ADM 3346 Lecture 7: DGDs of chapter 7 With Solution
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Smithson Company Manufacturers shirts. During June, Smithson made 1,500 shirts but had budgeted production at 1,575 shirts. Smithson gathered the following additional data:
| Variable overhead cost standard | $1.00 per DLHr |
| Direct labor efficiency standard | 4.50 DLHr per shirt |
| Actual amount of direct labor hours | 6,890 DLHr |
| Actual cost of variable overhead | $7,579 |
| Fixed overhead cost standard | $0.40 per DLHr |
| Budgeted fixed overhead | $2,835 |
| Actual cost of fixed overhead | $2,945 |
Calculate the variable overhead cost variance.
Select theâ formula, then enter the amounts and compute the cost variance for variable overheadâ (VOH) and identify whether the variance is favorableâ (F) or unfavorableâ (U).
| ( | - | ) | x | = | VOH Cost Variance | |||||
| ( | - | ) | x | = | ||||||
Calculate the variable overhead efficiency variance.
Select theâ formula, then enter the amounts and compute the efficiency variance for variable overhead and identify whether the variance is favorableâ (F) or unfavorableâ (U).
| ( | - | ) | x | = | VOH Efficiency Variance | |||||
| ( | - | ) | x | = | ||||||
Calculate the total variable overhead variance
The total variable overhead variance is BLANK, is it favorable or unfavorable?
Calculate the fixed overhead cost variance
Select theâ formula, then enter the amounts and compute the cost variance for fixed overheadâ (FOH) and identify whether the variance is favorableâ (F) or unfavorableâ(U).
| - | = | Fixed Overhead Cost Variance | ||||
| - | = | |||||
âNow, select theâ formula, then enter the amounts and compute the fixed overhead volume variance and identify whether the variance is favorableâ (F) or unfavorableâ(U).
| - | = | Fixed Overhead Volume Variance | ||||
| - | = | |||||
Calculate the total fixed overhead variance.
The total fixed overhead variance is BLANK, is it favorable or unfavorable?
ABC Dress Shop produces high quality formal dresses. In July2018 they produced 16,000 dresses. For the month of July thefollowing standard and actual cost data are available. The normalmonthly capacity of the company is 40,000 direct labor hours. Allmaterial purchased in July was used in July production.
Standard per Dress | Actual | |
Direct materials | 5.0 yards @ $8.50 per yard | $643,250 for 83,000 yards |
Direct labor | 2.0 hours @ $12.00 per hour | $425,000 for 34,000 hours |
Overhead | hours @ $5.15 per hour (fixed $3.25; variable $1.90) | $125,000 fixed overhead $49,000 variable overhead |
Overhead is applied on the basis of direct labor hours. Atnormal capacity, budgeted fixed overhead costs are $130,000 permonth and budgeted variable overhead costs are $76,000 permonth.
| Variance | Standard | Actual | Variance | % Variance | >5% | |
| Direct Materials Price | 136000 | 124000 | 12000 | 8.82% | Yes | Investiage |
| Direct Materials Quantity | 680000 | 705500 | 25500 | 3.75% | No | |
| Direct Labor Rate | 408000 | 425000 | 17000 | 4.17% | No | |
| Direct Labor Efficiency | 384000 | 408000 | 24000 | 6.25% | Yes | Investiage |
| Variable OverheadSpending | 64600 | 49000 | 15600 | 24.15% | Yes | Investiage |
| Variable OverheadEfficiency | 64600 | 63080 | 1520 | 2.35% | No | |
| Fixed Overhead Spending | 130000 | 125000 | 5000 | 3.85% | No | |
| Fixed Overhead ProductionVolume | 130000 | 110500 | 19500 | 15.00% | Yes | Investiage |
QUESTION: Provide a discussion of thetradeoffs that might exist between the direct material and directlabor variances.
âWonderful! Not only did our salespeople do a good job inmeeting the sales budget this year, but our production people did agood job in controlling costs as well,â said Kim Clark, presidentof Martell Company. âOur $42,400 overall manufacturing costvariance is only 4% of the $1,536,000 standard cost of productsmade during the year. Thatâs well within the 3% parameter set bymanagement for acceptable variances. It looks like everyone will bein line for a bonus this year.â |
| The company produces and sells a single product. The standardcost card for the product follows:
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