“Wonderful! Not only did our salespeople do a good job in meeting the sales budg
ID: 2415263 • Letter: #
Question
“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $42,400 overall manufacturing cost variance is only 4% of the $1,536,000 standard cost of products made during the year. That’s well within the 3% parameter 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:
The following additional information is available for the year just completed:
A total of 147,000 feet of material was purchased during the year at a cost of $3.70 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.
The company worked 75,000 direct labor-hours during the year at a direct labor cost of $14.80 per hour.
Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Compute the materials price and quantity variances for the year. (Round Standard Price and Actual Price to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Compute the labor rate and efficiency variances for the year. (Round Standard Rate and Actual Rate to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
The variable overhead rate and efficiency variances for the year. (Round Standard Rate and Actual Rate to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
The fixed overhead budget and volume variances for the year. (Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $42,400 overall manufacturing cost variance is only 4% of the $1,536,000 standard cost of products made during the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.”
Explanation / Answer
Material price variance = (SR - AR) Actual Qty purchased
=(3.50 - 3.70) 147,000
= 29,400(U)
Material Quantity Variance = (SQ - AQ) SR
= (30,000*5 - 147,000)3.50
=10,500(F)
Labor rate variance = (SR - AR) AH
= (15 - 14.80) 75,000
= 15,000(F)
Labor Efficiency Variance = (SH- AH) SR
= (2.40 *30,000 - 75,000)15
= 45,000(U)
Variable overhead rate=(SR- AR) AH
= 1.5 *75,000 - 120,000
= 7,500(U)
Variable Efficiency variance =(SH- AR) SR
= (72,000 - 75,000)1.50
= 4,500(U)
Fixed overhead Budget variance = Fixed overhead - Budgeted fixed overhead
= $521,500 - $525,000
=$3,500(F)
Fixed overhead volume variance = Applied fixed overhead - Budgeted fixed overhead
= 7.5*72,000 - 525,000
= 15,000(F)
Material price variance = (SR - AR) Actual Qty purchased
=(3.50 - 3.70) 147,000
= 29,400(U)
Material Quantity Variance = (SQ - AQ) SR
= (30,000*5 - 147,000)3.50
=10,500(F)
Labor rate variance = (SR - AR) AH
= (15 - 14.80) 75,000
= 15,000(F)
Labor Efficiency Variance = (SH- AH) SR
= (2.40 *30,000 - 75,000)15
= 45,000(U)
Variable overhead rate=(SR- AR) AH
= 1.5 *75,000 - 120,000
= 7,500(U)
Variable Efficiency variance =(SH- AR) SR
= (72,000 - 75,000)1.50
= 4,500(U)
Fixed overhead Budget variance = Fixed overhead - Budgeted fixed overhead
= $521,500 - $525,000
=$3,500(F)
Fixed overhead volume variance = Applied fixed overhead - Budgeted fixed overhead
= 7.5*72,000 - 525,000
= 15,000(F)
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