E10.13 (LO 4, 5), AP Malea Industries produces a cleaning product that works for the peskiest stains. It’s pricey, but less expensive than hiring a professional cleaning service. The managers at Malea are conducting variance analysis at the end of January, the first month of the new fiscal year. Budgeted fixed-MOH costs for the year were $2,160,000. The company’s standards for one gallon of cleaning solution are as follows, along with actual information for the month. Standard Quantity per Unit Standard Price DM 0.5 gallons of solution $20.00 per gallon DL 0.3 DL hours $18.00 per DL hour Variable-MOH 2.0 machine hours $2.40 per machine hour Fixed-MOH 2.0 machine hours $4.00 per machine hour Actual results for January: 22,000 gallons were actually produced. Cost of DM purchased was $255,800 for 12,500 gallons of solution. DM used in production was 10,800 gallons. Cost of DL was $122,400 for 7,000 DL hours worked. Variable-MOH cost was $110,300 for 46,800 machine hours used. Fixed-MOH cost was $195,000. Required a. Determine the DM, DL, and variable-MOH price and efficiency variances for the month. b. Determine the fixed-MOH price and volume variances for the month. c. Give some plausible explanations for these variances.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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E10.13 (LO 4, 5), AP Malea Industries produces a cleaning product that works for the peskiest stains. It’s pricey, but less expensive than hiring a professional cleaning service. The managers at Malea are conducting variance analysis at the end of January, the first month of the new fiscal year. Budgeted fixed-MOH costs for the year were $2,160,000. The company’s standards for one gallon of cleaning solution are as follows, along with actual information for the month.

Standard Quantity per Unit Standard Price

DM 0.5 gallons of solution $20.00 per gallon

DL 0.3 DL hours $18.00 per DL hour

Variable-MOH 2.0 machine hours $2.40 per machine hour

Fixed-MOH 2.0 machine hours $4.00 per machine hour

Actual results for January:

22,000 gallons were actually produced.

Cost of DM purchased was $255,800 for 12,500 gallons of solution.

DM used in production was 10,800 gallons.

Cost of DL was $122,400 for 7,000 DL hours worked.

Variable-MOH cost was $110,300 for 46,800 machine hours used.

Fixed-MOH cost was $195,000.

Required

a. Determine the DM, DL, and variable-MOH price and efficiency variances for the month.

b. Determine the fixed-MOH price and volume variances for the month.

c. Give some plausible explanations for these variances.

d. If Malea Industries sells this cleaning product for $42 per gallon, what is its expected gross margin percentage?

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