Question
Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job
"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well, said Kim Clark, president of Martell Company. Our $40,800 overall manufacturing cost variance is only 2.5% of the $1,632,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year."
The company produces and sells a single product. The standard cost card for the product follows:
Inputs | (1) Standard Quantity or Hours | (2) Standard Price or Rate | Standard Cost (1) (2) | ||||
Direct materials | 4.50 feet | $ | 4.60 | per foot | $ | 20.70 | |
Direct labor | 2.6 hours | $ | 16 | per hour | 41.60 | ||
Variable overhead | 2.6 hours | $ | 1.70 | per hour | 4.42 | ||
Fixed overhead | 2.6 hours | $ | 8.00 | per hour | 20.80 | ||
Total standard cost per unit | $ | 87.52 | |||||
The following additional information is available for the year just completed:
- The company manufactured 20,000 units of product during the year.
- A total of 88,000 feet of material was purchased during the year at a cost of $4.70 per foot. All of this material was used to manufacture the 20,000 units produced. There were no beginning or ending inventories for the year.
- The company worked 55,000 direct labor-hours during the year at a direct labor cost of $15.70 per hour.
- Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor-hours) | 50,000 | |
Budgeted fixed overhead costs | $ | 400,000 |
Actual variable overhead costs incurred | $ | 99,000 |
Actual fixed overhead costs incurred | $ | 396,700 |
Required:
1. Compute the materials price and quantity variances for the year.
2. Compute the labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:
a. The variable overhead rate and efficiency variances for the year.
b. The fixed overhead budget and volume variances for the year.
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