Isnt it lovely? Glinda Gadfly directed the question to her young assistant, Tommy Torch. The variance is so teeny-weeny after all the problems weve had controlling costs around here. And its favorable! She was looking at the bottom line of the variance report Tommy had prepared for the most recent quarter. Gadfly would be sharing the report to her upper management team: Quarterly Variance Report: Prepared by Tommy Torch, Young Assistant to Ms. Gadfly Total actual direct material costs $ 280,800 Total standard direct material costs 280,000 800 U Total actual direct labor costs 350,750 Total standard direct labor costs 360,000 (9,250) F Total actual overhead costs 2,039,050 Total standard overhead costs 2,040,000 (950) F Total overall manufacturing variance $(9,400) F Glenda Gadfly was the Vice President of Manufacturing. She usually blamed Tommy for her cost overruns, but this time she had little to complain about. Its about time your numbers finally showed the quality work Ive been doing. Just look at that labor cost relative to the standard. I knew we could save money around here by hiring cheaper workers! Yes, indeed, Ms. Gadfly. You should be very proud. The $9,400 favorable manufacturing variance is a beauty. Ahem, Tommy added nervously, clearing his throat, since its such great news, do you think I can have a raise? Not so fast, Tommy Torch, Glinda snarled. Not for you, young man. Any raise around here is going to be mine! Then she forced a smile. But you keep playing your cards right, Tommy, and well see what happens a few years down the road. Dont you worry, she said, poking his shoulder playfully. There will be something for you someday. She told Tommy to be prepared to back her up in the management conference, and then she left Tommys office. In her absence, he mulled the matter over in his mind. He pulled out the standard cost card for the companys single product. Standard Cost Per Unit of the Companys Only Product Direct materials, 4 ounces at $3.50 per ounce $14.00 Direct labor, 1.5 hours at $12 per hour 18.00 Variable overhead, 1.5 hours at $62.00 per hour 93.00 Fixed overhead, 1.5 hours at $6.00 per hour 9.00 Total standard cost per unit $134.00 Tommy seemed to remember some stuff a bearded professor talked about in one of his accounting classes at college. Tommy found his old Managerial Accounting class notes and studied them again. Something about offsetting , he muttered to himself, what was that? Then he did some police work and determined the following for the quarter just completed: The company manufactured 20,000 units of product during the quarter. A total of 78,000 ounces of material was purchased during the quarter at a cost of $3.60 per ounce. All of this material was used to manufacture the 20,000 units produced this quarter. He knew this because there were no beginning or ending inventories for the stuff. The company worked 30,500 direct labor hours during the quarter at an average cost of $11.50 per hour. Data relating to manufacturing overhead costs were as follows: Denominator activity level (expected direct labor hours) 25,000 Budgeted fixed overhead costs $150,000 Actual fixed overhead costs $145,000 Actual variable overhead costs $ 1,894,050 Tommy went to work to calculate all the variances he learned about in his college days. He wondered if the upper management team would be impressed with his work. Instructions: Assume the role of Tommy Torch and perform the following: 1. Compute the materials price and quantity variances. 2. Compute the labor rate and efficiency variances. 3. Compute the overhead variances: a. Variable overhead rate and efficiency variances. b. Fixed budget and volume variances. 4. Prepare a schedule that itemizes each of the variances and their sum total. 5. Based on your analysis of the above, what important insights can you bring to the upper management team? For this requirement, just make the kind of reasonable inferences about variance interactions from the numbers we discussed in class.