Problem 6-30 LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO VIDEO L
ID: 2524611 • Letter: P
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Problem 6-30
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Problem 6-30
Lexi Belcher picked up the monthly report that Irvin Santamaria left on her desk. She smiled as her eyes went straight to the bottom line of the report and saw the favorable variance for operating income, confirming her decision to push the workers to get those last 260 cases off the production line before the end of the month.But as she glanced over the rest of numbers, Lexi couldn’t help but wonder if there were errors in some of the line items. She was puzzled at how most of the operating expenses could be higher than the budget since she had worked hard to manage the production line to improve efficiency and reduce costs. Yet the report, shown below, showed a different story.
Actual Budget Variance Cases produced and sold 10,250 9,990 260 Favorable Sales revenue $1,945,600 $1,868,100 $77,500 Favorable Less variable expenses Direct material 560,439 549,450 10,989 Unfavorable Direct labor 267,382 259,740 7,642 Unfavorable Variable manufacturing overhead 284,727 279,720 5,007 Unfavorable Variable selling expenses 93,037 89,910 3,127 Unfavorable Variable administrative expenses 41,698 39,960 1,738 Unfavorable Total variable expense 1,247,283 1,218,780 28,503 Unfavorable Contribution margin 698,317 649,320 48,997 Favorable Less fixed expenses Fixed manufacturing overhead 110,889 109,890 999 Unfavorable Fixed selling expenses 69,431 69,930 (499 Favorable) Fixed administrative expenses 129,670 129,870 (200 Favorable) Total fixed expense 309,990 309,690 300 Unfavorable Operating income $388,327 $339,630 $48,697 Favorable
Lexi picked up the phone and called Irvin. “Irvin, I don’t get it. We beat the budgeted operating income for the month, but look at all the unfavorable variances on the operating costs. Can you help me understand what’s going on?” “Let me look into it and I’ll get back to you,” Irvin replied.
Irvin gathered the following additional information about the month’s performance.
? Direct materials purchased: 101,898 pounds at a total of $560,439 ? Direct materials used: 101,898 pounds ? Direct labor hours worked: 26,474 at a total cost of $267,382 ? Machine hours used: 40,909
Irvin also found the standard cost card for a case of product.
Standard Price Standard Quantity Standard Cost Direct materials $5.50 per pound 10 pounds $55 Direct labor $10 per DLH 2.60 DLH 26.00 Variable overhead $7 per MH 4 MH 28.00 Fixed overhead $2.75 per MH 4 MH 11.00 Total standard cost per case $120.00 (a-b) Calculate the direct material price variance and direct material quantity variance for the month. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
Direct material price variance $
Not ApplicableFavorableUnfavorable
Direct material quantity variance $Not ApplicableFavorableUnfavorable
(c-d) Calculate the direct labor rate variance and direct labor efficiency variance for the month. (Round answers to 0 decimal places, e.g. 1,525. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
Direct labor rate variance $
UnfavorableFavorableNot Applicable
Direct labor efficiency variance $UnfavorableNot ApplicableFavorable
(e-f) Calculate the variable overhead spending variance and variable overhead efficiency variance for the month. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
Variable overhead spending variance $
Not ApplicableUnfavorableFavorable
Variable overhead efficiency variance $FavorableUnfavorableNot Applicable
(g) Calculate the fixed overhead spending variance for the month. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
Fixed overhead spending variance $
Not ApplicableFavorableUnfavorable
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Prepare a performance report that will assist Lexi in evaluating her efforts to control production costs. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials $
UnfavorableNot ApplicableFavorable
$FavorableNot ApplicableUnfavorable
Direct laborUnfavorableNot ApplicableFavorable
Not ApplicableFavorableUnfavorable
Variable overheadNot ApplicableFavorableUnfavorable
Not ApplicableFavorableUnfavorable
Fixed overheadUnfavorableNot ApplicableFavorable
Not ApplicableFavorableUnfavorable
Total $FavorableNot ApplicableUnfavorable
$UnfavorableFavorableNot Applicable
Explanation / Answer
Part a & b --- Direct material price variance and direct material quantity variance
Direct Material Price Variance
Actual Price ($560,439 / 101,898)
$5.50
per pound
Standard Price
$5.50
per pound
Variance or Difference in Price
$0.00
per pound
x Actual Quantity PURCHASED
12500
Pounds
Material Price Variance
$0
Not Applicable
Direct Material Quantity Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity
10250
Cases
x Allowed Standard Quantity Per Unit
10
Pounds
Total Standard Quantity Allowed for actual production (SQAP)
102500
Pounds
Actual Quantity USED (AQU)
101898
Pounds
Variance or Difference in Quantity
602
Pounds
x Standard Price (SP)
$5.50
Per Pound
Material Quantity Variance
$3,311
Favorable
Part c and d – Labor Rate and Efficiency Variance
Labor Rate Variance
Actual Hourly Rate (AHR) (267,382 / 26,474)
$10.10
Per Hour
Standard Hourly Rate (SHR)
$10.00
Per Hour
Variance or Difference in Rate
$0.10
Per Hour
x Actual Labor Hours worked (21*150)
26474
Hours
Labor Rate Variance
$2,642
Unfavorable
Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
10250
Units
x Allowed Standard Hours Per Unit
2.6
hours
Total Standard Hours Allowed for actual production (SHAP)
26650
hours
Actual Labor Hours Worked (AH)
26474
hours
Variance or Difference in Hours
176
hours
x Standard Hourly Rate (SHR)
$10.00
per hour
Labor Efficiency Variance
$1,760
Favorable
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Direct Material Price Variance
Actual Price ($560,439 / 101,898)
$5.50
per pound
Standard Price
$5.50
per pound
Variance or Difference in Price
$0.00
per pound
x Actual Quantity PURCHASED
12500
Pounds
Material Price Variance
$0
Not Applicable