Its certainly is nice to see that small variance on the income statement after a
ID: 2373542 • Letter: I
Question
Its certainly is nice to see that small variance on the income statement after all the trouble we%u2019ve had lately in controlling manufacturing costs, said Linda White, vice president of Molina Company. %u201CThe $32,400 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.
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 97,000 yards of material was purchased during the year at a cost of $3.60 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 66,000 direct labor-hours during the year at a cost of $11.80 per hour.
Overhead cost is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Compute the direct materials price and quantity variances for the year. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" 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.)
Its certainly is nice to see that small variance on the income statement after all the trouble we%u2019ve had lately in controlling manufacturing costs, said Linda White, vice president of Molina Company. %u201CThe $32,400 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.
Explanation / Answer
1) Direct material Quantity variance = (SQ-AQ)*SR = (4*25000-97000)*3.40 = 10200F
Direct Material price variance = (SR-AR)*AQ = (3.40-3.60)*97000 =-19400 = 19400U
2) Direct labor efficiency variance = (SH-AH)*SR = (2.5*25000-66000)*12 =-$42,000 = 420)0U
Direct Labor rate variance = (SR-AR)*AH = (12.00-11.80)*66000 = $13,200F
3)
a)Variable Overhead
Efficiency Variance = (SH-AH)*SR = (2.5*25000-66000)*1.6 = -5600 = 5600U
Actual VOH rate = 112200/66000 =1.70
Rate variance = (SR-AR)*AH
=(1.60-1.70)*66000 = -6600 = 6600U
b)Fixed Overhead
Volume variance = Standard cost for actual output - Budgeted overhead
= 15*25000 - 360000 =15000 = 15000F
Budget variance = Budgeted overhead - Actual overhead = 360000-357200 =2800 = 2800F
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