Q1. Putnam Corporation manufactures a single product. The standard cost per wit, product is shown below.
Direct materials-1 pound plastic at $7.00 per pound $ 7.00
Direct labor-1.5 hours at $12.00 per hour 18.00
Variable manufacturing overhead 11.25
Fixed manufacturing overhead 3.75
Total standard cost per unit $40.00
The predetermined manufacturing overhead rate is $10 per direct labor hour ($15.00 + 1.5). It was computed from a master manufacturing overhead budget based on normal production of 7500 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $56,250 ($7.50 per hour) and total fixed overhead costs of $18,750 ($2.50 per hour). Actual costs for October in producing 4,900 units were as follows.
Direct materials (5,100 pounds) S 37,230
Direct labor (7,000 hours) 87,500
Variable overhead 56,170
Fixed overhead 19,680
Total manufacturing costs $200,580
The purchasing department buys the quantities of raw materials that are expected to be used in action each month. Raw materials inventories, therefore, can be ignored.
Instructions:
a) Compute all of the materials and labor variances.
b) Compute the total overhead variance.
Q2. Dinkel Manufacturing Corporation accumulates the following data relative to jobs ed and finished during the month of June 2008.
Costs and Production Data Actual Standard
Raw materials unit cost $2.25 $2.00
Raw materials units used 10,600 10,000
Direct labor payroll $122,400 $120,000
Direct labor hours worked 14,400 15,000
Manufacturing overhead incurred $184,500
Manufacturing overhead applied $189,000
Machine hours expected to be used at normal capacity 42,500
Budgeted fixed overhead for June $51,000
Variable overhead rate per hour $3.00
Fixed overhead rate per hour $1.20
Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative ex¬nses were $40,000. Assume that the amount of raw materials purchased equaled the amount used.
Instructions:
a) Compute all of the variances for (1) direct materials and (2) direct labor.
b) Compute the total overhead variance.
c) Prepare an income statement for management. Ignore income taxes.
Q3. At Camden Manufacturing Company, production workers in the Painting Department arc paid on the basis of productivity. The labor time standard for a unit of production is established through periodic time studies conducted by the Lowery Management Department. In a time study, the actual time required to complete a specific task by a worker is observed. Allowances are then made for preparation time, rest periods, and clean-up time. Ron Orlano is one of several veterans in the Painting Department.
Ron is informed by Lowery Management that he will be used in the time study for the painting of a new product. The findings will be the basis for establishing the labor time standard for the next 6 months. During the test, Ron deliberately slows his normal work pace in an effort to obtain a labor time standard that will be easy to meet. Because it is a new product, the Lowery Management representative who conducted the test is unaware that Ron did not give the test his best effort.
Instructions:
(a) Who was benefited and who was harmed by Ron's actions?
(b) Was Ron ethical in the way he performed the time study test?
(e) What measure(s) might the company take to obtain valid dita.for setting the labor time standard?