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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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.