51) Managerial Financial Accounting Assignments E11-13 Solution

51) Managerial Financial Accounting Assignments E11-13 Solution

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E11-13
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Correct. Investigating Variances [LO 2, 3, 4, 6] At the start of the year, Frigicor estimated that the company would produce 480 refrigeration units during the year (40 per month). Annual fixed overhead costs were estimated to be $600,000 ($50,000 per month), and estimated variable overhead costs were estimated to be $500 per unit. Standard cost per unit was set at $3,450: Standard Material Cost $1,200 Standard Labor Cost 500 Standard Overhead rate per unit 1,750 Total $3,450 During the year, the company experienced stiff competition and ended up producing and selling only 400 units. Actual annual production costs were $1,498,200, and standard cost variances were as follows: Summary of Production Variances Material price variance $2,200 unfavorable Material quantity variance 11,500 unfavorable Labor rate variance (2,300) favorable Labor efficiency variance 4,800 unfavorable Controllable overhead variance 2,000 unfavorable Overhead volume variance 100,000 unfavorable Total $118,200 unfavorable Suppose you are the CFO of Frigicor, and you want to determine the cause of significant
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Unformatted text preview: variances. Given the demands on your time, you dont want to investigate variances that have an obvious explanation or that are less than 1/2 percent of actual production cost. Which variance(s) would you investigate? Variance Material price variance Do not investigate Material quantity variance Investigate Labor rate variance Do not investigate Labor efficiency variance Do not investigate Controllable overhead variance Do not investigate Overhead volume variance Do not investigate Click here if you would like to Show Work for this question E11-13 Actual production cost equals standard cost plus the unfavorable variance ($3,450 x 400) + $118,200 = $1,498,200. Variance Amount Material price variance $2,200 U Material quantity variance 11,500 U Labor rate variance (2,300) F Labor efficiency variance 4,800 U Controllable overhead variance 2,000 U Overhead volume variance 100,000 U...
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51) Managerial Financial Accounting Assignments E11-13 Solution

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