201-Wk15-Variances-OH-F'10 (STUD)

201-Wk15-Variances-OH-F'10 (STUD) - Mgmt 201 Managerial...

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page 1 Mgmt. 201 - Managerial Accounting – Week 15 Production Variances – All of them Professor Thoman page 2 Standard costs and Variances In these notes we will: I. Add OH variances to our repertoire. II. Time permitting, work additional variance and costing problems.
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page 3 Framington Co. – Example of production cost variances Framington Co. is a small manufacturer of etched tin eyeglass cases. Framington wants use variance analysis to evaluate its performance during the month of June. Before June, the company had established its standards (and budgets): During its budgeting process before the start of June, Framington set its target or standard costs for the manufacture of the eyeglass cases: SQ I /unit SP I Standard cost/unit DM: Tin 3 ounces/case $2.50/oz. $ 7.50 DL: Etching .3 DLH $10/DLH 3.00 DIRECT COSTS $ 10.50 VOH .2 MH $8/MH 1.60 FOH* .2 MH $10/MH 2.00 TOTAL OVERHEAD $ 3.60 TOTAL STANDARD COST PER UNIT $ 14.10 *Fixed overhead is allocated on the basis of MH; it was expected that 600 eyeglass cases would be produced each month; thus, the predetermined FOH rate was estimated as follows: Predetermined FOH rate = SP I = Estimated OH Estimated driver = $1,200 (600 cases)(.2 MH/case) = $10/MH page 4 At the end of June, the company wants to see how they performed: During the month of June, Framington actually produced 500 eyeglass cases. What is the targeted direct cost of making the 500 eyeglass cases? What is the total standard or targeted cost of making the 500 eyeglass cases? 500 x $10.50 = $5,250 500 x $14.10 = $7,050 Actual production costs for the month of June were: Total actual production costs for 500 eyeglass cases DM: Tin 2,000 ounces purchased and used $ 6,000 DL: Etching 200 DLH 1,800 DIRECT COSTS $ 7,800 VOH 150 MH 1,050 FOH 1,100 TOTAL COSTS $ 9,950 What is the total of the direct cost variances for the production of the 500 cases? What is the total of all production cost variances for the 500 eyeglass cases?
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