Standard Costs and Data Set for E11-28A through E11-32A Country Designs is a man

Question

Standard Costs and Data Set for E11-28A through E11-32A Country Designs is a manufacturer of large flower pots for urban settings. The company has these standards: Direct materials (resin ) Direct labor .13 pounds per pot at a cost of $4.00 per pound .......4.0 hours at a cost of $17.00 per hour Standard variable manufacturing overhead rate. $7.00 per direct labor hour Budgeted fixed manufacturing overhead.$50,000 $10.00 per direct labor hour (DLH) Country Designs allocated fixed manufacturing overhead to production based on standard direct labor hours. Last month, the company reported the following actual results for the pro- duction of 1,300 flower pots: Purchased 18,510 pounds at a cost of $4.50 per pound; used 17,810 pounds to produce 1,300 pots Worked 4.5 hours per flower pot (5,850 total DLH) at a cost of $16.00 per hour Direct materials Direct labor nufacturing overheard.$7.20 per direct labor hour for total actual variable manufacturing overhead of $42,120 Actual fixed manufacturing overhead.. Standard fixed manufacturing overhead .. $52,000

Explanation / Answer

1) VARIABLE MANUFACTURING OVERHEAD VARIANCES: Variance Interpretation for Management a) Variable manufacturing overhead spending variance = Actual variable overhead - Actual hours*Standard variable overhead rate = 42120-5850*7= 1170 [U] The variable overhead spending variance is the difference between what is actually paid for towards variable overhead against what should have been paid according to the standards set. The variance here is unfavorable, indicating that more has been spent per direct labor hour than envisaged. It requires management to study the situation and take necessary action. b) Variable manufacturing overhead efficiency variance = (AH × SR) (SH × SR) = (5850*7)-(1300*4*7) = 4550 [U] The variance is unfavorable. As it is based on direct labor hours, the variance tells the amount of variable overhead that is incurred for labor hours worked above the standard hours for actual production. Management should analyse the situation to find the causes and take required actions. c) Total variable manufacturing overhead variance = Actual variable manufacturing overhead-Standard variable manufacuring overhead for actual production = 42120-1300*4*7 = 5720 [U]. Alternatively, VMOH spending variance+VMOH Efficiency variance =1170[U]+4550[U] = 5720[U] 5720 [U] Tells that the total VMOH variance is unfavorable. It is the amount incurred on VMOH above the standards set. Management should investigate the component variances given above, both of them being unfavorable. 2) FIXED MANUFACTURING OVERHEAD VARIANCES: a) Fixed manufacturing overhead spending variance = Actual FMOH Budgeted FMOH = 49500 - 50000 = 500 [F] The spending variance tells how much is spent against the budget. Here, the variance is favorable, which means that less amount has been spent on FMOH than envisages. b) Fixed manufacturing overhad volume variance = Budgeted FMOH-FMOH applied = 50000-52000 = 2000 [U] The variance tells the difference between the budgeted volume of production and the actual production converted into standard units of actual production. The variance is unfavorable, telling that actual production level (at standard efficiency) is less than the budgeted level. The variance tells the cost of capacity lost in standard terms. It does not include the effeciency factor. c) Total fixed manufacturing overhead variance = FMOH spending variance+FMOH Volume variance = 500 [F]+2000[U] = 1500 [U] The unfavorable variance tells the impact of the FMOH underspent and the reduction in activity level. The spending variance is favorable and the volume variance is unfavorable.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.