Chapter 10.A, Problem 10P

PROBLEM 10A-10 Comprehensive Standard Cost Variances LO10-1, L010-2, LO10-3, LO10-4

“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 wel" said Kim Clark, president of Martell Company. "Our S18,300 overall manufacturing cost variance is only 1.2% of the SI,536,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.’
The company produces and sells a single product. The standard cost card for the product follows:

Inputs	(1) Standard Quantity or Hours	(2) Standard Price or Rate	Standard Cost (1) x(2)
Direct materials	2 feet	$8.45 per foot	$16.90
Direct labor	1.4 hours	$16 per hour	22.40
Variable overhead	1.4 hours	$2.50 per hour	3.50
Fixed overhead	1.4 hours	$6 per hour	8.40
Total standard cost per unit			$51.20

The following additional information is available for the year just completed
a The company manufactured 30,000 units of product during the year.

1. 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 produced There were no beginning or ending inventories for the year.
2. The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 per hour.
3. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:

Required:

1. Compute the materials price and quantity' variances for the year.
2. Compute the labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:

a. The variable overhead rate and efficiency variances for the year.

b. The fixed overhead budget and volume variances for the year.

Total the variances you have computed, and compare the net amount with the $18,300 mentioned by the president. Do you that bonuses should be given to everyone for good cost control during the year? Explain.