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Mass production childrens chairs: Calculate costs variances

Mass production of chairs for children are purchased in a variety of colors but with one basic design. Design is the key to the company's success following data:

Plastic...........................10 lbs at $4.50 per pound
Molding..........................3 ft at $3.00 per foot
Direct Labor....................4 hours at 6.00 per hr
Variable overhead.............$3.00 per direct labor hr
Fixed overhead.................$55,000 per period
Purchased plastic at $4.45 per pound & issued 185,000 pounds to production
Purchased molding at $3.10 per ft issued 50,000 to production
Direct labor payroll $435,000 for 72,500
Total overhead cost $275,000 including $221.125 variable overhead
Produced 18,000 chairs during the month

Required:

a. calculate material, labor, variable overhead and fixed overhead variances
b. Interpret the material and labor variances. indicate about company performance
c. based on response to b. what areas need to be investigated
d. company control or better manage its operations
e. what are the best options? Why?

Solution Preview

See attached file.

a. calculate material, labor, variable overhead and fixed overhead variances

In attached Excel file, click cells to see computations

b. Interpret the material and labor variances. indicate about company performance

Material costs seem to be above standard prices but below in quantity used versus standards. If you break it down into the two materials separately, you see that plastic accounts for much of the price variance (higher than standard) but production is using exactly standard quantities.

For molding, there is a smaller unfavorable price variance (costs more than standard) and ALL of the favorable efficiency variance is related to molding use.

It could be that prices have shifted since the standard was created ...

Solution Summary

Your tutorial is 388 words responding to the five questions asked plus a report in Excel showing the materials variance for plastic and molding separately and combined, the labor variances, the variable overhead variances and the fixed overhead variances.

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