Question

Big Dog Company, a manufacturer of dog food, produces its product in 1,000-bag batches. The standard cost of each batch consists of 9,000 pounds of direct materials at $0.40 per pound, 48 direct labor hours at $8.50 per hour, and variable overhead cost (based on machine hours) at the rate of $10 per hour with 16 machine hours per batch. The following variable costs were incurred for the last 1,000-bag batch produced: Direct materials 9,300 pounds costing $3,578 were purchased and used Direct labor 45 hours costing $450 Variable overhead $225 Machine hours used 18 hoursa. Determine the actual and standard variable costs per bag of dog food produced, separated into direct materials, direct labor, and variable overhead.

b. For the last 1,000-bag batch, determine the standard cost variances for direct materials, direct labor, and variable overhead.
c. Explain the possible causes for each of the variances determined in requirement (b).

Answer 1

A)

standard :direct material :9000/1000=9 pound per bad*.40=3.6

DL :48/1000=.048 *8.5=.408

voh: 16/1000=.016*10=.16

Actual Standard

DM 3578/1000=3.578 3.6

DL 450/1000=.45 .408

VOH 225/1000=.225 .16

Total variable cost per bag $4.253 4.168

b)

Materials price variance =actual cost-[AQ*SR]

=3578-[9300*.40]

= 3578- 3720

= -142 F

Quantity variance =SR[AQ-SQ]

= .40[9300-9000]

= 120 U

Labor rate variance = Actual cost-[ah*sR]

= 450-[45*8.5]

= 450-382.5

=67.5 U

Labor efficiency variance =SR[AH-SH]

= 8.5[45-48]

= -25.5 F

Variable overhead rate variance = actual cost- [AH*SR]

= 225-[18-10]

= 225-180

= 45 U

VO efficiency variance =SR[AH-SH]

= 10[18-16]

= 20 U

c)

A-Use of higher skilled employees and high efficiency equipment.

Engagement of skilled labor requires high payment resulting unfavorable variance and with the use of high efficiency equipment ,labor time is reduced resulting favorable variance.