MacGyver Corporation manufactures a product called Miracle Goo, which comes in h
ID: 2537419 • Letter: M
Question
MacGyver Corporation manufactures a product called Miracle Goo, which comes in handy for just about anything. The thick tarry substance is sold in six-gallon drums. o raw materials are used; these are referred to by people in the business as A and B. Two types of labor are required also. These are mixers (labor class I) and packers (labor class I). You were recently hired by the company president, Pete Thorn, to be the controller. You soon learned that MacGyver uses a standard-costing system. Variances are computed and closed into Cost of Goods Sold monthly. After your first month on the job, you gathered the necessary data to compute the month's variances for direct material and direct labor. You finished everything up by 5:00 p.m. on the 31st, including the credit to Cost of Goods Sold for the sum of the variances. You decided to take all your notes home to review them prior to your formal presentation to Thorn first thing in the morning. As an afterthought, you grabbed a drum of Miracle Goo as well, thinking it could prove useful in some unanticipated way. You spent the evening boning up on the data for your report and were ready to call it a night. As luck would have it though, you knocked over the Miracle Goo as you rose from the kitchen table. The stuff splattered everywhere, and, most unfortunately obliterated most of your notes. All that remained legible is the following information. Direct Material B: Purchase Price Variance Variance 2,000 1,000 Direct Labor l: Rate Variance Direct Labor ll: Efficiency Variance 400 1,200 Cost of Goods Sold Accounts Payable 146,000 1,100 Beg. bal 1,400 53,000 66,000 14,100 End. bal Other assorted data gleaned from your notes: The standards for each drum of Miracle Goo include 14 pounds of material A standard price of $4 per pound. . The standard cost of material B is $15 for each drum of Miracle Goo. Purchases of material A were 10,000 pounds at $3.50 per pound. Given the actual output for the month, the standard allowed quantity of material was 18,200 pounds. The standard allowed quantity of material B was 6,500 gallons. Although 10,000 gallons of B were purchased, only 6,300 gallons were used. . The standard wage rate for mixers is $15 per hour. The standard labor cost per drum of product for mixers is $30 per drum.Explanation / Answer
Direct Material A B Standard Quanity per Drum 14 pounds 5 gallons (6,500 / 1300) Standard Price 4 /pound 3 /gallon (15 / 5) Standard Cost per Drum 56 15 Standard Quantity Allowed, given actual Output 18,200 pounds 6,500 gallons Actual Quantity Purchased 10,000 pounds 10,000 gallons Actual Price 3.50 /pound 2.90 /gallon Actual Quanity Used 17,700 pounds 6,300 gallons Purchase Price Variance 5,000 (F) 1,000 (F) Quantity Variance 2,000 (F) 600 (F) Direct Material Quantity Variance - Product A = (SQ - AQ) X SR $2,000 = (18,200 Pounds - AQ) X $4 $2,000 = $72,800 - $4 AQ AQ = 17,700 Pounds Direct Material Purchase Price Variance - Product A = (SR - AR) X AQ Purchased Direct Material Purchase Price Variance - Product A = ($4 - $3.50) X 10,000 Pounds Direct Material Purchase Price Variance - Product A = $5,000 (F) No. of Drums Produced = 18,200 Pounds (SQ) / 14 Pounds (SQ per Drum) No. of Drums Produced = 1,300 Drums Direct Material Purchase Price Variance - Product B = (SR - AR) X AQ Purchased $1,000 = ($3 - AR) X 10,000 AR - Product B = $2.90 Direct Material Quantity Variance - Product B = (SQ - AQ) X SR Direct Material Quantity Variance - Product B = (6,500 - 6,300) X $3 Direct Material Quantity Variance - Product B = $600 (F)
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