AFM481 Study Guide - Final Guide: Finished Good, Standard Tuning
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1. Anderson Ltd. manufacture gearboxes for use in cars. At thestart of the
year, the management of Anderson Ltd. estimated that its costswould be:
This was based on the following:
Direct labour Direct material Variable production overhead Fixed production overhead Administration overhead | 8 50 8 12 5 |
80 employees
2000 hours worked by each employee
40 000 gearboxes manufactured in the year as budgetedproduction
£200 unit selling price.
You have recently been employed by the company to establish astandard
costing system. At the end of the year you were able to extractthe
following information:
⢠labour costs £4.40/hour
⢠32 000 units sold
⢠£210/unit selling price
⢠160 000 hours were worked
⢠variable production overheads were £640 000
⢠fixed production overheads were £810 000
⢠administration costs were £350 000
⢠raw material prices were 10% higher than expected
⢠total expenditure on raw material was £3.696 M
⢠there were no opening or closing stocks of raw materials.
(a) You are required to prepare an operating statement for theyear, using
a standard absorption costing system.
Calculations should proceed according to the followingheadings
suffixing âAâ for Adverse and âFâ for Favourable whereappropriate.
Resulting quantities required for the statement are then enteredin the
âOperating Statement for the Yearâ sheet shown on page 6.
(All working must be shown.)
(Budgeted) Costs
Unit cost
£
Direct labour
Direct materials
Variable overhead
Fixed overhead
Admin. overhead
Total
Selling price
Standard profit (per unit)
Budgeted profit
Sales price variance
Sales quantity variance
Cost Variances
Labour Variances
Standard hours =
Standard cost/hour =
Rate variance =
Standard time =
Actual time =
Time variance =
Efficiency variance =
Material Variances
Material price =
Material usage â standard =
â actual =
Material usage variance =
Variable overheads
Standard cost =
Actual cost =
Expenditure variance =
Efficiency variance =
Fixed overheads
Expenditure variance =
Volume variance =
Admin overhead (treat as fixed)
Expenditure variance =
Volume variance =
Operating Statement for the Year
壉000 壉000
Budgeted Profit
Sales variance âprice
â quantity
Cost variances
Labour â rate
â efficiency
Material â price
â usage
Variable â expenditure
â efficiency
Fixed â expenditure
â volume
Admin â expenditure
â volume
Actual Profit
(b) Give reasons/explanations why the variances in (a) abovehave
occurred for the following:
(i) material price
(ii) labour efficiency
(iii) fixed overhead expenditure.
(c) The accountant suggests that a standard marginal costingsystem may
be more suitable. He asks you to outline the strengths and
weaknesses of both systems and recommend the most suitable.
(d) The Board of Anderson Ltd. want to adopt âidealâ standardsbecause
they feel it will encourage harder work. You are asked toproduce a
brief report giving your views.
1. Anderson Ltd. manufacture gearboxes for use in cars. At the start of the year, the management of Anderson Ltd. estimated that its costs would be:
% of sales value | |
Direct labour Direct material Variable production overhead Fixed production overhead Administration overhead | 8 50 8 12 5 |
This was based on the following:
80 employees
2000 hours worked by each employee
40 000 gearboxes manufactured in the year as budgeted production £200 unit selling price.
You have recently been employed by the company to establish a standard costing system. At the end of the year you were able to extract the following information:
labour costs £4.40/hour
32 000 units sold
£210/unit selling price
160 000 hours were worked
variable production overheads were £640 000
fixed production overheads were £810 000
administration costs were £350 000
raw material prices were 10% higher than expected
total expenditure on raw material was £3.696 M
there were no opening or closing stocks of raw materials.
(Budgeted) Costs
Unit cost
£
Direct labour 16.00
Direct materials 100.00
Variable overhead 16.00
Fixed overhead 24.00
156.00
Admin. Overhead 10.00
Total 166.00
Selling price 200
Standard profit (per unit) 34
Budgeted profit 136000
Sales price variance 320000
Sales quantity variance -1680000
Variable overheads
Standard cost =
Actual cost =
Expenditure variance =
Efficiency variance =
Fixed overheads
Expenditure variance =
Volume variance =
Admin overhead (treat as fixed)
Expenditure variance =
Volume variance =
I currently have the answers to Labour and Material Variances. I require help on Fixed , Variable and Admin Overheads?
Wallis Company manufactures only one product and uses a standard cost system. The company uses a predetermined plantwide overhead rate that relies on direct labor-hours as the allocation base. All of the company's manufacturing overhead costs are fixedâit does not incur any variable manufacturing overhead costs. The predetermined overhead rate is based on a cost formula that estimated $2,899,000 of fixed manufacturing overhead for an estimated allocation base of 289,900 direct labor-hours. Wallis does not maintain any beginning or ending work in process inventory.
The companyâs beginning balance sheet is as follows:
Wallis Company | ||
Balance Sheet | ||
1/1/XX | ||
(dollars in thousands) | ||
Assets | ||
Cash | $ | 850 |
Raw materials inventory | 300 | |
Finished goods inventory | 420 | |
Property, plant, and equipment, net | 10,000 | |
Total assets | $ | 11,570 |
Liabilities and Equity | ||
Retained earnings | $ | 11,570 |
Total liabilities and equity | $ | 11,570 |
The companyâs standard cost card for its only product is as follows:
Inputs | (1) Standard Quantity or Hours | (2) Standard Price or Rate | Standard Cost (1) Ã (2) | ||||
Direct materials | 2 pounds | $ | 33.00 | per pound | $ | 66.00 | |
Direct labor | 3.00 hours | $ | 15.00 | per hour | 45.00 | ||
Fixed manufacturing overhead | 3.00 hours | $ | 10.00 | per hour | 30.00 | ||
Total standard cost per unit | $ | 141.00 |
During the year Wallis completed the following transactions:
Purchased (with cash) 237,500 pounds of raw material at a price of $31.00 per pound.
Added 218,750 pounds of raw material to work in process to produce 96,500 units.
Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 248,000 hours at an average cost of $16.00 per hour to manufacture 96,500 units.
Applied fixed overhead to work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 96,500 units. Actual fixed overhead costs for the year were $2,747,500. Of this total, $1,355,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,392,500 related to depreciation of equipment.
Transferred 96,500 units from work in process to finished goods.
Sold (for cash) 93,500 units to customers at a price of $170 per unit.
Transferred the standard cost associated with the 93,500 units sold from finished goods to cost of goods sold.
Paid $2,127,500 of selling and administrative expenses.
Closed all standard cost variances to cost of goods sold.
Required:
1. Compute all direct materials, direct labor, and fixed overhead variances for the year.
2. Record transactions a through i for Wallis Company.
3. Compute the ending balances for Wallis Companyâs balance sheet.
4. Prepare Wallis Companyâs income statement for the year.
Compute all direct materials, direct labor, and fixed overhead variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
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Record transactions a through i for Wallis Company.
Compute the ending balances for Wallis Companyâs balance sheet.
(Unfavorable variances and decreases in balance sheet accounts should be entered with a minus sign. Enter your dollars in thousands.)
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Prepare Wallis Companyâs income statement for the year. (Enter your dollars in thousands. Round your answers to the nearest whole dollar amount.)
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