AFM481 Chapter 8:
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1) Perfect Posies,Inc. makes glass vases from a liquid silicate. The CEO, DahliaBloom, wants to switch to a standard costing system, She made twoscheduled visits to the factory last month to gather productiondata, which she then used to develop the following productionstandards:
Directmaterials 0.8lbs, of silicate at $0.30 per lb. for each vase
Directlabor 0.3 DLH at $13 per DLH for each vase
Manufacturing overhead
- $9,000 VMOH permonth
- $4,500 FMOH permonth
- Allocated using directlabor hours
- Based on expectedproduction of 6,000 vases per month
The firm had the following actual production data for March:
Units actually produced | 6,900 vases |
Materials purchased and used | 7,590 lbs. of silicate at a cost of $3,036 |
Direct labor used: | 1,380 DLH at a cost of $13,800 |
Variable overhead costs incurred: | $10,200 |
Fixed overhead costs incurred: | $2,830 |
a) DM price variance for March=(AP-SP)AQ
= ($2.5 â $0.30)7,590 = $16,698 U
What might have caused this variance? Rise in price
b) DM usage variance for March =(AQ-SQ)SP
= (7,590-4,800) $0.30 = $837U
What might have caused this variance? Use of low qualitymaterials
c) DL rate variance for March =(AR-SR)AH
= ($10-$13)1,380 = $4,140 F
What might have caused this variance? Hire inexperiencedworkers.
d) DL efficiency variance for March =(AH-SH)SR
= (1,380-1,800)$13 = $5,460 F
What might have caused this variance? Training of workforce
e) Standard allocation rate for VMOH =Actual variable overhead-(SVOR x AH) = $10,200 â (
f) VMOH spending variance forMarch =
What might have caused this variance?
g) VMOH efficiency variance for March =
What might have caused this variance?
h) Standard allocation rate for FMOH =
i) FMOH spending variance forMarch =
What might have caused this variance?
j) FMOH volume variance for March=
What might have caused this variance?
K) Based on the available information,Dahlia Bloom has asked you to write her a memo discussing:
i) Possible causes for the trendsthat you observe in these variances
ii) How/why the production department may haveâgamedâ the standard-setting process
iii) Steps the firm can take to develop better standards in thefuturE â
I JUST NEED HELP WITH QUESTION K. THANK YOU
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.