Reference no: EM132468839
Highway company manufactures expensive wallpapers. The company uses two direct cost categories:
- direct materials and direct manufacturing labor. Highway company hired analyst,who feels that manufacturing overhead is most closely related to material usage. Therefore, Highway allocates manufacturing overhead to production based upon pounds of materials used.
At the beginning of 2012, Highway company budgeted annual of 400 000 rolls of wallpaper and adopted the following for each wallpaper:
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Input
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Cost/wallpaper
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Direct materials (paper)
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0.3 lb.@$10/1b.
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$3
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Direct manufacturing labor
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1.2 hours @$20/hour
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$24
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Manufacturing overhead:
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Variable
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$6/1b.*0.3 lb.
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$1.80
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Fixed
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$15/1b.*0.31b.
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$4.50
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Standard cost per wallpaper
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$33.30
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Actual results for April 2012 were as follows:
Production- 35 000 wallpapers
Direct materials purchased- 12 000 lb. at 11$/lb. Direct materials used - 10 4501b.
Direct manufacturing labor - 38 500 hours for $808 500 Variable manufacturing overhead - $64 150
Fixed manufacturing overhead - $152 000
Required:
Problem 1 For the month of April, compute the following variances, indicating whether each is favorable(F) or unfavorable(U):
a. Direct materials price variance( based on purchase)
b. Direct materials efficiency variance
c. Direct manufacturing labor price variance
d. Direct manufacturing labor efficiency variance
e. Variable manufacturing overhead spending variance
F. Variable manufacturing overhead efficiency variance
g. Production-volume variance
h. Fixed manufacturing overhead spending variance
Problem 2 Provide explanations on variances