Demismell Company produces a well-known cologne. The standard manufacturing cost of the cologne is described by the following standard cost sheet:

Management has decided to investigate only those variances that exceed the lesser of 10 percent of the standard cost for each category or $20,000.

During the past quarter, 250,000 four-ounce bottles of cologne were produced. Actual activity for the quarter is described below.

a. A total of 1.15 million ounces of liquids were purchased, mixed, and processed. Evaporation was higher than expected (no inventories of liquids are maintained). The price paid per ounce averaged $0.27.

b. Exactly 250,000 bottles were used. The price paid for each bottle was $0,048.

c. Direct labor hours totaled 48,250 with a total cost of $622,425.

d. Variable overhead costs totaled $239,000.

e. Fixed overhead costs were $50,500.

Normal production volume for Demismell is 250,000 bottles per quarter. The standard overhead rates are computed using normal volume. All overhead costs are incurred uniformly throughout the year.

REQUIRED:

1. Calculate the upper and lower control limits for each manufacturing cost category.

2. Compute the total materials variance and then break it into price and usage variances. Would these variances be investigated?

3. Compute the total labor variance and break it into rate and efficiency variances. Would these variances be investigated?

4. Compute all overhead variances. Would any of them be investigated? Would you recommend a different approach to deal with overhead? Explain.

Direct materials