Problem set c
PROBLEM 24-1C
Philly Company set the following standard unit costs for its single product:
Direct material (10 lbs. @ $2 per lb.) $ 20.00
Direct labor (2 hrs. @ $11 per hr.) 22.00
Factory overhead—Variable (2 hrs. @ $5 per hr.) 10.00
Factory overhead—Fixed (2 hrs. @ $22.50 per hr.) 45.00
Total standard cost $97.00
The predetermined overhead rate is based on a planned operating volume of 75% of the productive capacity of 80,000 units per quarter. The following flexible budget information is available:
Operating Levels
50% 75% 100%
Production in units 40,000 60,000 80,000
Standard direct labor hrs. 800,000 120,000 160,000
Budgeted overhead
Fixed factory overhead $2,700,000 $2,700,000$2,700,000
Variable factory overhead $400,000 $600,000 $800,000
During the current quarter, the company operated at 100% of capacity and produced 80,000 units of product; actual direct labor totaled 300,000 hours. Units produced are assigned the following standard costs:
Direct materials (800,000 lbs. @ $2 per lb.) $1,600,000
Direct labor (160,000 hrs. @ $11 per hr.)1,760,000
Factory overhead (160,000 hrs. @ $25 per hr.)4,000,000
Total standard cost $7,360,000
Actual costs incurred during the current quarter follow:
Direct materials (790,000 lbs. @ $2.20)$ 1,738,000
Direct labor (150,000 hrs. @ $11.50) 1,725,000
Fixed factory overhead costs 2,752,000
Variable factory overhead costs 850,000
Total actual costs $7,065,000
Required
1. Compute the direct materials cost variance, including its price and quantity variances.
2.Compute the direct labor variance, including its rate and efficiency variances.
3.Compute (a) the variable overhead spending and efficiency variances, (b) the fixed overhead spending and volume variances, and (c) the total overhead controllable variance.
problem 24-2C
Douglas Publishing Company’s 2008 master budget included the following fixed budget performance report. It is based on expected production and sales volume of 11,000 units.
Douglas publishing company
Fixed Budget Performance Report
For Year Ended December 31, 2008
Sales $1,265,000
Cost of goods sold
Direct materials $352,000
Direct labor209,000
Repairs (variable cost)38,500
Depreciation— Equipment75,000
Utilities($1 per unit is variable)31,000
Plant management salaries 95,000 800,500
Gross profit$464,500
Selling expenses
Packaging22,000
Shipping5,500
Sales commissions55,00082,500
General and administrative expenses
Advertising expense49,000
Salaries195,000244,000
Income from operations$138,000
Required
1.Classify all items listed in the fixed budget as either variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2.Prepare flexible budgets (see Exhibit 24.3) for the company at sales volumes of 9,000 and 15,000 units.
3. The company’s business conditions are improving. Onepossible result is a sales volume of approximately 20,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much will operating income increase over the 2008 budgeted amount of $138,000 if this level is reached without increasing capacity.
4. An unfavorable change in business is remotely possible: in this case, production and sales volume for 2005 could fall to 5,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?
PROBLEM 24-3C
Refer to information in Problem 24-2C. Douglas Publishing Company’s actual income statement for 2008 follows:
Douglas publishing company
Statement of Income from Operations
For Year Ended December 31, 2008
Sales (15,000 units) $1,693,000
Cost of goods sold
Direct materials$590,000
Direct labor255,000
Repairs (variable cost)135,000
Depreciation—Equipment75,000
Utilities (fixed cost is $1 per unit)33,000
Plant management salaries95,0001,183,000
Gross profit $1,411,500
Selling expenses
Packaging33,000
Shipping9,500
Sales commissions75,000117,500
General and administrative expenses
Advertising expense149,000
Salaries182,000331,000
Income from operations$ 61,500
Required
1. Prepare a flexible budget performance report for 2008.
Analysis Component
2.Analyze and interpret both the (a) sales variance and (b) direct materials variance.
