Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.

The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were:

Cost Pools		Costs	Activity Drivers
Receiving	$	600,000	Direct material cost
Manufacturing		5,500,000	Machine-hours
Machine setup		900,000	Production runs
Shipping		1,000,000	Units shipped

In this particular area, Cain produces two of its many products: Standard and Deluxe. The following are data for production for the latest full year of operations.

	Products
	Standard			Deluxe
Total direct material costs	$	245,000		$	155,000
Total direct labor costs	$	650,000		$	250,000
Total machine-hours		150,000			100,000
Total number of setups		75			125
Total pounds of material		18,000			9,000
Total direct labor-hours		6,000			3,750
Number of units produced and shipped		20,000			5,000
W

Required:

a-1. Compute the totals of the cost driver rates shown below. a-2. What unit product costs will be reported for the two products if the revised ABC system is used?

Prefab Pools Company produces large prefabricated in-ground swimming pools made of a specialized plastic material. The master budget shows the following standards information and indicates the company expected to produce and sell 600 units for the month of April.

Direct materials 500 pounds per unit at $7 per pound

Direct labor 46 hours per unit at $12 per hour

Variable manufacturing overhead

46 direct labor hours per unit at $30 per hour

Prefab Pools actually produced and sold 580 units for the month.

During the month, the company purchased 330,000 pounds of

material for $2,277,000 and used 295,800 pounds in production. A

total of 25,520 labor hours were worked during the month at a cost

of $313,896. Variable overhead costs totaled $790,000 for the month.

Required:

1. Calculate the materials price variance and materials

quantity variance using the format shown in Figure 4.4

Direct Materials Variance Analysis for Jerrys Ice Cream.

Clearly label each variance as favorable or unfavorable.

2. Calculate the labor rate variance and labor efficiency

variance using the format shown in Figure 4.6 Direct

Labor Variance Analysis for Jerrys Ice Cream. Clearly label

each variance as favorable or unfavorable.

3. Calculate the variable overhead spending variance and

variable overhead efficiency variance using the format

shown in Figure 4.8 Variable Manufacturing Overhead

Variance Analysis for Jerrys Ice Cream. Clearly label each

variance as favorable or unfavorable.