Question 1. Healing Touch manufactures massage chairs with the following standard cost structure:
Standard Cost Sheet: Massage Chair
Metal tubing ¨ 6 meters @ $3 $ 18.00
Leather 2 square meters @ $7 $ 14.00
Padding 3 kilograms @ $4 $ 12.00
Direct labor 4 hours @ $15 $ 60.00
Total standard cost $104.00
During the month 500 chairs are manufactured and the following costs incurred:
Actual Costs Incurred for the Month: Massage Chair
Metal tubing 3,100 meters $9,455
Leather 1,100 square meters $7,722
Padding 1,600 kilograms $6,560
Direct labor 1,800 hours $27,270
Total cost $51,007
Required:
a. Calculate all materials and labor variances (including price, quantity, wage rate, and labor efficiency variances).
b. Write a short report summarizing and analyzing the manufacturing operations for the month.
Question 2. Turow Trailers assembles horse trailers. Two models are manufactured: G7 and V8. While labor intensive, the production process is not very complicated. The single plant produces all the trailers with 48 work teams of two or three workers. Sixteen supervisors oversee the work teams. Materials handlers deliver all the parts needed for each trailer to the work team. Human resources, accounting, inspection, purchasing, and tools are the other major overhead departments. Some operating statistics for 2010 and 2011 follow.
2010 2011
Budgeted denominator volume (direct labor hours) 1 million 1 million
Flexible budget:
Fixed overhead $2.1 million $2.2 million
Variable overhead per direct labor hour $7 $8
Units produced:
G7 11,000 8,000
V8 12,000 6,000
Standard direct labor per unit of:
G7 40 40
V8 50 50
Actual overhead incurred $9.0 million $8.1 million
Actual direct labor hours 1 million 0.7 million
Required:
a. Calculate the overhead spending variance, the overhead volume variance, and the overhead efficiency variance.
b. Discuss who in the plant should be held responsible for each overhead variance.