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2. Suppose Company A plans to produce and sell 5.000 units of a specific product. According to previous research results, 10 m of direct material
2. Suppose Company A plans to produce and sell 5.000 units of a specific product. According to previous research results, 10 m of direct material needed per unit. During the pre- negotiations with the suppliers the cost of 1 m of direct material is estimated to be 12 TL According to previous research results, 4 hours of direct labor needed per unit. During the pre- negotiations with the labor unions the hourly wage of direct labor is estimated to be 20 TL The managers decided to calculate the predetermined overhead rates based on direct labor hours. Based on previous data, variable overhead cost for the coming period is estimated to be 20.000 TL Fixed overhead cost is 50.000 TL for production capacity up to 5.000 units. At the end of the period, it is found out that 4.000 items have been produced and sold upon decreased demand. 9 m of direct material and 5 hours of direct labor were used per item produced. Cost of direct material per mand hourly wage averaged to be 13 and 18 TL respectively. Actual manufacturing overhead costs for the whole period have accumulated to 72.000 TL, Variable M/0 - 24.000 and Fix M/O is 48.000 TL Required: a. Calculate price and efficiency variances of both direct material and direct labor. (30 pts) b. Calculate manufacturing overhead variances (how well company managed variable and fix overhead costs?). (20 pts)
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