Reference no: EM131716190
Question - "Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Kim Clark, president of Martell Company. "Our $22,700 overall manufacturing cost variance is only 6% of the $1,536,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year."
The company produces and sells a single product. The standard cost card for the product follows:
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Standard Cost Card-per Unit
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Direct materials, 3.00 feet at $3.00 per foot
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$9.00
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Direct labor, 1.2 direct labor-hours at $11 per direct labor-hour
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13.20
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Variable overhead, 1.2 direct labor-hours at $2.00 per direct labor-hour
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2.40
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Fixed overhead, 1.2 direct labor-hours at $5.50 per direct labor-hour
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6.60
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Standard cost per unit
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$31.20
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The following additional information is available for the year just completed:
a. The company manufactured 25,000 units of product during the year.
b. A total of 74,000 feet of material was purchased during the year at a cost of $3.20 per foot. All of this material was used to manufacture the 25,000 units. There were no beginning or ending inventories for the year.
c. The company worked 33,000 direct labor-hours during the year at a direct labor cost of $10.70 per hour.
d. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
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Denominator activity level (direct labor-hours)
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26,000
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Budgeted fixed overhead costs
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$143,000
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Actual variable overhead costs incurred
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$72,600
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Actual fixed overhead costs incurred
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$140,200
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For manufacturing overhead compute:
a. The variable overhead rate and efficiency variances for the year.
b. The fixed overhead budget and volume variances for the year.