Monday 11 May 2015

Kwikeze Company set the following standard costs for one unit of its product.

Kwikeze Company set the following standard costs for one unit of its product.  

      
  Direct materials ((4.0 Ibs. @ $6.0 per Ib.) $ 24.00  
  Direct labor (1.7 hrs. @ $13.0 per hr.)   22.10  
  Overhead (1.7 hrs. @ $18.50 per hr.)   31.45  
  

  Total standard cost $ 77.55  
  





The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% level.

Overhead Budget (75% Capacity)
  Variable overhead costs          
     Indirect materials $ 15,000      
     Indirect labor 75,000  
     Power 15,000  
     Repairs and maintenance   30,000      
  

     
     Total variable overhead costs       $ 135,000  
  Fixed overhead costs          
     Depreciation—building   24,000      
     Depreciation—machinery   74,000      
     Taxes and insurance   20,000      
     Supervision   218,750      
  

     
     Total fixed overhead costs         336,750  
        

  Total overhead costs       $ 471,750  
        





The company incurred the following actual costs when it operated at 75% of capacity in October.

            
  Direct materials (61,500 Ibs. @ $6.20 per lb.)       $ 381,300  
  Direct labor (29,000 hrs. @ $13.20 per hr.)         382,800  
  Overhead costs          
     Indirect materials $ 43,250      
     Indirect labor   177,250      
     Power   17,250      
     Repairs and maintenance   34,500      
     Depreciation—building   24,000      
     Depreciation—machinery   99,900      
     Taxes and insurance   18,000      
     Supervision   218,750     632,900  
  

 

  Total costs       $ 1,397,000  
    
save image





Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.

save image 

3. Compute the direct materials cost variance, including its price and quantity variances.
 save image
Explanation:
Direct Materials Variances
Preliminary computations
Actual material used: 61,500 lbs. (given) 
Standard quantity of materials: 15,000 units × 4.0 lb. / unit = 60,000 lb.
Actual price: $6.20 / lb. (given)
Standard price: $6.00 / lb. (given)
 
  Direct material cost variances      
  Actual units at actual cost [61,500 lbs. @ $6.20] $ 381,300  
  Standard units at standard cost [60,000 lbs. @ $6.00]   360,000  
  

 
  Direct material cost variance $ 21,300  U
  



 

 
Direct Materials Price and Quantity Variances
Actual Costs
AQ × AP
  AQ × SP   Standard Costs
SQ × SP
61,500 × $6.20   61,500 × $6.00   60,000 × $6.00
    lbs.        per lb.       lbs.        per lb.       Lbs.        per lb.
      $381,300    $369,000   $360,000
  Picture Picture
              $12,300 U
           (Price variance)
$9,000 U         
(Quantity variance)        
    Picture  
      $21,300 U
(Total materials variance)
   


Compute the direct labor cost variance, including its rate and efficiency variances.
 save image
Explanation:
Direct labor variances
Preliminary computations
Actual hours used: 29,000 hours (given)
Standard hours: 15,000 units × 1.7 hrs. / unit = 25,500 hours
Actual rate: $13.20 / hr. (given)
Standard rate: $13.00 / hr. (given)
 
  Direct labor cost variances      
  Actual units at actual cost [29,000 hrs. @ $13.20] $ 382,800  
  Standard units at standard cost [25,500 hrs. @ $13.00]   331,500  
  

 
  Direct labor cost variance $ 51,300  U
  



 

 
Direct Labor Rate and Efficiency Variances
Actual Costs
AH × AR
  AH × SR   Standard Costs
SH × SR
29,000 × $13.20   29,000 × $13.00   25,500 × $13.00
    hours      per hr.       hours      per hr.       hours      per hr.
      $382,800    $377,000   $331,500
  Picture Picture
              $5,800 U
           (Rate variance)
$45,500 U         
(Efficiency variance)        
    Picture  
      $51,300 U
(Total labor variance)
   



Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

save image