Problem 1: Peaceful Corporation manufactures figurines based on the following information.

Standard costs $20

Materials (4 ounces at $5) $8

Direct labor (1 hour per unit) $4

Variable overhead (based on direct labor hours)

Fixed overhead budget $19,000

Actual results and costs

Materials purchased

Units 9,000

Cost $39,600

Materials used in production

Finished product units 2,000

Raw material (ounces) 8,200

Direct labor hours 2,000

Direct labor cost $20,000

Variable overhead costs $5,980

Fixed overhead costs $19,500

Required:

a. Prepare a performance report for Peaceful using the following headings.

1. Actual Production Costs

2. Flexible Budget Costs

3. Flexible Budget Variances

b. Compute the following variances (show calculations).

1. Materials usage variance

2. Labor rate variance

3. Labor efficiency variance

4. Variable overhead spending variance

5. Variable overhead efficiency variance

6. Fixed overhead budget variance

c. Give one possible explanation for each of the six variances computed in part b.

Problem 2: The following is the current variable costing income statement for Dolly Corporation.

Sales (5,000 units) $100,000

Variable expenses Cost of goods sold $35,000

Selling (10% of sales) $10,000 $45,000

Contribution margin $55,000

Fixed expenses

Manufacturing overhead $24,000

Administrative $12,500 $36,500

Operating income $18,500

Below is the following information on operations for Dolly Corporation.

Beginning inventory (units) 0

Units produced (units) 6,000

Manufacturing costs

Direct labor (per unit) $5.00

Direct materials (per unit) $2.30

Variable overhead (per unit) $2.40

Required: Prepare an absorption costing income statement.