You have recently accepted a position with Vitex, Inc., the manufacturer of a po

Question

You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study. On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information: Standard Cost Card Direct materials, 2.20 pounds at $16.50 per pound Direct labor, 1.00 direct labor-hours at $16.00 per direct labor-hour Variable manufacturing overhead, 1.00 direct labor-hours at $9.20 per direct labor-hour 36.30 16.00 $ 9.20 Variances Quantity or Efficiency S 33,000 U S 16,000 U Total Standard Cost or Rate $544,500 $240,000 10,150 F S 3,200 U Direct materials Direct labor Variable manufacturing overhead $138,000 S 4,700 F $ t U Applied to Work in Process during the period. t Entry obliterated You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. Work in process inventories are insignificant and can be ignored. It is now 8:30 a.m. The executive committee meeting starts in just one hour; you realize that to avoid looking like a bungling fool you must somehow generate the necessary "backup" data for the variances before the meeting begins. Without backup data it will be impossible to lead the discussion or answer any questions.. Required 1. How many units were produced last period? of units produced

Explanation / Answer

Solution:

Standard cost of direct material = $544,500

Standard Qty of direct material for actual production = $544,500 / 16.50 = 33000 Pounds

Direct material required per unit = 2.20 pounds

Therefore total unit produced last period = 33000/2.20 = 15000 units

Direct material quantity variance = $33000U

(SQ-AQ)*SR = -33,000

(33000 - AQ)*16.50 = -33000

544500 - 16.50AQ = -33000

16.50AQ = 577500

AQ = 35000 pounds

Therefore 35000 pound of direct material was purchased and used in production.

Actual cost of direct material = 544500 - 10150 + 33000 = $567,350

Actual cost per pound of direct material = 567350/35000 = $16.21 per pound

Standard direct labor cost = $240,000

Standard labor hours = $240,000/16 = 15000 hours

Direct labor efficiency variance = 16000U

(SH - AH) * SR = -16000

(15000 - AH) * 16 = -16000

240000 - 16AH = -16000

16 AH = 256000

Actual hours for direct labor = 16000 hours

Actual labor cost = 240000 + 3200 + 16000 = $259,200

Actual rate paid per direct labor hour = $259,200 / 16000 = $16.20 per hour

Variable overhead efficiency variacne = (SH - AH)*SR = (15000 - 16000) * 9.20 = $9,200 U

Actual variable manufacturing overhead cost incurred = Standard cost + Unfavorable efficiency variance - Favorable rate variance

= $138,000 + $9,200 - $4,700 = $142,500

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