Question

In: Accounting

Catherine​'s Kettle Potato Chips produces gourmet chips distributed to chain sub shops throughout California. To ensure...

Catherine​'s Kettle Potato Chips produces gourmet chips distributed to chain sub shops throughout California. To ensure that their chips are of the highest quality and have taste​ appeal, Catherine has a rigorous inspection process.
For quality control​ purposes, Catherine has a standard based on the pounds of chips inspected per hour and the number of pounds that pass or fail the inspection. Catherine expects that for every 6 comma 500 pounds of chips​ produced, 1 comma 300 pounds of chips will be inspected. Inspection of 1 comma 300 pounds of chips should take 1 hour. Catherine also expects that 4​% of the chips inspected will fail the inspection. During the month of​ May, Catherine produced 1 comma 560 comma 000 pounds of chips and inspected 240 comma 500 pounds of chips in 190 hours. Of the 240 comma 500 pounds of chips​ inspected, 10 comma 420 pounds of chips failed to pass the inspection.
1.
Compute two variances that help determine whether the time spent on inspections was more or less than expected.​ (Follow a format similar to the one used for the variable overhead spending and efficiency​ variances, but without​ prices.)
2.
Compute two variances that can be used to evaluate the percentage of the chips that fails the inspection.

Solutions

Expert Solution

The answer is given below with detailed step and calculation formula so that it is easy to understand and learn:

Step 1
Production Pounds 6500
Inspection Pounds 1300
Inspection to Production ratio =1300:6500 0.2
Step 2
Actual Production 1560000
Standard inspection Quantity =1560,000 * 0.20 312000
Standard inspection Quanity in 1 hr 1300
Standard Time for standard inspection (hrs) =312000/1300 240
Standard failure =312000 * 4% 12480
Step 3 Standard Time for standard inspection (hrs) 240 A
Actual inspection Quantity 240500
Standard inspection Quanity in 1 hr 1300
Standard Time for actual inspection (hrs) =240500/1300 185 B
Actual Time 190 C
Total Variance =A-C 50 Favourable
Quantity Variance =A-B 55 Favourable
Efficiency Variance =B-C 5 Unfavourable
Step 4 Standard Failure for standard inspection 12480 A
Actual inspection Quantity 240500
Standard fail actual inspection =240500*4% 9620 B
Actual Fail 10420 C
Total Variance =A-C 2060 Favourable
Quantity Variance =A-B 2860 Favourable
Quality Variance =B-C 800 Unfavourable

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