# 1 total standard production costs are based on 7600

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Chapter 6 / Exercise 1
Supply Chain Management: A Logistics Perspective
Coyle/Langley
Expert Verified
1. Total standard production costs are based on 7,600 units of output. Direct materials, 7,600 \$20.00 7,600 5 lbs. \$4.00 (or 38,000 lbs. \$4.00) \$ 152,000 Direct manufacturing labor, 7,600 \$64.00 7,600 4 hrs. \$16.00 (or 30,400 hrs. \$16.00) 486,400 Manufacturing overhead: Variable, 7,600 \$32.00 (or 30,400 hrs. \$8.00) 243,200 Fixed, 7,600 \$36.00 (or 30,400 hrs. \$9.00) 273,600 Total \$1,155,200 The following is for later use: Fixed manufacturing overhead, a lump-sum budget \$333,000 * * Fixed manufacturing overhead rate = \$9.00 = Budget/37,000 hours Budget = 37,000 hours \$9.00 = \$333 000 2. Solution Exhibit 8-39 presents a columnar presentation of the variances. An overview of the 3-variance analysis using the block format of the text is: 3-Variance Analysis Spending Variance Efficiency Variance Production Volume Variance Total Manufacturing Overhead \$65,800 U \$8,000 U \$59,400 U 8-61
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Chapter 6 / Exercise 1
Supply Chain Management: A Logistics Perspective
Coyle/Langley
Expert Verified
SOLUTION EXHIBIT 8-39 Actual Costs Incurred: Actual Input Qty. Actual Input Qty. Budgeted Price Flexible Budget: Budgeted Input Qty. Allowed for Actual Output × Actual Rate Purchases Usage × Budgeted Price Direct Materials (40,300 \$3.80) \$153,140 (40,300 \$4.00) \$161,200 (37,300 \$4.00) \$149,200 (38,000 \$4.00) \$152,000 \$8,060 F \$2,800 F a. Price variance b. Efficiency variance Direct Manuf. Labor (31,400 \$16.25) \$510,250 (31,400 \$16.00) \$502,400 (30,400 \$16.00) \$486,400 \$7,850 U \$16,000 U c. Price variance d. Efficiency variance Actual Costs Incurred Actual Input Qty. Budgeted Rate Flexible Budget: Budgeted Input Qty. Allowed for Actual Output Budgeted Rate Allocated: (Budgeted Input Qty. Allowed for Actual Output Budgeted Rate) Variable Manuf. Overhead (not given) (31,400 \$8.00) \$251,200 (30,400 \$8.00) \$243,200 (30,400 \$8.00) \$243,200 \$8,000 U Efficiency variance Never a variance Fixed Manuf. Overhead (not given) \$333,000 \$333,000 (30,400 \$9.00) \$273,600 \$59,400 U * Never a variance Prodn. volume variance Total Manuf. Overhead (given) \$650,000 (\$333,000 + \$251,200) \$584,200 (\$243,200 + \$333,000) \$576,200 (\$234,200 + \$273,600) \$507,800 \$65,800 U \$8,000 U \$59,400 U e. Spending variance f. Efficiency variance g. Prodn. volume variance * Denominator level in hours 37,000 Production volume in standard hours allowed 30,400 Production-volume variance 6,600 hours × \$9.00 = \$59,400 U 8-62
8-40 (20 minutes) Non-financial variances. Max Canine Products produces high-quality dog food distributed only through veterinary offices. To ensure that the food is of the highest quality and has taste appeal, Max Canine has a rigorous inspection process. For quality control purposes, Max Canine has a standard based on the pounds of food inspected per hour and the number of pounds that pass or fail the inspection. Max Canine expects that for every 13,000 pounds of food produced, 1,300 pounds of food will be inspected. Inspection of 1,300 pounds of dog food should take 1 hour. Max Canine also expects that 5% of the food inspected will fail the inspection. During the month of May, Supreme produced 2,990,000 pounds of food and inspected 292,500 pounds of food in 200 hours. Of the 292,500 pounds of food inspected, 15,625 pounds of food failed to pass the inspection. Required: 1. Compute two variances that help determine whether the time spent on inspections was more or less than expected. (Follow a format similar to the one used for the variable overhead spending and efficiency variances, but without prices.) 2. Compute two variances that can be used to evaluate the percentage of the food that fails the inspection.