Problem G - III Variance Analysis(24 points)

Hanson Company developed the following standard costs for its product for 2017:

Standard Cost Card

Unit Standard Cost

Direct materials(5 pounds @ $4 per pound)$20

Direct labor(4 hours @ $8 per hour)32

Manufacturing overhead

Variable(4 hours @ $4 per hour)16

Fixed(4 hours @ $3 per hour)12

$80

The company planned to work 100,000 direct labor hours and produce 25,000 units of product in 2017.

Actual results for 2017 are as follows:

1. 24,000 units of product were produced.
2. Actual direct materials purchased and used during the year amounted to 122,000 pounds at a cost of $475,800.
3. Actual direct labor costs were $779,000 for 95,000 direct labor hours worked.
4. Total actual manufacturing overhead incurred amounted to $685,000.

Instructions:Calculate the following variances showing all computations supporting your answers. Indicate if the variances are favorable (F) or unfavorable (U).

1.Direct materials price and direct material quantity variances.

2.Direct labor price and direct labor quantity variances.

3.Overhead controllable and overhead volume variances.

11) Columbia Manufacturing incurs unit costs of $15 ($9 variable and $6 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,000 of the assembly part at $11 per unit. If the offer is accepted, all variable costs and $1 of fixed costs per unit will be saved.

Instructions

1.Analysis to show whether Columbia Manufacturing should make or buy the assembly part.

2.Would your answer be different if Columbia could earn $25,000 of income with the facilities currently used to make the part?

12) The Omaha Division, an investment center of Nebraska Manufacturing Company, reported the following data for the current year.

Sales$4,000,000

Variable costs2,400,000

Controllable fixed costs300,000

Noncontrollable fixed costs400,000

Average operating assets3,600,000

Top management is unhappy with the center's return on investment (ROI). The manager of the Omaha Division believes ROI can be improved by the following independent alternatives:

1. Increase sales by 15% with no change in the contribution margin ratio.
2. Reduce controllable and noncontrollable fixed costs 30% each.
3. Reduce average operating assets by 20%.

Instructions:

1.Compute the return on investment for the current year.

2.Compute ROI under each alternative.