Homework SourseVitalAid Inc manufactures a vacuumsealed highprotein food su
VitalAid Inc. manufactures a vacuum-sealed high-protein food supplement that it sells to food aid organizations around the world. The company uses variable costing in conjunction with a standard costing system and has established the following standards for one package of VitalAid bars:
d
During October, the company recorded the following activity relative to production of VitalAid:
The company produced 4,000 packages during October.
A total of 1,800 kilograms of material was purchased at a cost of $19,800.
There was no beginning inventory of materials; however, at the end of the month, 300 kilograms of material remained in ending inventory.
The company employs 5 people to work on the production of VitalAid. During October, each employee worked an average of 185 hours at an average rate of $14.00 per hour.
Variable manufacturing overhead is assigned to VitalAid on the basis of direct labour-hours. Variable manufacturing overhead costs during October totalled $1,850.
The company’s management is anxious to determine the efficiency of the VitalAid production activities.
Required:
Compute the price and quantity variances for direct materials used in the production of VitalAid.
The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract? Explain.
Compute the rate and efficiency variances for labour employed in the production of VitalAid.
In the past, the 5 people employed in the production of VitalAid consisted of 3 senior workers and 2 assistants. During October, the company experimented with 4 senior workers and 1 assistant. Would you recommend that the new labour mix be continued? Explain.
Standard Quantity or Hours Standard Standard Price or Rate Cost $1200 per kg $13.00 per hour 160 per hour Direct materials.... 025 hours 05 hours $325 $080 $8.25Solution
Answers
Actual DATA for
4000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
1500 [1800kg – 300kg]
$ 11.00 [19800/1800]
$ 16,500.00
Direct labor
925 [5 ppl x 185 hours]
$ 14.00
$ 12,950.00
Variable Overhead
1850 [ 925 hours x 200%]
$ 1.00
$ 1,850.00
Standard DATA for
4000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
1400 [4000 units x 0.35kgs]
$ 12.00
$ 16,800.00
Direct labor
1000 [4000 units x 0.25 hours]
$ 13.00
$ 13,000.00
Variable Overhead
2000 [4000 units x 0.5 hours or 1000 hours x 200%]
$ 1.60
$ 3,200.00
Material Price Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Quantity
(
$ 12.00
-
$ 11.00
)
x
1500
1500
Variance
$ 1,500.00
Favourable-F
Material Quantity Variance
(
Standard Quantity
-
Actual Quantity
)
x
Standard Rate
(
1400
-
1500
)
x
$ 12.00
-1200
Variance
$ 1,200.00
Unfavourable-U
Yes, The new supplier should be recommended because price offered by him ‘per kg’ is LESS than the standard price.
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 13.00
-
$ 14.00
)
x
925
-925
Variance
$ 925.00
Unfavourable-U
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
1000
-
925
)
x
$ 13.00
975
Variance
$ 975.00
Favourable-F
Yes, the new labor mix is recommended because it has led to higher efficiency (as visible from Efficiency variance above).
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 1.60
-
$ 1.00
)
x
1850
1110
Variance
$ 1,110.00
Favourable-F
Variable Overhead Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
2000
-
1850
)
x
$ 1.60
240
Variance
$ 240.00
Favourable-F
| Actual DATA for | 4000 | units | |
| Quantity (AQ) | Rate (AR) | Actual Cost | |
| Direct Material | 1500 [1800kg – 300kg] | $ 11.00 [19800/1800] | $ 16,500.00 |
| Direct labor | 925 [5 ppl x 185 hours] | $ 14.00 | $ 12,950.00 |
| Variable Overhead | 1850 [ 925 hours x 200%] | $ 1.00 | $ 1,850.00 |
| Standard DATA for | 4000 | units | |
| Quantity (SQ) | Rate (SR) | Standard Cost | |
| Direct Material | 1400 [4000 units x 0.35kgs] | $ 12.00 | $ 16,800.00 |
| Direct labor | 1000 [4000 units x 0.25 hours] | $ 13.00 | $ 13,000.00 |
| Variable Overhead | 2000 [4000 units x 0.5 hours or 1000 hours x 200%] | $ 1.60 | $ 3,200.00 |
