Problem 16-64 Comprehensive Variance Problem (LO 16 - 5, 6)
The standard cost sheet for Chambers Company, which manufacturesone product, follows:
Direct materials, 40yards at $3.00 per yard $ 120 Direct labor, 5 hours at $30 perhour 150 Factory overhead applied at 70%of direct labor 105 (variable costs = $70; fixedcosts = $35) Variable selling andadministrative 74 Fixed selling andadministrative 50 Total unit costs $ 499
Standards have been computed based on a master budget activitylevel of 29,800 direct labor-hours per month. Actual activity forthe past month was as follows:
Materials used 238,000 yards at $3.15 peryard Direct labor 28,100 hours at $31.00 per hour Total factory overhead $ 650,000 Production 5,500 units
Required:
Prepare variance analyses for the variable and fixed costs.Materials are purchased as they are used.(Do not round intermediate calculations.Indicate the effect of each variance by selecting "F" forfavorable, or "U" for unfavorable. If there is no effect, do notselect either option.)
Directmaterials: Pricevariance Efficiency variance Directlabor: Pricevariance Efficiency variance Variableoverhead: Efficiency variance Fixedoverhead: Production volume variance
Problem 16-64 Comprehensive Variance Problem (LO 16 - 5, 6)
The standard cost sheet for Chambers Company, which manufacturesone product, follows:
| Direct materials, 40yards at $3.00 per yard | $ | 120 | |
| Direct labor, 5 hours at $30 perhour | 150 | ||
| Factory overhead applied at 70%of direct labor | 105 | ||
| (variable costs = $70; fixedcosts = $35) | |||
| Variable selling andadministrative | 74 | ||
| Fixed selling andadministrative | 50 | ||
| Total unit costs | $ | 499 | |
Standards have been computed based on a master budget activitylevel of 29,800 direct labor-hours per month. Actual activity forthe past month was as follows:
| Materials used | 238,000 | yards at $3.15 peryard | |
| Direct labor | 28,100 | hours at $31.00 per hour | |
| Total factory overhead | $ | 650,000 | |
| Production | 5,500 | units | |
Required:
Prepare variance analyses for the variable and fixed costs.Materials are purchased as they are used.(Do not round intermediate calculations.Indicate the effect of each variance by selecting "F" forfavorable, or "U" for unfavorable. If there is no effect, do notselect either option.)
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Related questions
Vitalite, Inc., produces a number of products, including abody-wrap kit. Standard variable costs relating to a single kit aregiven below: |
| StandardQuantity or Hours | StandardPrice or Rate | Standard Cost | ||
| Directmaterials | ? | $6.00 peryard | $ ? | |
| Direct labor | ? | ? | ? | |
| Variable manufacturingoverhead | ? | $2.00 perdirect labor-hour | ? | |
| Total standard costper kit | $46.80 | |||
During August, 530 kits weremanufactured and sold. Selected information relating to the monthâsproduction is given below: |
| MaterialsUsed | DirectLabor | Variable Manufacturing Overhead | ||
| Total standardcost* | ? | $7,420 | $1,484 | |
| Actual costsincurred | $14,100 | ? | $1,570 | |
| Materials pricevariance | ? | |||
| Materials quantityvariance | $ 1,020 U | |||
| Labor ratevariance | ? | |||
| Labor efficiencyvariance | ? | |||
| Variable overheadrate variance | ? | |||
| Variable overheadefficiency variance | ? | |||
| *For the month'sproduction. |
| The following additionalinformation is available for Augustâs production of kits: |
| Actual directlabor-hours | 880 | |
| Difference betweenstandard and actual cost per kit produced during August | $0.20 | U |
| Required: |
| 1. | What was the total standard cost of the materials used duringAugust?
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| 5. | What was the labor rate variance for August? The laborefficiency variance? (Do not round your intermediatecalculations. Indicate the effect of each variance by selecting "F"for favorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance)) | ||||||||||||
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| 6. | What was the variable overhead rate variance for August? Thevariable overhead efficiency variance?(Do not roundintermediate calculations. Indicate the effect of each variance byselecting "F" for favorable, "U" for unfavorable, and "None" for noeffect (i.e., zero variance)) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Genuine Spice Inc. began operations on January 1, 2016. Thecompany produces eight-ounce bottles of hand and body lotion calledEternal Beauty. The lotion is sold wholesale in 12-bottle cases for$100 per case. There is a selling commission of $20 per case. TheJanuary direct materials, direct labor, and factory overhead costsare as follows:
DIRECT MATERIALS | ||||
Cost Behavior | Units per Case | Cost per Unit | Cost per Case | |
Cream base | Variable | 100 ozs. | $0.02 | $ 2.00 |
Natural oils | Variable | 30 ozs. | 0.30 | 9.00 |
Bottle (8-oz.) | Variable | 12 bottles | 0.50 | 6.00 |
$17.00 | ||||
DIRECT LABOR | ||||
Department | Cost Behavior | Time per Case | Labor Rate per Hour | Cost per Case |
Mixing | Variable | 20 min | $18.00 | $6.00 |
Filling | Variable | 5 | 14.40 | 1.20 |
25 min. | $7.20 | |||
FACTORY OVERHEAD | ||
Cost Behavior | Total Cost | |
Utilities | Mixed | $600 |
Facility lease | Fixed | 14,000 |
Equipment depreciation | Fixed | 4,300 |
Supplies | Fixed | 660 |
$19,560 | ||
During September of the current year, the controller was askedto perform variance analyses for August. The January operating dataprovided the standard prices, rates, times, and quantities percase. There were 1,500 actual cases produced during August, whichwas 250 more cases than planned at the beginning of the month.Actual data for August were as follows:
Actual Direct Materials | |||
|---|---|---|---|
Price per Unit | Quantity per Case | ||
Cream base | $0.016 per oz. | 102 ozs. | |
Natural oils | $0.32 per oz. | 31 ozs. | |
Bottle (8-oz.) | $0.42 per bottle | 12.5 bottles | |
Actual Direct | Actual Direct Labor | ||
Labor Rate | Time per Case | ||
Mixing | $18.20 | 19.50 min. | |
Filling | 14.00 | 5.60 min. | |
Actual variable overhead | $305.00 |
|---|---|
Normal volume | 1,600 cases |
The prices of the materials were different than standard due tofluctuations in market prices. The standard quantity of materialsused per case was an ideal standard. The Mixing Department used ahigher grade labor classification during the month, thus causingthe actual labor rate to exceed standard. The Filling Departmentused a lower grade labor classification during the month, thuscausing the actual labor rate to be less than standard.
