ACCTG424 Lecture : Chapter 8 In Class Questions_solutions_only.pdf
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Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below:
| Flexible Budget | Actual | ||||||
| Sales (15,000 pools) | $ | 675,000 | $ | 675,000 | |||
| Variable expenses: | |||||||
| Variable cost of goods sold* | 435,000 | 461,890 | |||||
| Variable selling expenses | 20,000 | 20,000 | |||||
| Total variable expenses | 455,000 | 481,890 | |||||
| Contribution margin | 220,000 | 193,110 | |||||
| Fixed expenses: | |||||||
| Manufacturing overhead | 130,000 | 130,000 | |||||
| Selling and administrative | 84,000 | 84,000 | |||||
| Total fixed expenses | 214,000 | 214,000 | |||||
| Net operating income (loss) | $ | 6,000 | $ | (20,890 | ) | ||
*Contains direct materials, direct labor, and variable manufacturing overhead.
Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given instructions to âget things under control.â Upon reviewing the plantâs income statement, Ms. Dunn has concluded that the major problem lies in the variable cost of goods sold. She has been provided with the following standard cost per swimming pool:
| Standard Quantity or Hours | Standard Price or Rate | Standard Cost | ||||
| Direct materials | 3.0 pounds | $ | 5.00 | per pound | $ | 15.00 |
| Direct labor | 0.8 hours | $ | 16.00 | per hour | 12.80 | |
| Variable manufacturing overhead | 0.4 hours* | $ | 3.00 | per hour | 1.20 | |
| Total standard cost per unit | $ | 29.00 | ||||
*Based on machine-hours.
During June, the plant produced 15,000 pools and incurred the following costs:
Purchased 60,000 pounds of materials at a cost of $4.95 per pound.
Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 11,800 direct labor-hours at a cost of $17.00 per hour.
Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine-hours was recorded.
It is the companyâs policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
a. Materials price and quantity variances.
b. Labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.
#9
Lenci Corporation manufactures and sells a single product. Thecompany uses units as the measure of activity in its budgets andperformance reports. During May, the company budgeted for 5,100units, but its actual level of activity was 5,050 units. Thecompany has provided the following data concerning the formulasused in its budgeting and its actual results for May:
Data used in budgeting:
| Fixed element permonth | Variable element per unit | ||||
| Revenue | - | $ | 39.60 | ||
| Direct labor | $ | 0 | $ | 5.50 | |
| Direct materials | 0 | 15.70 | |||
| Manufacturing overhead | 41,500 | 1.30 | |||
| Selling and administrativeexpenses | 22,700 | 0.20 | |||
| Total expenses | $ | 64,200 | $ | 22.70 | |
Actual results for May:
| Revenue | $ | 197,810 |
| Direct labor | $ | 28,565 |
| Direct materials | $ | 80,265 |
| Manufacturing overhead | $ | 47,905 |
| Selling and administrativeexpenses | $ | 22,680 |
The overall revenue and spending variance (i.e., the variancefor net operating income in the revenue and spending variancecolumn on the flexible budget performance report) for May would beclosest to:
Garrison 16e Rechecks 2018-06-07
$2,750 F
$3,595 F
$3,595 U
$2,750 U
#10
Neubert Corporation manufactures and sells a single product. Thecompany uses units as the measure of activity in its budgets andperformance reports. During December, the company budgeted for5,300 units, but its actual level of activity was 5,340 units. Thecompany has provided the following data concerning the formulasused in its budgeting and its actual results for December:
Data used in budgeting:
| Fixed Element perMonth | Variable element per unit | ||||
| Revenue | - | $ | 30.00 | ||
| Direct labor | $ | 0 | $ | 3.50 | |
| Direct materials | 0 | 10.40 | |||
| Manufacturing overhead | 33,300 | 1.50 | |||
| Selling and administrativeexpenses | 25,000 | 0.50 | |||
| Total expenses | $ | 58,300 | $ | 15.90 | |
Actual results for December:
| Revenue | $ | 156,340 |
| Direct labor | $ | 17,980 |
| Direct materials | $ | 56,566 |
| Manufacturing overhead | $ | 41,040 |
| Selling and administrativeexpenses | $ | 28,870 |
The direct labor in the planning budget for December would beclosest to:
Garrison 16e Rechecks 2018-06-07
$18,690
$18,550
$17,845
$17,980
#16
Pippin Inc. has provided the following data concerning one ofthe products in its standard cost system. Variable manufacturingoverhead is applied to products on the basis of directlabor-hours.
| Inputs | Standard Quantity orHours per Unit of Output | Standard Price orRate | |||||||||
| Direct materials | 5.0 | grams | $ | 7.00 | per gram | ||||||
| Direct labor | 0.30 | hours | $ | 21.30 | per hour | ||||||
| Variable manufacturingoverhead | 0.30 | hours | $ | 9.60 | per hour | ||||||
The company has reported the following actual results for theproduct for June:
| Actual output | 8,500 | units | |
| Raw materials purchased | 48,100 | grams | |
| Actual price of rawmaterials | $ | 7.70 | per gram |
| Raw materials used inproduction | 42,490 | grams | |
| Actual direct labor-hours | 2,300 | hours | |
| Actual direct labor rate | $ | 21.70 | per hour |
| Actual variable overheadrate | $ | 9.80 | per hour |
The labor rate variance for the month is closest to:
$1,020 U
$920 U
$1,020 F
$920 F
Johnny Lee, Inc., produces a line of small gasoline-poweredengines that can be used in a variety of residential machines,ranging from different types of lawnmowers, to snowblowers, togarden tools (such as tillers and weed-whackers). The basic productline consists of three different models, each meant to fill theneeds of a different market. Assume you are the cost accountant forthis company and that you have been asked by the owner of thecompany to construct a flexible budget for manufacturing overheadcosts, which seem to be growing faster than revenues. Currently,the company uses machine hours (MH) as the basis for assigning bothvariable and fixed factory overhead costs to products. | |||||||||||
Within the relevant range of output, you determine that thefollowing fixed overhead costs per month should occur: engineeringsupport, $16,900; insurance on the manufacturing facility, $6,900;property taxes on the manufacturing facility, $13,900; depreciationon manufacturing equipment, $15,700; indirect labor costs:supervisory salaries, $16,900; setup labor, $4,300; materialshandling, $4,400. Variable overhead costs are budgeted at $17.00per machine hour, as follows: electricity, $6.00; indirectmaterials: Material A = $2.00, Material B = $3.00; maintenancelabor, $5.00; and manufacturing supplies, $1.00. | |||||||||||
Assume that in a given month the standard allowed machine hoursfor output produced are 7,400. Also, assume that the denominatoractivity level for setting the predetermined overhead rate is 7,900machine hours per month. | |||||||||||
Actual fixed overhead costs for the month areas follows: engineering support, $21,200 (salaries); factoryinsurance, $11,200; property taxes, $13,900; equipmentdepreciation, $15,700; supervisory salaries, $16,900; setup labor,$7,900; materials-handling labor, $8,100. The actual variableoverhead cost per machine hour worked is equal to the standard costexcept for the following two items: electricity, $6.50 per machinehour; manufacturing supplies, $1.10 per machine hour. The companyused 7,500 machine hours in December. | |||||||||||
| The company uses a single overhead account,Factory Overhead, and performs a two-way analysis of the totaloverhead cost variance each month.
|
