Distinguish between perfection and practical standards. Which type of standard is likely to produce the best motivational effects?

Managerial accounting procedures developed for the manufacturing industry often are applied in nonmanufacturing settings also. Ontario Bank and Trust Company's total output of financial services during the year just ended was valued at $\$ 10$ million. The total cost of the firm's inputs, primarily direct labor and overhead, was $\$ 8$ million.

$1.$ Compute Ontario's aggregate (or total) productivity for the year.

$2.$ Do you believe this is a useful measure? Why? Suggest an alternative approach that Ontario Bank and Trust might use to measure productivity.

Data Screen Corporation is a highly automated manufacturing firm. The vice president of finance has decided that traditional standards are inappropriate for performance measures in an automated environment. Labor is insignificant in terms of the total cost of production and tends to be fixed, material quality is considered more important than minimizing material cost, and customer satisfaction is the number one priority. As a result, production and delivery performance measures have been chosen to evaluate performance. The following information is considered typical of the time involved to complete and ship orders.

$$\begin{array}{lr} \text{ Waiting time: } & \\ \quad \text{ From order being placed to start of production } & 8.0 \text{ days } \\ \quad\text{ From start of production to completion } & 7.0 \text{ days } \\ \text{ Inspection time } & 1.5 \text{ days } \\ \text{ Processing time } & 3.0 \text{ days } \\ \text{ Move time } & 2.5 \text{ days } \end{array}$$

$1.$ Calculate the manufacturing cycle efficiency.

$2.$ Calculate the delivery cycle time.

Hiawatha Hydrant Company manufactures fire hydrants in Oswego, New York. The following information pertains to operations during May.

$$\begin{array}{lr} \text{ Processing time (average per batch) } & 8.5 \text{ hours } \\ \text{ Inspection time (average per batch) } & .5 \text{ hour } \\ \text{ Waiting time (average per batch) } & .5 \text{ hour } \\ \text{ Move time (average per batch) } & .5 \text{ hour } \\ \text{ Units per batch } & 20 \text{ units } \end{array}$$

Compute the following operational measures: $(1)$ manufacturing cycle efficiency; $(2)$ manufacturing cycle time; $(3)$ velocity.

Part of your company's accounting database was destroyed when Godzilla attacked the city. You have been able to gather the following data from your files. Reconstruct the remaining information using the available data. All of the raw material purchased during the period was used in production. (Hint: It is helpful to solve for the unknowns in the order indicated by the letters in the following table.)

$$\begin{array}{lcc} & \textbf{ Direct Labor } & \textbf{ Direct Material } \\ \text{ Standard price or rate per unit of input } & \text{ e } & \$ 8 \text { per pound } \\ \text{ Standard quantity per unit of output } & \text{ f } & \text{ c } \\ \text{ Actual quantity used per unit of output } & 3.5 \text { hours } & \text{ a } \\ \text{ Actual price or rate per unit of input } & \$ 21 \text { per hour } & \$ 7 \text { per pound } \\ \text{ Actual output } & 10,000 \text { units } & 10,000 \text { units } \\ \text{ Direct-material price variance } & - & \$ 30,000 \mathrm{~F} \\ \text{ Direct-material quantity variance } & - & \text{ b } \\ \text{ Total of direct-material variances } & - & \$ 10,000 \mathrm{~F} \\ \text{ Direct-labor rate variance } & \text { d } & - \\ \text{ Direct-labor efficiency variance } & \$ 100,000 \mathrm{~F} & - \\ \text{ Total of direct-labor variances } & \$ 65,000 \mathrm{~F} & - \end{array}$$

Due to evaporation during production, Plano Plastics Company requires $8$ pounds of material input for every $7$ pounds of good plastic sheets manufactured. During May, the company produced $4,200$ pounds of good sheets.

Compute the total standard allowed input quantity, given the good output produced.

The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is $1$ standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current year.

$$\begin{array}{lrlr} \text{ January } & \$ 250 \text{ F } & \text{ April } & \$ 900 \text{ U } \\ \text{ February } & 800 \text{ U } & \text{ May } & 1,050 \text{ U } \\ \text{ March } & 800 \text{ U } & \text{ June } & 1,200 \text{ U } \end{array}$$

The standard direct-labor cost during each of these months was $\$ 19,000$. The controller has estimated that the firm's monthly direct-labor variances have a standard deviation of $\$ 950$.

