Question

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 $14,800 overall manufacturing cost variance is only 2% of the $1.536.000 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:Standard Cost Card-per UnitDirect materials, 3.50 feet at $2.80 per foot $9.80Direct labor, 2.8 direct labor-hours at $12 per direct labor-hour 33.60Variable overhead, 2.8 direct labor-hours at $2.00 per direct labor-hour5.60Fixed overhead, 2.8 direct labor-hours at $6.00 per direct labor-hour 16.80Standard cost per unit $65.80The following additional information is available for the year just completeda. The company manufactured 20,000 units of product during the yearb. A total of 67,000 feet of material was purchased during the year at a cost of $3.00 per foot. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the yearc. The company worked 58,000 direct labor-hours during the year at a direct labor cost of $11.80 per hour.d. 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) 52,500Budgeted fixed overhead costs $315,000Actual variable overhead costs incurred $133,400Actual fixed overhead costs incurred $ 312,000Required1. Compute the materials price and quantity variances for the year. (Input all amounts as positive values. Indicate the effect of each variance by selecting F for favorable, U for unfavorable and None for no effect).2. Compute the labor rate and efficiency variances for the year. (Input all amounts as positive values. Indicate the effect of each variance by selecting F for favorable, U for unfavorable and None for no effect).3. For manufacturing overhead compute:a. The variable overhead rate and efficiency variances for the year. (Input all amounts as positive values. Indicate the effect of each variance by selecting F for favorable, U for unfavorable and None for no effect).b. The fixed overhead budget and volume variances for the year. (Input all amounts as positive values. Indicate the effect of each variance by selecting F for favorable, U for unfavorable and None for no effect).

Answer 1

Answer and Explanation:

1. The computation of materials price and quantity variances for the year is shown below:-

Material price variance = Actual quantity × (Actual rate - Standard rate)

= 67,000 × ($3.00 - $2.80)

= 67,000 × $1.80

= $120,600  unfavorable

Material quantity variance = (Actual quantity - Standard quantity) × Standard price

= 67,000 - (20,000 × 3.50)) × $2.80

= (67,000 - 70,000) × $2.80

= $8,400 favorable

2. The computation of the labor rate and efficiency variances for the year is shown below:

Labor rate variance is

= (Actual rate - standard rate) × Actual hours

= ($11.80 - $12) × 58,000 direct labor hours

= $11,600 favorable

labor efficiency variance is

= (Actual hours - standard hours) × standard rate

= (58,000 direct labor hours - 20,000 units × 2.8 direct labor hours) × $12

= $24,000 unfavorable

3. a. The computation of variable overhead rate and efficiency variances for the year is shown below:-

variable overhead rate = Actual hours × (Actual rate - Standard rate)

= 58,000 × ($133,400 ÷ 58,000 - $2.00)

= $17,400 Unfavorable

Variable overhead efficiency variance = (Actual hours - Standard hours) × Standard rate

= (58,000 - (20,000 × $2.8)) × $2.00

= (58,000 - 56,000) × $2.00

= $4,000 Unfavorable

3. b. The computation of fixed overhead budget and volume variances for the year is shown below:-

fixed overhead budget variance = Actual fixed overhead - Budgeted fixed overhead

= $312,000 - $315,000

= $3,000 Favorable

Volume variance = (Standard hours allowed - Denominator activity level) × Fixed overhead rate per hour

= ((20,000 × $2.8) - 52,500) × $6.00

= $56,000 - 52,500) × $6.00

= $3,500 × $6.00

= $21,000