58. Variable Production Cost Variance Analysis. Iron Products, Inc., produces

prefabricated iron fencing used in commercial construction. Variable

overhead is applied to products based on direct labor hours. The company

uses a just-in-time production system and thus has insignificant inventory

levels at the end of each month. The income statement for the month of

November comparing actual results with the flexible budget based on

actual sales of 2,000 units is shown as follows.

Iron Products is disappointed with the actual results and has hired you as a

consultant to provide further information as to why the company has been struggling to meet budgeted net profit. Your review of the previously

presented budget versus actual analysis identifies variable cost of goods

sold as the main culprit. The unfavorable variance for this line item is

$67,400.

After further research, you are able to track down the following standard

cost information for variable production costs:

Actual production information related to variable cost of goods sold for the

month of November is as follows:

o 2,000 units were produced and sold.

o 110,000 pounds of material were purchased and used at a total cost of

$528,000.

5,600 direct labor hours were used during the month at a total cost of

$134,400.

o Variable overhead costs totaled $205,000.

Required:

e. Calculate the materials price variance and materials quantity variance

using the format shown in Figure 10.4 "Direct Materials Variance Analysis

for Jerry's Ice Cream". Clearly label each variance as favorable or

unfavorable.

f. Calculate the labor rate variance and labor efficiency variance using the

format shown in Figure 10.6 "Direct Labor Variance Analysis for Jerry's Ice

Cream". Clearly label each variance as favorable or unfavorable.

g. Calculate the variable overhead spending variance and variable overhead

efficiency variance using the format shown in Figure 10.8 "Variable

Manufacturing Overhead Variance Analysis for Jerry's Ice Cream". Clearly

label each variance as favorable or unfavorable.

h. List each of the six variances calculated in requirementsa, b, and c, and total

the variances to show one net variance. Clearly label the net variance as

favorable or unfavorable. Explain how this net variance relates to variable

cost of goods sold on the income statement.

i. Identify the highest favorable variance and highest unfavorable variance

from the six listed in requirement d, and provide one possible cause of each

variance.