You have recently accepted a position with Lorthen Inc. As part of your duties,

Question

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 Direct labor, 1.0 hours at $15.00 per hour Variable overhead, 1.0 hours at $9.00 per hour S 32.00 S 15.00 S 9.00 Direct materials Direct labor Variable overhead Total Standard Cost $ 608,000 $ 285,000 Quantity on Efficiency Variance $ 32,000 U $15,000 U $171,000 Ruined by shredder $ 4,000 F Price or Rate Variance $ 11,600 F $ 4,000 U 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

Explanation / Answer

4. Direct Labor Effciency Variance = (Actual Hours-Standard Hours) x Standard Rate

15000 = (Actual Hours - 285000/15) * $15

1000 = Actual Hours - 19000

Actual Hours = 19000 + 1000 = 20000 hours.

5. Direct Labor Rate Variance = Actual Hours * (Actual Rate-Standard Rate)

4000 = 20000 * (Actual Rate - 15)
Actual Rate = 4000/20000 + 15 = $15.20 per hour.

6. Variable Overhead rate variance = Actual hours worked * Actual overhead rate - Actual hours worked *standard overhead rate)

= Actual Cost - Standard Cost

4000 = Actual Cost - 171000

Actual variable manufacturing overhead cost = 175000

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