Costs associated with two alternatives, code-named Q and R, being considered by

Question

Costs associated with two alternatives, code-named Q and R, being considered by Corniel Corporation are listed below:

Which costs are relevant and which are not relevant in the choice between these two alternatives?

What is the differential cost of Alternative R over Alternative Q? (Negative amount should be indicated by a minus sign. Omit the "$" signs in your response.)

Part 5---------------------------------------------------------------------------------------------------------------

Silmon Corporation makes a product with the following standard costs:

In June the company produced 4,800 units using 21,890 grams of the direct material and 2,520 direct labor-hours. During the month the company purchased 24,700 grams of the direct material at a price of $6.80 per gram. If materials used are more than the materials purchased, the additional amount is taken from inventory.

The actual direct labor rate was $14.60 per hour and the actual variable overhead rate was $3.90 per hour. The materials price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

                                                                                                                                    Favor or Unfavorable

Alternative Q Alternative R   Supplies costs $ 77,000       $ 68,000         Power costs $ 49,000       $ 49,000         Inspection costs $ 29,000       $ 44,000         Assembly costs $ 42,000       $ 31,000      

Explanation / Answer

a. Relevant costs are as follows. supplies cost, inspection costs and assembly costs, not relevant cost is power cost as it is same in both the cases b. differential cost of alternative r over q is $5000 part 2 a. AQ = 21890/4800 = 4.56 SQ = 4.30 SP = (24,700 x 6.80)/21890 = 7.67 Formula for Direct Materials Quantity Variance = ( SQ ? AQ )

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