Question

EYK10-1. Business Decision Case Porter Corporation has just hired Bill Harlow as its new controller. Al- though Harlow has had little formal accounting training, he professes to be highly experienced, having learned accounting the hard way" in the field. At the end of his first month's work, Harlow prepared the following performance report:

Answer 1

Actual cost amounts are correct: Direct material (24,900 lbs. @ $8.70) Direct labor (10,200 hrs. @ $11.70) Variable overhead Fixed overhead Total actual costs $216,630 119,340 63,000 184,000 $582,970 Harlow's original budget apparently was related to Porter's normal capacity of 11,000 direct labor hours (8,800 units) rather than being flexed to the actual level of production: Budgeted costs at normal capacity: Direct material (3 lbs. x 8,800 units x $9) Direct labor (1.25 hrs. x 8,800 units x $12) Variable overhead (1.25 hrs. x 8,800 units x $6) Fixed overhead $237,600 132,000 66,000 184,000 $619,600 Standard costs for actual production: Direct material (3 lbs. x 8,000 units x $9) Direct labor 1.25 hrs. x 8,000 units x $12) Variable overhead (1.25 hrs. x 8,000 units x 56) Fixed overhead $216,000 120,000 60,000 184,000 $580,000 c. Harlow's revised report could be considered deficient because only total variances are provided for each cost factor. Further, his approach ignores the fixed overhead volume variance. d) Actual Cost (AQ X AP) 24,900 x $8.70 $216,630 Materials Variances Split Cost (AQ x SP) 24,900 x $9.00 $224,100 Standard Cost (SQ x SP) 24,000 x $9.00 $216,000 Materials Price Variance Material quantity variance AQ (AP-SP) 24,900 ($8.70 - $9.00) = $7,470 $7,470 F SP+(AQ-sal $9.00(24900-24000) =8100 U Total Materials Flexible Budget Variance = $630 U Labor Variances Actual Cost (AH XAR) 10,200 x $11.70 $119,340 Split Cost (AH X SR) 10,200 x $12.00 $122,400 Standard Cost (SHX SR) 10,000 x $12.00 $120,000 T Labor Rate Variance AH (AR-SR) 10,200 ($11.70 - $12.00) = $3,060 $3,060 F Labor efficiency variance SR* (AH-SH) $12.00(10200-10000) = 2400 U Total Labor Flexible Budget Variance = $660 F

Actual Cost (AH X ARI Variable Overhead Variances Split Cost (AHX SRI (10,200 x $6.00) | $61,200 Standard Cost SHX SRI (10,000 X 56.00) $60,000 $63,000 Variable Overhead Spending Variance Actual-Split) (563,000 - $61,200) = $1.800 Variable Overhead Efficiency Variance SRIAH-SH) $6.00 (10,200 - 10,000) = $1.200 $1,200 U $1,800 U Total Variable Overhead Flexible Budget Variance = $3,000 U Summary of variances: Actual costs Standard cost Total variance S502.970 580,000 $2,970 U Material price variance Materials efficiency variance Labor rate variance Labor efficiency variance Variable overhead spending variance Variable overhead efficiency variance Sum of all variances $7,470 F 8,100 U 3,050 F 2,400 U ,800 U 1,200U $2,70 U TT 1