Chapter 15, Problem 2ATC

a)1

To determine

Determine the total materials cost variance, price and usage variance, the cause of variance and responsible management position.

Explanation of Solution

Compute the total variance:

$\begin{array}{c}\text{Total variances}=\left|\text{Actual cost}-\text{Standard cost}\right|\times \text{Actual units}\\ =\left|\text{\$44}\text{.10}-\text{\$40}\text{.00}\right|\times 82,000\\ =\text{\$4}\text{.1}\times 82,000\\ =\$336,200\end{array}$

Hence, the total variances are $336,200 which is an unfavorable variance.

Compute the total materials price variance:

$\begin{array}{c}\text{Materials price variances}=\left|\text{Actual price}-\text{Standard price}\right|\times \text{Actual quantity}\\ =\left|\text{\$2}\text{.10}-\text{\$2}\text{.00}\right|\times \left(21\times 82,000\right)\\ =\$172,200\end{array}$

Hence, the total materials price variances are $172,200 which is an unfavorable variance.

Compute the total materials usage variance:

$\begin{array}{c}\text{Materials usage variance}=\left|\text{Actual quantity}-\text{Standard quantity}\right|\times \text{Standard price}\\ =\left|\left(21\times 82,000\right)-\left(20\times 82,000\right)\right|\times \$2.00\\ =\left|\left(1,722,000-1,640,000\right)\right|\times \$2\\ =\$164,000\end{array}$

Hence, the total materials usage variances are $164,000 which is unfavorable variance.

K Company paid more than the budgeted for planks of wood.

The purchasing agent is responsible for the price variance. The variances are occurred because of factors like lumber shortage, and inflation.

K Company used more materials than planned which leads to unfavorable usage variance.

The production supervisor is the responsible party. The variances are occurred because of factors like lack of physically control over inventory and lack of motivation to workers.

2)

To determine

Determine the labor cost, price, and usage variance and the cause of variance and responsible management position.

Explanation of Solution

Compute the total labor cost variance:

$\begin{array}{c}\text{Labor variance}=\left|\text{Actual cost}-\text{Standard cost}\right|\times \text{Actual units}\\ =\left|\$26.10-\$25.50\right|\times 82,000\\ =\$49,200\end{array}$

Hence, the labor variance is $49,200 which is an unfavorable variance.

Compute the labor price variance:

$\begin{array}{c}\text{Labor price variance}=\left|\text{Actual price}-\text{Standard price}\right|\times \text{Actual hours}\\ =\left|\left(\$9.00-\$8.50\right)\right|\times \left(2.9\times 82,000\right)\\ =\$118,900\end{array}$

Hence, the labor price variance is $118,900 which is an unfavorable variance.

Compute the labor usage variance:

$\begin{array}{c}\text{Labor usage variance}=\left|\text{Actual quantity}-\text{Standard quantity}\right|\times \text{Standard price}\\ =\left|\left(2.9\times 82,000-3.0\times 82,000\right)\right|\times \$8.50\\ =\left|\left(237,800-246,000\right)\right|\times \$8.50\\ =\$69,700\end{array}$

Hence, the labor usage variance is $69,700 which is a favorable variance.

K Company paid more than the budgeted.

The personnel manager and production supervisors are responsible for the variance. The variances are occurred because of factors like the minimum wages could have been raised by the government.

K Company used less labor than planned which leads to favorable usage variance.

The production supervisor or personal managers are the responsible party. These people motivate the employees and hired more competent people.

3)

To determine

Determine the fixed cost spending and variance and the cause of variance and refer whether the actual fixed cost per unit is lower or higher than the budgeted fixed cost per unit.

Explanation of Solution

Compute the fixed cost spending variance:

Table (1)

Hence, the spending variance is $48,400 which is unfavorable variance.

Compute the fixed cost volume variance:

Table (2)

Hence, the volume variance is $32,000 which is favorable variance.

Working note:

Calculate the the predetermined overhead rate:

$\begin{array}{c}\text{Predetermined overhead rate}=\frac{\text{Total expected overhead costs}}{\text{Total expected units}}\\ =\frac{\text{\$1,280,000}}{\text{80,000}}\\ =\text{\$16 per table}\end{array}$

Hence, the predetermined overhead rate is $16 per table.

The Company K has paid more than the planned with respect to fixed cost. The plant manager is responsible for the rent on manufacturing equipment. The personnel manager is responsible for the salaries paid to the company supervisor.

More units were produced and sold which leads to favorable volume variance. This reduces the fixed cost per unit.

b)

To determine

Indicate that the total of material, labor, and overheads variance are equal to the total flexible budget variance.

Explanation of Solution

Note:

Refer the above part for the calculated values.

Table (3)

c)

To determine

Discuss the reaction of Person D reacts to the variance information

Explanation of Solution

Discuss the reaction of Person D reacts to the variance information:

Person D should make an impartible and fair investigation on the responsible parties and causes.

Monitoring the performance is sufficient for the improvement and in the circumstances of intentional disregard and consistent incompetence the disciplinary actions can be taken.