Question

In: Accounting

"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this...

"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $26,250 overall manufacturing cost variance is only 2.5% of the $1,050,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year."

The company produces and sells a single product. The standard cost card for the product follows:

Inputs (1)
Standard
Quantity
or Hours
(2)
Standard
Price
or Rate
Standard
Cost
(1) × (2)
Direct materials 4.00 feet $ 3.50 per foot $ 14.00
Direct labor 1.5 hours $ 12 per hour 18.00
Variable overhead 1.5 hours $ 2.00 per hour 3.00
Fixed overhead 1.5 hours $ 6.00 per hour 9.00
Total standard cost per unit $ 44.00

The following additional information is available for the year just completed:

  1. The company manufactured 20,000 units of product during the year.
  2. A total of 78,000 feet of material was purchased during the year at a cost of $3.75 per foot. All of this material was used to manufacture the 20,000 units produced. There were no beginning or ending inventories for the year.
  3. The company worked 32,500 direct labor-hours during the year at a direct labor cost of $11.80 per hour.
  4. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor-hours) 25,000
Budgeted fixed overhead costs $ 150,000
Actual variable overhead costs incurred $ 68,250
Actual fixed overhead costs incurred $ 148,000

Required:

1. Compute the materials price and quantity variances for the year.

2. Compute the labor rate and efficiency variances for the year.

3. For manufacturing overhead compute:

a. The variable overhead rate and efficiency variances for the year.

b. The fixed overhead budget and volume variances for the year.

Solutions

Expert Solution

1 Material Price Variance (SP-AP)*AQ $ 19,500 U
Material Quantity Variance (SQ*AQ)*SP $   7,000 F
2 Labor Rate Variance (SR-AR)*AH $   6,500 F
Labor Efficiency Variance (SH-AH)*SR $ 30,000 U
3a Variable Overhead Rate Variance (SR-AR)*AH $   3,300 U
Variable Overhead Efficiency Variance (SH-AH)*SR $   3,000 U
3b Fixed Overhead Budget Variance Budgeted FOH - Actual FOH $   2,000 F
Fixed Overhead Volume Variance (SH-BH)*SR $ 30,000 F
Material Variance
SP $       3.50
AP $       3.75
AQ       78,000
SQ (20000*4)       80,000
Labor Variance
SR $     12.00
AR $     11.80
AH       32,500
SH (20000*1.5)       30,000
Variable Overhead Variance
SR $       2.00
AR (68250/32500) $       2.10
AH       33,000
SH (15000*2.1)       31,500
Fixed Overhead Variance
Budgeted FOH $ 150,000
Actual FOH $ 148,000
BH       25,000
SR $       6.00


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