Question

You have recently graduated from university and have accepted a position with Sea-Jewels Inc., the manufacturer of a popular consumer product. During your first week on the job, the vicepresident has been favourably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning to lead a discussion on the variances reported for last period. Anxious to favourably impress the executive committee, you took the variances and supporting data home last night on a memory stick to study.

Unfortunately, when you tried to open the files this morning some of them had become corrupted. All you could retrieve is shown below: Variances Reported Total Standard Cost* Price or Rate Spending or Budget Quantity or Efficiency Volume   Direct materials $144,000     $7,555 F $7,100 U       Direct labour $151,200     $8,625 U $9,800 U       Variable manufacturing overhead $64,800     $520 F     $?† U       Fixed manufacturing overhead $108,000     $280 F     $7,000 U Standard Cost Card   Direct materials, 10 kilograms at $2 per kilogram $ 20.00   Direct labour, 1.5 direct labour-hours at $14 per direct labour-hour 21.00   Variable manufacturing overhead, 1.5 direct labour-hours at $6 per direct labour-hour 9.00   Fixed manufacturing overhead, 1.5 direct labour-hours at $10 per direct labour-hour 15.00   Standard cost per unit $ 65.00      You recall that manufacturing overhead cost is applied to production on the basis of direct labour-hours and that all of the materials purchased during the period were used in production. Since the company uses JIT to control work flows, work in process inventories are insignificant and can be ignored.      It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that to avoid looking grossly incompetent, you must somehow generate the necessary “backup” data for the variances before the meeting begins. Without backup data, it will be impossible to lead the discussion or answer any questions. Applied to work in process during the period.   †Data corrupted. Required 1- How much actual variable manufacturing overhead cost was incurred during the period? 2- What is the total fixed manufacturing overhead cost in the company’s flexible budget? 3- What were the denominator direct labour-hours for last period? Can you please answer these questions asap ?

Answer 1

Solution 1:

Standard hours for actual production = Stansdard cost of direct labor / SR = $151,200 / $14 = 10800 hours

Direct labor efficiency variance = $9,800 U

(SH - AH) * SR = (10800 - AH) * $14 = -$9,800

Actual hours = 11500 hours

Variable overhead efficiency variance = (SH - AH) * SR = (10800 - 11500) * $6 =$4,200 U

Total variable overhead variance = Variable overhead spending variance + Variable overhead efficiency variance = $520 F + $4,200 U = $3,680 U

Standard variable overhead cost = $64,800

Actual variable overhead cost = $64,800 + $3,680 = $68,480

Solution 2:

Budgeted fixed overhead = Fixed overhead applied + overhead volume variance

= $108,000 + $7,000 = $115,000

Total fixed manufacturing overhead cost in the company’s flexible budget = $115,000

Solution 3:

denominator direct labour-hours for last period = Budgeted fixed overhead / predetermined overhead rate

= $115,000 / $10 = 11500 hours