The following actual results are for august the

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Supply Chain Management: A Logistics Perspective
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Chapter 6 / Exercise 1
Supply Chain Management: A Logistics Perspective
Coyle/Langley
Expert Verified
The following actual results are for August:The standard cost per pound of direct materials is $11.50. The standard allowance is 6 pounds ofdirect materials for each unit of product. During August, 20,000 units of product were produced.There was no beginning inventory of direct materials. There was no beginning or ending work inprocess. In August, the direct materials price variance was $1.10 per pound.In July, labor unrest caused a major slowdown in the pace of production, resulting in anunfavorable direct manufacturing labor efficiency variance of $40,000. There was no directmanufacturing labor price variance. Labor unrest persisted into August. Some workers quit. Theirreplacements had to be hired at higher wage rates, which had to be extended to all workers. Theactual average wage rate in August exceeded the standard average wage rate by $0.50 per hour.Required:1.Compute the following for August:a.Total pounds of direct materials purchasedb.Total number of pounds of excess direct materials usedc.Variable manufacturing overhead spending varianced.Total number of actual direct manufacturing labor-hours usede.Total number of standard direct manufacturing labor-hours allowed for the units producedf.Production-volume variance2.Describe how Gallo’s control of variable manufacturing overhead items differs from itscontrol of fixed manufacturing overhead items.8-1
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Supply Chain Management: A Logistics Perspective
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Chapter 6 / Exercise 1
Supply Chain Management: A Logistics Perspective
Coyle/Langley
Expert Verified
SOLUTION1.Solution Exhibit 8-38 outlines the Chapter 7 and 8 framework underlying this solution.a.Pounds of direct materials purchased = $179,300 ÷ $1.10 = 163,000 poundsb.Pounds of excess direct materials used = $75,900 ÷ $11.50 = 6,600 poundsc.Variable manufacturing overhead spending variance = $10,400 – $18,100 = $7,700 Fd.Standard direct manufacturing labor rate= $1,250,000 ÷ 50,000 hours = $25 per hourActual direct manufacturing labor rate= $25 + $0.50 = $25.50Actual direct manufacturing labor-hours= $535,500 ÷ $25.50= 21,000 hourse.Standard variable manufacturing overhead rate= $500,000 ÷ 50,000= $10 per direct manuf. labor-hourVariable manuf. overhead efficiency variance of $18,100 ÷ $10 = 1,810 excess hoursActual hours – Excess hours = Standard hours allowed for units produced21,000 – 1,810 = 19,190 hoursf.Budgeted fixed manufacturing overhead rate= $1,000,000 ÷ 50,000 hours= $20 per direct manuf. labor-hourFixed manufacturing overhead allocated = $20 19,190 hours = $383,800Production-volume variance = $1,000,000 – $383,800 = $616,200 U2.The control of variable manufacturing overhead requires the identification of the cost driversfor such items as energy, supplies, and repairs. Control often entails monitoring nonfinancialmeasures that affect each cost item, one by one. Examples are kilowatts used, quantities oflubricants used, and repair parts and hours used. The most convincing way to discover whyoverhead performance did not agree with a budget is to investigate possible causes, line item byline item.Individual fixed overhead items are not usually affected very much by day-to-day control.

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