Assignment #4 - Using the data below answer the 25 questions below (show your work)

Hellier Contractors paints interiors of residences and commercial structures. The firm's management has established cost standards per 100 square feet of area to be painted:

Direct material ($18 per gallon of paint): $1.50 (so, 1 gallon should paint 1,200 square feet)

Direct labor: 2.00

Variable overhead (based on DLH): 0.60

Fixed overhead (based on DLH): 1.25 (based on 600,000 square feet per month)

Management has determined that 400 square feet can be painted by the average worker each hour. During May, the company painted 600,000 square feet of space and incurred the following costs:

Direct material (450 gallons purchased and used): $ 8,300.00

Direct labor (1,475 hours): 12,242.50

Variable overhead: 3,480.00

Fixed overhead: 7,720.00

Hints:

1) Note that standards are given for a 100 sq. ft. job. BUT, also note that the problem tells you a typical worker can paint 400 sq. ft. in ONE HOUR. So, the predetermined OH rates are either, VOH, .60 per 100 sq. ft. or 2.40 per 400 sq. ft. or per standard hour of work allowed for the actual work done and, FOH, 1.25 per 100 sq. ft. or 5.00 per 400 sq. ft. or standard hour of work allowed. Also, materials standard is 1/12 of a gallon for 100 sq. ft. ($18 per gallon but the standard price for the 100 sq. ft is $1.50 = 18/12).

2) The FOH budget and the predetermined rate are specified at a typical/normal 600,000 sq. ft. month. So, how many hours of work we are allowed or expect in a month? Note: 1500 hours. Were we efficient this month? If yes, both Labor and VOH efficiency variances must be (F), if not, they must be (U).

3) Note that we actually painted 600,000 sq. ft. this month - exactly what we planned. So, what is the FOH Volume variance when you actually work exactly what you plan? By the way, what was the FOH budget that led to the 1.25 per 100 sq. ft. or 5.00 per hour (400 sq. ft.) predetermined rate?

4) Note that overhead rates (both variable and fixed) are based on direct labor hours or 400 sq. ft. of painting since a painter paints 400 sq. ft. per hour. So, the VOH spending variance will depend on the difference of actual VOH spending and the VOH rate applied to the actual base (i.e., labor hours) used. The VOH efficiency variance will be based on the difference between actual DL hours used and the DL hours that should be used to paint the 600000 sq. ft.

5) For FOH variances, the spending variance depends on the actual spending and the FOH budget (that is why I asked you to figure out the FOH budget). The volume variance depends on the difference between the FOH budget and the FOH rate applied to the DL hours that should be used to paint the 600000 sq. ft.

6) All first step variances are (U) except the VOH Spending Variance which is (F) and all of the second step variances are (F) except the volume variance - I am not saying what it is.

7) Some answers: TOTAL variances (price and usage combined in a given category - I will not tell the individual ones, that is your job): Materials - 700 (F); Labor: 242.5 (U); VOH: 120 (F); and FOH 220 (U).

Answer the following question [always specify if a variance is (F) or (U)]

OH Questions:

1. Determine the variable overhead spending/price variance.

2. Was the variable overhead spending/price variance favorable or unfavorable?

3. Determine the variable overhead efficiency variance.

4. Was the variable overhead efficiency variance favorable or unfavorable?

5. Determine the Total Variable Overhead Variance.

6. Was the Total Variable Overhead Variance favorable or unfavorable?

7. Determine the fixed overhead spending/price variance.

8. Determine the fixed overhead volume variance.

9. Determine the Total Fixed Overhead Variance.

10. Was the Total Fixed Overhead Variance favorable or unfavorable?

Last Question:

11. Identify other cost drivers (other than SF) that could be used as a basis for measuring activity and computing variances for this company.Check all that could apply to this company.

Number of brush cleanings

number of rooms painted

number of hours worked

number of jobs worked per month

number of hours of use of the paint sprayers