Question
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
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 Kathy Kent, president of Kosak Company.Our $60,925 net manufacturing cost variance is only 1.175% of the $5,184,000 standard cost of products made during the year.Management has established a 3% of total standard costs materiality for variances.It looks like everyone will be in line for a bonus this year.
Note that standard cost of products made during the year means standard cost per unit x actual units produced.
The company produces and sells a single product.The standard (budgeted) cost per product is as follows:
Direct materials, 3 feet @ $12.68 per foot$38.03
Direct labor, 2.1 DL hours @ $24 per DLH50.40
Variable OH, 2.1 DLH @ $3.75 per DLH7.88
Fixed OH, 2.1 DLH @ $9 per DLH18.90
Standard Cost per unit$115.20
The following additional information is available for the year just completed:
- The company manufactured 45,000 units of product during the year.
- A total of 96,000 feet of material was purchased during the year at a cost of $12.83 per foot. All this material was used to manufacture the 45,000 units.There was no beginning or ending inventories for the year.
- The company worked 65,250 direct labor hours during the year at an actual direct labor cost of $23.70 per hour.
- Overhead is applied to costs based on standard direct-labor hours. Data relating to manufacturing overhead costs are as follows:Budgeted Denominator level activity (DLH)52,500 DLH
- Budgeted fixed OH (from the static & flexible budgets)$472,500
- Actual variable OH costs incurred$202,800
- Actual fixed OH costs incurred$475,750
Required (support your work for partial points):
- Compute the direct materials price and efficiency variances for the year
- Compute the direct labor price and efficiency variances for the year
- Compute the variable overhead spending and efficiency variances for the year.
- Compute the fixed overhead spending and production-volume variances for the year.
- Total the variances you have computed, and compare the net amount (net favorable and unfavorable variances) with the $60,925 net variance mentioned by Ms. Kent. Did your numbers come out to the same?
- Do you agree that bonuses should be given to everyone for good cost control during the year?
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