Return to question 4 Wonderful! Not only did our salespeople do a good job in me

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Return to question 4 Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Kim Clark, president of Martell Company. "Our $22,700 overall manufacturing cost variance is only 6% of the $780,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year." 14.28 points The company produces and sells a single product. The standard cost card for the product follows: Standard Quantity or Hours 3.00 feet 3.00 per foot 1.2 hours11 per hour 1.2 hours 2.00 per hour 1.2 hours 5.50 per hour Standard Price or Rate Standard Inputs Direct materials Direct labor Variable overhead Pixed overhead $ 9.00 13.20 2.40 6.60 31.20 Total standard cost per unit The following additional information is available for the year just completed: a. The company manufactured 25,000 units of product during the year b. A total of 74,000 feet of material was purchased during the year at a cost of $3.20 per foot. All of this material was used to manufacture the 25,000 units produced. There were no beginning or ending inventories for the year c. The company worked 33,000 direct labor-hours during the year at a direct labor cost of $10.70 per hour d. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow: Denominator activity level (direct labor-hours) Budgeted fixed overhead costs Actual variable overhead costs incurred Actual fixed overhead costs incurred 26, 000 143,000 $ 72,600 $ 140,200

Explanation / Answer

Fixed overhead volume variance= Absorbed fixed overhead- Budgeted fixed overhead

Absorbed fixed overhead= Standard labor hours for actual production* OH rate per labor hour

Standard labor hours for actual production= 25000 units* 1.2 hours per unit= 30000 hours

OH rate per labor hour= Budgeted fixed OH/ Budgeted Labor hours= 143000/26000= 5.5 per hour

Absorbed fixed overhead= 30000 * 5.5= 165000

Fixed overhead volume variance= 165000- 143000= 22000= 22000 F

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