The Summerchew Company, recognizing that chewing gum has an adverse effect on the consumers teeth and that
Question:
The Summerchew Company, recognizing that chewing gum has an adverse effect on the consumers’ teeth and that chewing tobacco is gross, has developed a chewing product from kale. Standard costs for 1,000 lbs. of chewing kale are as follows:
Direct Materials:
Quantity | × | + Price | = | Cost | ||
Kale | 600 | $1.00 | $600 | |||
Elasticizer syrup | 200 | $0.80 | 160 | |||
Flavor disguiser | 200 | $2.20 | 440 | |||
Input | 1,000 lbs | $1,200 | =$1.20 per lb.* | |||
*Weighted average.
Labor:
Producing 1,000 pounds of finished product required 20 hours at $18.00 per hour or $0.36 per lbs. of the finished product.
Overhead:
Variable OH is estimated to be $5 per direct labor hour or $0.10 per pound.
For fixed OH, the company has budgeted sales and production of 420,000 pounds of kale chew and $210,000 of fixed overhead ($17,500 per month). As a result, the company’s standard cost of fixed OH is $25 per labor hour or $0.50 per pound.
Actual costs for March are as follows.
Materials | Beginning Inventory | Purchases in January | Ending Inventory |
Kale | 10,000 lbs | 16,000 lbs@ 0.78 | 1,500 lbs |
Elastisizer Syrup | 1,200 lbs | 3,000 lbs @ 0.84 | 400 lbs |
Flavor Disguiser | 1,500 lbs | 3,.200 lbs @ 2.42 | 1,100 lbs |
Actual direct labor hours and costs for January are 600 hours at $10,108. The actual overhead for the month is $22,000, Actual finished production for January is 31,500 lbs.
Calculate:
- Materials price and quantity variances.
- Labor rate and efficiency variances.
- Overhead variances using the three variance method.
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso