Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gotham Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor hours. The following data are taken

  1. Gotham Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor hours. The following data are taken from the company's planning budget for the current year:
Denominator activity (direct labor hours) 5,000
Variable manufacturing overhead cost $25,000
Fixed manufacturing overhead cost $59,000

The standard cost card for the company's only product is given below:

Inputs
  1. Standard Quantity or Hours
  1. Standard Price or Rate
Standard Cost (1) x (2)
Direct materials 3 yards $4.40 per yard $13.20
Direct labor 1 hour $12 per hour 12.00
Manufacturing overhead 1 hour $16.80 per hour 16.80
Total standard cost per unit $42

During the year, the company produced 6,000 units of product and incurred the following actual results:

Materials purchased, 24,000 yards at $4.80 per yard $115,200
Materials used in production (in yards) 18,500
Direct labor cost incurred, 5,800 hours at $13 per hour $75,400
Variable manufacturing overhead cost incurred $29,580
Fixed manufacturing overhead cost incurred $60,400

Required:

  1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.
  2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.
  3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.
  4. What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the volume variance a controllable variance from a spending point of view? Explain.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Organizational Behavior Improving Performance And Commitment In The Workplace

Authors: Jason Colquitt

8th Edition

126412435X, 9781264124350

More Books

Students also viewed these Accounting questions