The controller of a company which manufactures home-permanent kits has just received the following final production reports and cost figures for the month of May:

As early as the first week of May, the foremen were complaining about foul-ups and giving excuses for what they considered would be poor performances this month. Such excuses included:
(1) "I had to reassign my bottler who makes \(\$ 8.00\) per hour to a job that usually costs \(\$ 6.50\) per hour."
(2) "The bottling machine was broken again for an hour today."
(3) "How can I expect to utilize economies of scale when production has been so sporadic-ten hours one day and six the next?"
(4) "The materials we used gummed up the injection nozzle twice today."
(5) "The sales department again failed to calculate demand, and I had to bring in two days' supply of raw materials by air freight until we could get some by train."
Required:

(a) Compute the material price and quantity variances, labor rate and efficiency variances, variable overhead spending and efficiency variances, and fixed overhead budget and volume variances for the month of May.

(b) Evaluate each of the five excuses presented by the foremen.

(c) Using the variances computed in Part

(a) and the analysis in Part (b), suggest the likely cause(s) of the problem and implied action(s).

Transcribed Image Text:

Standard Product Costs Direct materials (4 ounces @a $.50/ounce). $2.00 Direct labor (10 workers of an hour @ $7.50/hour) .75 Variable overhead* (0.1 x $15) 1.50 Fixed overhead** 1.00 Total standard cost $5.25 "Applied on the basis of direct labor hours. **Based on normal activity of 120,000 direct labor hours per year and $1,200,000 of estimated fixed overhead costs for the year. Production Costs for 90,000 Units Actual Quantity Cost Direct materials...... .405,000 ounces $190,350 10,000 hours Direct labor Variable overhead Fixed overhead 71,500 160,000 150,000