Question

Franklin Manufacturing Company produces a component part of a top secret military communication device. Standard production and cost data for the part, Product X, follow:

Planned production		22,000	units
Per unit direct materials		2.90	pounds	@	$	2.50	per pound
Per unit direct labor		2.60	hours	@	$	8.60	per hour
Total estimated fixed overhead costs	$	503,800

Franklin purchased and used 67,690 pounds of material at an average cost of $2.56 per pound. Labor usage amounted to 55,770 hours at an average of $8.67 per hour. Actual production amounted to 22,800 units. Actual fixed overhead costs amounted to $544,800. The company completed and sold all inventory for $1,900,000.

Required

a. Prepare a materials variance information table showing the standard price, the actual price, the standard quantity, and the actual quantity.

b. Calculate the materials price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).

c. Prepare a labor variance information table showing the standard price, the actual price, the standard hours, and the actual hours.

d. Calculate the labor price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).

e. Calculate the predetermined overhead rate, assuming that Franklin uses the number of units as the allocation base.

f. Calculate the fixed cost spending and volume variances and indicate whether they are favorable (F) or unfavorable (U).

g. Determine the amount of gross margin Franklin would report on the year-end income statement.

Answer 1

a.

Standard Price	2.50	per pound
Actual Price	2.56	per pound
Standard Quantity *	66120	pounds
Actual Quantity	67690	pounds

Standard quantity for actual production ( 2.90 X 22,800) *

66120

Pounds

b.

Material price variance	23015	F
Material usage variance	4553	U

Working:

Material price variance (SP - AP) X AQ	23015
Material usage variance (SQ - AQ ) X SP	-4553

c.

Standard Price	8.60	per hour
Actual Price	8.67	per hour
Standard hours	59280	hours
Actual hours	55770	hours

Working:

Standard hours per unit (SH)	2.6	hours
Standard rate per hour (SR)	8.6	per hour
Standard hours for actual production ( 2.60 X 22,800) *	59280	hours
Actual hours worked (AH)	55770	hours
Actualrate per hour (AR)	8.67	per hour

d.

Labor price variance	3904	U
Labor usage variance	30186	F

Working:

Labor price variance (SP - AP) X AH	-3904
Labor usage variance (SH- AH ) X SP	30186

e. Predetermined overhead rate = $22.90 per unit

Planned production (A) = 22,800

Estimated fixed overheads (B) = 503,800

Predetermined overhead rate (B/A) = $22.90

f.

Fixed overhead spending variance = Budgeted fixed overhead - Actual fixed overhead = $503,800 - $544,800

= $41,800 U

Fixed overhead volume variance = (Actual Production - Budgeted production ) X budgeted overhead rate

= (22,800 - 22,000) x $22.90 = $18,320 F