Question

Problem 1 (25 points). Versailles Company produces a product that relies on a standard cost system for planning and control. The following are the standards for producing one unit of product VERSAILLES COMPANY STANDARDS FOR PRODUCTION OF ONE UNIT OF PRODUCT Standard Standard Standard Quantity of Price Cost Input of Input Per Unit Direct Materials 3 units 12.00 $ 36.00 Direct Labor 1.0 hours 10.00 10.00 Variable Manufacturing Overhead 1.0 hours 6.00 6.00 Fixed Manufacturing Overhead 1.0 hours 18.00 18.00 During the period, the company recorded the attached activity in connection with the production of its product. VERSAILLES COMPANY ACTUAL ACTIVITY FOR PRODUCTION DURING PERIOD (a) The company purchased 10,000 units of direct materials at a total cost of $121,000. The company used 8,900 units of direct materials in producing the product. (b) A total of 2,800 hours of direct labor were recorded at an average actual rate of $10.50 per hour. (C) The company actually produced 3,000 units of output during the year. (d) The actual variable manufacturing overhead incurred was $17,000 and the actual fixed manufacturing overhead incurred was $53,200. (e) The company calculated its manufacturing overhead rates using a normal capacity of 3,500 direct labor hours.

Answer 1

DIRECT MATERIALS VARIANCES

SQ

Standard Quantity for actual output

9000

(3*3000)

SP

Standard Price per unit

$12.00

AQ

Actual Quantity of materials used

8900

AP

Actual Price per unit paid

$12.10

(121000/10000)

1

AQ*(AP-SP)

Direct Materials Price Variance

$890.00

Unfavorable

(Actual price is higher than Standard Price)

2

SP*(AQ-SQ)

Direct Materials Quantity Variance

$1,200

Favorable

(Actual quantity is less than Standard quantity)

DIRECT LABOR VARIANCES

SH

Standard Labor hour for actual output

3000

(1*3000)

SR

Standard Labor rate per hour

$10.00

AH

Actual labor hour used

2800

AR

Actual Labor rate per hour

$10.50

3

AH*(AR-SR)

Direct labor Rate Variance

$1,400

Unfavorable

(Actual Rate is higher than Standard Rate)

4

SR*(AH-SH)

Direct Labor Efficiency   Variance

$2,000

Favorable

(Actual hour is less than Standard hour)

VARIABLE OVERHEAD VARIANCES

SH

Standard Labor hour for actual output

3000

(1*3000)

SR

Standard Overhead rate per hour

$6.00

AH

Actual labor hour used

2800

AR

Actual Overhead rate per hour

$6.07

(17000/2800)

5

AH*(AR-SR)

Variable Manufacturing Spending (Price) Variance

$200

Unfavorable

(Actual Rate is higher than Standard Rate)

6

SR*(AH-SH)

Varable Manufacturing Efficiency   Variance

$1,200

Favorable

(Actual hour is less than Standard hour)

FIXED OVERHEAD VARIANCES

A

Budgeted Fixed Overhead

$63,000

(3500*18)

B

Budgeted labor hour

3500

C=A/B

Budgeted fixed overhead rate

$18

D

Standard Labor hour for actual output

3000

(1*3000)

E=C*D

Fixed overhead applied

$54,000

(3000*18)

7

A-E

Fixed Manufacturing Volume Variance

$9,000

Unfavorable

F

Budgeted Fixed Overhead

$63,000

G

Actual Fixed Overhead

$53,200

8

H=F-G

Fixed Manufacturing Spending Variance

$9,800

Favorable