Question

In: Accounting

You have recently graduated from university and have accepted a position with Sea-Jewels Inc., the manufacturer...

You have recently graduated from university and have accepted a position with Sea-Jewels Inc., the manufacturer of a popular consumer product. During your first week on the job, the vicepresident has been favourably 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 to lead a discussion on the variances reported for last period. Anxious to favourably impress the executive committee, you took the variances and supporting data home last night on a memory stick to study.

     Unfortunately, when you tried to open the files this morning some of them had become corrupted. All you could retrieve is shown below:

Standard Cost Card
  Direct materials, 9 kilograms at $3 per kilogram $ 27.00
  Direct labour, 1.9 direct labour-hours at $13 per direct labour-hour 24.70
  Variable manufacturing overhead, 1.9 direct labour-hours at $5 per direct labour-hour 9.50
  Fixed manufacturing overhead, 1.9 direct labour-hours at $10 per direct labour-hour 19.00
  Standard cost per unit $ 80.20
Variances Reported
Total
Standard
Cost*
Price
or Rate
Spending
or Budget
Quantity or Efficiency Volume
  Direct materials $205,200     $7,090 F $7,500 U    
  Direct labour $187,720     $11,355 U $9,100 U    
  Variable manufacturing overhead $72,200     $560 F     $?† U    
  Fixed manufacturing overhead $144,400     $320 F     $9,500 U
  *Applied to work in process during the period.
  †Data corrupted.

     You recall that manufacturing overhead cost is applied to production on the basis of direct labour-hours and that all of the materials purchased during the period were used in production. Since the company uses JIT to control work flows, 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 grossly incompetent, 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 kilograms of direct material were purchased and used in production?

       

3. What was the actual cost per kilogram of material? (Round your answer to 2 decimal places.)

       

4. How many actual direct labour-hours were worked during the period?

       

5. What was the actual rate paid per direct labour-hour? (Round your answer to 2 decimal places.)

       

6. How much actual variable manufacturing overhead cost was incurred during the period?

       

7. What is the total fixed manufacturing overhead cost in the company’s flexible budget?

       

8. What were the denominator direct labour-hours for last period?

       

Solutions

Expert Solution

Question - 1

Fixed OH volume variance = 9500 Unfavorable.

Standard Production = Total Std Fixed Overhead / Std FOH per Unit = 144,400 / 19 = 7600 Units.

Actual Units produced = Std Production - Unfavorable Volume variance / Standard FOH rate Unit.

= 7600 - 9500 / 19 = 7600 - 500 = 7100 Units

Question - 2

Materials Quantity variance = 7500 Unfavorable

Standard price of material = 3

Excess of Actual quantity used = 7500 / 3 = 2500 kgs.

Actual quantity consumed = Standard quantity + Excess usage = 7600 * 9 + 2500 = 70,900 kgs.

Question - 3

Material price variance = Actual Quantity * ( Actual Price - Standard price ) = 7090 Favorable.

= 70900 * ( Actual price - 3 ) = - 7090

Actual price - 3 = - 0.10

Actual price = 3 - 0.10 = 2.90

Question - 4

Labour efficiency Variance = 9100 Unfavorable.

Standard labor rate = 13 per hour.

Excess of labor hours over standard = 9100 / 13 = 700 hours

Actual labor hours = Standard labor hours + Excess over standard = 7600 Units * 1.90 hours per Unit + 700 = 15140

Question - 5

Labor rate variance = Actual Hours * ( Actual price per hour - Standard price per hour ) = 11355 Unfavorable.

= 15140 * ( Actual price paid - 1.90 ) = 11355

= Actual price - 1.90 = 11355 / 15140 = 0.75

= Actual price = 2.65

Question - 6

Variable OH spending variance = Actual Hours worked * ( Actual OH rate - Standard OH rate ) = 560 F

= 15140 * ( Actual OH rate - 5 ) = - 560

= 15140 * Actual OH rate - 75700 = - 560

Actual Variable OH paid = 75140

Question - 7 = 144,400 + 9500 - 320 = 153580

Question - 8 = 7600 Units * 1.90 = 14440


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