Case 12-66 (Part Level Submission) You have started working as a cost accountant

Question

Case 12-66 (Part Level Submission)

You have started working as a cost accountant for a firm that has only been in business for one month. The firm is able to buy a new type of biodegradable plastic at a fixed price of $100 per roll. The plastic is then cut and sealed to make garbage bags. Fixed factory overhead is estimated to be $125,000 per month. During this past month, 8,000 cartons of garbage bags were produced, which represents 80% of the activity volume. You are given the following information:

Calculate the following:

Rolls of plastic used 40 Variable overhead incurred $61,000 Overhead efficiency variance $5,000 U Standard costs per carton of garbage bags: Labour hours 2 Wage rate $8 per hour Total overhead $20 Rolls of plastic 0.004 rolls

Explanation / Answer

Standard hours= standard hours for actual production

                                =2 x 8,000

                                =16,000 hrs

Standard overhead rate per hr= total overhead/ no of hrs per bag

                                                       =$20/2

                                                      =$10

Variable overhead efficiency variance = Standard overhead rate per hr x (standard hours -Actual hours)

                  - $ 5,000 = $ 10 x (16,000- Actual hours)

                  - $ 5,000 = $ 160,000 – 10 x Actual hours

            10 x Actual hours = $ 160,000 + $ 5,000

             Actual hours = $ 165,000 /10 = 16,500 hours    

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Hope that helps.

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