Portland companys ironton plant produces precast ingots for

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Reference no: EM13583899

Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant's contribution format income statement for October. The statement is shown below:

	Budgeted		Actual
Sales (4,000 ingots)	$	250,000	$	250,000

Variable expenses:
Variable cost of goods sold*		66,760		81,190
Variable selling expenses		22,000		22,000

Total variable expenses		88,760		103,190

Contribution margin		161,240		146,810

Fixed expenses:
Manufacturing overhead		63,000		63,000
Selling and administrative		88,000		88,000

Total fixed expenses		151,000		151,000

Net operating income (loss)	$	10,240	$	(4,190)

*Contains direct materials, direct labor, and variable manufacturing overhead.

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	3.8 pounds	$	2.40 per pound	$	9.12
Direct labor	0.7 hours	$	7.90 per hour		5.53
Variable manufacturing overhead	0.6 hours*	$	3.40 per hour		2.04

Total standard variable cost				$	16.69

*Based on machine-hours.

During October the plant produced 4,000 ingots and incurred the following costs:

a.	Purchased 20,200 pounds of materials at a cost of $2.85 per pound. There were no raw materials in inventory at the beginning of the month.
b.	Used 15,000 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c.	Worked 3,400 direct labor-hours at a cost of $7.60 per hour.
d.	Incurred a total variable manufacturing overhead cost of $10,260 for the month. A total of 2,700 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:

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). Omit the "$" sign in your response.)


Materials price variance	$	(Click to select)UFNone
Materials quantity variance	$	(Click to select)FNoneU

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). Omit the "$" sign in your response.)


Labor rate variance	$	(Click to select)UFNone
Labor efficiency variance	$	(Click to select)FNoneU

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). Omit the "$" sign in your response.)


Variable overhead rate variance	$	(Click to select)NoneFU
Variable overhead efficiency variance	$	(Click to select)UFNone

2a.

Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. (Input the amount as a positive value. 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). Omit the "$" sign in your response.)

Net variance

(Click to select)UFNone

Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

	Materials price variance
	Labor efficiency variance
	Variable overhead efficiency variance
	Labor rate variance
	Variable overhead rate variance
	Materials quantity variance

Reference no: EM13583899

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