Determining Unit Costs, Variance Analysis, and Interpretation Big Dog Company, a
ID: 2766296 • Letter: D
Question
Determining Unit Costs, Variance Analysis, and Interpretation
Big Dog Company, a manufacturer of dog food, produces its product in 1,000-bag batches. The standard cost of each batch consists of 8,000 pounds of direct materials at $0.40 per pound, 48 direct labor hours at $8.75 per hour, and variable overhead cost (based on machine hours) at the rate of $10 per hour with 16 machine hours per batch. The following variable costs were incurred for the last 1,000-bag batch produced:
(a) Determine the actual and standard variable costs per bag of dog food produced, separated into direct materials, direct labor, and variable overhead.
Round your answers to 3 decimal places.
What is the ACTUAL COST of the MATERIALS?
(b) For the last 1,000-bag batch, determine the standard cost variances for direct materials, direct labor, and variable overhead.
Round your answers two decimal places.
Materials price variance _____ F
Materials quantity variance _____ U
Labor rate variance _____ U
Labor efficiency variance _____ F
Variable overhead spending variance _____ U
Variable overhead efficiency variance _____ U
Direct materials 8,300 pounds costing $ 3,154 were purchased and used Direct labor 45 hours costing $ 450 Variable overhead $ 225 Machine hours used 18 hoursExplanation / Answer
(a) Direct Material Cost per bag:
Actual cost per bag = Total cost per batch/No. of bags in batch
= $3154/1000 = $ 3.154
Standard Cost per bag = Total standard cost per batch/No. of bags
= 8000 pounds x $0.40/1000 = 3,200/1000 = $3.2
(2) Direct Labour cost per bag:
Actual Direct labour cost per bag = Total cost per batch/No. of bags in batch
= $450/1000 = $0.45
Standard Direct labour cost per bag = Standard cost per batch/No. of bags in batch
= 48 hours x $8.75 per hour/1000
= 420/1000 = $0.42
(3) Variable overhead cost per bag:
Actual variable cost per bag = Actual cost per batch/No. of bags in batch = 225/1000 = $0.225
Standard variable cost per bag = Standard cost per batch/No. of bags in batch
= 16hours x $10/1000 = 160/1000 = $0.16
(b) (i) Material price variance = Actual Material x ( standard price per pound - Actual price per pound)
= 8,300(0.40 - 0.38) = 8,300 x 0.02 = $166 (F)
Note: Actual cost per pound = 3,154/8,300 = $0.38
(ii) Material Quantity Variance = Standard price x ( Standard quantity - Actual quantity)
= 0.40 ( 8,000 - 8,300)
= 0.40 x 300 = $120
(iii) Labour Rate variance = Actual labour hours x (Standard labour rate - Actual labour rate)
= 45(8.75 - 10)
= 45 x 1.25
= $56.25 ( U)
Note: Actual labour hour rate = $450/45 = $10
(iv) Labour Eficiency variance = Standard labour rate x( Standard hours - Actual hours)
= 8.75 (48 - 45)
= 8.75 x 3
= $26.25 (F)
(v) Variable overhead spending variance
= Actual hours worked x ( Standard variable overhead rate - Actual variable overhead rate)
= 45 ( 10 - 5)
= 45 x 5 = $225 (F)
(vi) Variable Overhead efficiency variance =
Standard variable overhead rate x ( Standard varible overhead hours - Actual variable overhead hours)
= 10 ( 16 - 18)
= 10 x 2 = $20 (U)
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