Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well, “ said Kim Clark, president of Martell Company. “ Our $18,000 overall manufacturing cost variance is only 1.5 % of the standard $1,200,000 standard cost of products sold during the year. That’s well within
(18 pts) 2. Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well, “ said Kim Clark, president of Martell Company. “ Our $18,000 overall
The company produces and sells a single product. A standard cost card for the product follows:
Standard Cost Card - Per Unit of Product
Direct materials, 2 feet at $8.45 ……………… $16.90
Direct labor, 1.4 hours at $8 ………………… 11.20
Variable
Fixed overhead, 1.4 hours at $6 ……………… 8.40
Standard cost per unit………………… $ 40.00
The following additional information is available for the year just completed:
The company manufactured 30,000 units of product during the year.
A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.
The company worked 45,000 direct labor-hours during the year at a cost of $7.80 per hour.
Overhead is applied to products on the basis of direct labor-hours. Data relating to manufacturing overhead costs follows:
Denominator activity level (direct labor-hours) ….. 35,000
Budget fixed overhead costs (from the overhead flexible budget) ………………$210,000
Actual variable overhead costs incurred ………….. 108,000
Actual fixed overhead costs incurred …………….. 211,800
Required:
- Compute the direct materials price and quantity variances for the year.
- Compute the direct labor rate and efficiency variances for the year.
- Compute the variable overhead spending and efficiency variances for the year.
- Compute the fixed overhead budget and volume variances for the year.
- Total the variances you have computed, and compare the net with the $18,000 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year?
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