Final Fa2009 Solution

The unit cost is computed as follows direct materials

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Unformatted text preview: static budget volume of 50,000 paperweights per month. The unit cost is computed as follows. Direct Materials Direct Labor Manufacturing Overhead Variable Fixed Total cost per paperweight (2 pounds @ $0.25 per pound) (5 minutes @ $0.30 per minute) $0.50 1.50 (5 minutes @ $0.18 per minute) (5 minutes @ $0.25 per minute) 0.90 1.25 $4.15 Actual results for May included the following. • Actual production and sales................................ 52,500 • Actual direct materials purchases and usage .... $23,100 • Actual direct labor usage ................................ $126,000 • Actual overhead cost ...................................... $110,250 paperweights (115,500 pounds at $0.20 per pound) (315,000 minutes at $0.40 per minute) ($47,250 variable and $63,000 fixed) 14. Compute the direct labor price variance. Price variance measures the change in profit caused by a change in input price. ($0.40 - $0.30) * 315,000 minutes actually purchased = $31,500 Unfavorable 15. Compute the direct labor efficiency variance. Efficiency variance measures the change in profit caused by a change in the efficiency with which inputs are turned into outputs. Five minutes of labor should be used in each paperweight. So, for 52,500 paperweights, 5*52,500 = 262,500 minutes should have been used. However, 315,000 minutes were actually used. So, the variance is (262,500 – 315,000 minutes) * $0.30/minute = $15,750 Unfavorable 16. Assume that Alon computed the following variances Direct Materials Price Variance $5,000 Favorable Direct Materials Efficiency Variance $12,000 Unfavorable Direct Labor Price Variance $4,000 Favorable Direct Labor Efficiency Variance $11,000 Unfavorable What is the most likely explanation for this pattern of variances? Write your answer in 8 words or less. Purchased poor quality materials and labor [Poor quality materials cost less (a favorable DM price variance), have more waste (an unfavorable DM efficiency variance, and are harder to work with (an unfavorable DL efficiency variance). Poor quality labor costs less (a favorable labor price variance) and is less competent at turning in...
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.

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