 24,500 MHs

Actual VOH VOH Rate x Actual Hours Applied VOH

$10 × 22,440 $10 × 24,500

$207,400 $ 224,400 $ 245,000

$17,000 F $20,600 F

VOH Spending Variance VOH Efficiency Variance

$37,600 F

Total VOH Variance

Actual FOH Budgeted FOH Applied FOH

$20 x 25,000 $20 x 24,500

$ 514,000 $500,000 $490,000

$14,000 U $10,000 U

FOH Spending Variance Volume Variance

$24,000 U

Total FOH Variance

b. Standard machine hours is 25,000 ÷ 10,000 units = 2.5 MHs per unit

c. Actual machine hours worked is $224,400 ÷ $10 = 22,440

d. Total spending variance is $17,000 - $14,000 = $3,000 F

e. The VOH favorable efficiency variance resulted from using 2,560 fewer machine hours than allowed given production of 10,000 units. The FOH volume variance resulted from underutilizing capacity by 500 machine hours.

f. OH Spending Variance 3,000

VOH Efficiency Variance 20,600

Volume Variance 10,000

Cost of Goods Sold 13,600

To dispose of overhead variances

EXERCISE 17 LO.3 (Allocating joint cost) In one joint process, Hardahl Chemical produces three joint products and one by-product. The following information is available for September 2008: Sales Value at Cost after Final Selling Products Gallons Split-Off per Gallon Split-Off Price JP-4539 4,000 $12 $3 $21 JP-4587 16,000 8 5 14 JP-4591 12,000 15 2 19 Allocate the joint cost of $465,000 to the production based on the a. number of gallons; b. sales value at split-off; and c. approximate net realizable value at split-off. (Round all percentages to the nearest whole percentage)

a. JP-4539 4,000 .125 x $465,000 = $ 58,125

JP-4587 16,000 .500 x $465,000 = 232,500

JP-4591 12,000 .375 x $465,000 = 174,375

32,000 1.000 $465,000

b. JP-4539 4,000 x $12 = $ 48,000 .13 x $465,000 = $ 60,450

JP-4587 16,000 x $ 8 = 128,000 .36 x $465,000 = 167,400

JP-4591 12,000 x $15 = 180,000 .51 x $465,000 = 237,150

$356,000 1.00 $465,000

c. JP-4539 4,000 x ($21 - $3) = $ 72,000 .17 x $465,000 = $ 79,050

JP-4587 16,000 x ($14 - $5) = 144,000 .34 x $465,000 = 158,100

JP-4591 12,000 x ($19 - $2) = 204000 .49 x $465,000 = 227,850

$420,000 1.00 $465,000

EXERCISE 20 LO.3 (Processing beyond split-off) Washington Cannery makes three products from a single joint process. For 2008, the cannery processed all three products beyond split-off. The following data were generated for the year: Joint Product Incremental Separate Cost Total Revenue Candied apples $26,000 $620,000 Apple jelly 38,000 740,000 Apple jam 15,000 270,000 Analysis of 2008 market data reveals that candid apples, apple jelly, and apple jam could have been sold at split-off for $642,000, $706,000, and $253,000, respectively. a. Based on hindsight, evaluate management’s production decisions in 2008. b. How much additional profit could the company have generated in 2008 if it had made optimal decisions at split off?

a. Final Split-off Increm. Increm. Increm.

Product Revenues Sales Value Revenue Costs Profit

Candied

apples $620,000 $642,000 ($22,000) $26,000 $(48,000)

Apple

jelly 740,000 706,000 34,000 38,000 (4,000)

Apple

jam 270,000 253,000 17,000 15,000 2,000

Management should not have further processed candied apples and apple jelly because the incremental costs from further processing was greater than the incremental revenues. These two products should have been sold at the split-off point.

b. Candied apples $48,000

Apple jelly 4,000

Additional potential profit $52,000

EXERCISE 27 LO.4 (By-product accounting method selection) Your employer engages in numerous joint processes that produce significant quantities and type of by-product. You have been asked to give a report to management on the best way to account for by-product. Develop a set of criteria for making such a choice and provide reasons for each criterion selected. On the basis of your criteria, along with any additional assumptions you wish to provide about the nature of the company you work for, recommended a particular method of accounting for by-product and explain why you consider it to be better than the alternatives.

Because the by-product has substantial value, it should be accounted for using NRV rather than realized value, which would result in distorted cost information. Whether the direct or indirect method is used would be dependent on the timing of the sale of by-product and joint products. If both product groups sell shortly after they are produced, then the choice of method is less important. However, if the by-product tends to sell in a different period than its related joint products, use of the direct method would provide a stronger match between costs and benefits.