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CASE 10 17 Working Backwards from Variance Data LO1 LO2 LO3 You have recently accepted a position with Lorthen Inc As part of your duties you review the variances that are reported for each

CASE 10–17 Working Backwards from Variance Data [LO1, LO2, LO3]

You have recently accepted a position with Lorthen Inc. As part of your duties, you review the vari- ances that are reported for each period and make a presentation to the company’s executive committee.

Earlier this morning you received the variances for one of the company’s major products for the most recent period. After reviewing the variances and organizing the data for your presenta- tion, you accidentally placed the material on top of some papers that were going to the shredder. In the middle of lunch you suddenly realized your mistake and dashed to the shredding room. There you found the operator busily feeding your pages through the machine. You managed to pull only part of one page from the feeding chute, which contains the following information:


Standard Cost Card


Direct materials, 2.0 meters at $16.00 per meter . . . . . . . . $32.00 Direct labor, 1.0 hours at $15.00 per hour . . . . . . . . . . . . . . $15.00 Variable overhead, 1.0 hours at $9.00 per hour . . . . . . . . .       $9.00




Total Standard Cost

Quantity or Efficiency Variance

Price or Rate Variance

Direct materials . . . . . . . . .


$32,000 U

$11,600 F

Direct labor . . . . . . . . . . . . .


$15,000 U

$4,000 U

Variable overhead . . . . . . .


Ruined by shredder

$4,000 F


The standard for variable overhead is based on direct labor-hours. All of the materials purchased during the period were used in production.

At lunch your supervisor said how pleased she was with your work and that she was looking forward to your presentation that afternoon. You realize that to avoid looking like a bungling fool you must somehow generate the necessary “backup” data for the variances before the executive committee meeting starts in one hour.


1.       How many units were produced during the period?

2.       How many meters of direct materials were purchased and used in production?

3.       What was the actual cost per meter of material?

4.       How many actual direct labor-hours were worked during the period?

5.       What was the actual rate per direct labor-hour?

6.       How much actual variable manufacturing overhead cost was incurred during the period?

Jun 28 2020 View more View Less

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