Question

Finch 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		26,000	units
Per unit direct materials		2.30	pounds	@	$	1.60	per pound
Per unit direct labor		2.70	hours	@	$	7.50	per hour
Total estimated fixed overhead costs	$	587,600

Finch purchased and used 62,610 pounds of material at an average cost of $1.66 per pound. Labor usage amounted to 68,320 hours at an average of $7.61 per hour. Actual production amounted to 26,600 units. Actual fixed overhead costs amounted to $620,600. The company completed and sold all inventory for $1,960,000.

Required

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

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

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

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

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

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

7. Determine the amount of gross margin Finch would report on the year-end income statement.

1.

	Materials Variance Information Table Standard price    per pound Actual price per pound Standard quantity for flexible budget pounds Actual quantity used pounds

2.

	Price variance    Usage variance

3.

	Labor Variance Information Table Standard price per hour Actual price per hour Standard hours for flexible budget Actual hours used

4.

	Price variance Usage variance

5.

Predetermined overhead rate: per unit

6.

	Spending variance Volume variance

7.

Gross Margin:

Answer 1

Answer
Part a and b
Standard Material Price		$            1.60
Standard Quantity	26600*2.3	$   61,180.00
Actual Quantity		$   62,610.00
Actual Quantity used		$   62,610.00
Actual Matrial Price		$            1.66
Material Price Variance	AQ(AP-SP)
	(Actual Price	-	Standard Price)	*	Actual Quantity
	1.66	-	1.6	*	$      62,610.00
	3757	Unfavorable
Material Quantity Variance	SP(AQ-SQ)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	$      62,610.00	-	$61,180.00	*	1.6
	$        2,288.00	Unfavorable
Part c and d
Standard Hour Rate		7.50
Standard Hour	26600*2.7	71,820.00
Actual Hours		68,320.00
Actual Hour Rate		7.61
Labor Rate Variance	AH(AR-SR)
	(Actual Rate	-	Standard Rate)	*	Actual Hours
	7.61	-	7.5	*	68320
	7515	Unfavorable
Labor Efficiency Variance	SR(AH-SH)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	68,320.00	-	71,820.00	*	7.50
	$      26,250.00	Favorable
Part e
Predetermined Overhead rate	$587600/26,000 units	$          22.60
Part f
Actual Overheads		$6,20,600.00
Budgeted overheads		$5,87,600.00
Spending Variance		$   33,000.00	Unfavorable
Budgeted overheads		$5,87,600.00
Applied Overheads	26,600 units*$22.60	$6,01,160.00
Volume Variance		$   13,560.00	Favorable
Part g
Sales		$   19,60,000
Less: Cost of Goods Sold
Direct Material	62610*$1.66	$    -1,03,933
Direct Labor	68320*$7.61	$    -5,19,915
Manufacturing overehads		$    -6,20,600
Gross Margin		$     7,15,552
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