Problem $10-65$ Setting Standards, Materials and Labor Variances

The trick to this problem is determining what the standard quantities are. To get that,

take the number of jobs that they completed and multiply by the average square feet of granite

installed in each of them, brining you to the standard granite quantity. The standard glue and

labor quantities would be that amount times the per granite foot amounts shown as the standard.

I know! Confusing and seemingly complicated.

Watch for a video to help you figure out how to tackle this one!

I provided templates with lots of formatting for ACCT& $201$ and $202.$ Since this

class is usually taken towards the end of your journey, I have very high expectations

for you so these templates are less structured. I am simply giving you the problem

as it is in the text book then asking you to determine what you think needs to go

into your answer and what that answer should look like.

This assignment is worth $20$ points, allocated as follows:

$1$ Materials price and quantity variances $12$

$2$ Labor rate and efficiency variances $12$

Four bonus points built in$!24$

Problem $10-65$ Setting Standards, Materials and Labor Variances

Tom Belford and Tony Sorrentino own a small business devoted to kitchen and bath granite

installations. Recently, building contractors have insisted on up$-$front bid prices for a house

rather than the cost$-$plus system that Tom and Tony had been using. They worry because

natural flaws in the granite make it impossible to tell in advance exactly how much granite

will be used on a particular job. In addition, granite can be easily broken, meaning that Tom

or Tony could ruin a slab and would need to start over with a new one. Sometimes the improperly

cut pieces could be used for smaller installations, sometimes not. All their accounting is done

by a local certified public accounting firm headed by Charlene Davenport. Charlene listened

to their concerns and suggested that it might be time to implement tighter controls by setting

up a standard costing system.

Charlene reviewed the invoices pertaining to a number of Tom and Tony's previous jobs to

determine the average amount of granite and glue needed per square foot. She then updated

prices on both materials to reflect current conditions. The standards she developed

for $1$ square foot of counter installed were as follows:

Description Cost

Granite, per square foot $$50\mathrm{.}00$

Glue $(10$ oz$.$ @ $$0\mathrm{.}15)1\mathrm{.}5$

Direct labor hours:

Cutting labor $(0\mathrm{.}10$ hr$.$ @ $$15)1\mathrm{.}5$

Installation labor $(0\mathrm{.}25$ hr$.$ @ $$25)6\mathrm{.}25$

These standards assumed that one seamless counter requires one sink cut $($the space

into which the sink will fit$)$ as well as cutting the counter to fit the space available.

Charlene tracked the actual costs incurred by Tom and Tony for granite installation

for the next $6$ months. She found that they completed $50$ jobs with an average

of $32$ square feet of granite installed in each one. The following information on

actual amounts used and cost was gathered:

Description Numerical Data

Granite purchased and used $(1,640$ sq$.$ ft$.)$ $$79,048$

Glue purchased and used $(16,000$ oz$.)$ $$2,560$

Actual hours cutting labor $180$

Actual hours installation labor $390$

The actual wage rate for cutting and installation labor remained unchanged from the standard rate.

Required:

$1$ Calculate the materials price variances and materials usage variances for granite and for glue

for the past six months.

Description Amount Effect

Granite

Materials price variance

Materials usage variance

Glue

Materials price variance

Materials usage variance

$2$ Calculate the labor rate variances and labor efficiency variances for cutting labor and

for installation labor for the past six months.

Description Amount Effect

Cutting Labor

Labor rate variance

Labor efficiency variance

Installation Labor

Labor rate variance

Labor efficiency variance