$1.$ Draw a statistical control chart and plot the variance data given above. Which variances will be investigated?

$2.$ Suppose the controller's rule of thumb is to investigate all variances equal to or greater than $6$ percent of standard cost. Then which variances will be investigated?

$3.$ Would you investigate any of the variances listed above other than those indicated by the rules discussed in requirements $(1)$ and $(2)$? Why?

Describe two methods of setting standards.

Choose one of the following manufacturers (or any manufacturer of your choosing), and use the Internet to gather information about any new products the company has recently introduced or plans to introduce.

$$\begin{array}{llll} \text{ Boeing } & \text{ www.boeing.com } & \text{ Kodak } &\text{ www.kodak.com } \\ \text{ Caterpillar } & \text{ www.caterpillar.com } & \text{ Pfizer } & \text{ www.pfizer.com } \\ \text{ Ford } & \text{ www.ford.com/us } & \text{ Xerox } & \text{ www.xerox.com } \end{array}$$

Discuss the steps you think the company would go through in establishing standard costs for its new product.

During June, Danby Company's material purchases amounted to $6,000$ pounds at a price of $\$ 7.30$ per pound. Actual costs incurred in the production of $2,000$ units were as follows:

$$\begin{array}{ll}\text { Direct labor: } & \$ 116,745(\$ 18.10 \text { per hour) } \\ \text { Direct material: } & \$ 30,660(\$ 7.30 \text { per pound) }\end{array}$$

The standards for one unit of Danby Company's product are as follows:

$$\begin{array}{lc}\text { Direct labor: } & \text { Direct material: } \\ \text { Quantity, } 3 \text { hours per unit } & \text { Quantity, } 2 \text { pounds per unit } \\ \text { Rate, } \$ 18 \text { per hour } & \text { Price, } \$ 7 \text { per pound }\end{array}$$

Draw diagrams depicting the direct-material and direct-labor variances.

Listed below are 10 causes of temporary differences. For each temporary difference, indicate (by letter) whether it will create future deductible amounts (D) or future taxable amounts (T). Temporary Difference 1. Accrual of loss contingency, tax-deductible when paid. 2. Newspaper subscriptions; taxable when received, recognized for financial reporting when earned. 3. Prepaid rent, tax-deductible when paid. 4. Accrued bond interest expense, tax-deductible when paid. 5. Prepaid insurance, tax-deductible when paid. 6 Unrealized loss from recording investments at fair value (tax-deductible when investments are sold). 7. Warranty expense; estimated for financial reporting when products are sold; deducted for tax purposes when paid. 8. Advance rent receipts on an operating lease (as the lessor), taxable when received. 9. Straight-line depreciation for financial reporting; accelerated depreciation for tax purposes. 10. Accrued expense for employee postretirement benefits, tax-deductible when subsequent payments are made.

AirParts Corporation reported a net operating loss of $25 million for financial reporting and tax purposes. Taxable income last year and the previous year, respectively, was$20 million and $15 million. The enacted tax rate each year is 40%. Prepare the journal entry to recognize the income tax benefit of the net operating loss. AirParts elects the carryback option.

During June, Danby Company's material purchases amounted to $6,000$ pounds at a price of $\$ 7.30$ per pound. Actual costs incurred in the production of $2,000$ units were as follows:

$$\begin{array}{ll}\text { Direct labor: } & \$ 116,745(\$ 18.10 \text { per hour) } \\ \text { Direct material: } & \$ 30,660 \text{ (\$7.30 per pound) }\end{array}$$

The standards for one unit of Danby Company's product are as follows:

$$\begin{array}{lc}\text { Direct labor: } & \text { Direct material: } \\ \text { Quantity, } 3 \text { hours per unit } & \text { Quantity, } 2 \text { pounds per unit } \\ \text { Rate, } \$ 18 \text { per hour } & \text { Price, } \$ 7 \text { per pound }\end{array}$$

Compute the direct-material price and quantity variances and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Will variable and absorption costing result in significantly different income measures in a JIT setting? Explain.