Green River Inc. established the following standards for its principal product,

ID: 2471902 • Letter: G

Question

Green River Inc. established the following standards for its principal product, a kit to Convert ordinary lawn mowers into mulching mowers: Direct Materials: Blades 2 blades @ $13 per blade Adaptors 1 adaptor @ $6 per adaptor Direct Labor: Grinding 1/2 hour @ $ 14 per hour Finishing & Testing 2/3 hour @ $12 per hour Overhead Variable $8 per machine hour Facility (Fixed) 7.000 square feet @ $2 per square foot The standard variable overhead cost per conversion kit is $2. Traditionally, all overhead is applied on the basis of machine hours. Planned production and sales for the year was 5,000 conversion kits. The planned selling price per kit is $50. Actual Results Kits produced & sold -5,200 (this is within the relevant range) Actual selling price per kit Materials: $48 Blades Purchased & Used 11,000 blades @ $12.75 per blade Adaptors Purchased & Used 5,300 w S6.10 per adaptor Labor. Grinding 2,800 hours, total cost $42,000 Labor, Finishing & Testing 3,700 hours, total cost $45325 Machine hours used 1,325 machine hours Variable Overhead $11,455 Facility Level Overhead $14,500 (7.000 square feet) Prepare the flexible manufacturing cost budge, for the year's actual output. Calculate the material variances. Calculate the labor variances.

Explanation / Answer

A. Flexible Manufacturing cost budget for the year's actual output

Actual Kits produced and Sold

5,200 kits

Direct Materials:

Blades(5,200 * 2 * $13 per blade)

135200

Adaptors (5,200 * 1 * $6 per adaptor)

31200

Actual Machine hours used

1,325 machine hours

Direct Labor:

Grinding (5,200 * 0.5 * $14 )

36400

Finishing and Testing (5,200 * 0.66(2/3) * $12)

41600

Overhead:

Variable (1,325 * $8 per machine hour)

10600

Fixed (7,000 square feet * $2)

14000

B. Calculation Material Variance:

Material Cost variance = (AP – SP) * AQ

Where: AP = Actual price

SP = Standard price

AQ = Actual quantity

Blades:

Material Cost variance = ($12.75 - $13) * 11,000 blades

Material Cost variance = ($2,750)

Adaptors:

Material Cost variance = ($6.10 - $6) * 5,300 adaptors

Material Cost variance = $530

Material Usage variance = (AQ – SQ) * SP

Where: AQ = Actual quantity used

SQ = Standard quantity for actual output

SP = Standard price

Blades:

Material Usage variance = (11,000 – 5,200*2) * $13

Material Usage variance = $7,800

Adaptors:

Material Usage variance = (5,300 – 5,200*1) * $6

Material Usage variance = $600

C. Direct labor Variances:

Labor Rate variance = (AR – SR) * AH

Where: AR = Actual rate

SR = Standard rate

AH = Actual hours worked

Grinding:

Labor Rate variance = ($15 - $14) * 2,800 hours

Labor Rate variance = $2,800

Finishing and Testing:

Labor Rate variance = ($12.25 - $12) * 3,700 hours

Labor Rate variance = $925

Labor efficiency variance = (AH – SH) * SR

Where: AH = Actual hours

SH = Standard hours for actual output