1. Helix Company produces several products in its factory, including a karate robe. The company uses a standard cost system to assist in the control of costs. According to the standards that have been set for the robes, the factory should work 780 direct labor- hours each month and produce 1,950 robes. The standard costs associated with this level of production are as follows:
|Total||Per Unit of Product|
|Direct materials||$ 35,490||$ 18.20|
|Direct labor||$ 7,020||3.6|
|Variable manufacturing overhead (based on direct labor-hours)||$ 2,340||1.2|
|During April, the factory worked only 760 direct labor-hours and produced 2,000 robes. The following actual costs were recorded during the month:|
|Total||Per Unit of Product|
|Direct materials (6,000 yards)||$ 36,000||$ 18.00|
|Direct labor||$ 7,600||3.8|
|Variable manufacturing overhead (based on direct labor-hours)||$ 2,340||1.9|
At standard, each robe should require 2.8 yards of material. All of the materials purchased during the month were used in production.
Compute the following variances for April:
1. The materials price and quantity variances.
2. The labor rate and efficiency variances.
3. The variable manufacturing overhead rate and efficiency variances.
You have recently accepted a position with Lorthen Inc. As part of your duties, you review the variances that are reported for each period and make a presentation to the company’s executive committee.
Earlier this morning you received the variances for one of the company’s major products for the most recent period. After reviewing the variances and organizing the data for your presentation, you accidentally placed the material on top of some papers that were going to the shredder. In the middle of lunch you suddenly realized your mistake and dashed to the shredding room. There you found the operator busily feeding your pages through the machine. You managed to pull only part of one page from the feeding chute, which contains the following information:
|Standard Cost Card|
|Direct materials, 2.0 meters at $16.00 per meter||$ 32.00|
|Direct labor, 1.0 hours at $15.00 per hour||$ 15.00|
|Variable overhead, 1.0 hours at $9.00 per hour||$ 9.00|
|Total Standard cost||Quantity or efficiency variance||Price or rate variance|
|Direct materials||$ 608,000||$32,000 U||$11,600 F|
|Direct labor||$ 285,000||$15,000 U||$4,000 U|
|Variable overhead||$ 171,000||Ruined by shredder||$4,000 F|
The standard for variable overhead is based on direct labor-hours. All of the materials purchased during the period were used in production.
At lunch your supervisor said how pleased she was with your work and that she was looking forward to your presentation that afternoon. You realize that to avoid looking like a bungling fool you must somehow generate the necessary “backup” data for the variances before the executive committee meeting starts in one hour.
1. How many units were produced during the period?
2. How many meters of direct materials were purchased and used in production?
3. What was the actual cost per meter of material?
4. How many actual direct labor-hours were worked during the period?
5. What was the actual rate per direct labor-hour?
6. How much actual variable manufacturing overhead cost was incurred during the period?
Operating at a normal level of 24,000 direct labor-hours, Trone Company produces 8,000 units of product. The direct labor wage rate is $12.60 per hour. Two pounds of raw materials go into each unit of product at a cost of $4.20 per pound. Variable manufacturing overhead should be $1.60 per standard direct labor-hour. FIxed manufacturing overhead should be $84,000 per year
1. Using 24,000 direct labor-hours as the denominator activity, compute the predetermined overhead rate and break it down into fixed and variable elements.
2. Complete the standard cost card below for one unit of product:
Direct materials, 2 pounds at $4.20 per pound . . . . . . . $8.40
Direct labor, ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
Variable overhead, ?. . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
Fixed overhead, ?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
Total standard cost per unit . . . . . . . . . . . . . . . . . . . . . . $ ?
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