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Standard Costs Module Problem Due: No later than 11:55 p.m. on March 31 Merlin makes fireworks to be sold around the world. The standard costs

Standard Costs

Module Problem

Due: No later than 11:55 p.m. on March 31

Merlin makes fireworks to be sold around the world. The standard costs for the most popular product, the Druid Rocket that initially looks like a green tree, with leaves that turn red and gold and then drop to the ground, is as follows:

DM (5.6 pounds of gunpowder @ $5 per pound) $28

DL (30 minutes @ $20/hour) 10

VOH (2 MH @ 4.5/hour) 9

FOH (2 MH @ 15.50/hour) 31

TOTAL COST $78

The DM price standard was computed based on the desired quality of gunpowder and includes an expected quantity discount. Shipping and import fees are paid for by the supplier. A use of hazardous materials fee is assessed by the government. The DM quantity standard is based on the amount required to fill the chamber with the exact right combination of colours. Any carelessness in production can cause explosions. Also, if the colours are not precisely correct, the rockets fail the quality control inspection.

The DL rate standard is based on the average hourly wage adjusted for benefit, which are very liberal in this firm. The DL quantity standard is based on the amount of time required to fill and seal the chamber. There is an adjustment for productivity failures, as well as explosion before sealing and quality control failures.

During the month of July, the firm produced 15,200 of the Druid Rockets. Direct labor hours related to this product were 7,210 for a total cost of $148,400. During July, 432,500 pounds of gunpowder was purchased at a total cost of $2,194,500. Gunpowder used for Druid Rockets was 90,120 pounds.

The firm applies overhead on the basis of machine hours. During July, a total of 143,500 machine hours were worked. The overhead rates are based on expected production requiring 150,000 machine hours.

The budgeted amounts for variable overhead were:

Cleaning $150,000

Utilities 450,000

Royalties on machines 75,000

The budgeted amounts for fixed overhead were:

Depreciation 754,000

Insurance 540,000

Supervisor Salary 479,000

Rent 552,000

The actual amounts for variable overhead were:

Cleaning $135,200

Utilities 426,100

Royalties on machines 71,750

The actual amounts for fixed overhead were:

Depreciation 754,000

Insurance 508,200

Supervisor Salary 481,000

Rent 554,200

Required:

  1. Compute the two direct material variances.
  2. Compute the two direct labor variances.
  3. Prepare a flexible budget analysis for overhead. Do this for the firm as a whole, not just for Druid Rockets.

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