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, 2.00 pounds at $16.20 per pound	$	32.40
Direct labor, 1.00 direct labor-hours at $16.00 per direct labor-hour	$	16.00
Variable manufacturing overhead, 1.00 direct labor-hours at $9.40 per direct labor-hour	$	9.40

	Total Standard Cost*		Variances Reported
			Price or Rate			Quantity or Efficiency
Direct materials	$	550,800	$	10,440	F	$	32,400	U
Direct labor	$	272,000	$	3,600	U	$	16,000	U
Variable manufacturing overhead	$	159,800	$	4,900	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

Requirement 1 :
	The units produced during the last period are provided below :
	Units produced during the last period =	Direct material cost
		Direct materialcost per unit
		= 550,800 / 32.4
		= 17,000 units
	Units produced during the last period = 17,000 units
Requirement 2:
	To calculate material purchased , we can use material quantity variance given in the question.
	In the given question, Material quantity variance is unfavourable, means actual quantity of
	direct material usedis more than the standard.
	Direct material quantity variance =	[ Actual quantity - standard quantity] x standard price
	32,400     =	[ AQ - ( 17,000 x 2 pounds) ] x 16.20
	AQ    =	32,400 + 550,800 / 16.20
	AQ =	36,000 pounds
	The actual quantity of material used is 36,000 pounds
Requireement 3 :
	Direct material price variance is favourable which implies that the actual price paid todirect materials is less than standard price.
	Direct material price variance             =	[ Actual price - Standard price ] x Actual quantity
	-10,440          =	[ Actual price - 16.2 ] x 36,000 pounds
	Actual price                   =	583,200 - 10,440 / 36,000
	Actual price                   =	$15.91
	Actual price of direct material is   $ 15.91
Requirement 4 :
	Direct labour efficiency variance =	[ Actual hours x standard rate ] - total standard cost
	16,000         =	[ Actual hours x $ 16 ] - $ 272,000
	Actual hours                =	272,000 + 16,000 / 16 = 18,000 hours
	Actual labor hours = 18,000 hours
Requirement 5 :
	Direct labor rate variance is unfavourable, it means we have to add the same to standard cost and divide by actual labour hours
	Direct labor rate variance             =	[ Actual rate - Standard rate ] x Actual hours
	3600            =	[ AR - 16 ] x 18,000
	AR           =	288,000+3600 / 18,000
	Actual rate paid per labor hour   = $ 16.2