Business Finance : Week 5 accounting homework 5 questions

Requirement 1

Wyckam Manufacturing Inc. has provided the following information concerning its manufacturing costs:

Fixed Cost
per Month

Cost per
Machine-Hour

Direct materials

$

5.40

Direct labor

$

42,100

Supplies

$

0.20

Utilities

$

1,300

$

0.15

Depreciation

$

15,400

Insurance

$

11,900


For example, utilities should be $1,300 per month plus $0.15 per machine-hour. The company expects to work 4,200 machine-hours in June. Note that the company’s direct labor is a fixed cost.

Required:

Prepare the company’s planning budget for June.

Requirement 2

Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June:

Fixed Element
per Month

Variable Element
per Liter

Actual Total
for June

Revenue

$

18.00

$

110,530

Raw materials

$

5.25

$

33,730

Wages

$

6,200

$

2.00

$

18,900

Utilities

$

2,230

$

0.80

$

7,550

Rent

$

3,200

$

3,200

Insurance

$

1,950

$

1,950

Miscellaneous

$

710

$

0.95

$

6,670


While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $6,200 plus $2.00 per liter of gelato sold and the actual wages for June were $18,900. Via Gelato expected to sell 6,200 liters in June, but actually sold 6,400 liters.

Required:

Calculate Via Gelato revenue and spending variances for June. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Requirement 3

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

Cost Formula

Actual Cost in March

Utilities

$16,500 plus $0.21 per machine-hour

$

22,710

Maintenance

$38,300 plus $1.90 per machine-hour

$

72,000

Supplies

$0.50 per machine-hour

$

10,300

Indirect labor

$94,100 plus $2.00 per machine-hour

$

137,000

Depreciation

$68,000

$

69,700


During March, the company worked 19,000 machine-hours and produced 13,000 units. The company had originally planned to work 21,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Calculate the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Calculate the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Question 4

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are:

Total

Per Set
of Covers

Direct materials

$

54,825

$

25.50

Direct labor

$

10,750

5.00

Variable manufacturing overhead (based on direct labor-hours)

$

5,375

2.50

$

33.00


During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month:

Total

Per Set
of Covers

Direct materials (12,500 yards)

$

58,750

$

23.50

Direct labor

$

13,000

5.20

Variable manufacturing overhead

$

7,000

2.80

$

31.50


At standard, each set of covers should require 3.0 yards of material. All of the materials purchased during the month were used in production.

Required:

1. Compute the materials price and quantity variances for August.

2. Compute the labor rate and efficiency variances for August.

3. Compute the variable overhead rate and efficiency variances for August.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

1.

Materials price variance

Materials quantity variance

2.

Labor rate variance

Labor efficiency variance

3.

Variable overhead rate variance

Variable overhead efficiency variance

Question 5

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows:

Standard Quantity
or Hours

Standard Price
or Rate

Standard Cost

Direct materials

2.50

ounces

$

19.00

per ounce

$

47.50

Direct labor

0.70

hours

$

15.00

per hour

10.50

Variable manufacturing overhead

0.70

hours

$

4.00

per hour

2.80

Total standard cost per unit

$

60.80


During November, the following activity was recorded related to the production of Fludex:

  • Materials purchased, 12,500 ounces at a cost of $223,125.
  • There was no beginning inventory of materials; however, at the end of the month, 3,250 ounces of material remained in ending inventory.
  • The company employs 21 lab technicians to work on the production of Fludex. During November, they each worked an average of 150 hours at an average pay rate of $12.50 per hour.
  • Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $5,100.
  • During November, the company produced 3,500 units of Fludex.

Required:

1. For direct materials:

a. Compute the price and quantity variances.

b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract?

2. For direct labor:

a. Compute the rate and efficiency variances.

b. In the past, the 21 technicians employed in the production of Fludex consisted of 4 senior technicians and 17 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to reduce labor costs. Would you recommend that the new labor mix be continued?

3. Compute the variable overhead rate and efficiency variances.

For direct materials, compute the price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Materials price variance

Materials quantity variance

For direct materials, the materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract?

Yes

No

For direct labor, compute the rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Labor rate variance

Labor efficiency variance

In the past, the 21 technicians employed in the production of Fludex consisted of 4 senior technicians and 17 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to reduce labor costs. Would you recommend that the new labor mix be continued?

Yes

No

Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Variable overhead rate variance

Variable overhead efficiency variance

Answers

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