Question: Mills, Inc. is a competitor of Murry, Inc. from Exercise E2318. Mills also uses a standard cost system and provides the following information:
Static budget variable overhead $ 1,200
Static budget fixed overhead $ 1,600
Static budget direct labor hours 800 hours
Static budget number of units 400 units
Standard direct labor hours 2 hours per unit
Mills allocates manufacturing overhead to production based on standard direct labor hours. Mills reported the following actual results for 2018: actual number of units produced, 1,000; actual variable overhead, $4,000; actual fixed overhead, $3,100; actual direct labor hours, 1,600.
1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances.
2. Explain why the variances are favorable or unfavorable
The answer for part 1 is computed as VOH cost variance is $1,600 U, VOH efficiency variance is $600 F, FOH cost variance is $1,500 U, and FOH volume variance is $2,400 F.
In part 2, it is stated that variable overhead variance is unfavorable as the actual cost was not under the standard costs, the overhead efficiency variance is favorable as actual usage was under the standards and fixed cost variance is favorable as it was kept under budget.
The unfavorable variable overhead cost variance indicates that the actual variable overhead cost per direct labor was not kept within the cost standards.
The favorable overhead efficiency variance shows that the actual usage of direct labor hours was kept within the standard.
The fixed overhead cost variance was favorable because the total cost was kept within the budget.
Question: Tipton Company manufactures shirts. During June, Tipton made 1,200 shirts and gathered the following additional data:
Direct materials cost standard $6.00 per yard of fabric
Direct materials efficiency standard 1.50 yards per shirt
Actual amount of fabric purchased and used 1,680 yards
Actual cost of fabric purchased and used $10,500
Direct labor cost standard $15.00 per DLHr
Direct labor efficiency standard 2.00 DLHr per shirt
Actual amount of direct labor hours 2,520 DLHr
Actual cost of direct labor $36,540
Calculate the following variances:
7. Direct materials cost variance
8. Direct materials efficiency variance
9. Total direct materials variance
10. Direct labor cost variance
11. Direct labor efficiency variance
12. Total direct labor variance
Marsh Company uses a standard cost system and reports the following information for 2018:
3 yards of cloth per unit at $1.05 per yard
2 direct labor hours per unit at $10.50 per hour
Overhead allocated at $5.00 per direct labor hour
2,600 yards of cloth were purchased at $1.10 per yard
Employees worked 1,800 hours and were paid $10.00 per hour
Actual variable overhead was $1,700
Actual fixed overhead was $7,300
Direct materials cost variance $ 130 U
Direct materials efficiency variance 420 F
Direct labor cost variance 900 F
Direct labor efficiency variance 2,100 F
Variable overhead cost variance 1,500 U
Variable overhead efficiency variance 1,500 F
Fixed overhead cost variance 600 U
Fixed overhead volume variance 1,600 F
Marsh produced 1,000 units of finished product in 2018. Record the journal entries to record direct materials, direct labor, variable overhead, and fixed overhead, assuming all expenditures were on account and there were no beginning or ending balances in the inventory accounts (all materials purchased were used in production, and all goods produced were sold). Record the journal entries to record the transfer to Finished Goods Inventory and Cost of Goods Sold (omit the journal entry for Sales Revenue). Adjust the Manufacturing Overhead account
Understanding variance relationships
Complete the table below for the missing variances.
Total Flexible Budget Product Cost Variance
Total direct material variance
Total direct labor variance
Total Manufacturing Overhead Variance
Direct material cost variance
Direct material efficiency variance
Direct Labor Cost Variance
Direct Labor Efficiency Variance
Total Variable Overhead Variance
Total fixed overhead variance
Variable Overhead Cost Variance
Variable Overhead Efficiency Variance
Fixed Overhead Cost Variance
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