Portland Company\'s Ironton Plant produces precast ingots for industrial use. Ca
ID: 2465398 • 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 25,000 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 19,800 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 $4,320 for the month. A total of 1,800 machine-hours was recorded.
Direct materials price and quantity variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Direct labor rate and efficiency variances. (Input all amounts as positive values. 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 "$" sign in your response.)
Variable overhead rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. (Input the amount as a positive value. 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.)
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
Portland company Variance analysis Actual Production of ingots 5,000.0 nos Standard cost per unit details Qty /Hrs Rate Cost/Unit Standard Qty/Hrs for actual output Direct Material lbs 4.0 2.5 10.0 20,000.0 Direct Labor 0.6 9.0 5.4 3,000.0 Variable overhead based on M/C hrs 0.3 2.0 0.6 1,500.0 Actual Results Actual Units Actual Qty/Hrs Used Actual Rate Actual Amount Direct Material lbs 5,000.0 19,800.0 2.95 58,410.0 Direct Labor 5,000.0 3,600.0 8.70 31,320.0 Variable overhead based on M/C hrs 5,000.0 1,800.0 2.40 4,320.0 Direct Materials Price Variance= Actual Qty Used( Actual Rate-Std Rate) =19800*(2.95-2.5) 8,910 (U) Direct Material Efficiency Variance =Std Rate ( Actual Qty used-Std qty for actual output) =2.5*(19800-20000) 500 (F) Direct Labor Rate Variance= Actual Hrs Used( Actual Rate-Std Rate) =3600*(8.7-9) 1,080 (F) Direct LAbor Efficiency Variance =Std Rate ( Actual Hrs used-Std Hrs for actual output) =9*(3600-3000) 5,400 (U) Variable Overhead Rate Variance= Actual Qty Used( Actual Rate-Std Rate) =1800*(2.4-2) 720 (U) Variable Overhead Efficiency Variance =Std Rate ( Actual Qty used-Std qty for actual output) =2*(1800-1500) 600 (U) Variance details Amt $ Materials price variance 8,910 U Materials quantity variance 500.0 F Variable overhead efficiency variance 600.0 U Labor rate variance 1,080.0 F Variable overhead rate variance 720.0 U Labor efficiency variance 5,400.0 U Total 14,050.0 U 16,390.0 2,340.0 Two Major variance are Materials price variance 8,910 U Labor efficiency variance 5,400.0 U