Question 3

Part A

Luna Company had planned to produce 160,000 units of widgets, however it actually produced 176,000. The Company uses machine hours to assign overhead to products. Each unit requires 0.6 standard machine. The fixed overhead rate is $13 per machine hour and the variable overhead rate is 7.16 per direct labour hour.

Required:

1. Calculate the total allocated fixed overhead

[2 marks]

1. Calculate the budget fixed overhead

[2 marks]

1. Using the spending variance calculate the actual fixed overhead

[3 marks]

1. Calculate the total allocated variable overhead.

[3 marks]

Part B

Bella produces a variety of makeup items and has developed the following standard costs for five overhead items:

Overhead Item	Total Fixed Cost	Variable Rate per Direct Labour Hour
Rent	$55,000
Electricity		$ 0.65
Indirect Labour	180,000	2.15
Repairs	92,000	0.15
Cleaning	80,000

Next year Bella expects production to require 95,000 direct labour hours. Assume that actual production required 100,000 direct labour hours at standard.

The actual overhead costs incurred were as follows:

Rent	55,000	Electricity	48,600
Indirect Labour	360,000	Repairs	85,000
Cleaning	78,200

Required:

1. Prepare a performance report for the period based on actual production

[8 marks]

Part C

At the start of the year Bella had the following standard cost sheet for one of its makeup products:

Direct Materials (2 kilograms @ $15)

Direct Labour (3 hours @ $18)

The actual results for the year were:

Units produced 225,000

Materials purchased 565,000 kilograms at $14.50

Material used 562,500 kilograms

Direct labour 460,000 hours $17.85

Required:

1. What is the standard prime cost per unit

[1 mark]

1. Compute the price and usage variances for materials

[3 marks]

1. Compute the labour rate and labour efficiency variances

[3 marks]