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Q8E

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Financial & Managerial Accounting
Found in: Page 972
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

A manufactured product has the following information for June.

Standard Actual

Direct materials 6 lbs.@ $8 per lbs. 48,500 lbs.@ $8.10 per lb.

Direct labor 2 hrs.@ $16 per hr. 15,700 hrs.@ $16.50 per hr.

Overhead 2 hrs.@ $12 per hr. $198,000

Units manufactured 8,000

Compute the:

(1) Standard cost per unit and

(2) Total cost variance for June. Indicate whether the cost variance is favorable or unfavorable.

(1) Standard cost per unit is $104.

(2) The total cost variance is unfavorable.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Cost Variance

The managers use the cost variance analysis to determine the difference between actual and standard costs. If the actual cost is less than the standard cost, the variance is considered favorable and vice versa.

Step 2: Computation of standard cost per unit

ParticularsDetailsAmounts ($)
Direct material$8*6$48
Direct labor $16*2$32
Overhead$12*2$24
Total $104

Step 3: Computation of total cost variance

  • Computation of total standard cost:
ParticularsAmounts ($)
Direct material (8,000*48)384,000
Direct labor (8,000*32)256,000
Overhead (8,000*24)192,000
Total standard cost $832,000
  • Computation of total actual cost:
ParticularsAmounts ($)
Direct material (48,500*8.10)392,850
Direct labor (15,700*16.50)259,050
Overheads 198,000
Total actual cost $849,900

Most popular questions for Business-studies Textbooks

Tohono Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.

TOHONO COMPANY

Fixed Budget Report

For Year Ended December 31, 2017

Sales

$3,000,000

Cost of goods sold

Direct materials

$1,200,000

Direct labor

260,000

Machinery repairs (variable cost)

57,000

Depreciation-Machinery (Straight-line)

250,000

Utilities (25% is variable cost)

200,000

Plant manager salaries

140,000

2,107,000

Gross profit

893,000

Selling expenses

Packaging

80,000

Shipping

116,000

Sales salary (fixed annual amount)

160,000

356,000

General and administration expenses

Advertising

81,000

Salaries

241,000

Entertainment expense

90,000

412,000

Income from operations

$125,000

Required

1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.

2. Prepare flexible budgets (see Exhibit 21.3) for the company at sales volumes of 18,000 and 24,000 units.

3. The company’s business conditions are improving. One possible result is a sales volume of 28,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $125,000 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 2017 could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?

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