Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 122,500 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 Direct labor Sales revenue Less variable costs Direct materials Direct labor Variable overhead Total variable costs 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: Contribution margin (3 pounds @ $2) (0.25 hours @ $32) Less fixed costs Fixed manufacturing overhead Nonmanufacturing costs Total fixed costs $ 10,300 810 1,002 525 a. Direct materials: Price variance Efficiency variance b. Direct labor. Price variance Efficiency variance c. Variable overhead: Price variance Efficiency variance $ 2,337 $ 7,963 $6 1,565 2,130 $3,695 $ 4,268 Operating profit During the year, the company purchased 322,500 pounds of material and employed 33,200 hours of direct labor. Required: a. Compute the direct materials price and efficiency variances. b. Compute the direct labor price and efficiency variances. c. 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.
Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 122,500 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 Direct labor Sales revenue Less variable costs Direct materials Direct labor Variable overhead Total variable costs 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: Contribution margin (3 pounds @ $2) (0.25 hours @ $32) Less fixed costs Fixed manufacturing overhead Nonmanufacturing costs Total fixed costs $ 10,300 810 1,002 525 a. Direct materials: Price variance Efficiency variance b. Direct labor. Price variance Efficiency variance c. Variable overhead: Price variance Efficiency variance $ 2,337 $ 7,963 $6 1,565 2,130 $3,695 $ 4,268 Operating profit During the year, the company purchased 322,500 pounds of material and employed 33,200 hours of direct labor. Required: a. Compute the direct materials price and efficiency variances. b. Compute the direct labor price and efficiency variances. c. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the
company to manufacture and sell 122,500 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
Direct labor
Sales revenue
Less variable costs:
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:
$ 10,300
810
1,002
525
$ 2,337
$ 7,963
Direct materials
Direct labor
Variable overhead
Total variable costs
Contribution margin
Less fixed costs
Fixed manufacturing overhead
Nonmanufacturing costs
Total fixed costs
a. Direct materials:
Price variance
Efficiency variance
(3 pounds @ $2)
(0.25 hours @ $32)
Operating profit
During the year, the company purchased 322,500 pounds of material and employed 33,200 hours of direct labor.
Required:
a. Compute the direct materials price and efficiency variances.
b. Compute the direct labor price and efficiency variances.
c. 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.
b. Direct labor.
Price variance
Efficiency variance
c. Variable overhead:
Price variance
Efficiency variance
$6
1,565
2,130
$ 3,695
$ 4,268
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Step 1: Introduction of variance analysis
VIEWStep 2: Computation of actual units sold
VIEWStep 3: Requirement a - Computation of direct materials price and efficiency variance
VIEWStep 4: Requirement b - Computation of direct labor price and efficiency variance
VIEWStep 5: Requirement c - Computation of variable overhead price and efficiency variance
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