Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small
ID: 2567892 • 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.
9. 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 $36,460 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 Standard Cost Card-Per Unit Direct materials, 4 metres at $3.60 per metre Direct labour, 1.4 direct labour-hours at $15.0 per direct labour-hour Variable overhead, 1.4 direct labour-hours at $2.6 per direct labour-hour Fixed overhead, 1.4 direct labour-hours at $6 per direct labour-hour $14.40 21.00 3.64 8.40 Standard cost per unit $47.44 The following additional information is available for the year just completed a. The company manufactured 31,000 units of product during the year b. A total of 123,000 metres of material was purchased during the year at a cost of $3.65 per metre. All of this material was used to manufacture the 31,000 units. There were no beginning or ending inventories for the year. C. The company worked 45,500 direct labour-hours during the year at a cost of $14.80 per hour. d. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow: Denominator activity level (direct labour-hours) Budgeted fixed overhead costs (from the flexible budget) Actual fixed overhead costs Actual variable overhead costs 44,400 $ 266,400 $ 265,250 $ 119,500 Required: 1. Compute the direct materials price and quantity variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Materials price variance Materials quantity variance 2. Compute the direct labour rate and efficiency variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Labour rate variance Labour efficiency varianceExplanation / Answer
1)
Material price varience= SP -AP×SQ=
3.60-3.65×123000= U 6150
Material quantity varience= SH-AH×SP
=124000-123000×3.6=F 3600
2)
Labour rate varience = SR - AR× AH
15-14.8×45500= F 9100
Labour efficiency varience = SH -AH× SR
=43400-45500×15= U 31500
3)
Variable Overhead spending varience = SR-AR× AH
AR=119500÷45500=2.6263736
2.6-2.6263736×45500= U 1200
Variable overhead efficiency varience = SH-AH× SR
=43400×45500×2.6= U 5460
4)
Fixed overhead spending varience = SR-AR×AH
AR=265250÷45500=5.8296703
6-5.8296703×45500= F 7750
Fixed overhead volume varience = SH-AH×SR
=43400-45500×6= U 12600
*)Note
SR = Standard rate
AR = Actual rate
AQ= Actual quantity
SQ= Standard quantity
AH= Actual hour
SH= Standard hour
AR=Actual rate
SR= Standard rate
TOTAL VARIENCE = (-6150)+3600+9100+(-31500)+(-1200)+(-5460)+7750+(-12600)= U 36460