Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price
ID: 2481242 • Letter: Z
Question
Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of $44 per drum. The company has been producing and selling 80,000 drums per month.
In connection with your examination of Zippy's financial statements for the year ended September 30, management has asked you to review some computations made by Zippy's cost accountant. Your working papers disclose the following about the company's operations: Standard costs per drum of product manufactured:
Materials
8 gallons of chemicals @ $2...............$16
1 empty drum..........................................1 $17
Direct labor-1 hour.................................. $ 8
Factory Overhead.................................... $ 6
Costs and expenses during September:
Chemicals: 645,000 gallons purchased at a cost of $1,140,000; 600,000 gallons used.
Empty drums: 94,000 purchased at a cost of $94,000; 80,000 drums used.
Direct labor: 81,000 hours worked at a cost of $654,480. Factory overhead: $768,000.
Required:
Calculate the following variances for September using Excel Problem 8-3 format to answer (attached)
1. Materials quantity variance.
2. Materials purchase price variance.
3. Labor efficiency variance.
4. Labor rate variance.
Standard Quantity or Hours Actual Quantity or Hours Standard Cost Difference Variance 1. Materials quantity variance Surge Empty drums gal drums gal drums gal /drum 3. Labor efficiency variance hrs hrs hr Standard Cost Actual Cost Actual Quantity or Hours Difference Variance 2. Materials purchase price variance Surge Empty drums gal /drum gal /drum gal drums 4. Labor rate variance hr hoursExplanation / Answer
1- Material Quantity Varriance= (SQ for Actual Prod.-AQ)* Stand. Price
Chemical = (640000-600000)*$2 = $80000 F
Drum = (80000-80000)*$1= 0
2- Material Price Varriance = (Stand. price- Actual Price)*AQ
Chemical = ($2.00-$1.77)*600000 = $138000 F
Drum = ($1-$)*80000 = 0
3- Labour Efficiency Varriance = (SH for AP- AH)* SR
= (80000-81000)*$8.00 = -$8000 U
4- Labour Rate Varriance = (SR-AR)* AH
= ($8-$8.08)*81000 = -$6480
Stand. Qty. Stand. Price Chemical 8 galon $2.00 Drum 1 $1.00 Direct Labour 1 Hrs. $8.00 Actual Qty. Actual Price Chemical 7.50 $1.77 Drum 1 $1.00 Direct Labour 1.01 $8.08Related Questions
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