70.2K

Verified Solution

Link Copied!

Problem 8-188 Comprehensive Variance Analysis (L08-4, LOS-S. LOS 6] Michiana Company's Benton Harbor Plant produces precastingots for industrial use. Angelo Lorenzo, who was recently appointed general manager of the Benton Harbor Plant, has just been handed the plant's contribution format income statement for October. The statement is shown below. Budgeted Achial Sales (8.000 ingots) $200,000 $200,000 Variable expenses: Variable cost of goods sold" Variable selling expenses 1.000 112.470 10,000 10,000 Total variable expenses 104.000 122.470 Contribution margin 136.000 117.530 55.000 Fored expenses Manufacturing overhead Soling and administrative 55,000 70.000 70,000 Totalfixed expenses 125.000 125,000 Net operating income 11.000 (ATO) loss) *Contains direct materials, direct labor, and variable manufacturing overhead Mr. Lorenzo was shocked to see the loss for the month particularly because sales were exactly as budgeted. He stated. Tsure hope the plant has a standard cost system in operation. If it doesn't I won't have the slightest idea of where to start looking for the problem." The plant does use a standard cost system, with the following standard variable cost per ingot Standard Quantity or Standard Price Standard Hours or Rate Cost Direct materials 3.5 pounds 2.50 per pound $8.75 Direct labor 0.4 hours $6.50 per hour 2.50 Variable manufacturing overhead 0.2 hours 52.00 per hour 0.40 Total standard variable con $11.75 Based on machine-hours. During October the plant produced 8,000 ingots and incurred the following costs a.Purchased 33,000 pounds of materials at a cost of $2.95 per pound. There were no raw materials in inventory at the beginning of the month b.Used 27.800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3.800 direct labor-hours at a cost of $6.20 per hour d.incurred a total variable manufacturing overhead cost of $4.560 for the month: A total of 1,900 machinebours was recorded 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October (Input all amounts as positive values. Indicate the effect of variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance.)) Net variance 3. Pick out the two most significant variances that you computed in (1) above. (Select all that apply.) Materials price variance Materials quantity variance Variable overhead efficiency variance Labor rate variance Variable overhead rate varianco Labor efficiency variance DODO

Answer & Explanation Solved by verified expert

See Answer