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Comprehensive Standard Cost Variances

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"It certainly is nice to see that small variance on the income statement after all the trouble we've had lately in controlling manufacturing costs," said Linda White, vice president of Molina Company. "The $12,250 overall manufacturing variance reported last period is well below 3% limit we have set for variances. We need to congratulate everybody on a job well done."
The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card - Per Unit
Direct materials, 4 years at $3.50 per direct labor-hour $14
Direct labor, 1.5 direct labor-hours at $12 per direct labor-hour 18
Variable overhead, 1.5 direct labor-hours at $2 per direct labor-hour 3
Fixed overhead, 1.5 direct-labor hours at $6 per direct labor-hour 9
Standard cost per unit $44

The following additional information is available for the year just completed:

a. The company manufactures red 20,000 units of product during the year.

b. A total of 78,000 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 20,000 units. There was no beginning or ending inventories for the year.

c. The company worked 32,500 direct labor-hours during the year at a cost of $11.80 per hour.

d. Overhead cost is applied to products on the basis of standard direct labor hours. Data relating to manufacturing overhead costs follows:

Denominator activity level (direct labor-hours) 25,000
Budgeted fixed overhead costs (from the flexible budget) $150,000
Actual fixed overhead costs $148,000
Actual variable overhead costs $68,250

1. Compute the direct materials price and quantity variances for the year.
2. Computer the direct labor rate and efficiency variances for the year.
3. For manufacturing overhead, compute the following:
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 $12,250 mentioned by the vice president. Do you agree that everyone should be congratulated for a job well done? Explain.

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Solution Summary

Excel file shows calculations of :
1. The direct materials price and quantity variances for the year.
2. The direct labor rate and efficiency variances for the year.
3. The variable overhead spending and efficiency variances for the year.
4. The fixed overhead budget and volume variances for the year.

$2.19
Similar Posting

P 10-14 Vitalite, Inc. Comprehensive Variance Analysis

Vitalite, Inc., produces a number of products, including a body- wrap kit. Standard variable costs relating to a single kit are given below:

Standard Quantity Standard Price Standard
or Hours or Rate Cost
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . ? $ 6 per yard $ ?
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ?
Variable manufacturing overhead . . . . . . . . . . . . ? $ 2 per direct ?
labor- hour
Total standard cost per kit . . . . . . . . . . . . . . . . . . $ 42

During August, 500 kits were manufactured and sold. Selected information relating to the month's production is given below:

Variable
Materials Direct Manufacturing
Used Labor Overhead

Total standard cost* . . . . . . . . . . . . . . . . . . ? $ 8,000 $ 1,600
Actual costs incurred . . . . . . . . . . . . . . . . . $ 10,000 ? $ 1,620
Materials price variance . . . . . . . . . . . . . . . ?
Materials quantity variance . . . . . . . . . . . . . $ 600 U
Labor rate variance . . . . . . . . . . . . . . . . . . . ?
Labor efficiency variance . . . . . . . . . . . . . . ?
Variable overhead rate variance . . . . . . . . . ?
Variable overhead efficiency variance . . . . . ?
-----------------------
*For the month's production.

The following additional information is available for August's production of kits:

Actual direct labor- hours . . . . . . . . . . . . . . . . . . . .900
Difference between standard and actual cost per kit produced during August . . . . . . . . . . . . . . . . . . . . $ 0.14 U

Required:
1. What was the total standard cost of the materials used during August?
2. How many yards of material are required at standard per kit?
3. What was the materials price variance for August if there were no beginning or ending inventories of materials?
4. What is the standard direct labor rate per hour?
5. What was the labor rate variance for August? The labor efficiency variance?
6. What was the variable overhead rate variance for August? The variable overhead efficiency variance?
7. Complete the standard cost card for one kit shown at the beginning of the problem.

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