Question

inue to rchasing would you dards wouignificantly an on to reflect this deci the 4. Compute overhead Villance 3. Assume that the purchasing agent for the valve pump rial from a new supplier. Would you recommend that the company cont cheaper direct material? If so, what standards would likely need revision sion? Assume that the end product's quality is not significantly affected, 6. Prepare all possible journal entries (assuming a four-vanance analysis of overhea The standard quantities OBJECTIVE 028 Problem 9.33 Unit Costs, Multiple Products, Variance Analysis, Journal Ent Business Specialty, Inc., manufactures two staplers: small and regular. The sta of direct labor and direct materials per unit for the year are as follows: Small Regular 6.0 10.00 Direct labor (hrs.) Direct materials 0.1 0.15 The standard price paid per pound of direct materials is $1.60. The standard rate for la 58.00. Overhead is applied on the basis of direct labor hours. A plantwide rate is used. Bu overhead for the year is as follows: Budgeted fixed overhead $360,000 Budgeted variable overhead 480,000 The company expects to work 12,000 direct labor hours during the year, standard overhead rates are computed using this activity level. For every small stapler produced, the company pro duces two regular staplers. Actual operating data for the year are as follows: a. Units produced: small staplers, 35,000; regular staplers, 70,000. b. Direct materials purchased and used: 56,000 pounds at $1.55-13,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct matena inventories. c. Direct labor: 14,800 hours 3,600 hours for the small stapler and 11.200 hours to regular stapler. Total cost of direct labor: $114,700. d. Variable overhead: S607,500. e. Fixed overhead: S350,000.

Answer 1

It has been given in the question that for every small stapler produced, the Company will produce two regular staplers.

Now we will calculate the total budgeted production of both the staplers by linear equation as follows:-

Suppose if the number of small staplers produced is 'x', then number of regular staplers produced is '2x'

Now, it is also given that the total budgeted labour hours is 12,000, and labour hours for producing one small stapler is 0.1 Hours and for regular staplers its 0.15 Hours. Hence we get the following equation:-

0.1x + 0.15 (2x) = 12,000

0.4x = 12,000

x = 30,000 units.

Hence the number of Small staplers produced is 30,000 units, and regular staplers is 60,000 units

1. Standard Cost Sheet

Particulars Units Produced Small Stapler Regular Stapler Total 30,000 60,000 90,000 18,000 60,000 78,000 24,000 72,000 96,000 90,000 2,70,000 3,60,000 Direct material (Quantity * Rate*Units Produced) Direct Labour (Hours * Rate* Units Produced) Fixed Overheads (On the basis of Labour Hours) Variable overheads (On the basis of Labour Hours) Total Cost for the product Unit cost per product 1,20,000 3,60,000 4,80,000 10,14,000 2,52,000 8.40 7,62,000 12.70

2. Direct material Price Variance and usage variance

Direct material Price variance = (Standard Price - Actual Price) * Actual Quantity

Small Stapler - ($ 1.6 - $ 1.55 ) * 13,000 Pounds = $ 650 (Favourable)

Regular Stapler - ($ 1.6 - $ 1.55) * 43,000 Pounds = $ 2,150 (Favourable)

Direct material usage variance = (Standard quantity for actual production - Actual quantity consumed) * Standard Price

Small Stapler = [(35,000 Units * 0.375 Pounds) - 13,000 Pounds] * $ 1.60 = $ 200 (Favourable)

Regular Stapler = [(70,000 Units * 0.625 Pounds) - 43,000 Pounds] * $ 1.60 = $ 1,200 (Favourable)

3. Labour Rate and Efficiency Variance

Direct Labor Rate Variance = (Standard Rate - Actual Rate) * Actual Hours worked

Small Stapler = [$ 8 - ($ 114,700 / 14,800)] * 3,600 = $ 900 (Favorable)

Regular Stapler = [$ 8 - ($ 114,700 / 14,800)] * 11,200 = $ 2,800 (Favorable)

Direct Labor Efficiency Variance = (Standard hours for actual production - Actual hours) * Standard Rate

Small Stapler = [(35,000 Units * 0.1) - 3,600] * $ 8 = - $ 800 (Unfavorable)

Regular Stapler = [(70,000 Units * 0.15) - 11,200] * $ 8 = - $ 5,600 (Unfavorable)

4. Fixed and Variable overhead variance

Fixed Overhead variance = Budgeted overheads - Actual overheads

= $ 360,000 - $ 350,000 = $ 10,000 (Favorable)

Variable overhead variance = Budgeted overheads for actual production - Actual overheads

= {[(35,000 Units * 0.1 Hours)+(70,000 Units * 0.15 Hours)] * $ 40/hour} - $ 607,500

= {[14,000 Hours * $ 40/Hour]} - $ 607,500

= - $ 47,500 (Unfavorable)