The Gibson Company has established standards as follows:

Direct material……………………. 3 pounds @ $4/pound - $12 per unit

Direct labor……………………….. 2 hours @ $8/hour - $16 per unit

Variable overhead………………... 2 hours @ $5/hour - $10 per unit

Actual production figures for the past year were as follows:

Units produced……………………………………… 500

Direct material used………………………………… 1,600 pounds

Direct material purchased (3,000 pounds)…………. $12,300

Direct labor cost (950 hours)………………………… $7,790

Variable overhead cost incurred……………………… $4,655

Required (be sure to indicate whether each variance is Favorable or Unfavorable):

a. What is the materials price variance?

b. What is the materials quantity variance?

c. What was the labor rate variance?

d. What was the labor efficiency variance?

e. What was the variable overhead rate variance?

f. What was the variable overhead efficiency variance?  

2. Pence Corporation keeps careful track of the time required to fill orders. The times required for a particular order appear below:

Hours Wait time………………….. 14.0

Process time……………….. 0.6

Inspection time……………. 0.3

Move time…………………. 2.1

Queue time………………… 8.4

Required: a. Compute the delivery cycle time .

b. Compute the throughput time.

c. Compute the manufacturing cycle efficiency (MCE).

d. What percentage of the production time is spent on non-value added activities?  

3. Linton Products is a division of a major corporation. The following data are for the last year of operations:

Sales……………………………………………………… $19,080,000

Net operating income……………………………………. $591,480

Average operating assets……………………………….... $6,000,000

The company’s minimum required rate of return………... 12%

Required: a. What is the division's margin?

b. What is the division's turnover?

c. What is the division's return on investment (ROI)?

d. What is the division's residual income?