Question

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, 2.20 pounds at $16.60 per pound	$	36.52
Direct labor, 1.00 direct labor-hours at $15.30 per direct labor-hour	$	15.30
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	$	584,320	$	10,788	F	$	33,200	U
Direct labor	$	244,800	$	3,400	U	$	15,300	U
Variable manufacturing overhead	$	147,200	$	4,300	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..

Required:

1. How many units were produced last period?

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?

Answer 1

1.Number of Units Produced = Standard Cost/Standard Cost per Unit

=584,320/36.52 = 16,000 units

2.

Direct Material Efficiency Variance = (Standard Quantity – Actual Quantity)*Standard rate

(16000*2.2 – Actual Quantity)*16.6 = -33,200

35,200 – Actual Quantity = -2000

Actual Pounds purchased and Used = 37,200

3. Direct Material Price Variance = (Standard Price – Actual Rate)*Actual Quantity

(16.6- Actual rate)*37,200 = 10,788

16.6 – Actual rate = 0.29

Actual rate = $16.31

4. Direct Labor Efficiency Variance = (Standard Hours – Actual Hours)*Standard rate

= (16,000*1 – Actual Hours)*15.30 = -15,300

Actual Hours = 17,000 Hours

5. Direct Labor Price Variance = (Standard Price – Actual Rate)*Actual Hours

= (1-Actual rate)*17,000 = -3400

Actual rate = $1.2

6. Actual Manufacturing Overhead =

Variable Manufacturing Overhead Price Variance = (Standard Price – Actual Rate)*Actual Hours

= (9.2 – Actual rate)*17,000 = 4300

Actual Rate =$8.95

Variable Overhead Efficiency Variance = (Standard Hours – Actual Hours)*Standard rate

= (16,000 – 17,000)*9.2 = 9200 U

Actual variable manufacturing overhead cost incurred during the period = Standard Cost + Rate Variance + Efficiency Variance

= 16000*9.2 – 4300 + 9200 = $152,100