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# How do you compute the variance for Second, Inc.?

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SECOND, INC. HAD THE FOLLOWING STANDARD COST CARD FOR ITS PRODUCT A:
DIRECT MATERIALS 2 LBS @ \$4.00 PER POUND \$ 8.00
DIRECT LABOR 4 HOURS @ \$8.00 PER HOUR. 32.00
VARIABLE OVERHEAD 4 LABOR HOURS @ \$5.00 PER LABOR HOUR 20.00
FIXED OVERHEAD 4 LABOR HOURS @ \$6.00* PER LABOR HOUR 24.00
TOTAL STANDARD COST OF ONE UNIT OF OUTPUT \$ 84.00

*PLANNED AND DENOMINATOR CAPACITY WAS 5,000 UNITS. ALL OVERHEAD
IS BASED ON DIRECT LABOR HOURS. THE \$6.00 PER DIRECT LABOR HOUR FIXED OVERHEAD RATE WAS DETERMINED AS FOLLOWS:
BUDGETED. FIXED OVERHEAD \$120,000/20,000 DIRECT LABOR HOURS = \$6.00
(5,000 UNITS X 4 DIRECT LABOR HOURS
PER UNIT.)

ACTUAL RESULTS FOR THE PERIOD WERE:
OUTPUT WAS 4,500 UNITS.
DIRECT MATERIALS PURCHASED 20,000 POUNDS @ \$3.50 PER POUND.
DIRECT MATERIALS USED10,000 POUNDS
DIRECT LABOR 19,000 HOURS @ \$9.00

REQUIRED: (SHOW ALL WORK FOR THIS PROBLEM ON WORK SHEET PROVIDED ON PAGE 2).
_____AMOUNT______ __FAV/UNF___

1. MATERIAL PRICE VARIANCE (PURCHASES) ____________________ ______________

2. MATERIAL EFFICIENCY VARIANCE ____________________ ______________

3. LABOR PRICE VARIANCE ____________________ ______________

4. LABOR EFFICIENCY VARIANCE ____________________ ______________

5. LABOR BUDGET VARIANCE ____________________ ______________

6. VARIABLE OVERHEAD PRICE VARIANCE ____________________ ______________

7. VARIABLE OVERHEAD EFFICIENCY VAR. ____________________ ______________

8. VARIABLE OVERHEAD BUDGET VARIANCE ____________________ ______________

9. FIXED OVERHEAD BUDGET VARIANCE ____________________ ______________

10. FIXED OVERHEAD DENOMINATOR VAR. ____________________ ______________

11. STANDARD COST OF 4,500 UNITS PRODUCED ___________________________

12. ACTUAL COST OF 4,500 UNITS PRODUCED. ___________________________

#### Solution Preview

See attached file.

The work is in a diagram in Excel so you can have a template for similar work and can see how the amounts are related. There is a separate diagram for materials and labor vs. variable and fixed ...

#### Solution Summary

The work is in a diagram in Excel so you can have a template for similar work and can see how the amounts are related. There is a separate diagram for materials and labor vs. variable and fixed overhead. The formulas are the cells (just click on cell to see). This is not a "detailed formula sheet" where everything is written out "long hand." This response presumes some familiarity with standard costing variances.

\$2.19

## Accounting Problems

1. Blankinship, Inc., sells a single product. The company's most recent income statement is given below.

Sales \$200,000
Less variable expenses (120,000)

Contribution margin 80,000
Less fixed expenses (50,000)

Net income \$ 30,000

Required:

a. Contribution margin ratio is
b. Breakeven point in total sales dollars is
c. To achieve \$40,000 in net income, sales must total
d. If sales increase by \$50,000, net income will increase by

2. Alex Miller, Inc., sells car batteries to service stations for an average of \$30 each. The variable cost of each battery is \$20 and monthly fixed manufacturing costs total \$10,000. Other monthly fixed costs of the company total \$8,000.

Required:

a. What is the breakeven point in batteries?
b. What is the margin of safety, assuming sales total \$60,000?
c. What is the breakeven level in batteries, assuming variable costs increase by 20%?
d. What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed manufacturing costs decline by 10%, and other fixed costs decline by \$100?

3. Bob's Textile Company sells shirts for men and boys. The average selling price and variable cost for each product are as follows:

Men's Boys
Selling Price \$28.80 Selling Price \$24.00
Variable Cost \$20.40 Variable Cost \$16.80

Fixed costs are \$38,400.

Required:

a. What is the breakeven point in units for each type of shirt, assuming the sales mix is 2:1 in favor of men's shirts?
b. What is the operating income, assuming the sales mix is 2:1 in favor of men's shirts, and sales total 9,000 shirts?

4. The following information pertains to Amigo Corporation:

Month Sales Purchases
July \$30,000 \$10,000
August 34,000 12,000
September 38,000 14,000
October 42,000 16,000
November 48,000 18,000
December 60,000 20,000

? Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale 50%
Two months following sale 15%
Amount uncollectible 5%
? 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Required:

a. Prepare a summary of cash collections for the 4th quarter.
b. Prepare a summary of cash disbursements for the 4th quarter.

Madzinga's Draperies manufactures curtains. A certain window requires the following:

Direct materials standard 10 square yards at \$5 per yard
Direct manufacturing labor standard 5 hours at \$10

During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric costing \$68,600. Direct labor totaled 7,600 hours for \$79,800.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.

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