ABC Road Maps produces road maps. ABC uses a standard cost system to control man
ID: 2527170 • Letter: A
Question
ABC Road Maps produces road maps. ABC uses a standard cost system to control manufacturing costs.
The following standard cost unit information is based on the static budget volume of 120,000 road maps per month:
Direct materials (40 sq. yards @ $0.02 per sq. yard) $0.80
Direct labor (0.10 hours @ $15.00 per hour) 1.50
Manufacturing overhead:
Variable (0.10 hours @ $3.00 per hour) 0.30
Fixed (0.10 hours @ $8.00 per hour) 0.80 1.10
Total cost per map $3.40
Actual cost and production volume information is as follows:
Actual production was 118,000 maps.
Actual direct materials usage was 4,838,000 square yards; 5,000,000 square yards were purchased at an actual cost of $0.016 per square yard.
Actual direct labor usage of 11,600 hours at a total cost of $140,360.
Total actual overhead was $126,000, of which 75 percent was fixed.
1) Compute the eight variances that were discussed in class.
a-DM price variance VP=(AP-SP) x AQ ,
b-DM Quantity Variance VQ= (AQ-SQ) X SP
c-DL Price variance VP=(AP-SP) X AQ
d-DL quantity variance VQ=(AQ-SQ) X SP
e-VOH Price Variance VP=(AP-SP) X AQ
f-VOH Quantity variance VQ=(AQ-SQ) X SP
g-FOH Spending variance SP variance= Actual OH incurred - OH budgeted
h-FOH production volume variance PVV=OH Budgeted -Standard OH applied
2) Discuss some of the possible reasons why the variances computed turned out to be those amounts.
Explanation / Answer
Answers
Actual DATA for
118000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
4838000
$ 0.016
$ 77,408.00
Direct labor
11600
$ 12.10
$ 1,40,360.00
Variable Overhead
11600
$ 2.72
$ 31,500.00
Standard DATA for
118000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
4720000
$ 0.02
$ 94,400.00
Direct labor
11800
$ 15.00
$ 1,77,000.00
Variable Overhead
11800
$ 0.30
$ 3,540.00
Hrs
Rate
Amount
Fixed Overhead Budgeted
12000 [120000 maps x 0.1 hrs]
$ 8.00
$ 96,000.00
Standard FO Applied
11600
$ 8.00
$ 92,800.00
Actual Fixed Overhead incurred
11600
8.146551724
$ 94,500.00
Material Price Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Quantity
(
$ 0.02
-
$ 0.02
)
x
4838000
19352
Variance
19352
Favourable-F
Material Quantity Variance
(
Standard Quantity
-
Actual Quantity
)
x
Standard Rate
(
4720000
-
4838000
)
x
$ 0.02
-2360
Variance
2360
Unfavourable-U
Material Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 94,400.00
-
$ 77,408.00
)
16992
Variance
16992
Favourable-F
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 15.00
-
$ 12.10
)
x
11600
33640
Variance
33640
Favourable-F
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
11800
-
11600
)
x
$ 15.00
3000
Variance
3000
Favourable-F
Labor Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 1,77,000.00
-
$ 1,40,360.00
)
36640
Variance
36640
Favourable-F
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 0.30
-
$ 2.72
)
x
11600
-28020
Variance
28020
Unfavourable-U
Variable Overhead Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
11800
-
11600
)
x
$ 0.30
60
Variance
60
Favourable-F
Variable Overhead Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 3,540.00
-
$ 31,500.00
)
-27960
Variance
27960
Unfavourable-U
Fixed Overhead Spending Variance
(
Actual Fixed Overhead incurred
-
Fixed Overhead Budgeted
)
(
$ 94,500.00
-
$ 96,000.00
)
-1500
Variance
1500
Favourable-F
Fixed Overhead Production Volume Variance
(
Fixed Overhead Budgeted
-
Standard FO Applied
)
(
$ 96,000.00
-
$ 92,800.00
)
3200
Variance
3200
Unfavourable-U
Actual DATA for
118000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
4838000
$ 0.016
$ 77,408.00
Direct labor
11600
$ 12.10
$ 1,40,360.00
Variable Overhead
11600
$ 2.72
$ 31,500.00
Standard DATA for
118000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
4720000
$ 0.02
$ 94,400.00
Direct labor
11800
$ 15.00
$ 1,77,000.00
Variable Overhead
11800
$ 0.30
$ 3,540.00
Hrs
Rate
Amount
Fixed Overhead Budgeted
12000 [120000 maps x 0.1 hrs]
$ 8.00
$ 96,000.00
Standard FO Applied
11600
$ 8.00
$ 92,800.00
Actual Fixed Overhead incurred
11600
8.146551724
$ 94,500.00