Question

Problem One: Variance Analysis The Graves Manufacturing Company's costing system has two direct-cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct manufacturing labor-hours (DLH). At the beginning of 2017, the controller adopted the following standards for its manufacturing costs: 5 lb. at $5 per lb. 3 hrs. at $15 per hr. Direct materials Direct manufacturing labor Manufacturing overhead: Variable Fixed $7 per DLH $8 per DLH The flexible budget for January was based on 25,000 direct labor hours. The records for January indicated the following: Direct materials purchased 38,300 lb. at $4.00 per lb. Direct materials used 38,000 lb. Direct manufacturing labor 23,400 hrs. at $16.25 per hr. Total actual manufacturing overhead (variable and fixed) $390,000 Actual production 8,000 output units Required: For the month of January 2014, compute the following variances, indicating whether each is favorable (F) or unfavorable (U): a. Direct materials price variance, based on purchases. b. Direct materials efficiency variance c. Direct manufacturing labor price variance. d. Direct manufacturing labor efficiency variance. e. Total manufacturing overhead spending variance. f. Variable manufacturing overhead efficiency variance. g. Production-volume variance.

Answer 1

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As per HOMEWORKLIB POLICY I can only solve first 4 questions so you have to raise request for Problem 5 again.

Problem 1
Answer b	Finished Units	Input per unit	Input required	Rate per unit	Amount
Standard Price allowed for Actual Output at Standard Price	8,000.00	5.00	40,000.00	5.00	200,000.00	A
Actual Quantity of Input used at Standard Price			38,000.00	5.00	190,000.00	B
Efficiency Variance (B-A)					(10,000.00)	Favorable
Answer a
Actual Quantity of Input purchased at Standard Price			38,300.00	5.00	191,500.00	D
Actual Quantity of Input purchased at Actual Price			38,300.00	4.00	153,200.00	C
Price Variance (C-D)					(38,300.00)	Favorable
Total Material Variance					(48,300.00)	Favorable
Answer c and d
Direct Material Variance	Finished Units	Input per unit	Input required	Rate per unit	Amount
Standard Price allowed for Actual Output at Standard Price	8,000.00	3.00	24,000.00	15.00	360,000.00	E
Actual Quantity of Input, at Standard Price			23,400.00	15.00	351,000.00	F
Actual Quantity of Input, at Actual Price			23,400.00	16.25	380,250.00	G
Quantity Variance (F-E)					(9,000.00)	Favorable
Price Variance (G-F)					29,250.00	Unfavorable
Total Material Variance (G-E)					20,250.00	Unfavorable

Overhead variances	Amount $
Variable manufacturing overhead per DLH	7.00
Fixed manufacturing overhead per DLH	8.00
Total manufacturing overhead per DLH	15.00

Answer e	Finished Units	Input per unit	Input required	Rate per unit	Amount $
Actual Hours of Input, at Standard Rate			23,400.00	15.00	351,000.00	H
Actual Hours of Input, at Actual Rate					390,000.00	I
Manufacturing overhead Spending Variance (I-H)					39,000.00	Unfavorable
Answer f	Finished Units	Input per unit	Input required	Rate per unit	Amount $
Standard Price allowed for Actual Output at Standard Price	8,000.00	3.00	24,000.00	7.00	168,000.00	J
Actual Quantity of Input used at Standard Price			23,400.00	7.00	163,800.00	K
Variable overhead efficiency variance (K-J)					(4,200.00)	Favorable

Answer g
Production Volume Variance
Budgeted (hours)	25,000.00		L
Fixed manufacturing overhead per DLH	8.00		M
Annual budgeted Fixed overhead	200,000.00		N=L*M
Actual production units	8,000.00		O
Standard hour per unit	3.00		P
Standard Hours allowed for Actual Output	24,000.00		Q=O*P
Applied fixed overhead	192,000.00		R=Q*M
Production Volume Variance	8,000.00	Unfavorable	S=N-R

Problem 2
Income statement if Chocolate product line dropped:	Peppermint	Other Candy	Total
Sales	40,000.00	35,000.00	75,000.00
Cost of good sold	26,000.00	19,000.00	45,000.00
Contribution	14,000.00	16,000.00	30,000.00
Less: Fixed cost
Delivery and ordering costs	2,000.00	2,000.00	4,000.00
Rent			8,000.00
Allocated Corporate costs			15,000.00
Total Fixed costs	2,000.00	2,000.00	27,000.00
Corporate Profit			3,000.00
Note: If Chocolate product line is dropped then only delivery and ordering cost will reduce as it is product specific costs but rent and allocated corporate costs will be same as these are period costs.
Current Corporate Profit			10,000.00
Corporate Profit will decrease by			7,000.00

Problem 3
Answer a	Motor A	Motor B	Motor C
Sell Price	160.00	180.00	200.00
Direct Materials	60.00	60.00	60.00
Direct Labor	30.00	30.00	40.00
Variable support costs	10.00	20.00	20.00
Contribution margin per unit	60.00	70.00	80.00	T
Answer b	Motor A	Motor B	Motor C
Variable support costs	10.00	20.00	20.00	U
Costs per machine hour	10.00	10.00	10.00	V
Machine hour used	1.00	2.00	2.00	W=U/V
Contribution margin per unit	60.00	70.00	80.00	See T
Contribution margin per machine hour	60.00	35.00	40.00	X= T/W
Answer c- Motor A has highest contribution margin per machine hour so it should be produced if excess capacity.
Answer d	Motor A	Motor B	Motor C
Direct Labor	30.00	30.00	40.00	Y
Costs per Labor hour	20.00	20.00	20.00	Z
Labor hour used	1.50	1.50	2.00	A=Y/Z
Contribution margin per unit	60.00	70.00	80.00	See T
Contribution margin per labor hour	40.00	46.67	40.00	B= T/A
If machine breaks down then labor should be used. Motor B has highest contribution margin per labor hour so it should be produced if machine breaks down.

Problem 4
Cost of production	Absorption	Variable
Direct Manufacturing labor	197,500.00	197,500.00
Variable Manufacturing overhead	100,000.00	100,000.00
Direct Material	160,000.00	160,000.00
Fixed Manufacturing overhead	250,000.00	-
Cost of production	707,500.00	457,500.00	C
Units produced	200,000.00	200,000.00	D
Cost per unit	3.54	2.29	E=C/D
Units sold	150,000.00	150,000.00	F
Cost of goods sold	530,625.00	343,125.00	G=E*F
Ending Inventory	50,000.00	50,000.00	H=D-F
Value of Ending Inventory	176,875.00	114,375.00	I=E*H