QUESTION ONE:

Comprehensive Standard Cost Variances

Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the $12,250 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card -Per Unit

Direct materials, 4 metres at $3.50 per metre $14

Direct labour, 1.5 direct labour-hours at $12 per direct labour-hour 18

Variable overhead, 1.5 direct labour-hours at $2 per direct labour-hour 3

Fixed overhead, 1.5 direct-labour hours at $6 per direct labour-hour 9

Standard cost per unit 44

The following additional information is available for the year just completed:

a. The company manufactured 20,000 units of product during the year.

b. A total of 78,000 metres of material was purchased during the year at a cost of $3.75 per metre. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year.

c. The company worked 32,500 direct labour-hours during the year at a cost of $11.80 per hour.

d. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow:

Denominator activity level (direct labour-hours) 25,000

Budgeted fixed overhead costs (from the flexible budget) $150,000

Actual fixed overhead costs $148,000

Actual variable overhead costs $68,250

Required:

1. Compute the direct materials price and quantity variances for the year.
2. Compute the direct labour rate and efficiency variances for the year.
3. For manufacturing overhead, compute the following:
   1. The variable overhead spending and efficiency variances for the year.
   2. The fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount with the $12,250 mentioned by the vice-president Do you think that everyone should be congratulated for a job well done? Explain.