Question

Maple Leaf Production manufactures truck tires. The following information is available for the last operating period.

• Maple Leaf produced and sold 92,000 tires for $40 each. Budgeted production was 96,000 tires.
• Standard variable costs per tire follow:

Direct materials: 4 pounds at $3.00	$	12.00
Direct labor: 0.30 hours at $15.50		4.65
Variable production overhead: 0.20 machine-hours at $18 per hour		3.60
Total variable costs	$	20.25

• Fixed production overhead costs:

Monthly budget $1,410,000

• Fixed overhead is applied at the rate of $16 per tire.
• Actual production costs:

Direct materials purchased and used: 391,000 pounds at $2.70	$	1,055,700
Direct labor: 21,500 hours at $15.80		339,700
Variable overhead: 19,000 machine-hours at $18.30 per hour		347,700
Fixed overhead		1,432,000

Required:

a. Prepare a cost variance analysis for each of the variable costs for Maple Leaf Productions. (Indicate the effect of each variance by "F" for favorable, or "U" for unfavorable.)

b. Prepare a fixed overhead cost variance analysis. (Indicate the effect of each variance by "F" for favorable, or "U" for unfavorable.)

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

Solution:

Material Price Variance -	TAKE THE PURCHASED UNITS
Material Cost/Price Variance	Actual Quantity(Standard Cost-Actual Cost)
Actual Quantity	391000
Standard Cost	3.00
Actual Cost	2.70
Material Cost/Price Variance	117300	Favorable
Material Quantity/ Efficiency Variance	Standard Cost ( Standard Quantity - Actual Quantity)
Standard Cost	3
Standard Quantity	368000
Actual Quantity	391000
Material Quantity/ Efficiency Variance	-69000	Unfavorable
Direct Labor Rate Variance	Actual Labor hours(Standard Rate - Actual Rate)
Actual Labor hours	21500
Standard Rate	15.5
Actual Rate	15.8
Direct Labor Rate Variance	-6450	Unfavorable
Labor Efficiency Variance	Statndard Rate(Standard Hours - Actual Hours)
Standard Rate	15.5
Standard Hours	27600
Actual Hours	21500
Labor Efficiency Variance	94550	Favorable
Variable Cost
Manufacturing Overhead Spending Variance	(Actual hours worked × Actual rate) – (Actual hours worked × Standard rate)
Actual Hours	19000
Actual rate	18.30
Standard rate	18
Manufacturing Overhead Spending Variance	-5700	Unfavorable
Manufacturing Overhead volume Variance	(Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate)
Actual Hours	19000
Actual rate	18.30
Standard rate	18
Standard Hours	18400
Manufacturing Overhead volume Variance	-10800	Unfavorable
Fixed Cost
Fixed MAnufacturing Spending Variance	Budgeted Fixed Overhead - Actual Fixed Overhead
Actual Fixed Overhead	1432000
Standard rate	16
Budgeted tires for Budgeted Production (1410000/16)	88125
Manufacturing Overhead Spending Variance	-22000	Unfavorable
Fixed Manufacturing volume Variance	Budgeted Fixed Overhead - Applied/Absorbed OH
Budgeted tires for Budgeted Production	88125
Standard rate	16
Actual Production	92000
Manufacturing Overhead volume Variance	62000	Favorable

Journal Entries
Raw Materials	1173000
Direct Material Cost Variance		117300
Accounts payable		1055700
(To Record Price Variance)
Work in Process	1104000
Direct Material Efficiency Variance	69000
Raw Material		1173000
(To record Quantity Variance)
Work in Process	427800
Direct Labor Cost Variance	6450
Direct Labor Efficiency Variance		94550
Factory Labor		339700
(To record labor variances)
Manufacturing Overhead	1779700
Various Accounts		1779700
(To record Manufacturing Overhead incurred)
Work in Process	1803200
Manufacturing Overhead		1803200
(To record overhead applied - (16*92000tires)+(18400hours*18))
Variable Overhead Efficiency Variance	10800
Variable Overhead Cost Variance	5700
Fixed Overhead Cost Variance	22000
Manufacturing Overhead (1803200-1779700)	23500
Fixed Overhead Efficiency Variance		62000

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