Question
11#3 Awning manufactures awnings and uses a standard cost system. The company allocates overhead based on the number of direct labor hours. The following are
11#3
Awning manufactures awnings and uses a standard cost system. The company allocates overhead based on the number of direct labor hours. The following are the company's cost and standards data:
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(Click the icon to view the standards.)
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Actual cost and operating data from the most recent month are as follows:
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(Click the icon to view the actual results.)
All manufacturing overhead is allocated on the basis of direct labor hours.
Read the requirements
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Requirement 1. Calculate the standard cost of one awning.
Standard cost | Standard cost per unit |
Direct materials |
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Direct labor |
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Variable MOH |
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Fixed MOH |
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Total standard cost |
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Requirement 2a. Calculate the direct material variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DM = Direct materials.)
First determine the formula for the price variance, then compute the price variance for direct materials.
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| ( |
| - |
| ) | = | DM price variance | |
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| ( |
| - |
| ) | = |
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Determine the formula for the quantity variance, then compute the quantity variance for direct materials.
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| ( |
| - |
| ) | = | DM quantity variance | |
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| ( |
| - |
| ) | = |
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Requirement 2b. Calculate the direct labor variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DL = Direct labor.)
First determine the formula for the rate variance, then compute the rate variance for direct labor.
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| ( |
| - |
| ) | = | DL rate variance | |
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| ( |
| - |
| ) | = |
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First determine the formula for the efficiency variance, then compute the efficiency variance for direct labor.
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| ( |
| - |
| ) | = | DL efficiency variance | |
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| ( |
| - |
| ) | = |
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Requirement 2c. Calculate the variable manufacturing overhead variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U).)
First determine the formula for the rate variance, then compute the rate variance for variable manufacturing overhead. (Round interim calculations to the nearest cent.)
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| Variable overhead | |
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| ( |
| - |
| ) | = | rate variance | |
| ( |
| - |
| ) | = |
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Now compute the variable manufacturing overhead efficiency variance. First determine the formula for the efficiency variance, then compute the efficiency variance for variable manufacturing overhead.
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| Variable overhead | |
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| ( |
| - |
| ) | = | efficiency variance | |
| ( |
| - |
| ) | = |
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Requirement 2d. Calculate the fixed manufacturing overhead variances. (Enter the variance as a positive number. Label the variance as favorable (F) or unfavorable (U).)
Begin by computing the fixed manufacturing overhead budget variance. First determine the formula for the budget variance, then compute the budget variance for fixed manufacturing overhead.
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| Fixed MOH | |
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| - |
| = | budget variance | |
| - |
| = |
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Now compute the fixed manufacturing overhead volume variance. First determine the formula for the volume variance, then compute the volume variance for fixed manufacturing overhead.
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| Fixed MOH | |
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| - |
| = | volume variance | |
| - |
| = |
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Requirement 3.Explain what each of the variances you calculated means and give at least one possible explanation for each of those variances.
Direct materials:
Variance | Meaning | Possible explanation |
DM price |
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DM quantity |
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Direct Labor:
Variance | Meaning | Possible explanation |
DL rate |
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DL efficiency |
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Variable manufacturing overhead:
Variance | Meaning | Possible explanation |
VOH rate |
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VOH efficiency |
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Fixed manufacturing overhead:
Variance | Meaning | Possible explanation |
FOH budget |
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FOH volume |
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Are any of the variances likely to be interrelated?
The
favorable DL efficiency
favorable DM quantity
unfavorable DL efficiency
unfavorable DM quantity
variance is likely to be related to the
favorable DL rate
favorable DM price
unfavorable DL rate
unfavorable DM price
variance. It is likely that
Pickul
Awning
hired less qualified employees at a lower rate
hired more qualified employees at a higher rate
purchased higher quality materials at a higher price
purchased lower quality materials at a lower price
. This may have resulted in
Standard price and volume
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Standards: | |
Direct materials 18.0 yards per awning at $15.00 per yard | |
Direct labor 4.0 hours per awning at $15.00 per hour | |
Variable MOH standard rate $8.00 per direct labor hour | |
Predetermined fixed MOH standard rate $5.00 per direct labor hour | |
Total budgeted fixed MOH cost $27,200 |
Actual results
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Purchased 28,950 yards at a total cost of $416,880 | |
Used 26,100 yards in producing 1,500 awnings | |
Actual direct labor cost of $87,210 for a total of 5,700 hours | |
Actual variable MOH $47,310 | |
Actual fixed MOH $32,200 |
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