Question

Maple Leaf Production manufactures truck tires. The following information is available for the last operating period. Maple Leaf produced and sold 95,000 tires for $50 each. Budgeted production was 99,000 tires. Standard variable costs per tire follow. Direct materials: 4 pounds at $2.00 $ 8.00 Direct labor: 0.45 hours at $17.00 7.65 Variable production overhead: 0.30 machine-hours at $16 per hour 4.80 Total variable costs $ 20.45 Fixed production overhead costs: Monthly budget $1,395,000 Fixed overhead is applied at the rate of $15.00 per tire. Actual production costs: Direct materials purchased and used: 389,000 pounds at $1.70 $ 661,300 Direct labor: 41,500 hours at $17.30 717,950 Variable overhead: 29,000 machine-hours at $16.30 per hour 472,700 Fixed overhead 1,396,000 Required: a. Prepare a cost variance analysis for each variable cost for Maple Leaf Productions. b. Prepare a fixed overhead cost variance analysis. c. (Appendix) Prepare the journal entries to record the activity for the last period using standard costing. Assume that all variances are closed to cost of goods sold at the end of the operating period.

Answer 1

Ans

Given

Standard Vairable Cost Per Tire is a below

Direct materials: 4 pounds at $2.00	$8.00
Direct labor: 0.45 hours at $17.00	7.65
Variable production overhead: 0.30 machine-hours at $16 per hour	4.80
Total variable costs	$20.45

Fixed Production Overhead Costs is

Monthly Budget = $1,395,000

Fixed overhead is applied at the rate of $15.00 per tire.

Actual Production Costs is

Direct materials purchased and used: 389,000 pounds at $1.70	$661,300
Direct labor: 41,500 hours at $17.30	717,950
Variable overhead: 29,000 machine-hours at $16.30 per hour	472,700
Fixed overhead	$1,396,000

Now,

a.

	Direct Matarial	Direct Labor	Variable Overhead
Acutal Cost (A)	$            661,300	$            717,950	$            472,700
Actual Inputs at Standard Price (B)	$            778,000	$            705,500	$            464,000
Flexible Budget ( C )	$            760,000	$            726,750	$            456,000
Price Variance ( A-B )	$         (116,700)	$              12,450	$                8,700
Efficiency Variance ( B-C )	$              18,000	$            (21,250)	$                8,000
Cost Variance (A-C)	$            (98,700)	$              (8,800)	$              16,700

Acual Costs = Actual Price x Actual Quantity

Actual Inputs at Standard Price = Standard Price x Actual Quantity

Flexible Budget = Standard Price x Standard Quantity

Hence

The Cost Variance of

Direct Materail = $98,700 (Favorable)

Direct Labor = $8,800 (Favorable)

Variable Overhead = $16,700 (Unfavorable)

b.

Total Fixed Overhead Cost Varaince = Actual Fixed Overhead - Absorbed Fixed Overhead

= $1,396,000 - (95,000 x $15)

= 1396000 - 1425000

= -29000

Hence

Total Fixed Overhead Cost Varaince = $29,000 (Favorable)