Summertime, Inc. manufactures changeable type-heads for use on industrial printe
ID: 2483923 • Letter: S
Question
Summertime, Inc. manufactures changeable type-heads for use on industrial printers. Each type-head is in a set consisting of the lead alloy type-head itself, a cover for the key on the printer keyboard, and a container box to hold the two items. At the beginning and end of June, there were no materials inventories. The following standards were developed for each unit:
Item
Materials:
Lead alloy (3 oz. @ $.20)..........
Cover materials (6 oz. @ $.04).....
Container boxes (1 @ $.10).........
Direct labor (1/4 hr. @ $12 per hr)......
Overhead ($9 per direct labor hour)......
Total cost.........................
Standard per Unit
$ .60
.24
.10
3.00
2.25
$6.19
Annual production is estimated at 50,000 units, with fixed overhead of $15,000.
During the past year, the following costs were incurred to produce 40,000 units:
Materials:
Lead alloy…………………………122,000 oz. @ $.22
Cover materials……………235,000 oz. @ $.04
Container boxes…………………………40,500 @ $.09
Direct labor…………………………………9,500 hrs. @ $12.50
Overhead……………………………………………………………………………$90,000
REQUIRED: Compute the:
A. Materials price variance for each item.
B. Materials quantity variance for each item.
C. Labor rate variance.
D. Labor efficiency variance.
Summertime, Inc. manufactures changeable type-heads for use on industrial printers. Each type-head is in a set consisting of the lead alloy type-head itself, a cover for the key on the printer keyboard, and a container box to hold the two items. At the beginning and end of June, there were no materials inventories. The following standards were developed for each unit:
Explanation / Answer
a)
Material Price Variance
= ( Standard price- Actual price) x Actual Quantity
Lead Alloy:
=(0.20-0.22) x 122,000= -$2,440 U
Cover Material:
=(0.04-0.04 ) x 235,00 =0
Container Box:
=(0.10 x 0.09) x 40,500= $ 405 F
b)
Material Quantity Variance= (Standard Qty - Actual Qty) x Standard Price
Lead Alloy:
=(120,000-122,000) x 0.20= -$400 U
Cover Material:
=(240,000-235,000 ) x 0.04=$200 F
Container Box:
=(40,000-40,5000) x 0.09 = -$45 U
Working Note-1:
Standard Quantity= Standard Quantity required for actual production
Lead Alloy:
= 3 oz x 40,000= 120,000 oz
Cover Material:
= 6 oz x 40,000= 240,000 oz
Container Box:
= 1 x 40,000= 40,000 units
c)
Labor Rate Variance= ( Standard Rate per hr of Labor- Actual Rate per hr of Labor-) x Actual hrs worked
= (Standard Rate per hr of Labor x Actual hrs worked) - (Actual rate per Labor hr x Actual hrs worked)
=(12 x 9,500)- (12.50 x 9,500)
=(12-12.50) x 9,500
=-0.5 x 9,500
=$4,750 U
d) Labor Efficiency Variance :
=( Standard hr- Actual hrs )x standard price
=(10,000-9,500) x 12
=500 x 12
=$6,000 F
Working Note:
Standard hrs = Standard hrs required for actual production= ¼ x 40,000= 10,000 hrs
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