Computing the direct materials price and quantity variances


Problem 1: The Clayton Company uses a standard cost system in which manufacturing overhead costs are applied to units of the company's single product on the basis of direct labor-hours (DLHs). The standard cost card for the product follows:      
 
Standard Cost Card per Unit
Direct Materials, 4 yards at $3.50 per yard..............................$14
Direct Labor, 1.5 DLH at $8 per DLH.......................................$12
Variable Overhead, 1.5 DLH at $2 per DLH ..............................$ 3
Fixed Overhead, 1.5 DLH at $6 per DLH ..................................$ 9
Standard cost per unit ...........................................................$38

The following data pertain to last year's activities:

- The company manufactured 18,000 units of product during the year. A total of 70,200 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 18,000 units.

- The company worked 29,250 direct labor-hours during the year at a cost of $7.80 per hour.

- The denominator activity level was 22,500 direct labor-hours.

- Budgeted fixed manufacturing overhead costs were $135,000 while actual manufacturing overhead costs were $133,200.

- Actual variable manufacturing overhead costs were $61,425.

Questions:

1. Compute the direct materials price and quantity variances for the year.

2. Compute the direct labor rate and efficiency variances for the year.

3. Compute the variable overhead spending and efficiency variances for the year.

4. Compute the fixed overhead budget and volume variances for the year.

Problem 2: The budget for Department 10 of Plant M for the current month ending March 31 is as follows:

Materials                                        $208,000
Factory wages                                 265,000
Supervisory salaries                          67,800
Depreciation of plant and equipment    35,000
Power and light                                  22,500
Insurance and property taxes              15,500
Maintenance                                         9,700

During March, the costs incurred in Department 10 of Plant M were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456.

Questions:

1. Prepare a performance report for the supervisor of Department 10 of Plant M for the month of March.

2. Comment on the variances, over or under. To what might the variances be attributed to?

3. Are there any significant variances (greater than 5%) of the budgeted amounts that should be examined by the supervisor?

Solution Preview :

Prepared by a verified Expert
Other Management: Computing the direct materials price and quantity variances
Reference No:- TGS01870294

Now Priced at $25 (50% Discount)

Recommended (92%)

Rated (4.4/5)