Budgets and Variances continued:. Production variances. Agenda. Return Reichard: recap main points Midterm exam discussion Briefly review production variances Vanguard problem Group work: Example Company. Reichard.
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The Vanguard Company manufactures one product. Itsstandard cost system incorporates flexible budgets and
assigns indirect costs on the basis of standard DL hrs.
At denominator activity, the standard cost per unit is:
Direct materials, 3 lbs. @ $5.00 $15.00
Direct labor, .4 hr. @ $20.00 8.00
Variable indirect costs, .4 hr. @ $6.00 2.40
Fixed indirect costs, .4 hr. @ $4.00 1.60
Direct materials were quoted at $5.50 per pound through-
out September and October to all suppliers. There was nopurchase-price variance for materials in October; theprice variance shown relates solely to the materials used
Wage standards were set in accordance with an annual
union contract, but a shortage of workers in the local
areas has resulted in rates higher than standard.
There were no beginning or ending inventories of workin process.
1. How many units were produced?
Use the standard cost column.
All the units manufactured cost $243,000 at standard
One unit at standard costs $27.00
Units produced = $243,000 / $27.00 = 9,000 units
2. What were the actual number of direct labor hoursused?
Efficiency variance = (actual hrs./unit - std. hrs./unit) x actual output x std. price
= [actual DL hrs. - (.4 x 9,000)] x $20
$4,000 = actual DL hrs. x $20 - $72,000
$76,000 = actual DL hrs. x $20
3,800 = actual DL hrs.
3. What was the actual wage rate?
Labor price variance = (actual rate - std. rate) x actual labor hours
$1,900 = (actual wage rate - $20.00) x 3,800 hrs.
$1,900 = actual wage rate x 3,800 hrs - $76,000
$77,900 = actual wage rate x 3,800 hrs
$20.50 = actual wage rate
4. What was the budget for fixed indirect costs.
FOH budget variance = Budgeted FOH - Actual FOH
$200 = Budgeted FOH - $15,800
Actual FOH < Budgeted FOH
$16,000 = Budgeted FOH
5. Denominator activity expressed in direct labor hours.
Look at FOH applied:
Denominator Volume = 4,000 DL hrs.
6. How many pounds of direct materials were used?
DM quantity variance = (actual quantity used - std. quantity for output) x standard price
$5,000 = (actual quantity used - (3 lbs. x 9,000)) x $5.00
$5,000 = actual quantity used x $5.00 - $135,000
$140,000 = actual quantity used x $5.00
28,000 lbs. = actual quantity used
7. How many pounds of direct material were purchased?
We cannot compute that number from the information given.