Question

In: Accounting

Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget...

Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget on the basis of standard costs. The following data are for March:

Standards Mountain Mist Valley Stream
Direct materials 3 ounces at $14.50 per ounce 4 ounces at $17.30 per ounce
Direct labor 5 hours at $60.50 per hour 6 hours at $81 per hour
Variable overhead (per direct labor-hour) $48 $53.50
Fixed overhead (per month) $368,068 $399,360
Expected activity (direct labor-hours) 6,680 7,800
Actual results
Direct material (purchased and used) 5,200 ounces at $13.50 per ounce 4,600 ounces at $19.75 per ounce
Direct labor 5,110 hours at $64.00 per hour 7,510 hours at $85.60 per hour
Variable overhead $279,550 $399,510
Fixed overhead $337,950 $409,500
Units produced (actual) 1,100 units 1,200 units

Required:

a. Compute a variance analysis for each variable cost for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Mountain Mist Valley Stream
Price Variance Efficiency Variance Price Variance Efficiency Variance
Direct materials
Direct labor
Variable overhead

Solutions

Expert Solution

a. Compute a variance analysis for each variable cost for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Mountain Mist Valley Stream
Price Variance Efficiency Variance Price Variance Efficiency Variance
Direct materials (14.50-13.50)*5200 = 5200 Favorable (1100*3-5200)*14.50 = 27550 Unfavorable (17.30-19.75)*4600 = 11270 Unfavorable (1200*4-4600)*17.30 = 3460 Favorable
Direct labor (60.50-64)*5110 = 17885 Unfavorable (1100*5-5110)*60.50 = 23595 Favorable (81-85.60)*7510 = 34546 Unfavorable (1200*6-7510)*81 = 25110 Unfavorable
Variable overhead (48*5110-279550) = 34270 Unfavorable (5500-5110)*48 = 18720 Favorable (53.50*7510-399510) = 2275 Favorable (7200-7510)*53.50 = 16585 Unfavorable
U

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