Briggs Company had recently acquired Metalica, Inc., a small manufacturing firm located in the Midwest. Unfortunately, Metalica had very poor internal controls, and a master disk with some fundamental cost data for the past year was accidentally erased. No backup existed. Kathy Shorts, an internal auditor for Briggs, was assigned to Metalica and given the task of reconstructing some of the cost records. At first, she was discouraged with the assignment, but she became excited when she discovered part of a computer printout containing some information about last year's opera- tions. The information, pertaining to Metalica's cost accounting system, follows:
Selected Actual Results
Direct materials: 10,000 pounds purchased and used, costing $51,000 Production: 20,000 units
Labor cost: 4,400 hours, cost $34,320 Fixed overhead cost: $23,000 Variable overhead cost: $46,000
Variances
|
Materials price variance
|
$ 1,000
|
U
|
|
Materials usage variance
|
10,000
|
F
|
|
Labor efficiency variance
|
3,200
|
U
|
|
Variable overhead efficiency
|
4,000
|
U
|
|
Variable overhead spending
|
2,000
|
U
|
|
Underapplied fixed overhead
|
3,000
|
U
|
|
Volume variance
|
4,000
|
U
|
Kathy also interviewed Metalica's controller and discovered that overhead rates are based on expected actual activity. Metalica calculates two variances for variable overhead and two for fixed overhead. However, before Kathy could analyze the information she had gathered, she had to take emergency leave because of a family crisis. You have been given the task of performing the analysis described by the fol- lowing requirements.
Required
1. Prepare a standard cost sheet in good form. Show fixed and variable overhead as separate items.
2. Compute the fixed overhead spending variance.
3. Compute the labor rate variance.
4. Determine the expected actual activity used to compute the predetermined fixed overhead rate.