Question

ABC Manufacturing Company's costing system has two direct cost categories: direct materials and direct manufacturing labour. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard DMLH At the beginning of 2018, ABC adopted the following standards for its manufacturing costs: Input Cost per Output Unit S 15 75 3 kg at $5 per kg 5 hours at $15 per hour Direct materials Direct manufacturing labour Manufacturing overhead: Variable Fixed Standard manufacturing cost per output unit $6 per DMLH S8 per DMLH 30 40 $100 The denominator level for total manufacturing overhead per month in 2018 is 40,000 DMLH. ABC's flexible budget for January 2018 was based on this denominator level. The records for January indicate the following: Direct materials purchased Direct materials used Direct manufacturing labour 25,000 kg at $5.20/kg 23,100 kg 40,100 hours at $14.60/hour $600,000 Total actual manufacturing overhead (variable and fixed) Actual production 7,800 output units 1. Prepare a schedule of total standard manufacturing costs for the 7,800 output units in January 2018 2. For January 2018, calculate the following variances, indicating whether each is favourable (F) or unfavourable (U): a. Direct materials rate variance, based on purchases. b. Direct materials efficiency variance c. Direct manufacturing labour rate variance. d. Direct manufacturing labour efficiency variance. e. Total manufacturing overhead rate variance. f. VMOH efficiency variance. g. Production-volume variance

Answer 1

Solution:

1.)

Direct materials	$117,000(7,800 × $15)
Direct labor	$585,000(7,800 ×$75)
Variable manufacturing overhead	$234,000(7,800 ×$30)
Fixed manufacturing overhead	$312,000(7,800 × $40)
Total Standard Manufacturing Costs	$1,248,000

2.)

a.)

Direct materials price variance = Purchase quantity × ( actual price - standard price) = 25,000 × ($5.20 - $5)

25,000 ×$0.20 = $5000 U

b.)

Direct materials efficiency variance = standard price × ( actual quantity - standard quantity given actual output)

= $5. × (23100 -(7800 × 3lbs per unit) )

=$5 × (23,100 - 23,400)

=$5 ×300 =$1500 F

c.

Direct labor rate variance = actual hours × ( actual rate - standard rate)

= 40,100 hrs. × ($14.6ph - $15 ph)

=40100 hrs. × 0.40

=$16,040 F

d.)

Direct labor efficiency variance = standard rate × ( actual hours - standard hours given actual output)

=$14.60 ×( (40,100 - (7,800 × 5 hours))

=$14.60 × (40100 - 39000)

=$ 14.60 ×1,100

=$16,060 U

e.)

Total manufacturing overhead spending variance = total actual overhead - total budgeted overhead

= $800,000 - (7800 ×30+7800 ×40)

=$800,000 -( $234,000+$312,000)

=$800,000 - $546,000

=$254,000 U

f.)

Variable overhead efficiency variance = standard variable rate × (actual hours -standard hours)

=$30 × (23,100 - 23,400)

$30 ×300

=$9000 F

g.)

Budgeted production = 40000/5 = 8000

Production volume variance = budgeted overhead rate × (actual units - budgeted units)

=$40 × (7,800 - 8,000)

=$40 × 200

=$8,000 U