Question
Hill Bikes Unlimited uses a flexible budget and standard costs to aid planning and control of its bicycle production.You recently accepted a position with Hill
Hill Bikes Unlimited uses a flexible budget and standard costs to aid planning and control of its bicycle production.You recently accepted a position with Hill Bikes and as part of your duties, you must review the variances and make a presentation to the company's executive committee (which is not made up of trained accountants).
As in the real world, sometimes things happen.Assume that the material you prepared was placed on top of some papers going into the shredder.(You know where this story is going.....)After you realize your mistake, you rush into the shredding room to find that some of your pages and data have been shredded.This is all that is left:
Standard or budgeted costs and quantities:
Direct materials2.0 meters of aluminum at $16 per meter
Direct labor2 hours at $15 per hour
Variable OHBased on DL hrs, the standard or budgeted VOH rate is $9
Fixed OH Based on DL hrs, the standard or budgeted FOH rate is $23
Total Costs allowed for the actual quantity of output (flexible budget)
Direct Materials $608,000
Direct Labor$570,000
Variable OH$342,000
VariancesPrice (or spending) varianceEfficiency variance
Direct Materials $25,000 Fav$ 32,000 Unfav
Direct Labor$30,000 Unf$30,000 Unfav
Variable OH$8,000 FavjQuery22409452708948044224_1596668028199??
Fixed OH$6,000 Fav????
Direct Materials price var per meter = $0.50 Fav
The Budgeted quantity of bikes is 20,000 units.
1.What was the actual quantity of bikes produced?
2.How many meters of direct materials were actually purchased? (Hint: Use the variance and your knowledge of the budgeted price for materials to solve for actual price; then solve for the quantity.)
3.Is VOH underapplied or overapplied?By how much?Is FOH underapplied or overapplied?By how much?
4.Explain the Production volume variance (PVV)?
5.Identify at least 3 of the variances (not the PVV) and explain to the executive board what the variances indicate.How is the firm doing?
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