Your next-door neighbor recently began a new job as assistant controller for Con

Question

Your next-door neighbor recently began a new job as assistant controller for Conundrum Corporation. As her first assignment, she prepared a performance report for January. She was scheduled to present the report to management the next morning, so she brought it home to review. As the two of you chatted in the backyard, she decided to show you the report she had prepared Unfortunately, your dog thought the report was an object to be fetched. The pup made a flying leap and got a firm grip on the report. After chasing the dog around the block, you managed to wrest the report from its teeth. Needless to say, it was torn to bits. Only certain data are legible on the report. This information follows CONUNDRUM CORPORATION Performance Report for the Month of January Direct Labor Direct Material Variable Fixed Overhead Overhead Standard allowed cost given actual output kilograms at $10 per kilogram) (4 hours at $15 per hour) $52,000 Flexible overhead budget Actual cost $174,000 (12,000 kilograms at $14.5 kilogram per) (10,900 hours at ? per hour) Direct-material price variance Direct-material quantity variance Direct-labor rate variance Direct-labor efficiency variance Variable-overhead spending variance Variable-overhead efficiency variance Fixed-overhead budget variance Fixed-overhead volume variance $ 6,400U $10,900U 7,500F $2,690U 3,500F $3,450U In addition to the fragmentary data still legible on the performance report, your neighbor happened to remember the following facts Planned production of Conundrum's sole product was 400 units more than the actual production. All of the direct material purchased in January was used in production There were no beginning or ending inventories. Variable and fixed overhead are applied on the basis of direct-labor hours. The fixed overhead rate is $4.00 per hour

Explanation / Answer

Explanations -

1.
Fixed O/D = $52000 Fixed O/D rate = $4 per hour
Planned Prduction hours = $52000/$4 = 13000 hours
Planned Direct Labour hours per unit = 4 hours
Planned units = 13000/4 = 3250

2.
Planned Units = 3250
Planned Production was 400 units more than Actual Productions
Actual Production = 3250 - 400 = 2850 units

3.
Budgeted Fixed Over head = $ 52000
Fixed O/H budget variance = $3450U or we can say -$3450
(Note - Fixed O/H budget variance = Budgeted Fixed Over head - Actual Fixed Over head)
Actual Fixed Overhead = $52000 + $3450 = $55450

4.
Actual Production = 2850 units
Standard Hours for per unit Productions = 4
Total Standard Allowed Direct Labour Hours = 2850 x 4 = 11400 hours

5.
Direct labour rate variance = Actual Hours (Standard rate - Actual rate) = $10900 U or -$10900
Actual Hours = 10900
Standard rate = $15 per hour
So, Actual Rate = [(10900 x 15) + 10900} / 10900 = $16

6.
Variable overhead efficiency variance = Standard Rate ( Standard hours - Actual hours) = 3500F
Or, Standard Variable overhead Rate = 3500 / (11400 - 10900) = $7 per direct labour hour

7.
Variable overhead spending variance = Actual hours (Standard rate - Actual Rate) = $2690U or -$2690
or, 7 - Actual rate = - $2690/10900
Or, Actual Rate = 0.25 + 7 = $7.25 per hours (approx)

8.
Direct Material Quantity Variance = Standard Price (Standard Quantity - Actual quantity) = $6400U or -$6400
Or, $10(SQ - 12000kg) = -$6400
Or Standard Quantity = (- $6400/10) + 12000kg = 11360kg
Actual Unit produced = 2850
Standard direct material quantity per unit = 11360kg/2850units = 4Kg Approx

9.
Direct Material Price Variance = Actual quantity (Standard Price - Actual Price) = 12000kg ($10 - $14.5) = -$54000 or $54000U

10.
Applied Fixed Over Head = Standard Fixed overhead rate x Standard Allowed Hours = $4 x 11400hrs = $45600

11.
Fixed overhead volume variance = Budgeted Fixed overhead - Applied Fixed Ovedhead = $52000 - $45600 = (+)$6400U
Note - Here Volume variance is positive but Unfavorable becasue planned production exceeds actual production.

no Particulars 1 Planned Production in units 3250 units 2 Actual Production In units 2850 units 3 Actual Fixed Overhead $55450 4 Total Standard Allowed direct labour hours 11400hours 5 Acual Direct Labour rate $16 per hr 6 Standard Variable overhead rate (per direct labour hour) $7 per hour 7 Actual Variable over head rate (per direct labour hour) $7.25 per hour 8 Standard direct material quantity per unit 4kg 9 Direct Material Price variance $54000 Unfavorable 10 Applied Fixed overhead $45600 11 Fixed overhead volume variance (+)$6400 Unfavorable

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