You have recently accepted a position with Vitex, Inc., the manufacturer of a po

ID: 2601381 • 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:

Variances Reported

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.

What was the actual cost per pound of material? (Round your answer to 2 decimal places.)

What was the actual rate paid per direct labor-hour? (Round your answer to 2 decimal places.)

How much actual variable manufacturing overhead cost was incurred during the period?

Explanation / Answer

Total standard cost of material used = $ 670,320

Standard cost per unit = $ 35.28

Unit produced = $ 670,320/$ 35.28 =19,000 units

2. Standard quantity = Standard quantity x Actual units = 2.1 x 19,000 = 39,900 pounds

Material quantity variance = (Actual quantity - Standard quantity) x Standard price

$ 33,600 = (Actual quantity - 39,900) x $ 16.80

$ 33,600 = (Actual quantity x $ 16.80) - $ 670,320

Actual quantity x $ 16.80 = $ 33,600 + $ 670,320

Actual quantity x $ 16.80 = $ 703,920

Actual quantity = $ 703,920/$ 16.80 = 41,900 pounds

Material price variance = (Actual price – Standard price) x Actual quantity

-$ 12,151 = (Actual price - $ 16.80) x 19,000

-$ 12,151 = Actual price x 19,000 - $ 319,200

-$ 12,151 + $ 319,200 = Actual price x 19,000

Actual price x 19,000 = $ 307,049

Actual price = $ 307,049/19,000 = $ 16.16047 or = $ 16.16

Standard hours for actual production = 19,000 units x 1 hour = 19,000 hours

Labor efficiency variance = (Actual hours - Standard hours) x Standard rate

$ 15,900 = (Actual hours - 19,000) x $ 15.90

$ 15,900 = (Actual hours x $ 15.90 - 19,000 x $ 15.90

$ 15,900 = (Actual hours x $ 15.90) - $ 302,100

Actual hours x $ 15.90 = $ 15,900 + $ 302,100 = $ 318,000

Actual hours = $ 318,000/$ 15.90 = $ 20,000 hours

Labor Rate Variance = (Actual rate - Standard rate –) × Actual hour

$ 4,000 = (Actual rate - $ 15.90) x 20,000

$ 4,000 = Actual rate x 20,000 - $ 15.90 x 20,000

$ 4,000 = Actual rate x 20,000 - $ 318,000

Actual rate x 20,000 = $ 4,000 + $ 318,000

Actual rate x $ 20,000 = $ 322,000

Actual rate = $ 322,000/$ 20,000 = $ 16.1

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You have recently accepted a position with Vitex, Inc., the manufacturer of a po

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You have recently accepted a position with Vitex, Inc., the manufacturer of a po

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