Problem 1 During July, PK’s Fine Feline Foods produced 147 batches of its gourme
ID: 2459238 • Letter: P
Question
Problem 1
During July, PK’s Fine Feline Foods produced 147 batches of its gourmet kitten formula. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct material at a total cost of $ 593,800. It also incurred direct labor costs of $ 17,600 for the 2,200 hours worked by employees on the kitten formula crew. Manufacturing overhead incurred during July totaled $ 3,625 of which $ 2,450 was considered fixed. Standard cost information per 1,000-pound batch of kitten formula follows:
Direct materials - $ 4.20 per pound
Standard quantity allowed per batch – 1,020 pounds
Direct labor rate - $ 8.50 per hour
Standard hours allowed per batch – 14 D/L hours
Budgeted fixed overhead - $ 2,800 per month
Budgeted level of production - 140 batches per month
Overhead application rate:
Fixed (2,800 / 140 batches) 20 per batch
Variable (140 batches) 9 per batch
Total 29 per batch
Compute the following:
a, direct materials cost and efficiency variances
b, direct labor cost and efficiency variances
c, variable overhead cost and efficiency variances
d, fixed overhead cost and volume variances
Explanation / Answer
Direct Materials Price variance = ( Standard price- Actual price) x Actual quantity consumed
= ( $4.20 - $4*) x 148450 pounds
=$0.20x148450 pounds
=$29690 F-favourable since actual price is less than standard price
*Actual price of $4 is arrived at as follows
$593,800 / 148450=$ 4
Direct Material Efficiency variance = ( Standard quantit- Actual quantity)x Standard rate
=( *149940 pounds - 148450 pounds ) x $4.2 per pound
= 1490 x $4.2 per pound
= $6258 -F-favourable variance since actual quantity consumed is less than standard quantity.
*Standard quantity = Actual output x standard quantity per batch
= 147 batches x 1020 pounds per batch
= 149940 pounds.
Labor rate variance = ( Standard rate- Actual rate ) x Actual hours
= ( $8.50-$8) x 2200 hours
= $0.5 x 2200 hours
= $1100 F-favourable since actual rate is less than standard rate.
Actual rate of $8 is $17600 / 2200 hours
Labor efficiency variance = ( Standard hours-Actual hours ) x standard rate.
= ( *2058-2200) x $8.5 per hour
= 142 hours x$8.5 per hour
= $1207-U-unfavourable since actual hours used is higher than standard hours.
*Standard hours = Standard hours per batch x Actual batches
= 14 hours x 147 batches
=2058 hours
Variable overhead cost variance = Standard cost - Actual cost
= $9 per batch x 147 batches - $1175*
= $1323 - $1175
= $148 F-favourable since actual cost is less than standard cost
*Actual variable cost = Total cost - Fixed cost
= $3625-$2450
=$1175
Variable overhead efficiency variance = ( standard output -actual output) x standard rate
= (140-147)x $9 per batch
= $63 F- favourable sinnce actual output is higher than standard output.
Fixed Overhead cost variances = Standard cost - Actual cost
= $2800-$2450
= $350 - F-favourable since actual cost is less than standard cost.
Fixed overhead efficiency variance = no variances because fixed cost per batch cannot be applied to actual output like variable overhead because of the nature of being a fixed cost. Fixed cost will remain the same irrespective of the output being 140 batches or 147 batches.
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