LO.3 (DM variances) In November 2008, Day Time Publishing Company’s costs and quantities of paper consumed in manufacturing its 2009 Executive Planner and Calendar were as follow:
Actual unit purchase price $0.065 per page
Standard unit price $0.070 per page
Standard quantity for good production 195,800 pages
Actual quantity purchased during November 230,000 pages
Actual quantity used in November 200,000 pages
a. Calculate the total cost of purchases for November.
b. Compute the material price variance (based on quantity purchased).
c. Calculate the material quantity variance.
LO.3 (OH variances) Joy Ride Corp. has a fully automated production facility in which almost 97 percent of overhead costs are driven by machine hours. As the company’s cost accountant, you have computed the following overhead variances for May:
Variable overhead spending variance $17,000F
Variable overhead efficiency variance 20,000F
Fixed overhead spending variance 14,000U
Fixed overhead volume variance 10,000U
The company’s president is concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions. Budgeted fixed overhead for the month is $500,000; the predetermined variable and fixed overhead rates are, respectively, $10 and $20 per machine hour. Budgeted capacity is 10,000 unites.
a. Using the four-variance approach, prepare an overhead analysis in as much detail as possible.
b. What is the standard number of machine hours allowed for each unit of output?
c. How many actual hours were worked in May?
d. What is the total spending variance?
e. What additional information about the manufacturing overhead variances is gained by inserting detailed computations into the variable and fixed manufacturing overhead variance analysis?
f. How would the overhead variances be closed it the three-variance approach were used?
LO.3 (Allocating joint cost) In one joint process, Hardahl Chemical produces three joint products and one by-product. The following information is available for September 2008:
Sales Value at Cost after Final Selling
Products Gallons Split-Off per Gallon Split-Off Price
JP-4539 4,000 $12 $3 $21
JP-4587 16,000 8 5 14
JP-4591 12,000 15 2 19
Allocate the joint cost of $465,000 to the production based on the
a. number of gallons;
b. sales value at split-off; and
c. approximate net realizable value at split-off.
(Round all percentages to the nearest whole percentage)
LO.3 (Processing beyond split-off) Washington Cannery makes three products from a single joint process. For 2008, the cannery processed all three products beyond split-off. The following data were generated for the year:
Joint Product Incremental Separate Cost Total Revenue
Candied apples $26,000 $620,000
Apple jelly 38,000 740,000
Apple jam 15,000 270,000
Analysis of 2008 market data reveals that candid apples, apple jelly, and apple jam could have been sold at split-off for $642,000, $706,000, and $253,000, respectively.
a. Based on hindsight, evaluate management’s production decisions in 2008.
b. How much additional profit could the company have generated in 2008 if it had made optimal decisions at split off?
LO.4 (By-product accounting method selection) Your employer engages in numerous joint processes that produce significant quantities and type of by-product. You have been asked to give a report to management on the best way to account for by-product. Develop a set of criteria for making such a choice and provide reasons for each criterion selected. On the basis of your criteria, along with any additional assumptions you wish to provide about the nature of the company you work for, recommended a particular method of accounting for by-product and explain why you consider it to be better than the alternatives.
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