You have recently accepted a position with Vitex, Inc., the manufacturer of a po
ID: 2570417 • Letter: Y
Question
You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information: Standard Cost Card Direct materials, 2.30 pounds at $17.00 per pound Direct labor, 1.00 direct labor-hours at $15.40 per direct labor-hour Variable manufacturing overhead, 1.00 direct labor-hours at $9.30 per direct labor-hour $39.10 $15.40 $ 9.30 Total Standard Cost 625,600 $ 246.400 $148.800 Price or Rate $11,252 F $ 3,400 L $4,900 F Quantity or Efficiency $34,000 U $15,400 U Direct materials Direct labor Applied to Work in Process during the period. Entry obliterated. You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. Work in process inventories are insignificant and can be ignored. It is now 8:30 a.m. The executive committee meeting starts in just one hour you realize that to avoid looking like a bungling fool you must somehow generate the necessary "backup" data for the variances before the meeting begins. Without backup data it will be impossible to lead the discussion or answer any questions.Explanation / Answer
1.
Total standard cost = $ 625,600
Standard cost per unit = $ 39.10
Unit produced = $ 625,600/$ 39.10 =16,000 units
2. Standard quantity = Standard quantity x Actual units = 2.3 x 16,000 = 36,800 pounds
Material quantity variance = (Actual quantity - Standard quantity –) x standard price
$ 34,000 = (Actual quantity - 36,800) x $ 17
$ 34,000 = (Actual quantity x $ 17 - $ 625,600
Actual quantity x $ 17 = $ 34,000 + $ 625,600
Actual quantity x $ 17 = $ 659,600
Actual quantity = $ 659,600/$ 17 = 38,800 pounds
3.
Material price variance = (Actual price – Standard price) x Actual quantity
-$ 11,250 = (Actual price - $ 17) x 16,000
= Actual price x 16,000 - $ 272,000
-$ 11,250 + $ 272,000 = Actual price x 16,000
Actual price x 16,000 = $ 260,750
Actual price = $ 260,750/16,000 = $ 16.29688 or $ 16.30
4.
Labor efficiency variance = (Actual hours- Standard hours) x Standard rate
$ 15,400 = (Actual hours - 16,000) x $ 15.40
$ 15,400/$ 15.40 = Actual hours - $ 16,000
Actual hours = 16,000 + 1,000 = 17,000 hours
5.
Labor Rate Variance = (Actual rate - Standard rate –) × Actual hour
$ 3,400 = (Actual rate - $ 1) x 17,000
$ 3,400 = Actual rate x 17,000 - $ 17,000
Actual rate x 17,000 = $ 3,400 + $ 17,000
Actual rate x $ 17,000 = $ 20,400
Actual rate = $ 20,400/$ 17,000 = $ 1.2
6.
Variable overhead rate variance = Actual variable overhead costs – Standard variable overhead cost
-$ 49,000 = Actual costs – $ 148,800
Actual variable overhead costs = $ 148,800 - $ 4,900 = $ 143,900
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