Portland Company\'s Ironton Plant produces precast ingots for industrial use. Ca
ID: 2473014 • 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).)
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
A Material Price variance (Standard Price-Actual Price)*Actula Quantity used (2.2-2.65)*28600 = 12,870 U Material Quantity variance (Standard Quantity for Actual Output-Actual Quantity)*Standard Price (8000*3.6-28600)*2.2 = 440 F B Direct labor rate variance (Standard rate- Actual rate)*Actual hours (7.70-7.40)*4600 1,380 F Labour Efficiency Variance (Standard Hours-Actual Hours)*Standard rate (8000*0.5-4600)*7.7 4,620 U C Variable overhead rate variance Standard cost for actual hours- Actual cost 3500*3.2-12600 1400 U Varaible overhead Efficiency Variance (Standard Hours-Actual Hours)*Standard rate (8000*0.4-3500)*3.2 960 U