Question
SHIM & Fairfield Corporation manufactures a labor-intensive product. The cost standards developed by SHIM & Fairfield appear below. Manufacturing overhead at SHIM & Fairfield is
SHIM & Fairfield Corporation manufactures a labor-intensive product. The cost standards developed by SHIM & Fairfield appear below. Manufacturing overhead at SHIM & Fairfield is applied to production on the basis of standard direct labor-hours:
Standard Quantity Standard Cost per Standard cost per unit:
per unit: ounces or hour:
Direct Materials....... 0.75 ounces $20.00 $15.00
Direct Labor........... 1.2 hours $12.00 $14.40
Variable Overhead........ 1.2 hours $3.00 3.60
Fixed Overhead...... 1.2 hours $5.00 6.00
Total Standards Cost per Unit.... $39.00
The standards above were based on an expected annual volume of 8,000 units. The actual results for last year were as follows:
Number of Units Produced .... 8,200
Direct labor-hours incurred ..... 10,000
Ounces of direct materials purchased ..... 7,900
Ounces of direct materials used in production .......... 6,070
Total cost of direct materials purchased ....... $156,815
Total direct labor cost ...... $122,800
Total Variable overhead cost ...... $28,600
Total fixed manufacturing overhead cost .... $47,500
Required:
Compute the following variances for SHIM & Fairfield:
a. Compute the materials price variance, the materials quantity variance and total material variance.
b. Compute the labor rate variance, the labor efficiency variance and the total labor variance.
c. Compute the variable overhead rate variance, the variable overhead efficiency variance and the total variable overhead variance.
d. Discuss at least 2 advantages and 2 disadvantages of standard costing systems.
e. Compute the Fixed overhead budget variance and Fixed overhead volume variance.
Step by Step Solution
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