Question

Use the following to answer questions 36-38:        

Chicken Nuggets, LLC, provides chicken nuggets to fast food restaurants. The standard cost card for chicken nuggets indicates each nugget takes two ounces of chicken meat at $0.03 per ounce, 30 seconds of direct labor at $12.00 per hour, and 30 seconds of overhead at $6.00 per hour, for a total standard cost of $0.21 per nugget. Current production cost for 200,000 nuggets show material cost of $11,024 for 440,960 ounces of chicken at $0.025 per ounce; $19,380 for 1,675 hours of direct labor at $11.57 per hour; and $10,050 of overhead applied for 1,675 hours at $6.00 per hour.

Legend: U = Unfavorable F = Favorable (Include U or F, after the amount)

36. (10) The direct material quantity (usage) variance is calculated to be _____U___?

           

37. (10) The direct labor efficiency variance is calculated to be ________?

           

38. (10) The direct labor rate variance is calculated to be ________?

39. A cost that is often overlooked, because it is not recorded on the books, is called a (an):

            A) sunk cost

            B) fixed cost

            C) missing cost

            D) opportunity cost

            E) variable cost

Answer 1

• All working forms part of the answer
• Working for Variances data: Actual Cost and Standard cost for 200,000 nuggets.

Actual DATA for		200000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	440960	$              0.025	$           11,024.00
Direct labor	1675	$              11.57	$           19,380.00
Variable Overhead	1675	$                6.00	$           10,050.00
Standard DATA for		200000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	400000	$                0.03	$           12,000.00
Direct labor	1666.667 [=200000 x 30seconds/3600seconds]	$              12.00	$           20,000.00
Variable Overhead	1666.667	$                6.00	$           10,000.00

• Variances asked

----Material Usage Variance = $ 1,228.80 Unfavourable.

Material Usage Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	400000	-	440960	)	x	$                           0.03
	-1228.8
	Variance		$              1,228.80			Unfavourable-U

----Labor Efficiency Variance = $ 100 Unfavourable

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1666.666667	-	1675	)	x	$                        12.00
	-100
	Variance		$                  100.00			Unfavourable-U

---Labor Rate Variance = $ 720 Favourable

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     12.00	-	$                    11.57	)	x	1675
	720
	Variance		$                  720.00			Favourable-F

• Last Question

A cost that is often overlooked, because it is not recorded on the books, is called “D) opportunity cost” .

Opportunity cost is the cost term given to cost (or benefit) of the ‘second best alternative’ that have been given up. These costs are just for ‘decision making’ process and are never recorded in the books of account.