Winn\'s Bicycles, Inc. is a large manufacturer located in Denver. The company ha

Question

Winn's Bicycles, Inc. is a large manufacturer located in Denver. The company has been a leader in the 21-speed bike industry for several years. However, with increasing competition and a higher public emphasis on quality, Winn has been searching for ways to maintain quality and cut costs. John Jackson, production planner, suggested that starting at the beginning of 2017, the company invest in higher quality materials and hire more experienced workers at a slightly higher pay rate The company has used a standard cost system for the past five years. The current standard costs for one bicycle, based on production of 12,000 units, are as follows: Materials Direct labor (4 hours at $10) Variable overhead Fixed overhead per unit $55 40 Total variable overhead is presumed to change with the number of bicycdles (units) Jeffrey Winn, president, was skeptical about decreasing costs by increasing materials and labor costs. However, after much debate, he agreed to try to changes for one year beginning with January 2017. Because the exact costs of changes were not known at the beginning of 2017, the existing standard costs were retained. Therefore, the changes will be in the variances from standard costs. During 2017, the company produced only 10,500 bicydles because the marketplace showed a decreasing demand. The following data show the actual results 1. Materials costing $617,500 were purchased and used. The prices of materials were exactly as predicted by the standards, so any differences were due solely to quantities used 2. Direct labor was $249,375 for 23,750 direct labor hours. 3. Actual variable overhead totaled $193,000 4. Actual fixed overhead totaled $106,275 acer Prtsc Pause s SysRq Break F6 F8 F9 F10 F11 F12

Explanation / Answer

Material price and quantity variance:

Material price variance = (Actual quantity *Actual price ) - (Actual quantity * Standard Price)

=$ 617500 - (10500*55)

=$617500 - $577500

= $ 40000 F

Material quantity variance = (Standard quantity*standard price) - (Actual quantity*standard price)

= 12000*55 - 10500*55

= $ 660000 - $ 577500

= $ 82500 F

Labour Price and Efficiency variance:

Labour price variance = (Actual hour*Standard rate) - (Actual hour*actual rate)

= (23750*10) - (249375)

=$ 237500 -$ 249375

= $ 11875 A

Labour efficiency variance = Standard hour*Standard rate) - (Actual hour*Standard rate)

= 12000*4 - 23750*10

= 480000 - 237500

= $ 242500 F

Variable Overhead Spending & Efficiency variance ;

Spending variance = Standard quantity*Srandard rate) - (Actual variable overhead )

= 12000*22 - 193000

= $71000 F

Efficiency variance =(Actual quantity*standard rate) - (Actual variable overhead)

= 10500*22 - 12000*22

= 33000 A

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