Home / Questions / PROBLEM 10A 12 Comprehensive Standard Cost Variances LO1 LO2 LO3 LO4 Dresser Company uses...
PROBLEM 10A–12 Comprehensive Standard Cost Variances [LO1, LO2, LO3, LO4]
Dresser Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company’s budget for the current year:
|
Denominator activity (direct labor-hours) . . . . . . . . . . . . . . . . . . . . . . . . . |
9,000 |
|
Variable manufacturing overhead cost at 9,000 direct labor-hours . . . . . . |
$34,200 |
|
Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$63,000 |
The standard cost card for the company’s only product is given below:
|
Direct materials, 4 pounds at $2.60 per pound . . . . . . . . . . . . . . . . . . |
$10.40 |
|
Direct labor, 2 direct labor-hours at $9.00 per hour . . . . . . . . . . . . . . |
18.00 |
|
Overhead, 2 direct labor-hours at $10.80 per hour . . . . . . . . . . . . . . . |
21.60 |
|
Standard cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$50.00 |
During the year, the company produced 4,800 units of product and incurred the following costs:
|
Materials purchased, 30,000 pounds at $2.50 per pound . . . . . . |
$75,000 |
|
Materials used in production (in pounds) . . . . . . . . . . . . . . . . . . . |
20,000 |
|
Direct labor cost incurred, 10,000 direct labor-hours at |
|
|
$8.60 per direct labor-hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$86,000 |
|
Variable manufacturing overhead cost incurred . . . . . . . . . . . . . . |
$35,900 |
|
Fixed manufacturing overhead cost incurred . . . . . . . . . . . . . . . . |
$64,800 |
Required:
1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost elements.
2. Prepare an analysis of the variances for materials and labor for the year.
3. Prepare an analysis of the variances for variable and fixed overhead for the year.
4. What effect, if any, does the choice of a denominator activity level have on standard unit costs? Is the volume variance a controllable variance from a spending point of view? Explain.
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