Question

You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study.
On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information:
Standard Cost Card
Direct materials 2.00 pounds at $16.90 per pound $ 33.80
Direct labor 1.00 direct labor-hours at $15.50 per direct labor-hour $ 15.50
Variable manufacturing overhead 1.00 direct labor-hours at $9.50 per direct labor-hour $ 9.50
Variances Reported
Total Standard Cost* Price of Rate Quantity or Efficiency
Direct materials $ 574,600 $10,440 F $ 33,800 U
Direct labor $ 263,500 $ 3,600 U $ 15,500 U
Variable manufacturing overhead $ 161,500 $ 4,800 F $ ?+ U
*Applied to Work in Process during the period
+Entry obliterated
You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. Work in process inventories are insignificant and can be ignored.
It is now 8:30 a.m. The executive committee meeting starts in just one hour; you realize that to avoid looking like a bungling fool you must somehow generate the necessary "backup" data for the variances before the meeting begins. Without backup data, it will be impossible to lead the discussion or answer any questions.
Required:
1. How many units were produced last period?
2. How many pounds of direct material were purchased and used in production?
3. What was the actual cost per pound of material?
4. How many actual direct labor-hours were worked during the period?
5. What was the actual rate paid per direct labor-hour?

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follows:-

1. Standard Quantity for Actual Output is

= $574600 ÷ $16.90

= 34000 Pounds

Actual Output = $34000 ÷ 2 =  $17000

Unit Produced = 17,000 Units

2.Material Efficiency Variance is

= (Actual Quantity - Standard Quantity) × Standard Price

33,800 = (Actual Quantity - 34,000) ×$16.90

33800 ÷ $16.90 = Actual Quantity - $34,000

2000 =  Actual Quantity - 34,000

Actual Quantity = 34,000 + 2000

                         = 36,000 Pounds

3.Material Rate Variance is

= (Actual Price - Standard Price) × Actual Quantity

$10,440 = (Actual Price - $16.90) × 36,000

$10440 ÷ 36000 = Actual Price - $16.90

-0.29+$16.90 = Actual Price

Actual Price = $16.61

4. Labor Efficiency Variance is

=  (Actual Hour - Standard Hours) × Standard Rate

15500 = (Actual Hour - 263500 ÷ $15.50) × 15.50

15500 ÷ $15.50 = (Actual Hour - 17,000)

1000 + 17000 = Actual Hour

Actual Hour = 18,000

5. Labor Rate Variance is

= (Actual Rate - Standard Rate) × Actual Hours

$3600 = ( Actual Rate - $15.50) × 18000

$3600 ÷ 18000 = Actual Rate - $15.50

$0.2 + $15.50 = Actual Rate

Actual Rate = $15.70

We simply applied the above formulas