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 plant%u2019scontribution format income statement for October. The statement isshown below:
Budgeted Actual Sales (7,000 ingots) $ 255,000 $ 255,000
Variable expenses: Variable cost of goods sold* 85,400 104,590 Variable selling expenses 15,000 15,000
Total variable expenses 100,400 119,590
Contribution margin 154,600 135,410
Fixed expenses: Manufacturing overhead 64,000 64,000 Selling and administrative 79,000 79,000
Total fixed expenses 143,000 143,000
Net operating income (loss) $ 11,600 $ (7,590)
*Contains direct materials, direct labor, and variablemanufacturing overhead.
Mr. Santiago was shocked to see theloss 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:
Standard Quantity or Hours Standard Price
or Rate Standard Cost Direct materials 4.0 pounds $ 2.40 per pound $ 9.60 Direct labor 0.3 hours $ 7.00 per hour 2.10 Variable manufacturing overhead 0.2 hours* $ 2.50 per hour 0.50
Total standard variable cost $ 12.20
*Based on machine-hours.
During October the plant produced 7,000 ingots and incurred thefollowing costs:
a. Purchased 33,000 pounds of materials at a cost of $2.85 per pound.There were no raw materials in inventory at the beginning of themonth.
b. Used 27,800 pounds of materials in production. (Finished goods andwork in process inventories are insignificant and can beignored.)
c. Worked 2,700 direct labor-hours at a cost of $6.70 per hour. d. Incurred total variable manufacturing overhead cost of $4,930 forthe month. A total of 1,700 machine-hours was recorded.
It is the company%u2019s policy to close all variances to cost ofgoods sold on a monthly basis.
1. Compute the following variances for October:
a. Direct materials price and quantity variances. (Input all amounts aspositive values. 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.)
Materials price variance $ (Click to select)FUNone Materials quantity variance $ (Click to select)FNoneU
b. Direct labor rate and efficiency variances. (Input all amounts aspositive values. 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.)
Labor rate variance $ (Click to select)FUNone Labor efficiency variance $ (Click to select)NoneUF
c. Variable overhead rate and efficiency variances. (Input all amounts aspositive values. Do not round your intermediate calculations. Leaveno cells blank - be certain to enter "0" wherever required.Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance.)
Variable overhead rate variance $ (Click to select)FNoneU Variable overhead efficiency variance $ (Click to select)FUNone
2a. Summarize the variances that you computed in (1) above by showingthe net overall favorable or unfavorable variance for October.(Input the amount as apositive value. Leave no cells blank - be certain to enter "0"wherever required. Indicate the effect of variance by selecting "F"for favorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance.)
Net variance $ (Click to select)UFNone
3. Pick out the two most significant variances that you computed in(1) above. (You may select morethan one answer. Single click the box with the question mark toproduce a check mark for a correct answer and double click the boxwith the question mark to empty the box for a wronganswer.)
Materials price variance Labor efficiency variance Variable overhead efficiency variance Labor rate variance Variable overhead rate variance Materials quantity variance
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 plant%u2019scontribution format income statement for October. The statement isshown below: |
| Budgeted | Actual | |||
| Sales (7,000 ingots) | $ | 255,000 | $ | 255,000 |
| Variable expenses: | ||||
| Variable cost of goods sold* | 85,400 | 104,590 | ||
| Variable selling expenses | 15,000 | 15,000 | ||
| Total variable expenses | 100,400 | 119,590 | ||
| Contribution margin | 154,600 | 135,410 | ||
| Fixed expenses: | ||||
| Manufacturing overhead | 64,000 | 64,000 | ||
| Selling and administrative | 79,000 | 79,000 | ||
| Total fixed expenses | 143,000 | 143,000 | ||
| Net operating income (loss) | $ | 11,600 | $ | (7,590) |
| | | | | |
| *Contains direct materials, direct labor, and variablemanufacturing overhead. |
Mr. Santiago was shocked to see theloss 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: |
| Standard Quantity or Hours | Standard Price or Rate | Standard Cost | |||
| Direct materials | 4.0 pounds | $ | 2.40 per pound | $ | 9.60 |
| Direct labor | 0.3 hours | $ | 7.00 per hour | 2.10 | |
| Variable manufacturing overhead | 0.2 hours* | $ | 2.50 per hour | 0.50 | |
| Total standard variable cost | $ | 12.20 | |||
| | | ||||
| *Based on machine-hours. |
| During October the plant produced 7,000 ingots and incurred thefollowing costs: |
| a. | Purchased 33,000 pounds of materials at a cost of $2.85 per pound.There were no raw materials in inventory at the beginning of themonth. |
| b. | Used 27,800 pounds of materials in production. (Finished goods andwork in process inventories are insignificant and can beignored.) |
| c. | Worked 2,700 direct labor-hours at a cost of $6.70 per hour. |
| d. | Incurred total variable manufacturing overhead cost of $4,930 forthe month. A total of 1,700 machine-hours was recorded. |
| It is the company%u2019s policy to close all variances to cost ofgoods sold on a monthly basis. |
| 1. | Compute the following variances for October: |
| a. | Direct materials price and quantity variances. (Input all amounts aspositive values. 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.) |
