Question
Waterways Continuing Problem 12 At the end of June the manager of the B.C. manufacturing plant was provided with the following variance analysis report: Budget
Waterways Continuing Problem 12
At the end of June the manager of the B.C. manufacturing plant was provided with the following variance analysis report:
Budget | Actual | Variance | Favourable (F)/ Unfavourable (U) | |||||
Production in units | 334,000 | 349,000 | 15,000 | F | ||||
Production costs: | ||||||||
Direct material | $694,720 | $707,184 | $(12,464) | U | ||||
Direct labour | 1,586,500 | 1,623,380 | (36,880) | U | ||||
Variable overhead costs | 133,600 | 138,869 | (5,269) | U | ||||
Fixed overhead costs | 200,400 | 195,845 | 4,555 | F | ||||
Total production costs | $2,615,220 | $2,665,278 | $(50,058) | U |
The manager immediately called the production supervisor, demanding an explanation for the large unfavourable variance for the quarter. The production supervisor was puzzled. He thought the cost-cutting measures they had incorporated were beginning to work. He certainly wasnt expecting such a large discrepancy. The standard rates the plant was using with its normal costing system are summarized below.
Volume | Cost | |||||
Direct material | 1.30 | kg per unit | $1.60 | per kg | ||
Direct labour | 0.25 | hour per unit | $19.00 | per hour | ||
Predetermined overhead rate: | ||||||
Variable | 0.25 | hour per unit | $1.60 | per hour | ||
Fixed | 0.25 | hour per unit | $2.40 | per hour |
Other relevant information:
1. | A total of 461,000 kg of direct materials were purchased during the quarter at a cost of $1.80 per kilogram. | |
2. | A total of 441,990 kg of direct materials were used in production to manufacture 349,000 units. | |
3. | Payroll recorded 86,350 direct labour hours at an average cost of $18.80 per hour. |
Calculate the following production variances.
Material price variance | $ | Neither favourable nor unfavourable/ Unfavourable/ Favourable | |
Material quantity variance | $ | Unfavourable/ Neither favourable nor unfavourable/ Favourable | |
Labour price variance | $ | Favourable/ Unfavourable/ Neither favourable nor unfavourable | |
Labour efficiency variance | $ | Neither favourable nor unfavourable/ Favourable/ Unfavourable | |
Variable overhead variance | $ | Favourable/ Neither favourable nor unfavourable/ Unfavourable |
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