Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small
ID: 2546363 • Letter: C
Question
Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the $17,385 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows Direct materials, 4 metres at $2.50 per metre Direct labour, 1.5 direct labour-hours at S9.5 per direct labour-hour Variable overhead, 1.5 direct labour-hours at $2.6 per direct labour-hour 3.90 Fixed overhead, 1.5 direct labour-hours at $5 per direct labour-hour $10.00 14.25 7.50 $ 35 65 Standard cost per unit The following additional information is available for the year just compl a. The company manufactured 20,000 units of product during the year b. A total of 79,050 metres of material was purchased during the year at a cost of $2.70 per metre. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year C. The company worked 31,000 direct labour-hours during the year at a cost of $9 40 per hour Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow Denominator activity level (dirêct labour-hours) Budgeted fioxed overhead costs (from the flexible budget Actual fixed overhead costs Actual variable overhead costs 29,000 $ 145,000 5 143.300 S 82.250Explanation / Answer
2 Labor rate variance $3100 F AH x (AR - SR) = 31000 x ($9.40 - $9.50) = $3100 Labor efficiency variance $9500 U SR x (AH - SH) = $9.50 x (31000 - 30000) = $9500 SH = 20000 units x 1.50 hours = 30000 hours 3a. Variable overhead spending variance $1650 U AH x (AR - SR) = $82250 - (31000 x $2.60) = $82250 - $80600 = $1650 Variable overhead efficiency variance $2600 U SR x (AH - SH) = $2.60 (31000 - 30000) = $2600 b. Fixed overhead budget variance $1700 F Actual fixed overhead - Budgeted fixed overhead = $143300 - $145000 = $1700 Fixed overhead volume variance $5000 F Budgeted fixed overhead - Applied overhead = $145000 - ($5 x 30000) = $145000 - $150000 = $5000 4 Materials price variance $15810 U Materials quantity variance $2375 F Labor rate variance $3100 F Labor efficiency variance $9500 U Variable overhead spending variance $1650 U Variable overhead efficiency variance $2600 U Fixed overhead budget variance $1700 F Fixed overhead volume variance $5000 F Total variance $17385 U