Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 126,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows: Direct materials (3 pounds @ $2) $ 6 Direct labor (0.25 hours @ $32) 8 Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Sales revenue $ 13,800 Less variable costs Direct materials 824 Direct labor 1,016 Variable overhead 539 Total variable costs $ 2,379 Contribution margin $ 11,421 Less fixed costs Fixed manufacturing overhead 2,020 Nonmanufacturing costs 2,137 Total fixed costs $ 4,157 Operating profit $ 7,264 During the year, the company purchased 326,000 pounds of material and employed 34,180 hours of direct labor. Required: Compute the direct materials price and efficiency variances. Compute the direct labor price and efficiency variances. Compute the variable overhead price and efficiency variances. Note: For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 126,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows:

Direct materials	(3 pounds @ $2)	$ 6
Direct labor	(0.25 hours @ $32)	8

Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable.

The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products:

Sales revenue	$ 13,800
Less variable costs
Direct materials	824
Direct labor	1,016
Variable overhead	539
Total variable costs	$ 2,379
Contribution margin	$ 11,421
Less fixed costs
Fixed manufacturing overhead	2,020
Nonmanufacturing costs	2,137
Total fixed costs	$ 4,157
Operating profit	$ 7,264

During the year, the company purchased 326,000 pounds of material and employed 34,180 hours of direct labor.

Required:

Compute the direct materials price and efficiency variances.
Compute the direct labor price and efficiency variances.
Compute the variable overhead price and efficiency variances.
Note: For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.

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