Posted by Klatoyaa on Thursday, September 30, 2010 at 6:48pm.
Smith Co uses a standard cost system for its single product in which variable
manufacturing overhead is applied on the basis of direct labor hours. The following
information is given:
Standard costs per unit:
Raw materials (1.5 grams at $16) $24.00
Direct labor (0.75 hour at $8) 6.00
Variable manuf. overhead (0.75 hour at $3)... 2.25
Actual experience for current year:
Units produced 22,400 units
Purchases of raw materials (21,000 grams at $17) $357,000
Raw materials used 33,400 grams
Direct labor (16,750 hours at $8) $134,000
Variable manuf. overhead cost incurred $ 48,575
I. Compute the following variances for raw materials, direct labor, and variable
manufacturing overhead, assuming that the price variance for materials is
recognized at point of purchase:
a. Direct materials price variance
b. Direct materials quantity variance
c. Direct labor rate variance
d. Direct labor efficiency variance
e. Variable overhead spending variance
f. Variable overhead efficiency variance
II. Why are many companies supplementing, or even replacing, standard cost
systems with operating performance measures?
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