Question

In: Accounting

Miller, Inc. manufactures construction equipment and farm machinery tires. For the month of June, year 1,...

Miller, Inc. manufactures construction equipment and farm machinery tires. For the month of June, year 1, Miller expects to produce 2,500 tires and sell the same number at $1,000 per tire. Budgeted selling and administrative costs for the tires (all fixed) are expected to equal to $50,000. The standard costs per tire are as follows:

Direct materials

100 pounds @ $2/pound

$200

Direct labor

20 DLH @ $9/DLH

180

Variable overhead

4.5 MH @$10/MH

45

Fixed overhead

4.5 MH @$50/MH

225

Standard cost per unit

$650

Actual results for June differed from the budgeted results. Miller produced 2,300 tires, but sold only 2,000 at a price of $1,050 per tire. Actual fixed selling and administrative costs were $60,000. Actual production costs also differed from the standard:

Direct materials purchased

240,000 pounds @ $1.80/pound

$432,000

Direct materials used

240,000 pounds

Direct labor

44,000 DLH @ $9.20/DLH

404,800

Variable overhead

10,800 MH @$10.20/MH

110,160

Fixed overhead

500,000

Compute the production cost variances, showing your work below.

DM price variance

DM quantity variance

DL rate variance

DL efficiency variance

VOH spending variance

VOH efficiency variance

FOH budget variance

FOH production volume variance

Solutions

Expert Solution

DM Price variance = (Actual price - Standard price) * actual quantity

= ($1.80 - $2) * 240000

= $48000 (F)

DM quantity variance = (Standard quantity - Actual quantity) * Standard price

= ((2300*100) - 240000)* $1.80

= (230000 - 240000) * $1.80

= $18000 (F)

DL rate variance = (Actual rate - Standard rate) * actual hours

= ($9.20 - $9) * 44000

= $8800 (U)

DL efficiency variance = (Standard hours - Actual hours) * Standard rate

= ((20*2300) - 44000) * $9

= $18000 (F)

VOH spending variance = (Actual rate - Standard rate) * actual hours

= ($10.20 - $10) * 10800

$2160 (U)

VOH efficiency variance = (Standard hours - Actual hours) * Standard rate

= ((4.5*2300) - 10800) * $10

= (10350 - 10800) * $10

= $4500 (U)

FOH budget variance = Actual Fixed Overhead - Budgeted Fixed Overhead

= ($500000 + $60000) - ((10800*$50) + $50000)

= $560000 - $590000

= $30000 (U)

FOH production volume variance = (Actual Activity – Normal Activity) × Fixed Overhead Application Rate

= (10800 - (4.5*2300)) * $50

= (10800 - 10350) * $50

= $22500 (F)


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