Problem: Mass production of chairs for children are purchased in a variety of colors but with one basic design. Design is the key to the company's success following data:
Plastic........................... 10 lbs at $4.50 per pound
Molding..........................3 ft at $3.00 per foot
Direct Labor....................4 hours at 6.00 per hr
Variable overhead...........$3.00 per direct labor hr
Fixed overhead...............$55,000 per period
Purchased plastic at $4.45 per pound & issued 185,000 pounds to production
Purchased molding at $3.10 per ft issued 50,000 to production
Direct labor payroll $435,000 for 72,500
Total overhead cost $275,000 including $221.125 variable overhead
Produced 18,000 chairs during the month
Required to do:
a. calculate material, labor, variable overhead and fixed overhead variances
b. Interpret the material and labor variances. indicate about company performance
c. based on response to b. what areas need to be investigated
d. company control or better manage its operations
e. what are the best options? Why?