Determining Unit Costs, Variance Analysis, and Interpretation Big Dog Company, a
ID: 2518049 • Letter: D
Question
Determining Unit Costs, Variance Analysis, and Interpretation
Big Dog Company, a manufacturer of dog food, produces its product in 1,000-bag batches. The standard cost of each batch consists of 6,000 pounds of direct materials at $0.30 per pound, 48 direct labor hours at $8.50 per hour, and variable overhead cost (based on machine hours) at the rate of $10 per hour with 18 machine hours per batch. The following variable costs were incurred for the last 1,000-bag batch produced:
(a) Determine the actual and standard variable costs per bag of dog food produced, separated into direct materials, direct labor, and variable overhead.
Round your answers to three decimal places.
(b) For the last 1,000-bag batch, determine the standard cost variances for direct materials, direct labor, and variable overhead.
Round your answers two decimal places.
(c) Which of the following is the most likely explanation for an unfavorable labor rate variance and a favorable labor efficiency variance?
Use of high efficiency equipment by undertrained employees.
Use of low efficiency equipment by highly skilled employees.
Use of poor quality materials resulting in overtime labor.
Use of higher skilled employees and high efficiency equipment.
Direct materials 6,300 pounds costing $1,778 were purchased and used Direct labor 45 hours costing $450 Variable overhead $250 Machine hours used 20 hoursExplanation / Answer
Rreq a: Actual Cost Standard Cost Direct material 1.778 1.8 Dirrect Labour 0.45 0.408 Variable Overheads 0.25 0.18 Total variable cost 2.478 2.388 Req b: Actual Price per pound (1778/6300) Material Price variance = Actual Qty (Std price-Actual price) 6300 pounds(0.30 - 0.2822) = $ 1890-1778 = $ 112 U Material Quantity variance= Std price (Std quantity-Actual quantity) 0.30 (6000-6300)= $ 90 U Labour rate variance= Actual hours (Std rate-Actual rate) 45 (8.50- 10) = $ 67.50 U Labour efficiency variance= Std rate (Std hours-Actual hours) 8.50 (48-45)= $ 25.50 F Variable OH sepnding variance = Actual hours (Std OH rate-Actual OH rate) 20 hours (10.00-12.50 )= $ 50 U Variable OH efficiency variance= Std rate (Std Hours-Actual hours) 10.00 ( 18-20) = $ 20 U Req C: Use of Higher skilled employees and high efficiency equipment.
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