Chapter 21: Q15DQ (page 967)
Is it possible for a retail store such as Apple to use variances in analyzing its operating performance? Explain.
The operating variance facilitates the managers to determine the operational efficiency or inefficiency.
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The following information describes production activities of Mercer Manufacturing for the year.
Actual direct materials used 16,000 lbs. at \(4.05 per lb.
Actual direct labor used 5,545 hours for a total of \)105,355
Actual units produced 30,000
Budgeted standards for each unit produced are 0.50 pounds of direct material at \(4.00 per pound and 10 minutes of direct labor at \)20 per hour.
1. Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
2. Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable.
We use the words favorable and unfavorable when evaluating variances when looking at the closing of accounts. To see this, consider that (1) all variance accounts are closed at the end of each period (temporary accounts), (2) a favorable variance is always a credit balance, and (3) an unfavorable variance is always a debit balance. Write a half-page memorandum to your instructor with three parts that answer the three following requirements. (Assume that variance accounts are closed to Cost of Goods Sold.)
Required
Kryll Company set the following standard unit costs for its single product.
Direct materials (25 Ibs. @ \(4 per Ib.) | \)100 |
Direct labor (6 hrs. @ \(8 per hr.) | 48 |
Factory overhead—Variable (6 hrs. @ \)5 per hr.) | 30 |
Factory overhead—Fixed (6 hrs. @ \(7 per hr.) | 42 |
Total standard cost | \)220 |
The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.
| Operating Levels | |||
70% | 80% | 90% | |
Production in units | 42,000 | 48,000 | 54,000 |
Standard direct labor hours | 252,000 | 288,000 | 324,000 |
Budgeted overhead | |||
Fixed factory overhead | \(2,016,000 | \)2,016,000 | \(2,016,000 |
Variable factory overhead | 1,260,000 | 1,440,000 | 1,620,000 |
During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; direct labor hours worked were 250,000. Units produced were assigned the following standard costs:
Direct materials (1,050,000 Ibs. @ \)4 per Ib.) | \(4,200,000 |
Direct labor (252,000 hrs. @ \)8 per hr.) | 2,016,000 |
Factory overhead (252,000 hrs. @ \(12 per hr.) | 3,024,000 |
Total standard cost | \)9,240,000 |
Actual costs incurred during the current quarter follow:
Direct materials (1,000,000 Ibs. @ \(4.25 per lb.) | \)4,250,000 |
Direct labor (250,000 hrs. @ \(7.75 per hr.) | 1,937,500 |
Fixed factory overhead costs | 1,960,000 |
Variable factory overhead costs | 1,200,000 |
Total actual costs | \)9,347,500 |
Required
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the total overhead controllable variance.
Refer to information in QS 21-3. Assume that actual sales for the year are \(480,000 (26,000 units), actual variable costs for the year are \)112,000, and actual fixed costs for the year are $145,000. Prepare a flexible budget performance report for the year.
Brodrick Company expects to produce 20,000 units for the year ending December 31. A flexible budget for 20,000 units of production reflects sales of \(400,000; variable costs of \)80,000; and fixed costs of $150,000. If the company instead expects to produce and sell 26,000 units for the year, calculate the expected level of income from operations.
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