Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Managerial Accounting Expert

problem: Overhead is applied on the basis of direct labor hours. Three direct labor hours are required for each product unit.  Planned production for the period was set at 8,000 units.  Manufacturing overhead for the period is budgeted at $204,000, of which 30 percent is fixed.  The 26,200 hours worked during the period resulted in production of 8,500 units.  Manufacturing overhead cost incurred was $220,500.

Required: find out the following three overhead variances.

a) Overhead volume variance.
b) Overhead efficiency variance.
c) Overhead spending variance.

problem: Maidwell Company manufactures washers and dryers on a single assembly line in its main factory. The market has deteriorated over the last five years and competition has made cost control very important.  Management has been concerned about the materials costs of both washers and dryers.  There have been no model changes in the past two years, and economic conditions have allowed the company to negotiate price reductions for many key parts.

Maidwell uses a standard cost system in accounting for materials. Purchases are charged to inventory at a standard price, and purchase discounts are considered an administrative cost reduction. Production is charged at the standard price of the materials used.  Thus, the price variance is isolated at time of purchase as the difference between gross contract price and standard price multiplied by the quantity purchased.  When a substitute part is used in production, a price variance equal to the difference in the standard prices of the materials is recognized at the time of substitution. The quantity variance is the actual quantity used compared with the standard quantity allowed, with the difference multiplied by the standard price.

The materials variances for several of the parts Maidwell uses are unfavorable. Part #4121 is one item that has an unfavorable variance. Maidwell knows that some of these parts are defective and will fail.  The failure is discovered during production. The normal defective rate is 5 percent of normal input.  The original contract price of this part was $0.285 per unit; thus, Maidwell set the standard unit price at $0.285.  The unit contract purchase price of Part #4121 was increased to $0.325 from the original $0.285 due to a parts specification change. Maidwell chose not to change the standard; it treated the increase in price as a price variance. In addition, the contract terms were changed from payment due in 30 days to a 4 percent discount if paid in 10 days or full payment due in 30 days. These new contractual terms were the consequence of negotiations resulting from changes in the economy.
Data regarding the use of Part #4121 during December are as follows.

• Purchases of Part #4121: 150,000 units
• Unit price paid for purchases of Part #4121: $0.325
• Requisitions of Part #4121 from stores for use in products: 134,000 units
• Substitution of Part #5125 for Part #4121 to use obsolete stock (standard unit price of Part #5125 is $0.35): 24,000 units
• Units of Part #4121 and its substitute (Part #5125) identified as defective: 9,665 units
• Standard allowed usage (including normal defective units) of Part #4121 and its substitute based on output for the month: 153,300 units

Maidwell's material variances related to Part #4121 for December were reported as follows:

Price variance                        $7,560.00U
Quantity variance                  1,339.50U
Total materials variances for Part #4121    $8,899.50U

Bob Speck, the purchasing director, claims the unfavorable price variance is misleading. Speck says that his department has worked hard to obtain price concessions and purchase discounts from suppliers. In addition, Speck says engineering changes in several parts have increased their prices, even though the part identification has not changed. These price increases are not his department's responsibility.  Speck declares that price variances no longer measure purchasing performance.

Jim Buddle, the manufacturing manager, thinks the responsibility for the quantity variance should be shared. Buddle states that manufacturing cannot control quality associated with less expensive parts, substitutions of material to use up otherwise obsolete stock, or engineering changes that increase the quantity of materials used.

The accounting manager, Mike Kohl, suggests that the computation of variances be changed to identify variations from standard with the causes and functional areas responsible for the variances. Kohl recommends the following system of materials variances and the method of computation for each:

2175_variance and method of calculation.jpg

Required:

a) Discuss the appropriateness of Maidwell Company's current method of variance analysis for materials and indicate whether the claims of Bob Speck and Jim Buddle are valid.

b) Compute the materials variances for Part #4121 for December using the system recommended by Mike Kohl.

c) Who would be responsible for each of the variances in Mike Kohl's system of variance analysis for materials?

Managerial Accounting, Accounting

  • Category:- Managerial Accounting
  • Reference No.:- M9169

Have any Question? 


Related Questions in Managerial Accounting

Managerial accounting excel project- predetermined oh rate

Managerial Accounting: Excel Project- Predetermined OH Rate, Departmental OH Rates, and Activity Based Rates Ramsey Company produces speakers (Model A and Model B). Ramsey's controller, Mr. Jacks, is evaluating the diffe ...

Financial study of oakland county reportstudy the section

Financial Study of Oakland County report Study the section "Evaluating Performance" in Essentials of Accounting for Governmental and Not-for-Profit Organizations, 12th edition, Chapter 13, pages 407-411. Using the 2014 C ...

Ipe mba assignment question for managerial

IPE MBA Assignment Question for Managerial Accounting Question: Triton Corporation is a manufacturing company located in a country that has experienced rapid economic growth from the late 1990s to the early 2000s and the ...

Management accounting assignmentaccording to your text 2012

Management Accounting Assignment According to your text (2012 edition), "there are many opportunities for management accountants to apply their skills and knowledge in supporting managers as they respond to the business ...

Problem multiple-product analysis changes in sales mix

Problem : Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the com ...

A during february 185500 was paid to creditors on account

a) During February, $185,500 was paid to creditors on account, and purchases on account were $202,750. Assuming the February 28 balance of Accounts Payable was $58,430, determine the account balance on February 1. b) On ...

The following selected transactions were completed during

The following selected transactions were completed during August of the current year: Aug. 1 Billed customers for fees earned, $74,140. 4 Purchased supplies on account, $2,150. 8 Received cash from customers on account, ...

Perform an internet search using the term activity based

Perform an Internet search using the term, "activity based costing customer success stories," and locate an article (less than one year old) from the results of your search. (Make sure that you do not select an instructo ...

Question 1 suppose you have recently been contracted as a

Question 1: Suppose you have recently been contracted as a financial consultant to a London-based engineering company, Alpha Products Plc. The company uses three components as part of their production process, namely, A, ...

Management accountingyou will need to satisfy the criteria

Management Accounting you will need to satisfy the criteria exactly as laid down in the Assignment Brief and as described here, but you should, wherever possible, use examples of information, budgets, costs, accounts, re ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate