Question

1. Gina in the King's Road Inc., makes naugahyde couches. The company uses two main materials to make the furniture, wood and leather. The company's standard costs for materials and labor are as follows (wood in boards and leather in pounds, variable/fixed overhead based on machine hours). Overhead costs are allocated to production based on machine hours. Standard Quantity Standard Cost Standard Price Or Hours or Rate Wood $5.70 per board $51.30 9 boards Leather 65.60 8 pounds $8.20 per pound $12.00 per DL hour Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead 6.00 0.5 DL hours $5.00 per M hour $ 60.00 per M hour 1.50 0.3 M hours 18.00 0.3 M hours (Note: Denominator level of 900 M hours, budgeted production 3000 units, and budgeted fixed overhead of $ 54,000.) Total standard cost per unit $142.40 The months results are as follows: Production and sales 2500 units. Actual fixed overhead costs incurred were $ 60,000, Purchases of wood this month were 18,000 boards for $ 5.80 each, the wood beginning inventory consisted of 5,000 boards at a total cost of $ 28,500, the month's ending inventory was 2,500 boards. Purchases of leather this month were 22,600 pounds for $ 7.95 each, the leather beginning inventory was 2,000 pounds at a total cost of $ 16,400, the month's ending inventory was 1,000 pounds. Finished goods and work in process inventories are insignificant and can be ignored. Assembly workers worked 1,550 direct labor hours at a cost of $ 11.40 a DL hour. 800 machine hours were used at an average variable overhead cost of $ 5.20 a machine hour. It is the company's policy to close all variances to cost of goods sold on a monthly basis. Compute the company's Material variances for price and efficiency separately each for wood and for leather, the labor price and efficiency variances, and the fixed and variable overhead spending and efficiency/production volumne variances. Was fixed manufacturing overhead over or under allocated?

Answer 1

Material price Variance (Standard Poste - Aitual price) Actual Quantity purchased Wood: ( 5.7 – 5.3) 18000 1800110) Leathen (8.2 - 7.95) 22600 = 5650(F) Material price Vauanle = 5650 - 1900 3850.[F) material Quantity Variante * Standard Quantity - Actual Quantity Standard bands u sed") Standard price Wood : (92500 – 20500) 5-7 - 11400(E) antea, Leather (20,000 - 23600) 8.2 = 2952 (0) 84478 (6) ..mirab basis titanum

• Standard Quantity for Input 9 boards 6 actual Output Output = 1 unit 2500 units Wood - 2500X9- 22500 boards Leather - Input Output S pounds lunit ?. = 2500 units 2500X8. 20.000 pounds. o Actual Quantity used. O Opening stutt Purchases - closing stock wood i 5000 + 18000 - 2500 20500 watts boards -- Leather d 2000 + 22600 - 7000 - o - 23600 bruts pounds - a Pria used considering for actual Quantity FIFO method 5000X 5.7 = 28500 Wood

- Labouy Rate Variance · ARAH - (12 - 1104) 1550 - 930 (E) Laboux Efficiency Variance k as (SH - AH) SR - Ado e llo - 1550) 12 = 3600 ()_ Variable Spending Varianie AH (SR-ARDI 800 machine hours (5-5.2). - 160(0)

Variable efficiency Variante - (SH*- AH) SR ( 750 – 800) 5 -- 25011) 0-3X2500 -- SH* Fixed Ouesheads Recovery Rate Budgeted a Budgeted hours 0:3x3000 3 900 60 54000. Actual hours 800 machine hours 60,000 (green) (guien Standard hours for Actual Output Absorbed or 45000 60 er 750 900 - ? 3000 2500

Fixed Overhead Spending Variance - Budgeted OH - Actual or 540DO - bOODD = 6000 (U) Fixed Queshead porodution volume variance in - Abembed DH – Budgeted out __ 45000 - 54000: USA = 900010) 4GOOD – 54000 are * . Fixed manufacture ouerhead under absorbed by $15000 - Absorded OH = 45000 Actual OH = 60,000 underabsorption 15000

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