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Unformatted text preview: Name Recitation Section: Quiz 3 Version 3 Management 201 Fall 2010 A. NOLTON PRODUCTS -Computations Nolton Products is a manufacturer of low cost, moderate quality desk lamps. The market for inexpensive desk lamps is very competitive; hence, Nolton is very cost conscious. To manage its costs, at the beginning of each year Nolton develops standards for its costs, and at the end of the year compares its actual performance to the standards. At the beginning of the year it was expected that 720,000 lamps would be manufactured during the year requiring 3,600,000 direct labor hours; production is expected to be the same each month. All overheads (both fixed and variable) are allocated on the basis of direct labor hours. A breakdown of the expected annual costs is as follows: Overhead Budget for the Year Variable overhead costs: Indirect labor Supplies Total variable overhead costs Fixed overhead costs: Supervisors salaries Utilities Depreciation Total fixed overhead costs 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. NOLTON PRODUCTS - Computations NOLTON PRODUCTS - Analysis TOTAL POINTS 15 points 5 points 20 points $ 900,000 1,224,000 $ 2,124,000 $ 648,000 540,000 1,008,000 $ 2,196,000 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. During the month of May a total of 66,000 lamps requiring 315,000 direct labor hours was produced. Actual overhead costs for May are as follows: Actual Overhead Costs for May Variable overhead costs: Indirect labor Supplies Total variable overhead costs Fixed overhead costs: Supervisors salaries Utilities Depreciation Total fixed overhead costs 1. $ 75,000 111,000 $ 186,000 $ 51,000 54,000 84,000 $ 189,000 For variable overhead, what standard rate per direct labor hour did Nolton use in its annual budget? Answer: Work: 2. For fixed overhead, what was the predetermined fixed overhead rate? Answer: Work: B. NOLTON PRODUCTS - Analysis Mr. Fred Nolton, Jr. has just replaced his father as the CEO of the company. Fred was an English major in college and is still trying to understand variances. He has asked you to explain the meaning of the variable overhead spending variance that you computed above. In the space below clearly explain the general meaning and use of this variance and the specific meaning and use of the variance number you computed. Be as specific as possible. Use the following space to organize and outline your thoughts, then write your answer in the lines provided below. Only your answer in the lined space will be read and graded. Points will be deducted for irrelevant comments. 3. For the month of May, what was the variable overhead spending variance? Answer: Work: Use the following space to organize and outline your thoughts, then write your answer in the lines provided below. Only your answer in the lined space will be read and graded. No more than 4 or 5 sentences is required. Points will be deducted for irrelevant comments. 4. For the month of May, what was the fixed overhead budget variance? Answer: Work: 5. For the month of May, what was the fixed overhead production volume variance? Answer: Work: Mgmt. 201 Fall 2010 Quiz 3 (Version 3) - Solutions A. 1. 2. 3. 4. 5. NOLTON PRODUCTS Computations $0.59/DLH $0.61/DLH 150 U $8,850F $18,300 F $2,124,000/3,600,000 DLH = $0.59/DLH $2,196,000/3,600,000 DLH = $0.61/DLH VOH Spending (price) variance = SP x AQ AP x AQ = ($0.59)(315,000)-$186,000 = $150 U VOH Efficiency (quantity) Variance = SP x SQ for AO SP x AQ = = ($0.59)(5 x 66,000) ($0.59)(315,000) = $8,850 FOH Applied FOH Budgeted = SP x SQ for AO - FOH Budgeted = ($0.61)(5 x 66,000) - $2,196,000/12 = $18,300 B. NOLTON PRODUCTS - Analysis The VOH Spending Variance indicates whether the expected VOH rate is larger or smaller than the actual variable overhead rate and how the difference affects profits. In particular, In the budget it was expected that VOH costs would be $0.59/DLH; the reality was $186,000/315,000 = $0.5905/DLH. Thus, the actual VOH rate was almost the same as the budgeted or planned rate. Hence, the variance (150 U) is negligible. ...
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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