%u201CIt certainly is nice to see that small variance on the income statement af

Question

%u201CIt certainly is nice to see that small variance on the income statement after all the trouble we%u2019ve had lately in controlling manufacturing costs,%u201D said Linda White, vice president of Molina Company. %u201CThe $15,650 overall manufacturing variance reported last period is well below the 4% limit we have set for variances. We need to congratulate everybody on a job well done.%u201D

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

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

A total of 72,000 yards of material was purchased during the year at a cost of $2.10 per yard. All of this material was used to manufacture the 25,000 units. There were no beginning or ending inventories for the year.

The company worked 30,000 direct labor-hours during the year at a cost of $12.70 per hour.

Overhead cost is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:

Compute the direct materials price and quantity variances for the year. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Compute the direct labor rate and efficiency variances for the year. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

The variable overhead rate and efficiency variances for the year. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

The fixed overhead budget and volume variances for the year. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

%u201CIt certainly is nice to see that small variance on the income statement after all the trouble we%u2019ve had lately in controlling manufacturing costs,%u201D said Linda White, vice president of Molina Company. %u201CThe $15,650 overall manufacturing variance reported last period is well below the 4% limit we have set for variances. We need to congratulate everybody on a job well done.%u201D

Explanation / Answer

1) Direct material Quantity variance = (SQ-AQ)*SR = (3*25000-72000)*2 = $ 6000 Favorable

Direct Material price variance = (SR-AR)*AQ = (2.00-2.10)*72000 = $7200 Unfavorable

2) Direct labor efficiency variance = (SH-AH)*SR = (1.1*25000-30000)*13 = $ 32500 Unfavorable

Direct Labor rate variance = (SR-AR)*AH = (13.00-12.70)*30000 = $9000 Favorable

3)

a)Variable Overhead

Efficiency Variance = (SH-AH)*SR = (1.1*25000-30000)*2.6 = $ 6500 Unfavorable

Rate variance = (SR-AR)*AH = (2.60-2.70)*30000 = $3000 Unfavorable

b)Fixed Overhead

Volume variance = Standard cost for actual output - Budgeted overhead = 7.15*25000 - 162500 = $16250 Favorable

Budget variance = Budgeted overhead - Actual overhead = 162500-160200 = $2300 Favorable

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.