Q32PGB
Expert-verifiedHeadset manufactures headphone cases. During September 2018, the company produced 106,000 cases and recorded the following cost data:
Standard Cost Information
| Quantity | Cost |
Direct Materials | 2 parts | $ 0.16 per part |
Direct Labor | 0.02 hours | 8.00 per hour |
Variable Manufacturing Overhead | 0.02 hours | 11.00 per hour |
Fixed Manufacturing Overhead ($30,720 for static budget volume of 96,000 units and 1,920 hours, or $16 per hour) |
Actual Information
Direct Materials (209,000 parts @ $0.21 per part) $ 43,890 Direct Labor(1,620 hours @ $8.10 per hour) 13,122 Variable Manufacturing Overhead 9,000 Fixed Manufacturing Overhead 30,000 |
Requirements
1. Compute the cost and efficiency variances for direct materials and direct labor.
2. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
3. Headset’s management used betterquality materials during September. Discuss the tradeoff between the two direct material variances.
1. The direct material cost variance is $10,450 (U).
The direct material efficiency variance is $480(F)
The labor cost variance is $160(U).
The labor efficiency variance is $4,000(F).
2. The variable overhead cost variance is $8,820 (F).
The variable overhead efficiency variance is $6,490(F).
The fixed overhead cost variance is $720(F).
The fixed overhead volume variance is $4,800(F).
3. The sacrifice of the management on acquiring a better quality of materials with a high cost allowed for abetter utilization of the materials.
Calculate the direct material cost variance:
Calculate the direct material efficiency variance:
Calculate the direct labor cost variance:
Calculate the labor efficiency variances:
Compute the variable overhead cost variance:
Compute variable overhead efficiency variance:
Calculate the fixed overhead cost variance:
Compute for the allocated fixed overhead:
Calculate the fixed overhead volume variance:
A correlation exists between the direct materials efficiency variance and the direct materials cost variance. Contrary variations may occur in the purchasing department and the manufacturing department sectors. Anunfavourable direct materials cost variance resultarises because of higher-quality materials at a higher actual cost,which helps in improving the direct materials efficiency variance.
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