Acc505 Managerial Accounting: P11A-9 Kim Clark, president of Martell Company

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Acc505 Managerial Accounting
Problem 11A-9 Comprehensive Standard Cost Variances
“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,536,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.”
The company produces and sells a single product. The standard cost card for the product follows:
Standard cost card-per unit of product
Direct materials, 2 feet at $8.45 per foot 16.90
Direct labor, 1.4 direct labor hours at $16 per direct labor-hour 22.40
Variable overhead, 1.4 direct-labor hours at $2.50 per direct labor-hour 3.50
Fixed overhead, 1.4 direct labor-hours at $6 per direct labor hour 8.40
Standard cost per unit 51.20

The following additional information is available for the year just completed:
1. The company manufactured 30,000 units of product during the year.
2. A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.
3. The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 per hour.
4. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor-hours) 35,000
Budgeted fixed overhead costs (from the overhead flexible budget) 210,000
Actual variable overhead costs incurred 108,000
Actual fixed overhead costs incurred 211,800

Required:
1. Compute the direct materials price and quality variances for the year.
2. Compute the direct labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:
a. The variable overhead rate and efficiency variance for the year.
b. The fixed overhead budget and volume variance for the year.
4. Total the variances you have computed, and compare the net amount with the $ 18,300 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.
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