Reference no: EM132994969

Question - In Tasmania Manufacturing's costing system, both variable and fixed manufacturing overhead are allocated to products based on standard direct manufacturing labour-hours (DLH). The company had the following standards for its manufacturing costs for 2020:

Input Cost per output unit

Direct materials 3.5 kg at $5 per kilogram $17.50

Direct manufacturing labour 5.5 hours at $15 per hour $82.5.00

Manufacturing overhead

Variable $6 per DLH $33.00

Fixed $8 per DLH $44.00

Standard manufacturing cost per output unit $177.00

Budgeted annual production for 2020 was 96,000 units. The denominator level for total manufacturing overhead per month in 2020 is 44,000 direct manufacturing labour-hours, and the flexible budget for July 2020 was based on this denominator level.

The records for July indicated that the actual production was 7,500 units and shows the following:

Direct material purchased 25,000 kg at $5.20 per kg

Direct material used 23,500 kg

Direct manufacturing labour 40,200 hours at $14.60 per hour

Variable manufacturing overhead incurred $250,000

Fixed manufacturing overhead incurred $320,000

Required -

a. Make a performance report showing the Flexible Budget Variances for July 2020.

b. Identify two potential ethical dilemmas that might surface in the use of flexible budgeting for performance evaluation.

c. For the month of July 2020, calculate the following variances, indicating whether each is favourable (F) or unfavourable (U).

i. Direct material price and efficiency variances

ii. Direct manufacturing labour rate and efficiency variances

iii. Variable manufacturing overhead spending and efficiency variances

iv. Fixed manufacturing overhead spending and volume variances