ration is a small producer of synthetic motor oil. During May, the company produ
ID: 2379865 • Letter: R
Question
ration is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains twelve quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,598. It also incurred average direct labor costs of $14 per hour for the 4,043 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,625, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows:
Direct materials standard price
$
1.30
per gallon
Standard quantity allowed per case
3.25
gallons
Direct labor standard rate
$
16
per hour
Standard hours allowed per case
0.75
direct labor hours
Fixed overhead budgeted
$
2,600
per month
Normal level of production
5,200
cases per month
Variable overhead application rate
$
1.50
per case
Fixed overhead application rate ($2,600 ÷ 5,200 cases)
0.50
per case
Total overhead application rate
$
2.00
per case
a.
Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Materials price variance
$
Materials quantity variance
$
b.
Compute the labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)
Labor rate variance
$
Labor efficiency variance
$
c.
Compute the manufacturing overhead spending and volume variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Overhead spending variance
$
Overhead volume variance
$
Direct materials standard price
$
1.30
per gallon
Standard quantity allowed per case
3.25
gallons
Direct labor standard rate
$
16
per hour
Standard hours allowed per case
0.75
direct labor hours
Fixed overhead budgeted
$
2,600
per month
Normal level of production
5,200
cases per month
Variable overhead application rate
$
1.50
per case
Fixed overhead application rate ($2,600 ÷ 5,200 cases)
0.50
per case
Total overhead application rate
$
2.00
per case
Explanation / Answer
a.
Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Materials price variance
= 1.30*16500 - 20598 = $852 (F)
Materials quantity variance
= (3.25*5000-16500)*1.30 = $325 (U)
b.
Compute the labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)
Labor rate variance
=(16-14)*4043 = $8086 (F)
Labor efficiency variance
= (0.75*5000 - 4043)*16 = $4688 (U)
c.
Compute the manufacturing overhead spending and volume variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Overhead spending variance
=(1.50*5000 + 2600) - 9625 =$475 (F)
Overhead volume variance
= (2.00*5000)-(1.50*5000 + 2600) = $100 (U)
a.
Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)
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