Portland Company\'s Ironton Plant produces precast ingots for industrial use. Ca
ID: 2415742 • Letter: P
Question
Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant’s contribution format income statement for October. The statement is shown below:
Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, "I sure hope the plant has a standard cost system in operation. If it doesn't, I won't have the slightest idea of where to start looking for the problem."
The plant does use a standard cost system, with the following standard variable cost per ingot:
Purchased 24,500 pounds of materials at a cost of $2.95 per pound. There were no raw materials in inventory at the beginning of the month.
Used 19,300 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred a total variable manufacturing overhead cost of $5,070 for the month. A total of 1,300 machine-hours was recorded.
Direct materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Direct labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Variable overhead rate and efficiency variances. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant’s contribution format income statement for October. The statement is shown below:
Explanation / Answer
Material Quantity Variance = ( Standard quantity for actual production - Actual Quantity) * Standard Price
= ( 5000*3.9 - 19300 )*2.5
= ( 19500 - 19300) * 2.5
= 500 F
Labor Effeciency Variance = ( Standard hour for actual production - Actual Hours)* Standard Rate
= ( 5000*0.8 - 4600)* 8
= ( 4000 - 4600 ) * 8
= 4800 U
Variable Overhead Rate Variance = ( Standard Rate - Actual Rate ) * Actual Hours
= ( 3.5 - 5070/1300) * 1300
= ( 3.5 - 3.9)* 1300
= 520 U
Variable Overhead Effeciency Variance = ( Standard hours for actual output - Actual Hours) * Standard rate
= ( 0.2 * 5000 - 1300 )* 3.5
= ( 1000 - 1300 ) * 3.5
= 1,050 U
Summary Of Variances
Material Price and Labor Effeciency Variance are the most significant variances because of huge deviation from the standard
Particulars Amount Material Quantity Variance 500 F Material Price Variance 11,025 U Labor Effeciency Variance 4,800 U Labor Rate Variance 1,380 F Variable Overhead Effeciency Variance 1,050 U Variable Overhead Rate Variance 520 U Net Variance 15,515 U