In: Accounting
You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably 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 for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study.
On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information:
Standard Cost Card | ||
Direct materials, 2.30 pounds at $16.30 per pound | $ | 37.49 |
Direct labor, 1.00 direct labor-hours at $15.60 per direct labor-hour | $ | 15.60 |
Variable manufacturing overhead, 1.00 direct labor-hours at $9.20 per direct labor-hour | $ | 9.20 |
Total Standard Cost* |
Variances Reported |
|||||||
Price or Rate |
Quantity or Efficiency |
|||||||
Direct materials | $ | 749,800 | $ | 13,920 | F | $ | 32,600 | U |
Direct labor | $ | 312,000 | $ | 4,200 | U | $ | 15,600 | U |
Variable manufacturing overhead | $ | 184,000 | $ | 4,600 | F | $ | ? † | U |
*Applied to Work in Process during the period.
† Entry obliterated.
You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. 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 like a bungling fool 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..
2. How many pounds of direct material were purchased and used in production?
3. What was the actual cost per pound of material? (Round your answer to 2 decimal places.)
4. How many actual direct labor-hours were worked during the period?
5. What was the actual rate paid per direct labor-hour? (Round your answer to 2 decimal places.)
6. How much actual variable manufacturing overhead cost was incurred during the period?
Solution 2:
Total standard cost of material = $749,800
Standard quantity for actual production = $749,800 / $16.30 = 46000 pound
Direct material quantity variance = $32,600 U
(SQ - AQ) * SP = - $32,600
(46000 - AQ) * $16.30 = - $32,600
Actual quantity of material purchase and used in production = 48000 pound
Solution 3:
Actual cost of material = $749,800 + $32,600 - $13,920 = $768,480
Actual cost per pound of material = $768,480 / 48000 = $16.01 per pound
Solution 4:
Standard hours for actual production = $312,000 / $15.60 = 20000 hours
Direct labor efficiency variance = $15,600 U
(SH - AH) * SR = - $15,600
(20000 - AH) * $15.60 = -$15,600
Actual hours of direct labor worked = 21000 hours
Solution 5:
Direct labor rate variance = $4,200 U'
(SR - AR) * AH = -$4,200
($15.60- AR) * 21000 = -$4,200
Actual rate of labor = $15.80 per hour
Solution 6:
Variable overhead rate variance = $4,600 F
(SR - AR) *AH = $4,600
($9.20 - AR) * 21000 = $4,600
AR = $8.980952 per hour
Actual variable manufacturing overhead incurred = 21000*$8.980952 = $188,600