Portland Company\'s Ironton Plant produces precast ingots for industrial use. Ca
ID: 2467854 • 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 33,800 pounds of materials at a cost of $2.65 per pound. There were no raw materials in inventory at the beginning of the month.
Used 28,600 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 $12,600 for the month. A total of 3,500 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
1- Direct Material price variance = (actual price - standard price)* actual quantity
( 2.65 - 2.22)*8000 = 3440 Unfavorable
Direct Material quantity variance = ( SQ AQ ) × SP = (3.6 - 4.225)*2.22 = -11100
2- DL Rate Variance = ( SR AR ) × AH
(7.7 -7.4)*4500 = 1350 F
DL Efficiency Variance = ( SH AH ) × SR = (4000 - 4600)*7.7 = -4620 UN FAVORABLE
3- VOH Spending Variance = ( SR AR ) × AU
AR= 12600/3500 = 3.6 SR =1.28 AU= 3500
(1.28-3.6)*3500 = -4480
VOH Efficiency Variance = ( SH AH ) × SR = (3200 - 3500 )*1.28 = -384
3-
VARIANCE VALUE FAVORABLE/UNFAVORABLE Direct Material price variance -3440 U Direct Material quantity variance -11000 U DL Rate Variance 1350 F DL Efficiency Variance -4620 U VOH Spending Variance -4480 U VOH Efficiency Variance -384 U