Reference no: EM131175672
Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, "I sure hope the plant has a standard cost system in operation. If it doesn't, I won't have the slightest idea of where to start looking for the problem." The plant does use a standard cost system, with the following standard variable cost per ingot:
Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 4.0 pounds $ 2.60 per pound $ 10.40
Direct labor 0.3 hours $ 8.10 per hour 2.43
Variable manufacturing overhead 0.3 hours* $ 3.60 per hour 1.08
Total standard variable cost $ 13.91 *Based on machine-hours.
During October the plant produced 6,000 ingots and incurred the following costs:
a. Purchased 29,000 pounds of materials at a cost of $3.05 per pound. There were no raw materials in inventory at the beginning of the month.
b. Used 23,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c. Worked 2,400 direct labor-hours at a cost of $7.80 per hour.
d. Incurred total variable manufacturing overhead cost of $8,400 for the month.
A total of 2,100 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for October:
a. Direct materials price and quantity variances.
(Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) Materials price variance $ (Click to select)NoneFU Materials quantity variance $ (Click to select)FUNone
b. Direct labor rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) Labor rate variance $ (Click to select)FUNone Labor efficiency variance $ (Click to select)NoneUF
c. Variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round your intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) Variable overhead rate variance $ (Click to select)FNoneU Variable overhead efficiency variance $ (Click to select)NoneFU
2a. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. Net variance $ (Click to select)NoneFU
3. Pick out the two most significant variances that you computed in (1) above.
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