Variances and variance responsibility Namathe Industries manufactures childrens footballs with the following standard costs per unit:

Material: one square foot of leather at $2.00 . . . . . . . . $ 2.00

Direct labor: 1.6 hours at $9.00 . . . . . . . . . . . . . . . . . . . 14.40

Variable overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00

Fixed overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00

Total cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$22.40

Per-unit overhead cost was calculated from the following annual overhead budget for 180,000 footballs.

Variable Overhead Cost

Indirect labor90,000 hours @ $7.00 . . . . . . . . . . . . $630,000

Supplies (oil)180,000 gallons @ $0.50 . . . . . . . . . . 90,000

Allocated variable service department costs . . . . . . . 90,000

Total variable overhead cost . . . . . . . . . . . . . . . . . $ 810,000

Fixed Overhead Cost

Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,000

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000

Other fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000

Total fixed overhead cost . . . . . . . . . . . . . . . . . . . . 261,000

Total budgeted overhead cost @ 180,000 units . . . . . $1,071,000

Following are the charges to the manufacturing department for November when 15,000 units were produced:

Material (15,900 square feet @ $2.00) . . . . . . . . . . . . . . . . $ 31,800

Direct labor (24,600 hours @ $9.10) . . . . . . . . . . . . . . . . . . 223,860

Indirect labor (7,200 hours @ $7.10) . . . . . . . . . . . . . . . . . . 51,120

Supplies (oil) (18,000 gallons @ $0.55) . . . . . . . . . . . . . . . .9,900

Allocated service department variable OH costs . . . . . . . . . 9,600

Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7,425

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11,250

Other fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $348,705

purchasing normally buys about the same quantity as is used in production during a month. In November, the company purchased 15,600 square feet of material at a price of $2.10 per foot.

a. Calculate the following variances from standard costs for the data given:

1. Material purchase price

2. Material quantity

3. Direct labor rate

4. Direct labor efciency

5. Overhead budget

b. The company has divided its responsibilities so that the Purchasing Department is responsible for the purchase price of materials and the Manufacturing Department is responsible for the quantity of materials used. Does this division of responsibilities solve the conict between price and quantity variances? Explain your answer.

c. Prepare a report detailing the overhead budget variance. The report, which will be given to the Manufacturing Department manager, should only show that part of the variance that is her responsibility and should highlight the information in ways that would be useful to her in evaluating departmental performance and when considering corrective action.

d. Assume that the departmental manager performs the timekeeping function for this manufacturing department. From time to time, analyses of overhead and direct labor variances have shown that the manager has deliberately misclassied labor hours (i.e., listed direct labor hours as indirect labor hours and vice versa) so that only one of the two labor variances is unfavorable. It is not feasible economically to hire a separate timekeeper. What should the company do, if anything, to resolve this problem?