Question 10 5.5 / 15 pts Oliveindustries uses a standard-costing system to assist in the evaluation of operations. The company has had considerable trouble in recent months with suppliers and employees, so much so that management hired a new production supervisor, Mr. Edward Sketch. The new supervisor has been on the job for five months and has seemingly brought order to an otherwise chaotic situation. The vice president of manufacturing recently commented that "... Sketch has really done the trick. The change to a new direct material supplier and Sketch's team-building/morale-boosting training exercises have truly brought things under control! The VP's comments were based on botti a plant tour, where he observed a contented workforce, and a review of the following data given to him by Mr. Sketch: NET Direct material variances $4,620 FAV NET Direct labor variances $6,175 FAV Olive Industries budgeted material and labor costs generally each average about $350,000 for similar periods. Additional data: The company purchased and consumed 45,000 pounds of direct materials at $7.70 per pound and paid $16.25 per hour for 20,900 direct-labor hours of activity Total completed production amounted to 9,500 units. Standard cost records show each completed unit requires 4.2 pounds of direct material at $8.80 per pound and 2.6 direct-labor hours at $14 per hour Required: SHOW ALL CALCULATIONS AND LABEL YOUR FINAL ANSWER 1. Calculate the following variances: MPV, MEV, LRV, LEV using the formulas used in all assignments. (4 points) DIL DDD 512 80 F9 F10 F FS Required: SHOW ALL CALCULATIONS AND LABEL YOUR FINAL ANSWER 1. Calculate the following variances: MPV, MEV, LRV, LEV using the formulas used in all assignments. (4 points) 2. Comparing your calculations just above to the initial net variances given in the problem, as the accountant, what would you explain to the vice president of manufacturing? Remember, the VP was pleased with the original information given to him by Mr. Sketch. This can be answered in a couple clear, concise sentences.) (3 points) 3. What specific relationships between the 4 variances can you identify and what conclusions would you draw? (5 points) 4. According to the theory of responsibility accounting, describe what Mr. Sketch should and should not be held accountable for. (3 points) Your Answer: MPV - (Actual price per input purchased - standard price per input purchased) actaul quatity purchased MPV - (7.7-8.8) 45,000 - 49500 Favorable 1. MEV - factual material quantity used - standard quantity allowed for the actual output achieved) standard price per input purchased MEV - (45000 - 39900) 8.8 - 44,800 Unfavorable LRV = (actual labor rate per hour - standard labor rate per hour) actual labor hours used LRV = (16.25 - 14) 20,900 - 47,025 Unfavorable LEV = (actual labor hours used - standard labor hours allowed for the output achieved) standard labor rate per hour LEV = (20900 - 24700) 14 = -53,200 Favorable 2. I would explain that we could improve on our material efficency whisk our materials price is good where its at. Since MPV is favorable the actual amount spent was less than the standard amount set in the budget. Secondly labor rate variances needs to be improved while the labor effiency is fine how it is. 3. Since the direct labor variance isnt efficient there is additional variable manufacturing overhead causing more inefficiencies. The company might not be blonde hattaccord the planned forces and DIE es 111 11 od FT Oo 80 FS F FI > A & $ delete # 3 8 9 7 5 6 4 2 { I 0 1 U Y T D
