Problem 17.65
Savannah Machine Tool Company has an automated production process, and production activity isquantified in terms of machine hours. It uses a standard-costing system. The annual static budget for
20x6 called for 6,000 units to be produced, requiring 30,000 machine hours. The standard-overhead
rate for the year was computed using this planned level of production. The 20x6 manufacturing cost
report follows.
Static Budget / Flixible budget
Cost Item / 30000 machine Hours / 31000 machine Hours / 32000 machine Hours / Actual Cost
Direct material:
G27 aluminum / $ 252.00 / $ 260.40 / $ 268.80 / $ 270.00
M14 steel alloy / 78 / 80.6 / 83.2 / 83
$ 330.00 / $ 341.00 / $ 352.00 / $ 353.00
Direct labor:
Assembler / 273 / 282.1 / 291.2 / 287
Grinder / 234 / 241.8 / 249.6 / 250
Manufacturing overhead:
Maintenance / 24 / 24.8 / 25.6 / 25
Supplies / 129 / 133.3 / 137.6 / 130
Supervision / 80 / 82 / 84 / 81
Inspection / 144 / 147 / 150 / 147
Insurance / 50 / 50 / 50 / 50
Depreciation / 200 / 200 / 200 / 200
Total cost / $ 1,464.00 / $ 1,502.00 / $ 1,540.00 / $ 1,523.00
Savannah Machine Tool Company develops flexible budgets for different levels of activity for use
in evaluating performance. It produced a total of 6,200 units during 20x6, requiring 32,000 machine
hours. The preceding manufacturing cost report compares the company's actual cost for the year with
the static budget and the flexible budget for two different activity levels.
Required
Compute the following amounts. For variances, indicate favorable or unfavorable where appropriate.
Answers should be rounded to two decimal places when necessary.
a. The standard number of machine hours allowed to produce one unit of product.
Standard Machine hours to produce one unit = 30,000/6,000=5 hours/unit
b. The actual cost of direct material used in one unit of product.
Direct materials used
G27$270,000
M14+ 83,000
Total$353,000
Number of units manufactured 6,200
Actual material cost per unit $56.94
c. The cost of material that should be processed per machine hour.
Standard hours for 6,200 units = 6,200X5=31,000 hours
Total standard materials at 31,000 machine hours
$260,400 + $80,600 =$341,000
Number of machine hours 31,000
Standard materials cost per machine hour$11.00
d. The standard direct-labor cost for each unit produced.
Budgeted direct labor cost for 6,000 units:
Assembler$273,000
Grinder 234,000
Total$507,000
Budgeted number of units 6,000
Budget direct labor cost per unit$84.50
e. The variable-overhead rate per machine hour in a flexible-budget formula. (Hint: Use the high-lowmethod to estimate cost behavior. In the high-low method of cost estimation, the differencebetween the cost levels at the high and low activity levels is divided by the difference between thehigh and low activity levels. This quotient provides a simple estimate of the variable cost rate perunit of activity.)
Total manufacturing OH at 32,000 machine hours$647,200
Total manufacturing OH at 31,000 machine hours - 637,100
Difference in manufacturing overhead $ 10,100
Difference in machine hours 1,000
Variable manufacturing OH rate per machine hour $10.10
f. The standard fixed-overhead rate per machine hour used for product costing.
Total manufacturing overhead in the budget$627,000
Total variable manufacturing OH in the budget
$10.10 x 30,000 =- 303,000
Total fixed manufacturing OH in the budget $324,000
Number of machine hours in the budget 30,000
Fixed manufacturing cost per machine hour $10.80
g. The variable-overhead spending variance. (Assume that management has determined that theactual fixed overhead cost in 20x6 amounted to $324,000.)
Total actual manufacturing overhead $633,000
Total standard manufacturing overhead for
32,000 machine hours:
Variable manufacturing overhead
32,000 MH x $10.10 = $323,200
Fixed manufacturing overhead + 324,000- 647,200
Total manufacturing overhead spending variance $14,200 F
h. The variable-overhead efficiency variance.
Variable overhead efficiency variance = Standard Rate (Actual Hours – Standard Hours)
= 10.10 X (32,000-31,000) = $10,100 U
i. The fixed-overhead budget variance.
Budget variance = Actual Fixed Overhead – Budgeted Fixed Overhead
Budget Variance = 324,000-324,000=0
j. The fixed-overhead volume variance. [Make the same assumption as in requirement (g).]
Total standard machine hours for the units manufactured 6,200 x 5 = 31,000
Fixed manufacturing cost per machine hourx $ 10.80
Total fixed manufacturing cost applied $334,800
Total budget fixed manufacturing for the period 324,000
Manufacturing OH production volume variance $10,800F
k. The total budgeted manufacturing cost (in thousands of dollars) for an output of 6,050 units. (Hint:Use the flexible-budget formula.)
Total direct materials cost in the budget $ 330,000
Number of units 6,000
Budget direct materials cost per unit $55.00
Flexible Budget for 6,050 Units
Direct materials $55 x 6,050 = $332,750
Direct labor $84.50 x 6,050 = 511,225
Manufacturing overhead
Variable $10.10 x 6,050 x 5 = 305,525
Fixed 324,000
TOTAL$1,473,500