Question
Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June: Fixed
Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June:
Fixed Element per Month | Variable Element per Liter | Actual Total for June | |
---|---|---|---|
Revenue | $ 31.00 | $ 191,540 | |
Raw materials | $ 6.55 | $ 42,830 | |
Wages | $ 7,500 | $ 3.30 | $ 28,000 |
Utilities | $ 3,530 | $ 2.10 | $ 17,400 |
Rent | $ 4,500 | $ 4,500 | |
Insurance | $ 3,250 | $ 3,250 | |
Miscellaneous | $ 840 | $ 2.25 | $ 14,690 |
While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $7,500 plus $3.30 per liter of gelato sold and the actual wages for June were $28,000. Via Gelato expected to sell 6,200 liters in June, but actually sold 6,400 liters.
Required:
Calculate Via Gelato revenue and spending variances for June. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospitals lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs.
Mr. Fleming has asked you to evaluate costs in the hospitals lab for the past month. The following information is available:
- Two types of tests are performed in the labblood tests and smears. During the past month, 1,150 blood tests and 3,700 smears were performed in the lab.
Small glass plates are used in both types of tests. During the past month, the hospital purchased 18,500 plates at a cost of $69,560. 2,700 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.
During the past month, 2,700 hours of labor time were recorded in the lab at a cost of $30,105.
The labs variable overhead cost last month totaled $22,410.
Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:
Plates: Three plates are required per lab test. These plates cost $4.00 each and are disposed of after the test is completed.
Labor: Each blood test should require 0.8 hours to complete, and each smear should require 0.40 hours to complete. The average cost of this lab time is $11.90 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $7.80 per hour.
Required:
1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month.
2. For labor cost in the lab:
a. Compute a labor rate variance and a labor efficiency variance.
b. In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued?
3-a. Compute the variable overhead rate and efficiency variances.
3-b. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance?
Marvel Parts, Incorporated, manufactures auto accessories. One of the companys products is a set of seat covers that can be adjusted to fit nearly any small car. The company uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,230 hours each month to produce 2,050 sets of covers. The standard costs associated with this level of production are:
Total | Per Set of Covers | |
---|---|---|
Direct materials | $ 27,675 | $ 13.50 |
Direct labor | $ 8,610 | 4.20 |
Variable manufacturing overhead (based on direct labor-hours) | $ 4,920 | 2.40 |
$ 20.10 |
During August, the factory worked only 750 direct labor-hours and produced 1,500 sets of covers. The following actual costs were recorded during the month:
Total | Per Set of Covers | |
---|---|---|
Direct materials (3,900 yards) | $ 19,500 | $ 13.00 |
Direct labor | $ 6,600 | 4.40 |
Variable manufacturing overhead | $ 4,800 | 3.20 |
$ 20.60 |
At standard, each set of covers should require 1.8 yards of material. All of the materials purchased during the month were used in production.
Required:
1. Compute the materials price and quantity variances for August.
2. Compute the labor rate and efficiency variances for August.
3. Compute the variable overhead rate and efficiency variances for August.
(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
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