"Fantastic! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Eric Hogan, president of Pacific Company. "Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,536,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year."
The company produces. and sells a single product. The standard cost card forthe product follows: Standard Cost lCardper Unit Direct materials, 200 feet at $5.45 per foot Direct labor, 1.4 direct labor-hours at $15 per direct labor-hour 1v'anal:ile overhead, 1.4 direct laborhours at $2.50 per direct Iaoorhour Fixed overhead, 1.4 direct laborh ours at $5.00 per direct laborhour Standard cost per unit The following additional information is available for the year just completed: I The company manufactured 30,000 units of product during the year. A total of 54,000 feet of material was purchased during the year at a cost of $5.55 per foot. ll gt this material was used to manufacture the 30,000 units. There were: no beginning or ending inventories for the year. The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.50 per hoUL Overhead is applied to products g[1_th_e_p_a_s_is_gf_ standard direct laborhours. Data relating to manufacturing overhead costs follow: Denominator activity,r level {direct Iahorhou rs} - 35.0% Budgeted xed overhead costs 21U,DDD Actual variable overhead costs incurred 108,900 Actual xed overhead costs incurred 211,300 Required: Compute the materials price and quantity.r variances for the vear. [Round Standard Price and Actual Price to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable. "If" for unfavorable, and "None" for no effect [i.e., zero variance].] Compute the labor rate and efciencv variances for the vear. [Round Standard Rate and Actual Rate to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect [i.e., zero variance\" The variable overhead rate and efficiencv variances for the year. [Round Standard Rate and Actual Rate to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect [i.e., zero variance].] The xed overhead budget and volume variances for the year. [Indicate the e'ect breach variance by selecting 'F' for favorable. \"II" for unl'avorable. and "None" for no effect [i.e.. zero variance] .] The analysis should inform 1.rour evaluation of the president's view that bonuses should be given to everyone for good cost control during the 1.rear. ldentiflrr the major problems and explain how they impact the organization? Consider both behavioral and analytical factors. How might managerial amounting concepts, tools, or techniques be applied to help resolve the problem? What are possible consequences