| 1. Determine and interpret the direct materials price andquantity variances for the three materials.
2. Determine the direct labor rate and time variances forthe two departments. Round hours to the nearest tenth of anhour.
3. Determine and interpret the factory overhead controllablevariance.
4. Determine and interpret the factory overhead volumevariance. Round rate to four decimal places.
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Problem 8-18A Comprehensive Variance Analysis [LO4, LO5,LO6]
Portland Company's Ironton Plant produces precast ingots forindustrial use. Carlos Santiago, who was recently appointed generalmanager of the Ironton Plant, has just been handed the plantâscontribution format income statement for October. The statement isshown below: |
| Budgeted | Actual | |||
| Sales (4,000 ingots) | $ | 210,000 | $ | 210,000 |
| Variable expenses: | ||||
| Variable cost of goods sold* | 50,680 | 63,710 | ||
| Variable selling expenses | 12,000 | 12,000 | ||
| Total variable expenses | 62,680 | 75,710 | ||
| Contribution margin | 147,320 | 134,290 | ||
| Fixed expenses: | ||||
| Manufacturing overhead | 61,000 | 61,000 | ||
| Selling and administrative | 76,000 | 76,000 | ||
| Total fixed expenses | 137,000 | 137,000 | ||
| Netoperating income (loss) | $ | 10,320 | $ | (2,710) |
| *Contains directmaterials, direct labor, and variable manufacturing overhead. |
Mr. Santiago was shocked to seethe loss for the month, particularly because sales were exactly asbudgeted. He stated, "I sure hope the plant has a standard costsystem in operation. If it doesn't, I won't have the slightest ideaof where to start looking for the problem." |
The plant does use a standard costsystem, with the following standard variable cost per ingot: |
| StandardQuantity or Hours | Standard Price or Rate | Standard Cost | |||
| Direct materials | 3.7 pounds | $ | 2.10 perpound | $ | 7.77 |
| Direct labor | 0.6 hours | $ | 6.70 perhour | 4.02 | |
| Variable manufacturing overhead | 0.4 hours* | $ | 2.20 perhour | 0.88 | |
| Total standard variable cost | $ | 12.67 | |||
| *Based onmachine-hours. |
| During Octoberthe plant produced 4,000 ingots and incurred the followingcosts: |
| a. | Purchased 19,800 pounds of materials at a cost of $2.55 perpound. There were no raw materials in inventory at the beginning ofthe month. |
| b. | Used 14,600 pounds of materials in production. (Finished goodsand work in process inventories are insignificant and can beignored.) |
| c. | Worked 3,000direct labor-hours at a cost of $6.40 per hour. |
| d. | Incurred total variable manufacturing overhead cost of $4,940for the month. A total of 1,900 machine-hours was recorded. |
| It is thecompanyâs policy to close all variances to cost of goods sold on amonthly basis. |
| Required: |
| 1. | Compute thefollowing variances for October: |
| a. | Direct materials price and quantity variances. (Inputall amounts as positive values. Leave no cells blank - be certainto enter "0" wherever required. Indicate the effect of eachvariance by selecting "F" for favorable, "U" for unfavorable, and"None" for no effect (i.e., zero variance.) |
| Materials price variance | $ | (Click to select)FUNone |
| Materials quantity variance | $ | (Click to select)NoneFU |
| b. | Direct labor rate and efficiency variances. (Input allamounts as positive values. Leave no cells blank - be certain toenter "0" wherever required. Indicate the effect of each varianceby selecting "F" for favorable, "U" for unfavorable, and "None" forno effect (i.e., zero variance.) |
| Labor rate variance | $ | (Click to select)NoneUF |
| Labor efficiency variance | $ | (Click to select)FNoneU |
| c. | Variable overhead rate and efficiency variances. (Inputall amounts as positive values. Do not round your intermediatecalculations. Leave no cells blank - be certain to enter "0"wherever required. Indicate the effect of each variance byselecting "F" for favorable, "U" for unfavorable, and "None" for noeffect (i.e., zero variance.) |
| Variable overhead rate variance | $ | (Click to select)UFNone |
| Variable overhead efficiency variance | $ | (Click to select)UNoneF |
| 2a. | Summarize the variances that you computed in (1) above byshowing the net overall favorable or unfavorable variance forOctober. (Input the amount as a positive value. Leave nocells blank - be certain to enter "0" wherever required. Indicatethe effect of variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zerovariance.) |
| Netvariance | $ | (Click to select)FNoneU |
| 3. | Pick out the two most significant variances that you computed in(1) above. (You may select more than oneanswer. Single click the box with the question mark to produce acheck mark for a correct answer and double click the box with thequestion mark to empty the box for a wronganswer.) | ||||||||||||
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