PROBLEM 24-4C
SVC Inc. has set the following standard costs for one unit of its product:
Direct material (5 lbs @ $2 per lb)$10.00
Direct labor (3 hrs. @ $15 per hr.)45.00
Overhead (3hrs. @ $33 per hr.)99.00
Total standard cost$154.00
The predetermined overhead rate ($33 per direct labor hour) is based on an expected volume of 60% of the factory’s capacity of 12,000 units per month. Following are the company’s budgeted overhead costs per month at the 60% level:
Overhead Budget (60% capacity)
Variable overhead costs
Indirect materials$57,000
Indirect labor160,000
Power95,000
Repairs and maintenance120,000
Total variable overhead costs$432,000
Fixed overhead costs
Depreciation—Building30,000
Depreciation—Machinery75,000
Taxes and insurance36,000
Supervision139,800
Total fixed overhead costs280,800
Total overhead costs$712,800
The company incurred the following actual costs when it operated at 60% of capacity in October:
Direct materials (38,000 lbs. @ $2.25 per lb.)$85,500
Direct labor (20,700 hrs. @ $14 per hr.) 289,800
Overhead costs
Indirect materials$58,300
Indirect labor151,000
Power107,000
Repairs and maintenance 94,000
Depreciation—Building 30,000
Depreciation—Machinery 75,000
Taxes and insurance37,800
Supervision161,000714,100
Total costs $1,089,400
Required
1.Examine the monthly overhead budget to (a) determine the costs per unit for each variable overhead item and its total per unit costs, and (b) identify the total fixed costs per month.
2.Prepare flexible overhead budgets (as in Exhibit 24.12) for October showing the amounts of each variable and fixed cost at the 50%, 60%, and 70% capacity levels.
3.Compute the direct materials cost variance, including its price and quantity variances.
4.Compute the direct labor cost variance, including its rate and efficiency variances.
5.Compute the (a) variable overhead spending and efficiency variances, (b) fixed overhead spending and volume variances, and (c) total overhead controllable variance.
6.Prepare a detailed overhead variance report (as in Exhibit 24.19) that shows the variances for individual items of overhead.
PROBLEM 24-5C
The Johnson Company has set the following standard costs per unit for the product it manufactures:
Direct material (10 lbs. @ $3 per lb.) $30.00
Direct labor (1 hrs. @ $17 per hr.) 17.00
Overhead (1 hrs. @ $6 per hr.) 6.00
Total standard cost $53.00
The predetermined overhead rate is based on a planned operating volume of 100% of the productive capacity of 15,000 units per month. The following flexible budget information is available:
Operating Levels
70%80%90%
Production in units10,50012,00013,500
Standard direct labor hours10,50012,00013,500
Budgeted overhead
Variable overhead costs
Indirect materials$4,200$4,800$5,400
Indirect labor21,00024,00027,000
Power6,3007,2008,100
Maintenance1,0501,2001,350
Total variable costs$32,550$37,200$41,850
Fixed overhead costs
Rent of factory building$20,000$20,000$20,000
Depreciation—Machinery5,5005,5005,500
Supervisory salaries18,00018,00018,000
Total fixed costs$43,500$43,500$43,500
Total overhead costs$76,050$80,700$85,350
During May of this year, the company operated at 80% of capacity and produced 12,000 units, incurring the following actual costs:
Direct materials (111,000 lbs. @ $3.20 per lb.) $355,200
Direct labor (12,650 hrs. @ $18.00 per hr.) 227,700
Overhead costs
Indirect materials$5,000
Indirect labor25,040
Power7,800
Maintenance1,060
Rent of factory building20,000
Depreciation—Machinery5,500
Supervisory salaries19,100 83,500
Total costs $666,400
Required
1.Compute the direct materials variance, including its price and quantity variances.
2.Compute the direct labor variance, including its rate and efficiency variances.
3.Compute (a) the variable overhead spending and efficiency variances, (b) the fixed overhead spending and volume variances, and (c) the total overhead controllable variance.
4.Prepare a detailed overhead variance report (as in Exhibit 24.19) that shows the variances for individual items of overhead.
PROBLEM 24-6C
Hughes Company’s standard cost accounting system recorded the following information from its December operations:
Standard direct materials cost $287,000
Direct materials quantity variance (unfavorable) 8,600
Direct materials price variance (unfavorable) 2,000
Actual direct labor cost 522,300
Direct labor efficiency variance (unfavorable) 4,400
Direct labor rate variance (favorable) 10,600
Actual overhead cost 110,000
Volume variance (unfavorable) 3,000
Controllable variance (favorable) 1,500
Required
1.Prepare December 30 journal entries to record the company’s costs and variances for the month.
Analysis Component
2.Identify the areas that would attract the attention of a manager who uses management by exception. Explain what action(s) the manager should consider.