MBA 620 Week 4 Homework 1. Pleasanton Products manufactures DVD storage cases. B

Question

MBA 620 Week 4 Homework 1. Pleasanton Products manufactures DVD storage cases. Budgeted fixed manufacturing overhead is $12,000 per month. Following is standard cost information for each storage case: Direct materials 2 board feet @ $4/bf 1 hour $9/labor hr 1 labor hr. Lumber Direct labor Variable overhead In January, Pleasanton predicted to produce and sell 5,000 cases every month. Prepare a standard cost budget for the July manufacturing activities. a. b. During July, the company produced 5,200 storage cases while incurring the following manufacturing costs: Direct materials (11,000 board feet used Direct labor (5,000 labor hours used) Variable overhead Fixed overhead Total $46,200 45,100 14,000 15,500 $120,800 Prepare a flexible budget performance report for the July manufacturing activities (comparing the flexible budget to actual costs) c. Calculate the direct materials price and quantity variances. d. Calculate the direct labor rate and efficiency variances. e. Calculate the variable overhead spending and efficiency variances f. Calculate the fixed overhead budget variance.

Explanation / Answer

a) Standard Cost Budget for 5,000 cases (Amount in $)

b) Flexible budget report for 5,200 cases (Amount in $)

c) Direct Material Price variance = (Standard Price - Actual Price)*Actual Qty

Standard Price = $4 per board feet

Actual Price = Direct material actual cost/Actual Qty = $46,200/11,000 = $4.2

Actual Qty = 11,000 board feet

Direct Material Price variance = ($4 - $4.2)*11,000 = $2,200 (Unfavourable)

Direct Material Quantity variance = (Standard Qty - Actual Qty)*Standard Price

Standard Qty = 5,200 cases*2 board feet = 10,400

Direct Material Quantity variance = (10,400 - 11,000)$4 = $2,400 (Unfavourable)

d) Direct Labor Rate variance = (Standard rate - Actual Rate)*Actual Labor Hours

Standard rate = $9 per labor hour

Actual labor hours = 5,000 hrs

Actual rate = Actual labor cost/Actual labor hrs = $45,100/5,000 = $9.02

Direct labor rate variance = ($9 - $9.02)*5,000 = $100 (Unfavourable)

Direct Labor efficiency variance = (Standard hours - Actual hours)*Standard rate

Standard hours = 5,200 cases*1 labor hour = 5,200 labor hours

Direct Labor efficiency variance = (5,200-5,000)*$9 = $1,800 Favourable

e) Variable overhead spending variance = (Standard rate - Actual Rate)*Actual Labor Hours

Standard variable overhead rate = $2 per labor hour

Actual variable overhead rate = (Actual variable overhead/Actual labor hours) = ($14,000/5,000) = $2.8

Variable overhead spending variance = ($2 - $2.80)*5,000 = $4,000 (Unfavourable)

Variable overhead efficiency variance = (Standard hours - Actual hours)*Standard rate

= (5,200 - 5,000)*$2 = $400 Favourable

f) Fixed overhead Budget variance = Budgeted Fixed overhead - Actual Fixed overhead

= $12,000 - $15,500 = $3,500 (Unfavourable)

Particulars Per Case For 5,000 cases Direct Materials cost (2 board feet@$4/bf) 8 40,000 Direct Labor Cost (1 hr@$9/labor hr) 9 45,000 Variable Overhead Cost (1 hr@$2) 2 10,000 Fixed Manufacturing overhead cost 2.40 12,000

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