Question 2 (25 Marks) Toy Factory manufactures a special superhero rubber toy. O
ID: 2550340 • Letter: Q
Question
Question 2 (25 Marks) Toy Factory manufactures a special superhero rubber toy. Overhead is applied to he the basis of direct-labour hour. The following standards are set for this superhero figurine Direct materials: 0.6 kg of rubber per toy at $0.1 per kg Direct labour: 0.1 hour per toy at $17 per hour Variable manufacturing overhead: 0.1 hour per toy at S$ per hour Fixed manufacturing overhead: 0.1 hour per toy at $4 per hour During the year the company produced 30,000 superhero rubber toys using its 1,000 kg of rubber remaining in last year's ending inventory. The fixed overhead budget for the year was $24,000 with 5,000 direct-labour hours as the denominator level of activity Actual data for the production for the year is as follows: Direct Materials: 20,000 kilograms of rubber was purchased at a cost of S0.3 per kg. 4,000 kg of the rubber was still in the inventory at the end of the month. Direct labour: 5,000 DLH hours were worked at $75,000 Variable manufacturing overhead costs were $15,000 Fixed manufacturing overhead costs were $30,000 Required: Compute the materials, labour, and overhead variances. (15 marks) a) b) c) Were the overhead costs overapplied or underapplied? (5 marks) What are the advantages and disadvantages of capacity analysis in regard to variance analysis (5 marks) Direct materialsExplanation / Answer
Question 2:
Solution:
a) Calculation of actual material used:
Opening Material 1,000
Add: Purchase 30,000
Less: Closing Material 4,000
Material Consumed 27,000 Kg.
Actual Production of rubber toy: 30,000 units
Actual material for 1 unit of toy: 27,000 / 30,000 = 0.9 Kg. @ $0.3 / Kg.
Variances:
Material Cost Variance: Standard Cost of material for actual output – Actual Material cost
(30000 * 0.6 * 0.1) – (27000 * 0.3)
= 1800 – 8100
= $6300 Unfav.
Material Price Variance: Actual quantity (Standard price per kg. – Actual price per kg.)
27000 * [0.1 - 0.3]
= $5400 Unfav.
Material Usage Variance: Standard Price (Standard Quantity – Actual Quantity)
0.1 (30000 * 0.6 – 27000)
= $900 Unfav.
Labor Cost Variance: Standard Cost of Labor for actual output – Actual Labor Cost
(30000 * 0.1 * 17) – 75000
= 51000 – 75000
= $24000 Unfav.
Labor Rate variance: Actual Hours (Standard Rate – Actual Rate)
5000 (17 – (75000/5000))
= 5000 (17 - 15)
= $10000 fav.
Labor Efficiency Variance: Standard Rate (Std. Hours – Actual Hours)
17 [(30000 * 0.1) – 5000]
= 17 [3000 – 5000]
= $34000 Unfav.
Overhead Cost Variance: Overhead Recovered on Actual Output – Actual Overhead
(30000 * 0.1 * 4) - 30000
= $6000 Unfav.
b.) Overhead costs were underapplied as the overhead variance is unfavorable.
c.) Capacity analysis in regard to variance analysis are both advantageous and disadvantageous, on one hand, variances give a foreseen mayhap of the decisions taken and it helps in making adjustments accordingly, but on the other hand, it is a vague analysis on the not-fully certain standards or to say it is not 100% proven method to reduce the loss factor and to spend so much of time and workforce on setting standards.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.