Module 7 Review Questions_Costing_Solutions

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Module 7 Review Questions

 

I.      Preparation of flexible budgets

Mesa Company's fixed budget for the first quarter of calendar year 2014 reveals the following.

 

Sales (10,000 units)..................                               $3,000,000

Cost of prods sold

Direct materials  ..................       $320,000

Direct labor......................             680,000

Production supplies   ...............     264,000

Plant manager salary...............        60,000                1,324,000

Gross profit........................                                         l, 676,000

Selling Expenses

Sales commissions.................          120,000

Packaging........................                 210,000

Advertising  ......................               100,000             430,000

Administrative Expenses

Administrative salaries   .............      60,000

Deprecation—office equip..........      30,000

Insurance........................                    13,000

Office rent.......................                    24,000              152.000

Income from operations..............                               $1,094,000

                                                                                    ========

 

Prepare flexible budgets, following the format of Exhibit 8.3, that show variable costs per unit, fixed costs, and three different flexible budgets for sales volumes of 7,500, 10,000, and 12,500 units.

 

 

 

II.      Computation and interpretation of labor variances

After evaluating Zero Company's manufacturing process, management decided to establish standards of 1.5 hours of direct labor per unit of product and $11 per hour for the labor rate. During October, the company used 3,780 hours of direct labor at $45,360 total cost to produce 2,700 unit of product. In November, the company used 4,480 hours of direct labor at a $47,040 total cost to produce 2,800 units of product.

1.   Compute the labor rate variance, the labor efficiency variance, and the total direct labor cost variance for October and for November.

2.    Interpret the October direct labor variances.

 

Computation and interpretation of materials variances

BTS Company made 6,000 bookshelves using 88,000 board feet of wood costing $607,200. The company's direct materials standards for one bookshelf are 16 board feet of wood at $7 per board foot.

1.   Compute the direct material variances incurred in manufacturing these bookshelves.

2.    Interpret the direct materials variances

 

IV.      Computation of total overhead rate and total overhead variance

Tuna Company set the following standard unit costs for its single product.

Direct materials (25 lbs. @ $4 per Ib.)   .................       $100.00

Direct labor (6 hrs. @ $6 per hr.).....................                  48.00

Factory overhead—variable (6 hrs. @ $5 per hr.)........     30.00

Factory overhead—fixed (6 hrs. @ $7 per hr.)  ..........      42.00

Total standard cost  .................................                       $220.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

 

 

                                                                                    Operating Levels

 

                                                                        70%                    80%                  90%

Production in units................                       42,000                48,000             54,000

Standard direct labor hours .........              252,000               288,000           324,000          

Budgeted overhead

Fixed factory overhead...........                  $2,016,000            $2,016,000      $2,016,000

Variable factory overhead.........               $1,260,000            $1,440,000      $1,620,000

 

 

During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; actual direct labor totaled 250,000 hours. Units produced were assigned the following standard costs:

Direct materials (1,050,000 lbs. @ $4 per Ib.).........         $4,200,000

Direct labor        (252,000 hrs. @ $8 per hr.).............         2,016,000

Factory overhead (252,000 hrs. @ $12 per hr.)........           3,024,000

Total standard cost...............................                               $9,240.000

 

Actual costs incurred during the current quarter follow:

Direct materials (1,000,000 lbs. @ $4.25)............         $4,250,000

Direct labor (250,000 hrs. @ $7.75)   ................             1,937.500

Fixed factory Overhead costs   ......................                 1,960,000

Variable factory overhead costs   ....................               1,200,000

Total actual costs................................                            $9,347,500

                                                                                        ========

 

1.   Compute the direct materials cost variances, including its price and quantity variances.

2.   Compute the direct labor variances, including its rate and efficiency variances.

3.   Compute the overhead controllable and volume variances.

4.   Compute the variable overhead spending and efficiency variance

5.   Compute the fixed overhead spending and volume variance.

 

 

 

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