In: Accounting
Arlon Jeffries Candy Corporation produces and sells staffy by the bag and uses a standard cost
system to collect costs related to production. The following information relates to Arlon Jeffries’
operations for last month.
1.Number of bags of taffy sold....................................100,000
2. Standard price of direct material (per pound)......................$0.80
3. Standard direct labor rate per hour .................................$14.00
4. Actual quantity of direct materials purchased (in pounds) ....140,000
5. Standard quantity of direct materials per bag (in pounds).... ......1.1
6. Actual quantity of direct materials used...............................???
7. Standard hours of direct labor allowed per bag (in hours).........???
8. Number of bags produced..........................................120,000
9. Actual cost of purchase for direct materials....................$113,400
10. Actual direct labor rate per hour.......................................???
11. Actual direct labor hours used.......................................13,000
12. Direct materials on hand, beginning period..............................0
13. Direct materials on hand, ending period (in pounds)............17,000
14. Labor rate variance ................................................$2,600F
15. Labor Efficiency variance........................................$19,600F
16. Standard VMOH application rate per SDLH...........................$3
17. Actual VMOH incurred..........................................$32,000
Required:
1.How many pounds of direct materials were used in production?
2. Compute Materials quantity and price variance.
3. Determine the actual rate per direct labor hour and standard hours of direct labor allowed
per bag.
4. Compute VMOH Spending variances and VMOH Efficiency variances.
1. Calculation of actual usage of direct material :
There were no beginning stock. 140,000 pounds were purchased during the year out of which 17,000 were remaining at year end. Thus the consumption would be 140,000-17,000 = 123,000.
2. Computation of direct material price and quantity variance :
Direct Material Price Variance (DMPV) - is the difference of Standard price (SP) and Actual price(AP). It is calculated as follows : (Standard price - Actual price) x Actual quantity used.
Direct Mateial Quantity variance (DMQV) - It focuse on the difference between the standard and actual quantity used. Therefore DMQV = (Standard qty - Acutal qty)x Standard Price
3. Labour rate variance is given in the question.
Labour rate variane (LRV) = Acutal hrs x (Std rate - Actual rate)
$ 2,600 = 13,000 (14- AR)
therefore, AR = $ 13.80 per hour (The variance is favourable hence the actual rate is lower than std rate)
Labour efficiency variance = (Std Hours - actual hrs) X Std rate
therefore , 19,600F = (std hrs - 13,000) x 13
= Std hrs = (19600/13)+13000 = 14507 hours. (Again, the variance is favourable therefore the actual hrs used is lower than std hrs)
4. Variable overhead spending and efficiency variances :
a. VMOH spending variance : THis is the difference between actual and budgeted rate of spending on Varaible cost. The formula is - (Budgeted overhead rate - actual overhead rate) x Actual hours worked.
b. VMOH efficiency variance : It is the difference betwen actual and buedgeted hours worked. The formula is - (Budgered hours - Actual hours) x std overhead rate
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