Problem:
Arthur Manufacturing Company produces a component part of a top secret military communication device. Standard production and cost data for the part, Product X, follow.
Planned production 40,000 units
Per unit direct materials 2lbs. @ $2.16 per lb.
Per unit direct labor 3hrs. @ $9.60 per hr.
Total estimated fixed overhead costs $1,123,200
Arthur purchased and used 84,460 pounds of material at an average cost of $2.25 per pound. Labor usage amounted to 119,480 hours at an average of $9.72 per hour. Actual production amounted to 41,200 units. Actual fixed overhead costs amounted to $1,180,800. The company completed and sold all inventory for $2,880,000.
Q1. Prepare a materials variance information table showing the standard price, the actual price, the standard quantity, and the actual quantity.
Q2. Calculate the materials price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).
Q3. Prepare a labor variance information table showing the standard price, the actual price, the standard hours, and the actual hours.
Q4. Calculate the labor price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).
Q5. Calculate the predetermined overhead rate, assuming that Arthur uses the number of units as the allocation base.
Q6. Calculate the fixed manufacturing overhead cost spending and volume variances and indicate whether the variances are favorable (F) or unfavorable (U).
Q7. Determine the amount of gross margin Arthur would report on the year-end income statement.