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12
SOLUTION
QUESTION #1
36 marks
Required:
PART A
1.
Assuming that Ruby uses Absorption Costing, and wants to price her product at total
standard costs plus 25 % for profit. What price should Ruby set per rack?
DM tubing
4 x 4 feet x$10
160
DM clamps
4 clamps x $65
260
DL
(4.5 + 2.0) x $20
130
VOH
55
FMAO
$136,500
= $30/DLH
4550
6.5 x $30/dlh
195
$800
25% markup
200
Selling price
$1,000
PART B
1.
It is the end of the year and Ruby is interested in determining variances for her total
labour and direct materials. A few things came to light during the year that she expected
would affect how she performed compared to her standards.
Throughout the year she discovered that the carbon alloy tubing was sold in 6foot
lengths only, requiring her to cut off 2 feet from each piece. Luckily, because of her
volume of purchasing, she was only charged $9 per foot for each foot purchased.
. She
also made some errors in her purchasing the clamps and ended up with 100 extra
clamps as inventory and failed to notice that they had delivery charge of $5 per clamp
because they came from Europe.
Secondly, she realized that she had failed to account for the fact that the fast drying
paint still required 1.0 in the middle of the manufacturing process. Since they work on
one project at a time, they could not be productive during this period.
Calculate the materials price variance for the tubing and the clamps, the materials
quantity variance for the tubing, and the labour efficiency variance
materials quantity variance
clamps
AQu x SR
=
(750 units x 4) + 100) x $65 =
201,500
LESS:
SQu x SR
=
(750 units x 4) x $65
=
195,000
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Variance
U
$
6,500
materials quantity variance
Tubing
AQu
x SR
(750 units x (4 x 6 ft) x $10
$180,000
LESS: SQu
x SR
(750 units x (4 x 4 ft) x $10
$120,000
Variance
U
$60,000
materials price variance
tubing
AQp x AR
=
(750 units x( 4 x 6ft)) x $9
=
162,000
LESS:
AQp x SR
=
(750 units x (4 x 6 ft) x $10 =
180,000
Variance
F
$18,000
labour efficiency variance
AH x AR
750 x (4.5 + 2.0+1.0) x $20
$112,500
LESS:
SH x SR
750 x (4.5 + 2.0) x $20
$
97,500
Variance
U
$15,000
labour rate variance
AH x AR
750 x (4.5 + 2.0+1.0) x $20
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 Winter '09
 Brian

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