EXERCISE 10-6 Direct Materials and Direct Labor Varlances L010-1, L010-2 Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Standard Quantity or Hours Standard Cost Standard Price or Rate $2.50 per pound $18.00 por hour Direct materials. Direct labor.. 4.6 pounds 0.2 hours $11.50 $3.60 a. During the most recent month, the following activity was recorded: Twenty thousand pounds of material were purchased at a cost of $2.35 per pound. b. All of the material purchased was used to produce 4,000 units of Zoom. C. 750 hours of direct labor time were recorded at a total labor cost of $14,925. Required: 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month. Table Word File Edit View Insert Format Tools Revision questions Saved to B Share Com Draw Design Layout References Tell me A. Ar Paragraph Font Styles Dictate Sensitivity 119.34 LO19.5 (ora odapte Special order; financial and production considerations: manufacturer Mercury Skateboard Company manufactures skateboards. Several weeks ago, the firm received an inquiry from Venus Ltd. Venus wants to market a skateboard similar to one of Mercury's, and has offered to purchase 1 000 units if the order can be completed in three months. The cost data for Mercury's Champion model skateboard are: $ 8.20 Direct material 2.25 Direct labour (0.125 hours $18 per hour) 10.00 Total manufacturing overhead: (0.5 machine hours as20 per hour) Total $20.45 The following additional information is available The normal selling price of the Champion model is $26.50, however, Venus has offered Mercury only $15.75 because of the large quantity it is willing to purchase Venus requires a modification of the design that will allow a $2.10 reduction in direct material cost Mercury's production supervisor notes that the company will incur 5700 in additional setup costs and will have to purchase a $2400 special device to manufacture these units. The device will be discarded once the special order is completed Total manufacturing orchead costs we applied to production at the rate of $20 per machine how This figure is based in part, on budgeted yearly fixed overhead of $750 000 ard planned production city of 60 000 machine hours (5000 per month). Mercury will allocate $10 of existing fixed administrative costs to the order as part of the cost of doing business Required assume that present sales will not be affected. Should the order to accepted from a financial point view. That is, is it profitable? Why? Show calculations 2. Assume that Mercury's current production activity consumes 70 per cent of planned machine-hour activity. Can the company accept the order and meet Venus' deadline? 3 what options might Mercury consider if management truly wanted to do business with Venus in hopes of building a long-term relationship with the firm
