Question
The Frazier Company's Crosby Plant produces precast ingots for industrial use. Robin Black, who was recently appointed general manager of the Crosby Plant, has just
The Frazier Company's Crosby Plant produces precast ingots for industrial use. Robin Black, who was recently appointed general manager of the Crosby Plant, has just been handed the plant's income statement for October 2023. The statement reports an actual profit of $61,845 compared to a budgeted profit of $94,500. The plant standard cost of producing an ingot is presented below:
Standard Quantity | Standard price/rate | Standard Cost | |
Direct Materials | 5.0 pounds | $3.00 per pound | $15.00 |
Direct Labor | 0.5 hours | $22.00 per hour | $11.00 |
Variable Overhead | 5 machine hours | $5.00 per DL hour | $25.00 |
Fixed overhead | 0.5 DL hours | $32.00 per DL hour | $16.00 |
Total | $67.00 |
Ms. Black has determined that during the month of October the plant produced and sold 5,250 units (1,000 units more than budgeted) and incurred the following costs:
Purchased 9,000 pounds of materials at a cost of $2.75 per pound (total cost of $24,750).
Used 26,000 pounds of materials in production. (Finished goods and work in process inventories are nominal and can be ignored.)
Worked 3,800 direct labor-hours at a total cost of $85,550 (or $22.50 per hour) Incurred total variable overhead costs for the month of $135,820.
Incurred total fixed overhead costs for the month of $95,000. It is the company's policy to isolate the materials price variance upon purchase of raw materials. Variances are closed to cost of goods sold at the end of the fiscal year (January 31 of each year).
A) Compute the following variances for the month of October 2002
I) Direct materials price ii) Direct materials quantity
ii) Direct labor efficiency
iii) Variable overhead spending
iv) Fixed overhead efficiency
v) Fixed overhead volume
B) Identify the two most significant variances that you computed in A). Explain to Ms. Black the possible causes of these variances.
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