Problem - ABC Corp produces alphabet flash cards for grammar schools. They forecast that they will need to produce 90,000 sets of cards for the 2006-2007 school year. They budget the following costs for each set of cards.
Cost per set
Materials (1/2 pounds cardboard @ $1.5 per pound) $ .75
Labor (1/4 hour @ $10 per hour) $ 2.50
Variable overheads (1/4 hour @ $5 per hour) $ 1.25
Fixed Overhead $21,000
Actual results for the academic year were:
Production 80,000 sets of cards
Materials purchased and used 38000 pounds @ 1.3 per pound
Actual labor 23,000 hours costing $245,000
Actual Variable Overhead $130,000
Actual Fixed Overhead $22,000
Required:
1. Prepare an analysis that shows the Volume Variance and the Flex Variance using per unit costs and a static budget, a flexible budget and actual costs.
2. Compute Material Price and Quantity Variances.
3. Compute the Labor Rate and Efficiency Variances.