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Unformatted text preview: Name Recitation Section: Quiz 3 Version 1 Management 201 Fall 2010 A. BETTERTON CORPORATION Betterton Corporation manufactures automobile headlight lenses and uses a standard cost system. At the beginning of the year, the following standards were established per 100 lenses (a single batch). Input Direct materials Direct labor Factory overhead: Fixed overhead Variable overhead Standards 100 pounds @ $2.50/pound 5 DLH @ $18/DLH 5 DLH @ $5/DLH 5 DLH @ $7/DLH Amount $250 90 25 35 $400 1. This quiz consists of 2 problems; the last question is on the back of this quiz. The point value for each problem is: A. B. BETTERTON CORPORATION BO SAN INC. TOTAL POINTS 15 points 5 points 20 points Total cost per batch of 100 headlight lenses The expected volume per month is 1,000 batches producing 100,000 lenses and using 5,000 direct labor hours. At the beginning of January Betterton expected to sell its lenses at $7.30 each. Administrative and selling costs were estimated at $140,200. During January 105,000 head light lenses were actually produced and sold at a price of $7.00 per lens. The following costs were incurred in January: Total fixed factory overhead incurred Total variable factory overhead incurred Direct labor 5,400 hours Direct materials used 105,000 pounds Direct materials purchased 110,000 pounds Selling and administrative costs $ 26,000 $ 33,000 $ 99,900 $209,000 $150,700 2. You have 30 minutes for this exam; no notes are allowed. 3. No notes are allowed. communication. You may not use a calculator that allows storage of information or 4. Show all of your calculations. Correct answers, which are not accompanied by work indicating how the answer was derived, will not receive any credit. Even if the answer can be computed in your head, indicate your thought process on paper. Partial credit will be given only where the logic and handwriting can be easily followed. This means calculations must be labeled and presented in an orderly fashion. The grader will not search for your numbers; nor may one explain ex post how one got one's answer. When a variance is computed, make sure to label it as favorable (F) or unfavorable (U). 5. None of you would cheat; however, for completeness please recall the penalty for cheating is an F in the course. Answer each of the following questions. No credit will be given without supporting work or an explanation. Partial credit will be given only where the work is logical and can be easily read. Clearly label all variances as favorable (F) or unfavorable (U). 1. What was FOH production volume variance? Answer: Work: 2. What was FOH budget variance? Answer: Work: B. BO SAN INC. - COMPUTATIONS For the quarter just ended, BoSan Inc., reported the following variances in one of its manufacturing departments. Material price variance Unfavorable Material quantity variance Favorable Labor efficiency variance Favorable VOH efficiency variance* Favorable *VOH is allocated on the basis of machine hours. The sum of the favorable variances above exceeds the unfavorable materials price variance by a considerable amount. The quality of the output from the department was the same as usual. BoSan operates using a JIT system, purchasing materials only when they are needed, so practically all of the raw material used in this quarter was purchased in this quarter. What one event might explain all of the above variances. Identify the one event and explain how it could cause all of the above variances. Also explain how this event could result in the sum of the favorable variances exceeding the unfavorable materials price variance. Use the space below to organize and outline your thoughts, then write your answer on the lines in the box. We will read and grade only the answer provided in the box. Points will be deducted for irrelevant comments. 3. What was VOH efficiency variance? Answer: Work: 4. What was direct labor (DL) rate variance? Answer: Work: 5. What was direct material (DM) price variance? Answer: Work: A. 1. BETTERTON CORPORATION $1,250 F FOH production volume variance = FOH applied FOH budgeted FOH applied = $5/DLH x 5 DLH/unit x 1,050 units = $26,250; FOH budgeted = $5/DLH x 5,000 DLH budgeted = $25,000; FOH production volume variance = $26,250 - $25,000 = $1,250 F FOH budget variance = Budgeted FOH Actual FOH = $25,000 - $26,000 = $1,000 U VOH efficiency variance = SQfor AO x SP AQ x SP = (1,050 units x 5 DLH/unit)($7/DLH) (5,400 DLH)($7/DLH) = $1,050 U DL rate variance = AQ x SP AQ x AP = (5,400 DLH)($18/DLH) - $99,900 = $2,700 U ! DM price variance = PQ x SP PQ x AP = 110,000 lb. x $2.50/lb. - $209,000 = $66,000 F 2. 3. 4. $1,000 U $1,050 U $2,700 U 5. $66,000 F B. BO SAN INC. One event that could explain all of the listed variances is the purchase of more expensive, but higher-than-standard quality, materials. The high cost would lead to the unfavorable materials price variance. The high quality of materials could result in less scrap being generated than standard or a favorable materials quantity variance. The favorable labor efficiency and variable overhead efficiency variances might happen because the material was easier for labor to use and for the machines to process. The higher price of the materials did result in a unfavorable variance, but this effect was more than offset by the savings the company realized from using less materials, less labor time and less variable overhead. ...
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This note was uploaded on 02/23/2012 for the course MGMT 201 taught by Professor Rowe during the Spring '08 term at Purdue University-West Lafayette.
- Spring '08