Portland Company\'s Ironton Plant produces precast ingots for industrial use. Ca
ID: 2472585 • 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 Budgeted Actual $179,000 $179,000 Sales (3,000 ingots) Variable expenses Variable cost of goods sold* Variable selling expenses 33,390 44,540 11,000 4,390 55,540 134,610 123.460 11,000 Total variable expenses Contribution margin Fixed expenses Manufacturing overhead Selling and administrative 50,000 50,000 75,000 75,000 125,000 125,000 $ 9,610 S (1,540) Total fixed expenses Net operating income (loss) Contains direct materials, direct labor, and variable manufacturing overhead Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, "l sure hope the plant has a standard cost system in operation. If it doesnt, 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 Standard QuantityStandard PriceStandard or Hours 3.6 pounds 0.5 hours 0.3 hours or Rate $2.00 per pound $6.60 per hour $2.10 per hour Cost Direct materials Direct labor Variable manufacturing overhead $ 7.20 3.30 0.63 Total standard variable cost $11.13 Based on machine-hoursExplanation / Answer
Step - 1: Before calculating the variance first we will collect all the information given in the problem:
Step-2: Calculations:
1. a)
Direct Material Price Variance:
= Actual Quantity x Actual Price - Actual Quantity x Standard Price
=10,600*2.45 - 10,600*2
=10,600(2.45-2) = 10,600 * 0.45
Material Price Variance = 4,770 U.
Direct Material Usage Variance:
= Actual Quantity x Standard Price - Standard Quantity x Standard Price
= 10,600 * 2 - 10,800 * 2 = 2 (10,600 - 10,800) = 2*200 = 400 F is the Material Usage Variance
here, Standard Quantity = 3,000 * 3.6pounds = 10,800 pounds.
b. Direct Labor Rate Variance:
= Actual Hours x Actual Rate - Actual Hours x Standard Rate
=2,100 * 6.3 - 2,100 * 6.6 = 2,100(6.3 -6.6) = 2,100 * 0.3 = 630 F is the Labor Rate Variance.
Direct Labor Effciency Variance:
= Actual Hours x Standard Rate - Standard Hours x Standard Rate
=2,100 * 6.6 - 1,500 * 6.6 = 6.6 (2,100 - 1,500) = 6.6 * 600 = 3,960 U is the Labor Effciency Variance.
Here, Standard Hours = 3,000 * 0.3 hours = 1,500 hours.
C. Variable Overhead Rate Variance:
= Actual Manufacturing Variable Overheads Expenditure - Actual hours x Standard Variable Overhead Rate per hour
= 3,000 - 1,200 * 2.1 = 3,000 - 2,520 = 480 U is the Variable Overhead Rate Variance.
Variable Overhead Efficiency Variance:
= Standard hours x Standard Variable Overhead Rate per hour - Actual hours x Standard Variable Overhead Rate per hour
=900 * 2.1 - 1,200 * 2.1 = 2.1 (900 - 1,200) = 2.1 - 300 = 630 U is the Variable Overhead Efficiency Variance.
Here, Standard hours = 0.3 hours * 3,000 = 900hours.
2.
Standard cost Standard Quantity or hours Standard price or rate Direct Material 3.6pounds $2.00per pound Direct labout 0.5 hours $6.60 per hour Variable manufacturing over head 0.3hours $2.10 per hours