Author Question: In recording the adjusting entries for depreciation, both accounts involved are increased. ... (Read 54 times)

ETearle · **on:** Jul 6, 2018

In recording the adjusting entries for depreciation, both accounts involved are increased.
Indicate whether the statement is true or false

Question 2

Price and efficiency variances, benchmarking.

Topiary Co. produces molded plastic garden pots and other plastic containers. In June 2014, Topiary produces 1,000 lots (each lot is 12 dozen pots) of its most popular line of pots, the 14-inch Grecian urns, at each of its two plants, which are located in Mineola and Bayside. The production manager, Janice Roberts, asks her assistant, Alastair Ramy, to find out the precise per-unit budgeted variable costs at the two plants and the variable costs of a competitor, Land Art, who offers similar-quality pots at cheaper prices. Ramy pulls together the following information for each lot:

Required:
1. What is the budgeted variable cost per lot at the Mineola Plant, the Bayside Plant, and at Land Art?
2. Using the Land Art data as the standard, calculate the direct materials and direct labor price and efficiency variances for the Mineola and Bayside plants.
3. What advantage does Topiary get by using Land Art's benchmark data as standards in calculating its variances? Identify two issues that Roberts should keep in mind in using the Land Art data as the standards.

yeungji · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

T

Answer to Question 2

1.
Mineola Plant
Prices and quantities Cost per lot
Direct materials 13.50 lbs 9.20 per lb 124.20
Direct labor 3 hrs 10.15 per hr 30.45
Variable overhead 12.00
Budgeted variable cost 166.65

Bayside Plant
Prices and quantities Cost per lot
Direct materials 14.00 lbs 9.00 per lb 126.00
Direct labor 2.7 hrs 10.20 per hr 27.54
Variable overhead 11.00
Budgeted variable cost 164.54

Land Art
Prices and quantities Cost per lot
Direct materials 13.00 lbs 8.80 per lb 114.40
Direct labor 2.5 hrs 10.00 per hr 25.00
Variable overhead 11.00
Budgeted variable cost 150.40

2. Mineola Plant

Actual
Quantity
Actual Price Budgeted Efficiency Flexible
Results Variance Price Variance Budgeta
(1) (2) = (1) (3) (3) (4) = (3) (5) (5)
Lots 1,000 1,000
Direct materials 124,200 5,400 U 118,800b 4,400 U 114,400
Direct labor 30,450 450 U 30,000c 5,000 U 25,000

aUsing Land Art's prices and quantities as the standard:
Direct materials: (13 lbs./lot 1,000 lots) 8.80/lb. = 114,400
(2.5 hrs./lot 1,000 lots) 10.00/hr. = 25,000
b(13.50 lbs./lot 1,000 lots) 8.80 per lb. = 118,800
c(3 hours/lot 1,000 lots) 10/hr. = 30,000

Bayside Plant
Actual
Quantity
Actual Price Budgeted Efficiency Flexible
Results Variance Price Variance Budgeta
(1) (2) = (1) (3) (3) (4) = (3) (5) (5)
Lots 1,000 1,000
Direct Materials 126,000 2,800 U 123,200b 8,800 U 114,400
Direct Labor 27,540 540 U 27,000c 2,000 U 25,000

aUsing Land Art's prices and quantities as the standard:
Direct materials: (13 lb./lot 1,000 lots) 8.80/lb. = 114,400
(2.5 hrs./lot 1,000 lots) 10.00/lb. = 25,000
b(14 lbs./lot 1,000 lots) 8.80 per lb. = 123,200
c(2.7 hours/lot 1,000 lots) 10/hr. = 27,000

3. Using an objective, external benchmark, like that of a competitor, will preempt the possibility of any one plant feeling that the other is being favored. That this competitor, Land Art, is successful will also put positive pressure on the two plants to improve (note that all variances are unfavorable). Issues that Topiary should keep in mind include the following:
Ensure that Land Art is indeed the best and most relevant standard (for example, is there another competitor in the marketplace which should be considered?).
Ensure that the data is reliable.
Ensure that Land Art is similar enough to use as a standard (if Land Art has a different business model, for example, it may be following a strategy of lowering costs that Topiary may not want to emulate because Topiary is trying to differentiate its products).