Factory Overhead Cost Variance Report

Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July of the current year, during which it expected to use 8,000 hours for production:

Tannin has available 12,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 7,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:

Construct a factory overhead cost variance report for the Trim Department for July. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If an amount box does not require an entry, leave it blank. Round your interim computations to the nearest cent, if required.

Mercury, Inc., produces cell phones at its plant in Texas. In recent years, the company’s market share has been eroded by stiff competition from overseas. Price and product quality are the two key areas in which companies compete in this market.

A year ago, the company’s cell phones had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge Gomez, Mercury’s president, initiated an intense effort to improve product quality. Gomez set up a task force to implement a formal quality improvement program. Included on this task force were representatives from the Engineering, Marketing, Customer Service, Production, and Accounting departments. The broad representation was needed because Gomez believed that this was a companywide program and that all employees should share the responsibility for its success.

After the first meeting of the task force, Holly Elsoe, manager of the Marketing Department, asked John Tran, production manager, what he thought of the proposed program. Tran replied, “I have reservations. Quality is too abstract to be attaching costs to it and then to be holding you and me responsible for cost improvements. I like to work with goals that I can see and count! I’m nervous about having my annual bonus based on a decrease in quality costs; there are too many variables that we have no control over.”

Mercury’s quality improvement program has now been in operation for one year. The company’s most recent quality cost report is shown below.

As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. “I’m relieved that the new quality improvement program hasn’t hurt our bonuses, but the program has increased the workload in the Production Department. It is true that customer returns are way down, but the cell phones that were returned by customers to retail outlets were rarely sent back to us for rework.”

Required:

1. Expand the company’s quality cost report by showing the costs in both years as percentages of both total production cost and total quality cost. (Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).)

The following cost data for the year just ended pertain to Sentiments, Inc., a greeting card manufacturer:

*All services are provided to manufacturing departments.

§Cost of idle time is an overhead item; it is not included in the direct-labor wages given above.

†The rental of sales space was made necessary when the sales offices were converted to storage space for raw material.

Required:
1. Compute each of the following costs for the year just ended:

Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, continuously moving conveyor belt. A car is washed as the conveyor belt carries it from the start station to the finish station. After the car moves off the conveyor belt, workers dry it and clean and vacuum the inside. Workers are managed by a single supervisor.

Lorenzo's accountant wants to estimate total costs in October, when 9,350 cars are expected to be washed. She uses two different methods to estimate total October costs, account analysis and high-low, with number of cars washed as the independent variable for both methods.

For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in February, when 8,200 cars were washed. The following are February total costs and her variable cost estimates:

For the high-low method, she developed cost function parameter estimates by using the actual costs in July and August, when 8,300 and 11,000 cars were washed, respectively. The following are total costs for those two months:

Part A [6 tries; 5 points]
1. Using account analysis, what is the accountant's estimate of total fixed costs for October?    

2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?

Part B [6 tries; 5 points]
1. Using the high-low method, what is the accountant's estimate of total fixed costs for October?    

2. Using the high-low method, what is the accountant's estimate of total variable costs for October?   

Tommy Lyons Company manufactures and sells two products: Product S3 and Product S2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce the output appear below:

Product Info

Product S3:  800 units @ 8.0 DLH/unit = 6,400 hours

Product K2:  900 units @6.0 DLH/unit = 5,400 hours

Direct Material Cost/Unit

The direct labor rate is $18.00 per DLH. The direct materials cost per unit for each product is given below:

Product S3: $280.70

Product K2: $157.90

Activity Cost Pools

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, total overhead costs and expected activity for each product.

Labor Related

Direct labor hours, total OH $523,094

S3 = 6,400

K2 = 5,400

Total = 11,800 DLHs

Machine Set-ups

Number of tests, total OH = $135,478

S3 = 600

K2 = 800

Total = 1,400 Tests

General Factory

Machine hours, total OH = $392,327

S3 = 5,000

K2 = 5,300

Total = 10,300 MHs

Total Overhead Costs

Including: DLHs, machine set-ups, machine hours = $1,050,899

Required:

The company currently uses a traditional costing methodin which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.

How much overhead would be applied to each product under the company's traditional costing method?

Determine the unit product cost of each product under the company's traditional costing method.

Compute the activity rates under the activity-based costing system.

Determine how much overhead would be assigned to each product under the activity-based costing system.

Determine the unit product cost of each product under the activity-based costing method.

What is the difference between the overhead per unit under the traditional costing method and the activity-based costing system for each of the two products?

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $332,800. During that time, the company produced 13,300 units of the M-008 and 3,000 units of the M-123. The direct costs of production were as follows.

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

Shasta Fixture Company manufactures faucets in a small manufacturing facility. The faucets are made from brass. Manufacturing has 40 employees. Each employee presently provides 35 hours of labor per week. Information about a production week is as follows: Standard wage per hour $17.40 Standard labor time per unit 20 min. Standard number of lbs. of brass 1.4 lbs. Standard price per lb. of brass $11.75 Actual price per lb. of brass $12.00 Actual lbs. of brass used during the week 10,382 lbs. Number of units produced during the week 7,200 Actual wage per hour $17.92 Actual hours for the week (40 employees × 35 hours) 1,400 Required: a. Determine the standard cost per unit for direct materials and direct labor. Round the cost per unit to two decimal places. Direct materials standard cost per unit $ Direct labor standard cost per unit $ Total standard cost per unit $ b. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Round your answers to the nearest whole dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct Materials Price Variance $ Direct Materials Quantity Variance $ Total Direct Materials Cost Variance $ c. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Round your answers to the nearest whole dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct Labor Rate Variance $ Direct Labor Time Variance $ Total Direct Labor Cost Variance

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $328,000. During that time, the company produced 14,500 units of the M-008 and 2,400 units of the M-123. The direct costs of production were as follows.

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $301,600. During that time, the company produced 12,600 units of the M-008 and 2,500 units of the M-123. The direct costs of production were as follows.

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

Direct Materials and Direct Labor Variance Analysis

Abbeville Company manufactures faucets in a small manufacturing facility. The faucets are made from brass. Manufacturing has 50 employees. Each employee presently provides 32 hours of labor per week. Information about a production week is as follows:

Required:

a. Determine the standard cost per faucet for direct materials and direct labor. Round the cost per unit to two decimal places.

b. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

c. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.