Question
STU Products uses standard costing. It allocates manufacturing overhead (both variable and fixed) to products on the basis of standard direct manufacturing labour-hours (DLH). STU
STU Products uses standard costing. It allocates manufacturing overhead (both variable and fixed) to products on the basis of standard direct manufacturing labour-hours (DLH). STU Products develops its manufacturing overhead rate from the current annual budget. The manufacturing overhead budget for 2017 is based on budgeted output of 672,000 units, requiring 3,360,000 DLH. The company is able to schedule production uniformly throughout the year.
A total of 72,000 output units requiring 321,000 DLH was produced during May 2017. Manufacturing overhead (MOH) costs incurred for May amounted to $355,800. The actual costs, compared with the annual budget and 1/12 of the annual budget, are as follows:
Annual Manufacturing Overhead Budget 2017
Total Amount
Per Output Unit
Per DLH Input Unit
Monthly MOH Budget May 2017
Actual MOH Costs for May 2017
Variable MOH
Indirect mfg labour
$1,008,000
$1.50
$0.30
$84,000
$84,000
Supplies
672,000
1.00
0.20
56,000
117,000
Fixed MOH
Supervision
571,200
0.85
0.17
47,600
41,000
Utilities
369,600
0.55
0.11
30,800
55,000
Depreciation
705,600
1.05
0.21
58,800
58,800
Total
$3,326,400
$4.95
$0.99
$277,200
$355,800
Calculate the following amounts for STU Products for May 2017:
1. Total manufacturing overhead costs allocated
2. Variable manufacturing overhead spending variance 3. Fixed manufacturing overhead spending variance
4. Variable manufacturing overhead efficiency variance 5. Production-volume variance
Be sure to identify each variance as favourable (F) or unfavourable (U).
Part 2
ABC Manufacturing Company's costing system has two direct cost categories: direct materials and direct manufacturing labour. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard DMLH. At the beginning of 2018, ABC adopted the following standards for its manufacturing costs:
Input
Cost per Output Unit
Direct materials
3 kg at $5 per kg
$ 15
Direct manufacturing labour
5 hours at $15 per hour
75
Manufacturing overhead:
Variable
$6 per DMLH
30
Fixed
$8 per DMLH
40
Standard manufacturing cost per output unit
$160
The denominator level for total manufacturing overhead per month in 2018 is 40,000 DMLH. ABC's flexible budget for January 2018 was based on this denominator level. The records for January indicate the following:
Direct materials purchased
25,000 kg at $5.20/kg
Direct materials used
23,100 kg
Direct manufacturing labour
40,100 hours at $14.60/hour
Total actual manufacturing overhead (variable and fixed)
$600,000
Actual production
7,800 output units
1. Prepare a schedule of total standard manufacturing costs for the 7,800 output units in January 2018
2. For January 2018, calculate the following variances, indicating whether each is favourable (F) or unfavourable (U):
a. Direct materials rate variance, based on purchases. b. Direct materials efficiency variance.
c. Direct manufacturing labour rate variance.
d. Direct manufacturing labour efficiency variance.
e. Total manufacturing overhead rate variance. f. VMOH efficiency variance.
g. Production-volume variance
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