Top Notch Music Inc. produces car stereos. During the year Top Notch Music produ
ID: 2462284 • Letter: T
Question
Top Notch Music Inc. produces car stereos. During the year Top Notch Music produced 7,000 stereos. Materials and labor standards for producing these units are as follows:
Direct materials (1 electronic component kit @ $185) 185
Direct materials (2 plastic casing @ $45) 90
Direct Labor (8 hours @ $15) 120
Required:
A. Compute the standards hours allowed for a volume of 7,000 stereos and the planned cost.
B. Compute the standard number of kits and cssings allowed for a value of 7,000 units and the planned cost for each direct material.
C. Compute the total budget variance for materials and labor assuming that actual number of electronic kits purchased and used were 7,300 at a price of $179 and actual plastic casings purchased were 14,400 at a price of $43. Actual labor was 57,200 hours at $15.75 per hour.
Explanation / Answer
A./
STANDARD HOUR ALLOWED FOR 700 STEREOS
= 7000 * 8 HOURS
= 56000 HOURS
B./
STANDARD NUMBER OF KITS FOR 7000 UNITS OF STEREO
= 7000 * 1
= 7000
PLANNED COST FOR KIT
= 7000 * $185
= $1295000
STANDARD NUMBER OF PLASTIC CASTING FOR 7000 UNITS OF STEREO
= 7000 * 2
= 14000
PLANNED COST FOR PLASTIC CASTING
= 14000 * $45
= $630000
C./
MATERIAL BUGET VARIANCE
=STANDARD COST OF MATERIALS - ACTUAL COST OF MATERIALS
= [(7000 * $185) + (14000 * $45)] - [(7300 * $179) + (14400 * $43)]
= $1295000 + $630000 - $1306700 + $619200
= $1925000 - $1925900
= $900 U
LABOUR BUDGET VARIANCE
=STANDARD COST OF LABOURS - ACTUAL COST OF LABOURS
= 56000 HOURS * $15 - 57200 HOURS * $15.75
= $840000 - $900900
= $60900 U