The Deep Thought Company is making 42 supercomputers. Deep Thought’s costing sys
ID: 2534112 • Letter: T
Question
The Deep Thought Company is making 42 supercomputers. Deep Thought’s costing system has two direct-cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to the supercomputers on the basis of standard direct manufacturing labor-hours (DLH). At the beginning of 2017, Deep Thought adopted the following standards for its manufacturing costs:
Input Cost per Output Unit
Direct materials 5 lb. at $4 per lb. $ 20.00
Direct manufacturing labor 4 hrs. at $16 per hr. 64.00
Manufacturing overhead:
Variable $8 per DLH 32.00
Fixed $9 per DLH 36.00
Standard manufacturing cost per output unit $152.00
The denominator level for total manufacturing overhead per month in 2017 is 37,000 direct manufacturing labor-hours. Deep Thought’s budget for January 2017 was based on this denominator level. The records for January indicated the following:
Direct materials purchased 40,300 lb. at $3.80 per lb.
Direct materials used 37,300 lb.
Direct manufacturing labor 31,400 hrs. at $16.25 per hr.
Total actual manufacturing overhead (variable and fixed) $650,000
Actual production 7,600 output units
Required:
1. Prepare a schedule of total standard manufacturing costs for the 7,600 output units in January 2017.
2. For the month of January 2017, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):
a. Direct materials price variance, based on purchases
b. Direct materials efficiency variance
c. Direct manufacturing labor price variance
d. Direct manufacturing labor efficiency variance
e. Total manufacturing overhead spending variance
f. Variable manufacturing overhead efficiency variance
g. Production-volume variance
Explanation / Answer
1) Prepare a schedule of total standard manufacturing costs for the 7,600 output units in January 2017 Direct Material - 7,600 units × $20 $152,000.00 Direct manufacturing labor, 7,600 × $64 $486,400.00 Manufacturing overhead Variable (7600 x $32) $243,200.00 Fixed (7600 x $36) $273,600.00 $516,800.00 Total $1,155,200.00 2) a. Direct materials price variance, based on purchases Direct Materials price variance = Actual quantity used × (Standard price – Actual price) Direct materials price variance, based on purchases 40,300 lbs x ($ 4 - $ 3.80) $8,060.00 F b. Direct materials efficiency variance Direct Materials efficiency variance = Standard price × (Standard quantity – Actual quantity) Standard quantity allowed = 7800 units × 5lbs per unit 39,000.00 Direct materials efficiency variance $ 4 per lb x (39000 - 37300 lbs) $6,800.00 F c. Direct manufacturing labor price variance Labor Price variance = Actual labor hours × (Standard rate – Actual rate) Direct manufacturing labor price variance 31,400 hrs x ($16 ph - $16.25 ph) -$7,850.00 UF d. Direct manufacturing labor efficiency variance Labor efficiency variance = Standard hourly rate × (Standard hours – Actual hours) Standard hours allowed = 7800 × 4 hours = 31200 Direct manufacturing labor efficiency variance $ 16 ph x (31200 - 31400hrs)= -$3,200.00 UF
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