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Compute factory overhead rate; prepare flexible budget; determine variances

Question 1)

Arlon Co. manufactures three types of cookies. Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plant-wide factory rate based on direct labor hours. Information for the month of May 2008, Arlon's first month of operations, follows:

Budgeted Direct Labor
Unit Volume Hours per unit

Fluffs 80,000 boxes 0.10
Crinkles 60,000 boxes 0.20
Snaps 20,000 boxes 1.00

Arlon has budgeted direct labor costs for May at $4.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.85/unit: Crinkles $0.40/unit; and Snaps $0.30/unit.

Arlon's budgeted overhead costs for May are:

Indirect labor $280,000
Utilities 65,000
Supplies 45,000
Depreciation 30,000
Total $420,000

Assume that Arlon sells all the boxes it produces in May.
a) compute Arlon's plant-wide factory overhead rate for May.
b) compute May's product cost for each type of cookie.
c) does Arlon's use of a plant-wide factory overhead rate in any way distort May's product costs?

Question 2)

Prepare a flexible budget for Dandy Jeans Company using production levels of 16,000, 18,000, and 20,000 units produced. The following is additional information necessary to complete the budget:

Variable costs:

Direct Labor ($6.00 per unit)
Direct Materials ($8.00 per unit)
Variable Manufacturing Costs ($2.50 per unit)

Fixed costs:

Supervisor's Salaries $80,000
Rent $12,000
Depreciation on Equipment $24,000

Question 3)

Standard and actual cost for direct materials for the manufacture of 1,000 units of product were as follows:

Actual costs 1,550 lbs. @ $9.10
Standard costs 1,600 lbs. @ $9.00

Determine the following:

a) quantity variance
b) price variance
c) direct materials cost variance

Solution Summary

Factory overhead rate is examined. A flexible budget is created and the variances are determined.

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