| Materials price variance | $ | (Click to select)FUNone |
| Materials quantity variance | $ | (Click to select)FNoneU |
| b. | Direct labor rate and efficiency variances. (Input all amounts aspositive values. 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.) |
| Labor rate variance | $ | (Click to select)FUNone |
| Labor efficiency variance | $ | (Click to select)NoneUF |
| c. | Variable overhead rate and efficiency variances. (Input all amounts aspositive values. Do not round your intermediate calculations. Leaveno cells blank - be certain to enter "0" wherever required.Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance.) |
| Variable overhead rate variance | $ | (Click to select)FNoneU |
| Variable overhead efficiency variance | $ | (Click to select)FUNone |
| 2a. | Summarize the variances that you computed in (1) above by showingthe net overall favorable or unfavorable variance for October.(Input the amount as apositive value. Leave no cells blank - be certain to enter "0"wherever required. Indicate the effect of variance by selecting "F"for favorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance.) |
| Net variance | $ | (Click to select)UFNone |
| 3. | Pick out the two most significant variances that you computed in(1) above. (You may select morethan one answer. Single click the box with the question mark toproduce a check mark for a correct answer and double click the boxwith the question mark to empty the box for a wronganswer.) | ||||||||||||
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Related questions
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 plant%u2019scontribution format income statement for October. The statement isshown below: |
| Budgeted | Actual | |||
| Sales (3,000 ingots) | $ | 179,000 | $ | 179,000 |
| Variable expenses: | ||||
| Variable cost of goods sold* | 33,390 | 44,540 | ||
| Variable selling expenses | 11,000 | 11,000 | ||
| Total variable expenses | 44,390 | 55,540 | ||
| Contribution margin | 134,610 | 123,460 | ||
| Fixed expenses: | ||||
| Manufacturing overhead | 50,000 | 50,000 | ||
| Selling and administrative | 75,000 | 75,000 | ||
| Total fixed expenses | 125,000 | 125,000 | ||
| Net operating income (loss) | $ | 9,610 | $ | (1,540) |
| | | | | |
| *Contains direct materials, direct labor, and variablemanufacturing overhead. |
Mr. Santiago was shocked to see theloss 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: |
| Standard Quantity or Hours | Standard Price or Rate | Standard Cost | |||
| Direct materials | 3.6 pounds | $ | 2.00 per pound | $ | 7.20 |
| Direct labor | 0.5 hours | $ | 6.60 per hour | 3.30 | |
| Variable manufacturing overhead | 0.3 hours* | $ | 2.10 per hour | 0.63 | |
| Total standard variable cost | $ | 11.13 | |||
| | | ||||
| *Based on machine-hours. |
| During October the plant produced 3,000 ingots and incurred thefollowing costs: |
| a. | Purchased 15,800 pounds of materials at a cost of $2.45 per pound.There were no raw materials in inventory at the beginning of themonth. |
| b. | Used 10,600 pounds of materials in production. (Finished goods andwork in process inventories are insignificant and can beignored.) |
| c. | Worked 2,100 direct labor-hours at a cost of $6.30 per hour. |
| d. | Incurred a total variable manufacturing overhead cost of $3,000 forthe month. A total of 1,200 machine-hours was recorded. |
| It is the company%u2019s policy to close all variances to cost ofgoods sold on a monthly basis. |
| Required: |
| 1. | Compute the following variances for October: |
| a. | Direct materials price and quantity variances. (Input all amounts as positive values. Leave no cells blank - becertain to enter "0" wherever required. Indicate the effect of eachvariance by selecting "F" for favorable, "U" for unfavorable, and"None" for no effect (i.e., zero variance). Omit the "$" sign inyour response.) |
| Materials price variance | $ | (Click to select)FNoneU |
| Materials quantity variance | $ | (Click to select)UFNone |
| b. | Direct labor rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - becertain to 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). Omit the "$" sign inyour response.) |
| Labor rate variance | $ | (Click to select)NoneUF |
| Labor efficiency variance | $ | (Click to select)UFNone |
| c. | Variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round yourintermediate calculations. 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). Omit the "$" sign in yourresponse.) |
| Variable overhead rate variance | $ | (Click to select)UFNone |
| Variable overhead efficiency variance | $ | (Click to select)UFNone |
| 2a. | Summarize the variances that you computed in (1) above by showingthe net overall favorable or unfavorable variance for October.(Input the amount as a positive value. Leave no cells blank - becertain to 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). Omit the "$" sign inyour response.) |
| Net variance | $ | (Click to select)NoneFU |
| 3. | Pick out the two most significant variances that you computed in(1) above. (Youmay select more than one answer. Single click the box with thequestion mark to produce a check mark for a correct answer anddouble click the box with the question mark to empty the box for awrong answer.) | ||||||||||||
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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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