Question
Wonderful!Not only did our salespeople do good job in meeting the sales budget this year, but our production people did a good job in controlling
Wonderful!Not only did our salespeople do 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 $19,790 overall manufacturing cost variance is only 1.54% of the $1,280,000 standard cost of products made during the year. That is 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:
Standard Cost Card - per Unit of Product
Direct materials, 2 feet at $8.45 per foot$16.90
Direct labor, 1.4 direct labor hours at $16 per direct labor hour22.40
Variable overhead, 1.4 direct labor-hours at $2.50 per direct labor-hour3.50
Fixed overhead, 1.4 direct labor-hours at $6 per direct labor8.40
Standard cost per unit$51.20
The following additional information is available for the year just completed:
The company manufactured 30,000 units of product during the year.
A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot.All of this material was used to manufacture the 30,000 units.There was no beginning or ending inventories for the year.
The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 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)35,000
Budgeted fixed overhead costs (from the overhead flexible budget)$210,000
Actual variable overhead costs incurred$108,000
Actual fixed overhead costs incurred$211,800
Required:
a)Complete the eight variances.
Direct materials price variance- VP= (AP-SP) x AQ
Direct materials quantity variance-VQ= (AQ-SQ) x SP
Direct labor price variance-VP= (AP-SP) x AQ
Direct labor quantity variance-VQ= (AQ-SQ) x SP
Variable overhead price variance-VP= (AP-SP) x AQ
Variable overhead quantity variance-VQ= (AQ-SQ) x SP
Fixed overhead spending variance- Sp Var = AOI - OB
Fixed overhead production volume variance- PVV = OB - SOA
b)Total the variances you have computed, and compare the net amount with the $19,790 mentioned by the president.Do you agree that bonuses should be given to everyone for good cost control during the year?Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started