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 | 332,000 | 347,000 | 15,000 | F | ||||
Production costs: | ||||||||
Direct material | $996,000 | $1,017,940 | $(21,940) | U | ||||
Direct labour | 1,411,000 | 1,442,700 | (31,700) | U | ||||
Variable overhead costs | 166,000 | 172,957 | (6,957) | U | ||||
Fixed overhead costs | 174,300 | 168,620 | 5,680 | F | ||||
Total production costs | $2,747,300 | $2,802,217 | $(54,917) | 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 | 1.50 | kg per unit | $2.00 | per kg | ||
Direct labour | 0.25 | hour per unit | $17.00 | per hour | ||
Predetermined overhead rate: | ||||||
Variable | 0.25 | hour per unit | $2.00 | per hour | ||
Fixed | 0.25 | hour per unit | $2.10 | per hour |
Other relevant information:
1. | A total of 528,000 kg of direct materials were purchased during the quarter at a cost of $2.05 per kilogram. | |
2. | A total of 508,970 kg of direct materials were used in production to manufacture 347,000 units. | |
3. | Payroll recorded 85,875 direct labour hours at an average cost of $16.80 per hour. |
Calculate the following production variances.
Material price variance | $
| Unfavourable / Neither favourable nor unfavourable / Favourable | |
Material quantity variance | $ | Unfavourable / Favourable / Neither favourable nor unfavourable | |
Labour price variance | $ | Unfavourable / Neither favourable nor unfavourable / Favourable | |
Labour efficiency variance | $ | Favourable / Neither favourable nor unfavourable / Unfavourable | |
Variable overhead variance | $ | Favourable / Neither favourable nor unfavourable / Unfavourable |
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