Question

Case 10-38 Working Backward from Variance Data [LO2, LO3, LO4, LO6] You have recently graduated from university and have accepted a position with Sea-Jewels Inc., the manufacturer of a popular consumer product. During your first week on the job, the vicepresident has been favourably 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 to lead a discussion on the variances reported for last period. Anxious to favourably impress the executive committee, you took the variances and supporting data home last night on a memory stick to study. Unfortunately, when you tried to open the files this morning some of them had become corrupted. All you could retrieve is shown below: Standard Cost Card Direct materials, 10 kilograms at $2 per kilogram $ 20.00 Direct labour, 2.0 direct labour-hours at $17 per direct labour-hour 34.00 Variable manufacturing overhead, 2.0 direct labour-hours at $6 per direct labour-hour 12.00 Fixed manufacturing overhead, 2.0 direct labour-hours at $10 per direct labour-hour 20.00 Standard cost per unit $ 86.00 Variances Reported Total Standard Cost* Price or Rate Spending or Budget Quantity or Efficiency Volume Direct materials $174,000 $9,130 F $8,600 U Direct labour $295,800 $13,575 U $11,900 U Variable manufacturing overhead $104,400 $670 F $?† U Fixed manufacturing overhead $174,000 $430 F $8,500 U *Applied to work in process during the period. †Data corrupted. You recall that manufacturing overhead cost is applied to production on the basis of direct labour-hours and that all of the materials purchased during the period were used in production. Since the company uses JIT to control work flows, 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 grossly incompetent, 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 kilograms of direct material were purchased and used in production? 3. What was the actual cost per kilogram of material? (Round your answer to 2 decimal places.) 4. How many actual direct labour-hours were worked during the period? 5. What was the actual rate paid per direct labour-hour? (Round your answer to 2 decimal places.) 6. How much actual variable manufacturing overhead cost was incurred during the period? 7. What is the total fixed manufacturing overhead cost in the company’s flexible budget? 8. What were the denominator direct labour-hours for last period?

Answer 1

Standard cost table	Quantity/hr? (a)	rate(b)	amount(a*b)
Material	10kg	2	20
Labour	2	17	34
Variable overhead	2	6	12
Fixed overhead	2	10	20
			86

1. Total standard cost = standardcost of material p.u * actual number of units

174000= 20 * units

Units = 8900

2. Standard /bugted raw material purchased

= Total no. Of units * raw material per unit

= 8900* 10

=89000

Quantity variance =

(Standard raw mat purchased - actual r.m purch)standard rate of raw material

-8600=(89000-x) * 2

X=93300.kg = kilogram of raw material purchased

3. Rate variance =

(Standard rrate of R.m- actual rate )* actual quantity of R.M

As variance is F i.e favourable i.e positive

9130= (2-x)* 93300

x = 1.90 =actual cost per kilogram

4.standard hours worked = no. of units * labour hr per unit

= 8900 * 2

=17800

Efficency variance =( standard hrs worjed - actual hr worked for )*standard rate of labour per hour

Variance is unfavourable(U) hence value in negative

-11900 = (17800-x)*17

x=actual direct labour hours = 18500