Question
Magnificent Toys Ltd. produces a toy called the Beadazzler. Overhead is applied to products on the basis of direct labour-hours. The company has recently implemented
Magnificent Toys Ltd. produces a toy called the Beadazzler. Overhead is applied to products on the basis of direct labour-hours. The company has recently implemented a standard cost system to help control costs and has established the following standards for the Beadazzler toys.
Direct materials: 6 microns per toy @ $1.00 per micron
Direct labour: 1.3 hours per toy @ $8 per hour
Variable mfg overhead: 1.3 hours per toy @ $4 per hour
Fixed mfg overhead: 1.3 hours per toy @ $6 per hour
During January, the company produced 6,000 Beadazzler toys. The fixed overhead expense budget for January was $48,360 with 8,060 direct labour-hours as the denominator level of activity. Production data for the month on the toys follow:
Direct materials: 50000 microns were purchased and used in production at a cost of $0.96 per micron
Direct labour: 8000 direct labour hours were worked at a cost of $72000
Variable manufacturing overhead: Actual cost in January was $34,000.
Fixed manufacturing overhead: Actual cost in January was $50,000.
1) Compute and name the eight variances for direct material, direct labour, variable and fixed manufacturing overheads. Calculate total variances where relevant to the variance.
2) Assume that the actual amount of direct materials used in production was only 40,000 with 10,000 transferred to inventory at the end of the month. What is the revised Direct Material Quantity variance?
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