Topic: Standard Costing

Analysis Exercise

Natures Xmas, Inc. produces Christmas decorations from items such as sand from the beaches of Lake Erie, snowberries, maple leaves, etc. One of its most popular items is a large glass box filled with colorful items that are symbolic of various Christmas-related themes. The firm uses a standard costing system.

Standards for the glass box item were determined based on the following information:

Glass boxes are purchased in crates of 100. Each crate costs $500 plus 8% for insurance. Natures pay shipping costs which amount to $50 per crate. Once the glass boxes arrive at the production facility, a hole must be drilled to allow filling. Two in 10 boxes break during this process. The broken boxes have no use and must be discarded (the firm dumps them into Lake Erie so there are no recycling charges). Quality control failures amount to 3%

The elves that do the labor on the boxes are paid an average wage of $15 per hour. It takes 20 minutes to drill the hole in each box and another 10 minutes to fill the box. (The cost of the materials used in filling the boxes is insignificantmost are acquired for literally nothing.) Elves are expected to be productive 90% of the time. Benefits for the elves amount to 25% of their total pay.

During October, the firm purchased 7,500 glass boxes at a total cost of $52,400. 5,840 units of product were produced. A total of 3,545 direct labor hours were required and 6,350 glass boxes were used. The total payroll for this product was $70,342. Each box required 0.5 machine hours to complete.

Overhead is applied on the basis of machine-hours. The variable overhead rate is $5.10 per machine hour and the fixed overhead rate is $12 per machine hour. These rates are based on long-term averages and a practical capacity of 50,000 machine hours per month.

It might help to know that elves are very careless, and accidents occur during production on a regular basis. Also, the more highly paid an elf is, the more careless and the messier she is.

For October, it was expected that 50,000 machine hours would be worked.

For the entire firm, 53,000 machine hours were worked. The firm employed 350 FTE workers. It was necessary to hire some part-time people. Total payroll amounted to $925,400.

Question) Refer to the solution PROVIDED IN THE PICTURES ABOVE. What do the four direct cost variances and flexible budget analysis, taken as a whole, tell you about the production process during October? What recommendations do you have for management?

Hint: do not just analyze the variances one by one. Try to look at them in relation to each other.

Hi, there - please provide me a theoretical answer to QUESTION 5 ONLY Please :) Appreciate it!

7.61 STANDARD COST CARD DM (1.29 boxes @ $5.90 per box) DL (.67 hours @ $18.75 per hour) VOH (0.5 MH @ $5.10 per MH) FOH (0.5 MH @ $12.00 per MH Unit Cost 12.56 2.55 6.00 $ 28.72 DIRECT MATERIAL VARIANCE DM purchased Cost 7,500 boxes $52,400 DMPV Standard Actual 44,250 52,400 8,150 U DM purchased times standard price Given $ Difference DM used Boxes produced 6,350 5,840 DMQV Standard Actual Variance in boxes Standard price 7,534 6,350 1,184 F 5.90 Units produced times standard quantity Given Difference Standard price Product $ 6,983 F DIRECT LABOR VARIANCE Hours worked Related payroll 3,545 $70,342 DLRV Standard Actual 66,469 70,342 3,873 U Hours worked times standard rate Given Difference $ DLEV Standard Actual DLEV (in hours) Standard rate 3,913 3,545 368 F 18.75 Boxes produced times standard hours Given Difference in hours) $ 6,896 F Product FLEXIBLE BUDGET Budget 50,000 Actual 53,000 MH 100,000 62,500 92,500 105,700 85,400 78,200 Variable items: Electricity Medical supplies Maintenance Fixed items: Rent Insurance Production supervision 234,000 105,700 260,300 234,000 124,000 249,600 Flexible Budget for Overhead Rate per MH Budget Actual Variance 50,000 53,000 MH 2.00 1.25 1.85 106,000 66,250 98,050 105,700 85,400 78,200 Variable items: Electricity Medical supplies Maintenance Fixed items: Rent Insurance Production supervision 300 F 19,150 U 19,850 F 0.3% 28.9% 20.2% 234,000 105,700 260,300 234,000 124,000 249,600 F 18,300 U 10,700 F 0.0% 17.3% 4.1% 7.61 STANDARD COST CARD DM (1.29 boxes @ $5.90 per box) DL (.67 hours @ $18.75 per hour) VOH (0.5 MH @ $5.10 per MH) FOH (0.5 MH @ $12.00 per MH Unit Cost 12.56 2.55 6.00 $ 28.72 DIRECT MATERIAL VARIANCE DM purchased Cost 7,500 boxes $52,400 DMPV Standard Actual 44,250 52,400 8,150 U DM purchased times standard price Given $ Difference DM used Boxes produced 6,350 5,840 DMQV Standard Actual Variance in boxes Standard price 7,534 6,350 1,184 F 5.90 Units produced times standard quantity Given Difference Standard price Product $ 6,983 F DIRECT LABOR VARIANCE Hours worked Related payroll 3,545 $70,342 DLRV Standard Actual 66,469 70,342 3,873 U Hours worked times standard rate Given Difference $ DLEV Standard Actual DLEV (in hours) Standard rate 3,913 3,545 368 F 18.75 Boxes produced times standard hours Given Difference in hours) $ 6,896 F Product FLEXIBLE BUDGET Budget 50,000 Actual 53,000 MH 100,000 62,500 92,500 105,700 85,400 78,200 Variable items: Electricity Medical supplies Maintenance Fixed items: Rent Insurance Production supervision 234,000 105,700 260,300 234,000 124,000 249,600 Flexible Budget for Overhead Rate per MH Budget Actual Variance 50,000 53,000 MH 2.00 1.25 1.85 106,000 66,250 98,050 105,700 85,400 78,200 Variable items: Electricity Medical supplies Maintenance Fixed items: Rent Insurance Production supervision 300 F 19,150 U 19,850 F 0.3% 28.9% 20.2% 234,000 105,700 260,300 234,000 124,000 249,600 F 18,300 U 10,700 F 0.0% 17.3% 4.1%