Question

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Borg Power Trains produces drive-train components for all-wheel drive automobiles. For simplicity, assume the company produces...

Borg Power Trains produces drive-train components for all-wheel drive automobiles. For simplicity, assume the company produces two products, a transfer case and a transmission clutch. Products are made of aluminum, screws, glue, and gasket material. You will be calculating direct materials variances for aluminum only. The transmission clutch requires 3 pounds of aluminum, 5 screws, 6 inches of gasket material and an ounce of glue. The transfer case requires 5 pounds of aluminum, 7 screws, 17 inches of gasket material, and 2 ounces of glue. The standard cost of materials is $0.70 per pound for aluminum, $0.20 per screw, $0.40 per inch for gasket material, and $0.50 per ounce for glue. The standard labor rate is $37.2 per hour, variable overhead is charged at a rate of $10.12 per machine-hour, and fixed overhead is charged at a rate of $5.00 per machine-hour. Each product is estimated to take 15 minutes or 1/4 of a machine hour. The clutch uses 1/4 of a labor hour and the transfer case used 0.35 hours. In July, Borg purchased 80,000 pounds of aluminum for $65,000; 120,000 screws for $25,000; 240,000 inches of gasket material for $95,000 and 32,000 ounces of glue for $15,000. In July, the company produced 10,000 clutches and 9,000 transfer cases. In doing so, it used 76,000 pounds of aluminum, 113,300 screws, 211,000 inches of gasket material, and 27,000 ounces of glue. Actual machine hours were 4,800. It spent $205,000 on 5,500 hours of direct labor, $39,000 on items of fixed overhead that had been budgeted at $23,750, and $34,500 on items of variable overhead. Report the following:

  1. Material Price Variance for aluminum.
  2. Material usage variance for aluminum.
  3. Labor rate variance.
  4. Labor efficiency variance.
  5. Total overhead spending variance.
  6. Overhead efficiency variance.
  7. Overhead production volume variance.

Solutions

Expert Solution

Material Price Variance for aluminum.

.

Material Price Variance = Actual cost incurred - standard cost allowed for actual quantity

Actual cost incurred ,AQ = 80000 Lb.

$65000

standard cost allowed for actual quantity (SC * AQ )( 0.70 *80000 )

$56000

Material Price Variance

9000 U

.

Material usage variance for aluminum.

.

Material usage variance = standard cost allowed for actual quantity - standard cost allowed for standard quantity

.

standard cost allowed for actual quantity (SC * AQ )( 0.70 *80000 )

$56000

standard cost allowed for standard quantity ( SC * SQ ) (0.70 *75000*)

$52500

Material usage variance

3500 U

company produced 10,000 clutches

The transmission clutch requires 3 pounds of aluminum,  

standard quantity = 10000 * 3 = 30000

company produced 9,000 transfer cases

The transfer case requires 5 pounds of aluminum,

standard quantity = 9000 * 5 = 45000

*Total standard quantity of material aluminium = 30000 + 45000 =75000

.

Labor rate variance.

.

Labor rate variance = Actual labor cost incurred - standard rate allowed for actual labor hours

.

Actual labor cost incurred ,AQ = 5500.

$205000

standard cost allowed for actual quantity (SC * AQ )( $37.2 *5500)

$204600

Labor rate variance

400 U

.

Labor efficiency variance.

.

Labor efficiency variance. = standard rate allowed for actual labor hours - Standard rate for standard hour

.

standard cost allowed for actual quantity (SC * AQ )( $37.2 *5500)

$204600

Standard rate for standard hour (SC * SQ ) (37.2 * 5650* )

210180

Labor rate variance

5580 U

.

*standard hour = ( 10000 * 1 / 4 ) + ( 9000 * 0.35 ) = 5650

Total overhead spending variance.

.

Total overhead spending variance.

.

Total overhead spending variance. = Actual manufacturing overhead incurred - ( Variable overhead standard for actual allocation + Budgeted Fixed cost )

.

Actual manufacturing overhead incurred (39000 + 34500)

$73500

Variable overhead standard for actual allocation + Budgeted Fixed cost ( 23750 + ( ( 10.12 * ((10000 + 9000 ) * 0.15 ) )= 23750 +29070

$52820

Total overhead spending variance.

20680 U

.

Overhead efficiency variance.

.

Overhead efficiency variance = ( Actual machine hours - standard hours ) * Standard rate

.

Actual machine hours = 4800 hours

Standard machine hours = ( 10000 + 9000 ) * 0.15 = 19000 * 0.15 = 2850

Standard rate = 10.2

.

Overhead efficiency variance = (2850 - 4800 ) * 10.2 = 1950 * 10.2

Overhead efficiency variance = 19890

.

Overhead production volume variance

.

Overhead production volume variance =fixed Overhead applied to actual production - Fixed overhead budgeted

.

fixed Overhead applied to actual production ( 5 * 2850 )

$14250

Fixed overhead budgeted

$23750

Overhead production volume variance

9500 U


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