Plush pet toys are produced in a largely automated factory in standard lots of 1
ID: 2394132 • Letter: P
Question
Plush pet toys are produced in a largely automated factory in standard lots of 100 toys each. A standard cost system is used to control costs and to assign cost to inventory: Price Standard Quantity Standard Plush fabric 2 per metre 15 metres per lot Direct labour 10 per hour 2 hours per lot Variable overhead, estimated at $3 per lot, consists of miscellaneous items such as thread, a variety of plastic squeakers, and paints that are applied to create features such as eyes and whiskers. Fixed overhead, estimated at $29,000 per month, consists largely of depreciation on the automated machinery and rent for the building. Variable overhead is allocated based on lots produced. The standard fixed overhead allocation rate is based on the estimated output of 1,000 lots per month. Actual data for last month follow: Production Sales Plush fabric purchased Cost of fabric purchased Fabric used Direct labour Direct labour cost Variable overhead Fixed overhead 2,000 lots 1,300 lots 39,000 metres $79,600 28,800 metres 3,700 hours $34,200 $6,000 $29,850 The company's policy is to record materials price variances at the time materials are purchasedExplanation / Answer
Particulars Formula Computation Variance Direct material variance: Direct material price variance: (Actual price - Budgeted price)*Actual Quantity $79600 - (39000*2) $1600 (adverse) Direct material efficiency variance: (Actual quantity - Budgeted quantity)* Standard price (39000 - (15*2000))*$2 $ 18000 (adverse) Direct labour variance: Direct labour price variance: (Standard Rate - Actual Rate)* Actual labour hours ($10 - $9.24)*3700 $2812 (favourable) Direct labour efficiency variance: (Standard hours - Actual hours)* Standard rate per hour ((2000*2)-3700)* $10 $3000 (favourable) Variable overhead spending variance: (Standard VOH rate - Actual VOH rate)* Actual units ($3 - ($6000/2000))*2000 $0 Fixed overhead budget variance: (Total fixed overhead - Actual fixed overhead) ($29000 - $29850) $850 (adverse) Production volume variance: (Actual units produced in actual time - Budgeted units (2000 - (3700/2))* $3 $450 (favourable) to be produced in actual time)* overhead rate