Problem 2
The Plastics Remolding Company manufactures containers. A strategically
located plant involved in this type of manufacturing was acquired. To help
ensure cost efficiency, the company adopted a standard costing system
using the following variable inputs:
Standard quantity
Standard price
Standard cost
Direct materials
12 lbs.
$4.00
$48.00
Direct labor
1.7 hours
12.00
20.00
Variable overhead
1.7 hours
3.50
6.00
Total
$74.00
Fixed manufacturing overhead was allocated on direct labor hours and
budgeted at the practical manufacturing capacity of 8,000 units. The fixed
costs were therefore budgeted at $54,400
During the first week of January, the company had the following actual
results:
Units produced
7,000 units
Actual labor costs
$154,700
Actual labor hours
11,900
Materials purchased and used
69,000 @ $3.75 per
lb.
Actual variable overhead costs
$39,750
Actual fixed overhead costs
$
53,000
Required: Prepare (a) the materials price and efficiency variances (b) the
labor rate and efficiency variances (c) the variable overhead spending and
efficiency variances (d) the fixed overhead spending and production
volume variances.
