LO.5 (Variances and conversion cost

category) Auto Brakes Inc. manufactures

brake rotors and has always applied overhead

to production using direct labor hours.

Recently, company facilities were automated,

and the accounting system was revised to

show only two cost categories: direct material

and conversion. Estimated variable and fixed

conversion costs for the current month were

$408,000 and $182,400, respectively.

Expected output for the current month was

12000 rotors and the estimated number of

machine hours was 24,000. During July 2010,

the firm actually used 21,600 machine hours to make 11,520 rotors while incurring $527,200 of conversion costs. Of this amount $360,000 was variable cost.

a. Using the four-variance

approach, compute the variances

for conversion costs.

b. Evaluate the effectiveness of the

firm in controlling the current

month's costs.

Crop and scale