Problem:
Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year,but our production people did a good jobn in controlling costs as well."said Anna jones, president of Hess inc. "Our $34,110 overall manufaturing cost variance is only 1.47% of the $2,320,000 standard cost of products made during the year. That's well within the 3% limit set by management for acceptable variances. It looks like everyone will be in line for a bonus this year." The company produces and sells a single product. The standard cost card for the product follows:
Standard Cost Card--per Unit of Product
Direct Materials, 1.3 feet at $8.00 per foot $10.40
Direct labor, 1.5 DLHs at $13.00 per DLH 19.50
Variable overhead, 1.5 DLH at $1.20 per DLH 1.80
Fix overhead, 1.5 DLHs at $3.30 per DLH 4.95
Standard cost per unit 36.65
The following additional information is available for the year just completed:
a. the company manufactured 64,000 units of product during the year.
b. a total of 87,400 feet of material was purchased during the year at a cost of $8.05 per foot. all of this material was used to manufacture the 64,000 units. there were no beginning or ending inventories for the year
c. the company worked 99,8000 direct labor-hours during the year at a cost of $12.80 per direct labor hour (DLH)
d. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow.
Denominator activity level (direct labor-hours)....................84,500
Budgeted fixed overhead costs *from the overhead flexible budget)...$278,850
Actual variable overhead costs incurred...........................$117,300
Actual fixed overhead costs incurred..............................$281,400
Required to do:
Problem 1. Compute the direct materials price and quantity variances for the year
Problem 2. Compute the direct labor rate and efficiency variances for the year.
Problem 3. For manufacturing overhead compute:
a.the variable overhead spending and efficiency variances for the year.
b. the fixed overhead budget and volume variances for the year.
Problem 4. Total the variances you have computed, and compare the net amount with the $34,110 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.