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Comprehensive Problem 5 Part C: Note: This section is a continuation from Parts A and B...

Comprehensive Problem 5
Part C:

Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

DIRECT MATERIALS
Cost
Behavior
Units
per Case
Cost
per Unit
Direct Materials
Cost per Case
Cream base Variable 100 ozs. $0.02 $2.00
Natural oils Variable 30 ozs. 0.30 9.00
Bottle (8-oz.) Variable 12 bottles 0.50 6.00
$17.00
DIRECT LABOR
Department Cost
Behavior
Time
per Case
Labor Rate
per Hour
Direct Labor
Cost per Case
Mixing Variable 20 min. $18.00 $6.00
Filling Variable 5 14.40 1.20
25 min. $7.20
FACTORY OVERHEAD
Cost Behavior Total Cost
Utilities Mixed $600
Facility lease Fixed 14,000
Equipment depreciation Fixed 4,300
Supplies Fixed 660
$19,560

Part C—August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows:

Actual Direct Materials
Price per Unit
Actual Direct Materials
Quantity per Case
Cream base $0.016 per oz. 102 ozs.
Natural oils $0.32 per oz. 31 ozs.
Bottle (8-oz.) $0.42 per bottle 12.5 bottles
Actual Direct Labor
Rate
Actual Direct Labor
Time per Case
Mixing $18.20 19.50 min.
Filling 14.00 5.60 min.
Actual variable overhead $305.00
Normal volume 1,600 cases

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.

Required:

10. Determine the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (carried to three decimal places when required). Enter all amounts as positive numbers.

Direct Materials Price Variance:
Cream Base Natural Oils Bottles
Actual price $ $ $
Standard price
Difference $ $ $
Actual quantity (units) X ozs. X ozs. X btls.
Direct materials price variance $ $ $
Indicate if favorable or unfavorable

Enter the standard price to two decimal places.

Direct Materials Quantity Variance:
Cream Base Natural Oils Bottles
Actual quantity ozs. ozs. btls.
Standard quantity
Difference ozs. ozs. btls.
Standard price X X X
Direct materials quantity variance $ $ $
Indicate if favorable or unfavorable

11. Determine the direct labor rate and time variances for the two departments. Do not round hours. Enter the costs in dollars and cents. Enter all amounts as positive numbers.

Direct Labor Rate Variance:
Mixing Department Filling Department
Actual rate $ $
Standard rate
Difference $ $
Actual time (hours) X X
Direct labor rate variance $ $
Indicate if favorable or unfavorable
Direct Labor Time Variance:
Mixing Department Filling Department
Actual time (hours)
Standard time (hours)
Difference
Standard rate X $ X $
Direct labor time variance $ $
Indicate if favorable or unfavorable

12. Determine the factory overhead controllable variance. Enter all amounts as positive numbers.

Actual variable overhead $
Variable overhead at standard cost
Factory overhead controllable variance $
Indicate if favorable or unfavorable

13. Determine the factory overhead volume variance. Round rate to two decimal places and round your final answer to two decimal places. Enter all amounts as positive numbers.

Normal volume (cases)
Actual volume (cases)
Difference
Fixed factory overhead rate $
Factory overhead volume variance $
Indicate if favorable or unfavorable

14. The production volume of  cases was planned at the beginning of August. The variances compare the actual cost and the standard cost of for the month. Thus, the standard cost must be based on the  units of actual production.

Solutions

Expert Solution

  • All working forms part of the answer
  • Answers are provided as asked, data is filled in from the question itself. Not much explanation required.
  • Favourable variance will be when actual cost is less than standard.
  • Since, standard cost is being deducted from actual cost below, the negative resultant figure denote Favourable Variance.
  • Actual cases taken 1500, Standard cases taken 1600
  • Answers

Direct Materials Price Variance:

Cream Base

Natural Oils

Bottles

Actual price

0.016

0.32

0.42

Standard price

0.02

0.3

0.5

Difference

-0.004

0.02

-0.08

Actual quantity (units)

153000

ozs.

46500

ozs.

18750

btls.

Direct materials price variance

$-612

$930

$-1500

Indicate if favorable or unfavorable

favourable

Unfavourable

Favourable

Direct Materials Quantity Variance:

Cream Base

Natural Oils

Bottles

Actual quantity

153000

ozs.

46500

ozs.

18750

btls.

Standard quantity

150000

45000

18000

Difference

3000

ozs.

1500

ozs.

750

btls.

Standard price

0.02

0.3

0.5

Direct materials quantity variance

$60

$450

$375

Indicate if favorable or unfavorable

Unfavourable

Unfavourable

Unfavourable

Direct Labor Rate Variance:

Mixing Department

Filling Department

Actual rate

18.2

14

Standard rate

18

14.4

Difference

0.2

-0.4

Actual time (hours)

487.5

140

Direct labor rate variance

$97.5

$-56

Indicate if favorable or unfavorable

Unfavourable

Favourable

Direct Labor Time Variance:

Mixing Department

Filling Department

Actual time (hours)

487.5

140

Standard time (hours)

500

125

Difference

-12.5

15

Standard rate

18

14.4

Direct labor time variance

$-225

$216

Indicate if favorable or unfavorable

Favourable

Unfavourable

ctual variable overhead

305

Variable overhead at standard cost

325

Factory overhead controllable variance

$-20

Indicate if favorable or unfavorable

Favourable

Normal volume (cases)

1600

Actual volume (cases)

1500

Difference

100

Fixed factory overhead rate

12.225

Factory overhead volume variance

$1222.5

Indicate if favorable or unfavorable

Unfavorable


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