Problem 1: Peaceful Corporation manufactures figurines based on the following information.
Standard costs $20
Materials (4 ounces at $5) $8
Direct labor (1 hour per unit) $4
Variable overhead (based on direct labor hours)
Fixed overhead budget $19,000
Actual results and costs
Materials purchased
Units 9,000
Cost $39,600
Materials used in production
Finished product units 2,000
Raw material (ounces) 8,200
Direct labor hours 2,000
Direct labor cost $20,000
Variable overhead costs $5,980
Fixed overhead costs $19,500
Required:
a. Prepare a performance report for Peaceful using the following headings.
1. Actual Production Costs
2. Flexible Budget Costs
3. Flexible Budget Variances
b. Compute the following variances (show calculations).
1. Materials usage variance
2. Labor rate variance
3. Labor efficiency variance
4. Variable overhead spending variance
5. Variable overhead efficiency variance
6. Fixed overhead budget variance
c. Give one possible explanation for each of the six variances computed in part b.
Problem 2: The following is the current variable costing income statement for Dolly Corporation.
Sales (5,000 units) $100,000
Variable expenses Cost of goods sold $35,000
Selling (10% of sales) $10,000 $45,000
Contribution margin $55,000
Fixed expenses
Manufacturing overhead $24,000
Administrative $12,500 $36,500
Operating income $18,500
Below is the following information on operations for Dolly Corporation.
Beginning inventory (units) 0
Units produced (units) 6,000
Manufacturing costs
Direct labor (per unit) $5.00
Direct materials (per unit) $2.30
Variable overhead (per unit) $2.40
Required: Prepare an absorption costing income statement.