Question
Green River Inc. established the following standards for its principal product, a kit to convert ordinary lawn mowers into mulching mowers: Direct Materials: Blades 2
Green River Inc. established the following standards for its principal product, a kit to convert ordinary lawn mowers into mulching mowers:
Direct Materials:
Blades 2 blades @ $13 per blade
Adaptors 1 kit @ $6 per adaptor
Direct Labor:
Grinding hour @ $14 per hour
Finishing & Testing 2/3 hour @ $12 per hour
Overhead
Variable (unit level) $8 per machine hour
Batch Level (total) 50 material moves @ $150 per move
Facility (total) 7,000 square feet @ $2 per square foot
The standard variable overhead cost per conversion kit is $2.
Traditionally, all overhead is applied on the basis of machine hours.
For ABC budgeting, one material move is allowed for every 100 kits produced. The budgeted fixed portion of the batch level cost is $500.
Planned production and sales for the year was 5,000 conversion kits. The planned selling price per kit is $50.
Actual Results
Kits produced & sold 5,200 (this is within the relevant range)
Actual selling price per kit $48
Materials:
Blades Purchased 11,300 blades @ $12.75 per blade
Blades Used 10,900 blades
Adaptors Purchased 5,900 @ $5.60 per adaptor
Adaptors Used 5,650 adaptors
Labor, Grinding 2,800 hours, total cost $42,000
Labor, Finishing & Testing 3,700 hours, total cost $45,325
Machine hours used 1,325 machine hours
Variable Overhead $11,455
Batch Level Overhead (total) $7,938 (54 moves)
Batch Level Overhead (variable) $7,200
Facility Level Overhead $14,500 (7,000 square feet)
A. Prepare the flexible manufacturing cost budget for the years actual output.
B. Calculate the sales variances.
C. Calculate the material variances.
D. Calculate the labor variances.
E. What is the unit quantity standard for variable overhead? In other words, how many machine hours are allowed for each conversion kit?
F. Calculate the variable (unit level and variable batch) and fixed (fixed batch and facility) overhead variances. Then sum them to get the total of each type of overhead variance. (One set of values for total variable OH variances, one set of values for total fixed OH variances).
G. Prepare appropriate journal entries for C, D, & F.
H. Calculate the total amount (variable, batch & fixed) of over or under applied overhead.
I. Prepare the journal entries to close the variance accounts. The following balances before allocating variances are:
- Raw Materials, $5,000
- WIP, $8,000
- Finished Goods, $12,000
- COGS, $60,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started