FMGT 2294

Assignment Variance Analysis

Question 1

Chisholm Company produces several products, including a karate robe. The company uses a standard cost system to assist in cost control. According to the standards that have been set for the robes, the factory has a denominator level of activity of 780 direct labour hours which should result in the production of 1,950 robes. The standard costs associated with this level of production are as follows:

	Total	$ per unit of product
Direct materials	$35,490	$18.20
Direct labour	7,020	3.60
Variable manufacturing overhead*	2,340	1.20
Fixed manufacturing overhead*	4,680	2.40
		$25.40

* Based on direct labour hours

During May, the factory worked only 760 direct labour hours and produced 2,000 robes. The following actual costs were recorded during the month:

	Total	$ per unit of product
Direct materials (6,000 metres)	$36,000	$18.00
Direct labour	7,600	3.80
Variable manufacturing overhead*	3,800	1.90
Fixed manufacturing overhead*	4,600	2.30
		$26.00

At standard, each robe should require 2.80 metres of material. All of the materials purchased during the month were used in production.

Required:

Compute the following variances for April:

The materials and quantity variances

The labour rate and efficiency variances

The variable manufacturing overhead spending and efficiency variances

The fixed overhead budget and volume variances

Question 2

You work in the accounting department of Frobisher Company, a manufacturing company that produces a popular consumer product. You typically prepare the variance analysis report and present it to the management committee for their review. Unfortunately, the accounting system has been down and the information you have is incomplete. However, you want to impress the management committee by preparing the variance analysis on a timely basis.

You recall that manufacturing overhead cost is applied to production on the basis of direct-labour hours and that all of the materials purchased during the period were used in production. The standard costs for production are presented as follows:

Direct materials, 9 kilograms @ $3.00 per kilogram	$27.00
Direct labour, 1.2 direct labour hours @ $15.00 per direct labour hour	18.00
Variable manufacturing overhead, 1.2 direct labour hours @$3.00 per direct labour hour	3.60
Fixed manufacturing overhead, 1.2 direct labour hours @$7.00 per direct labour hour	8.40
	$57.00

The following table presents the information and analysis that you had generated before the accounting system went down:

	Total Standard Cost	Price or Rate Variance	Spending or Budget Variance	Quantity or Efficiency Variance	Volume Variance
Direct materials	$202,500	$3,450F		$4,500U
Direct labour	$135,000	$7,275U		$10,500U
Variable manufacturing overhead	$27,000		$650F
Fixed manufacturing overhead	$63,000		$250F		$7,000U

In order to be prepared for the management committee meeting, you want to generate the missing variances and also have the necessary backup data ready.

Required:

How many units were produced last period?

How many kilograms of direct material were purchased and used in production?

What was the actual cost per kilogram of material?

How many actual direct-labour hours were worked during the period?

What was the actual rate paid per direct labour hour?

How much actual variable manufacturing overhead was incurred during the period?

What is the total fixed manufacturing overhead cost in the companys flexible budget?

What were the denominator direct labour hours for the last period?