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Variance calculation

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Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year,but our production people did a good jobn in controlling costs as well."said Anna jones, president of Hess inc. "Our $34,110 overall manufaturing cost variance is only 1.47% of the $2,320,000 standard cost of products made during the year. That's well within the 3% limit set by management for acceptable variances. It looks like everyone will be in line for a bonus this year." The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card--per Unit of Product
Direct Materials, 1.3 feet at $8.00 per foot $10.40
Direct labor, 1.5 DLHs at $13.00 per DLH 19.50
Variable overhead, 1.5 DLH at $1.20 per DLH 1.80
Fix overhead, 1.5 DLHs at $3.30 per DLH 4.95

Standard cost per unit 36.65

the following additional information is available for the year just completed:
a. the company manufactured 64,000 units of product during the year.
b. a total of 87,400 feet of material was purchased during the year at a cost of $8.05 per foot. all of this material was used to manufacture the 64,000 units. there were no beginning or ending inventories for the year
c. the company worked 99,8000 direct labor-hours during the year at a cost of $12.80 per direct labor hour (DLH)
d. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow.

Denominator activity level (direct labor-hours)....................84,500
Budgeted fixed overhead costs *from the overhead flexible budget)...$278,850
Actual variable overhead costs incurred...........................$117,300
Actual fixed overhead costs incurred..............................$281,400

1. Compute the direct materials price and quantity variances for the year
2. Compute the direct labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:
a.the variable overhead spending and efficiency variances for the year.
b. the fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount with the $34,110 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.

What type of help I am looking for:
I have done this problem, and would like to confirm that I have complete all of the elements correctly. Please show step by step how to compute the direct materials prices, quantity variances, labor rate and efficiency variances and overhead variances.

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Solution Summary

The solution explains how to calculate the various material, labor and overhead variances

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Pls provide solutions to problem questions. thanks

Osage inc., has actual sales for June and July and forecast sales for august, September, October and November as follows:

June 4,150 units
July 4,350 units
August 4,200 units
September 4,950 units
October 3,900 units
November 3,700 units

a. The firm's policy is to have finished goods inventory on hand at the end of the month that is equal to 70% of the next month's sales. It is currently estimated that there would be 3300 units on hand at the end of July. Calculate the number of units to be produced in each of the month of august, September and October.
b. Each unit of finished product requires 5 pounds of raw materials. The firm's policy is to have raw material inventory on hand at the end of each month that is equal to 80% of the next month's estimated usage. It is currently estimated that 13,000 pounds of raw materials will be on hand at the end of July. Calculate the number of pounds of raw materials in each of the month of august and September.
Flagstaff co. has actual sales for July and august and forecast sales for September, October, November and December as follows:

July $73500
August 78750
September 85500
October 70500
November 91500
December 80250
Based on past experience, it is estimated that 30% of a month's sales are collected in the month of sales. 50% are collected in the month following the sale, and 18% are collected in the second month following the sale.

A. Calculate the estimated cash receipt for September, October and November.

Ozark manufacturing company manufactures and sells household cleaning products. The company's research department has developed a new cleaner for which a standard cost must be determined. The new cleaner is made by mixing 18 quarts of triphate solution and 8 pounds of sobase granules and boiling the mixture for several minutes. After the solution has cooled, 4 ounces of methage are added. This "recipe" produces 15 quarts of the cleaner, which is then packaged in one-quart plastic dispenser bottles. Raw material costs are:

Triphate solution $.45 per quart
Sobase granules .90 per pound
Methage 1.40 per ounce
Bottle .25 each

a. Using the preceding data, calculate the raw material cost for one bottle of the new cleaner.
b. Assuming that the preceding cost are the current best estimate of the costs at which required quantities of the raw materials can be purchased. Would you recommend that any other factors be considered in establishing the raw material cost standard for the new cleaner?
c. Explain the process that will be used to develop the direct labor cost standard for the new product.

Rocky mountain manufacturing produces a single product. The original budget for November was based on expected production of 35,000 units; actual production for November was 33, 250 units. The original budget and actual costs incurred for the manufacturing department follow:

Original budget actual costs
Direct materials $551,250 $541,500
Direct labor 427,000 413,500
Variable overhead 217,000 195,250
Fixed overhead 17,000 172,500
Total $1,365,250 $1,322,750

a. Prepare an appropriate performance report for the manufacturing department.

The standards for one case of liquid weed killer are;

Direct materials 3lbs@$6.00/lb
Direct labor 1.8hrs@$12.00/hr
Variable overhead (based on machine hours) 0.6hrs@$3.50/hr

During the week ended august 6, the following activity took place
2390 machine hrs were worked
11400lbs of raw materials were purchased for inventory at a total cost of $70,680
3,800 cases of finished products were produced
6,720 labor hrs were worked at an average rate of $12.25 per hr
$8,126 actual variable overhead costs were incurred.
Calculate the following variances and provide plausible explanations for the results.
a. price variance for raw materials purchased
b. raw materials usage variance
c. direct labor rate variance
d. direct labor efficiency variance
e. variable overhead spending variance
f. Variable overhead efficiency variance.

Bennett inc., manufactures quality replacement parts for the auto industry. The co. uses a standard costing system and isolates variances as soon as possible. The purchasing manager is responsible for controlling the direct material price variances for hundreds of raw material items that are used in the company's various production processes. Recent experience indicates that, in the aggregate, direct material price variances have been favorable. However, several problems have occurred. Direct material usage variances have become consistently unfavorable for many items, and the company's total budget variance for raw materials have been unfavorable during each of the past six months. Direct laborers have complained about the quality of certain raw material items, and major customers have cancelled purchase orders. In the mean time, the company's raw materials inventory has increased by nearly 240%

a. Give a probable explanation why these results have occurred. (What might the purchasing manager be doing hat is dysfunctional for the company as a whole?)
b. How could the performance reporting system be improved to encourage more appropriate behavior on the part of the purchasing manager?

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