PROBLEMS-

1. Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows:

Indirect labor                   $5.00

Indirect materials             2.50

Maintenance                     .50

Utilities                            .30

Fixed overhead costs per month are:    

Supervision                       $1,200

Insurance                         400

Property taxes                   600

Depreciation                      1,800

The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2013, the company incurs the following manufacturing overhead costs:

Indirect labor                   $28,000

Indirect materials             16.200

Maintenance                     2,800

Utilities                             1,900

Supervision                       1,440

Insurance                          400

Property taxes                   600

Depreciation                      1,860

Instructions - Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August.

2. Lapp Manufacturing uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $400,000 to $480,000. Variable costs and their percentage relationships to sales are:

Sales commissions           6%

Advertising                      4%

Traveling                         5%

Delivery                          1%

Fixed selling expenses consist of sales salaries $80,000 and depreciation on delivery equipment $20,000.

Instructions - Prepare a flexible budget for increments of $40,000 of sales within the relevant range.

 3. Engines Done Right Co. is trying to establish the standard labor cost of a typical engine tune-up. The following data have been collected from time and motion studies conducted over the past month.

Actual time spent on the tune-up           1.0 hour

Hourly wage rate                                 $16

Payroll taxes                                       10% of wage rate

Setup and downtime                            10% of actual labor time               

Cleanup and rest periods                     20% of actual labor time

Fringe benefits                                    25% of wage rate

Instructions-

Determine the standard direct labor hours per tune-up

(b) Determine the standard direct labor hourly rate.

(c) Determine the standard direct labor cost per tune-up.

(d) If a tune-up took 1.5 hours at the standard hourly rate, what was the direct labor quantity variance?

4. Riggins, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each tybo for $8. At the start of monthly production, Riggins estimated 9,500 tybos would be produced in March. Riggins has established the following material and labor standards to produce one tybo:

                                              Standard Quantity           Standard Price

Direct materials                           2.5 pounds                   $3 per pound

Direct labor                                 0.6 hours                     $10 per hour

During March 2013, the following activity was recorded by the company relating to the production of tybos:

1. The company produced 9,000 units during the month.

2. A total of 24,000 pounds of materials were purchased at a cost of $66,000.

3. A total of 24,000 pounds of materials were used in production.

4. 5,000 hours of labor were incurred during the month at a total wage cost of $55,000.

Instructions- Calculate the following variances for March for Riggins, Inc.

(a) Materials price variance

(b) Materials quantity variance

(c) Labor price variance

(d) Labor quantity variance.