Unit 7-Luxury Bird Homes Inc. manufactures a number

Unit 7 Exercise

Question 1:

Luxury Bird Homes Inc. manufactures a number of bird feeders for general household and backyard use. One of these products, a rustic bird feeder, requires an expensive hardwood. During a recent month, the company manufactured 9,000 rustic bird feeders using 6,200 meters of hardwood. The hardwood cost the company $23,560. The company’s standards for one rustic bird feeder are 0.6 meters of hardwood, at a cost of $4.05 per meter.

Required:

1. What cost for wood should have been incurred to make 9,000 rustic bird feeders? How much greater or less is this than the cost that was incurred?

2. Break down the difference computed in (1) above into a materials price variance and a materials quantity variance.

Question 2:

Delicious Delicacies Ltd. provides in-flight meals for a number of major airlines. One of the company’s products is stuffed cannelloni with roasted pepper sauce, fresh baby corn, and spring salad. During the most recent week, the company prepared 6,000 of these meals, using 1,150 direct labor-hours. The company paid these direct labor workers a total of $11,500 for this work, or $10 per hour.

According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $9.50 per hour.

Required:

1. What direct labor cost should have been incurred to prepare 6,000 meals? How much does this differ from the actual direct labor cost?

2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance.

Question 3:

Global Support Company provides customer help centre services for online merchants. The company maintains catalogues and service manuals for stock items carried by its online retail clients. When a client receives a product inquiry or service request from a customer, the request is forwarded to Global Support, which responds to the customer inquiry on behalf of the online retail client. The company uses a predetermined variable overhead rate based on direct labour-hours.

In the most recent month, 35,000 inquiry requests were responded to and solutions provided to customers, using 5,700 direct labour-hours. The company incurred a total of $7,125 in variable overhead costs.

According to the company’s standards, 0.15 direct labour-hours are required to fulfill a service request for one customer and the variable overhead rate is $1.30 per direct labour-hour.

Required:

1. What variable overhead cost should have been incurred to fill the service requests for the 35,000 items? How much does this differ from the actual variable overhead cost?

2. Break down the difference computed in (1) above into a variable overhead spending variance and a variable overhead efficiency variance.

Question 4:

Light Saber Corp uses a standard cost system that applies overhead to products based on the standard direct labour-hours allowed for the actual output of the period. Data concerning the most recent year appear below:

Required:

1. Compute the fixed portion of the predetermined overhead rate for the year.

2. Compute the fixed overhead budget and volume variances.

Question 5:

Diane Copa, VP of U-turn Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the $12,250 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows:

The following additional information is available for the year just completed:

a. The company manufactured 20,000 units of product during the year.

b. A total of 78,000 metres of material was purchased during the year at a cost of $3.75 per metre. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year.

c. The company worked 32,500 direct labour-hours during the year at a cost of $11.80 per hour.

d. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow:

Required:

1. Compute the direct materials price and quantity variances for the year.

2. Compute the direct labour rate and efficiency variances for the year.

3. For manufacturing overhead, compute the following:

a. The variable overhead spending and efficiency variances for the year.

b. The fixed overhead budget and volume variances for the year.

4. Do you think that everyone should be congratulated for a job well done? Explain.