Question: Determining Unit Costs, Variance Analysis, and Interpretation Big Dog Company, a manufacturer of dog food, produces its product in 1,000-bag batches. The standard cost of each batch consists of 11,000 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 18 machine hours per batch. The following variable costs were incurred for the last 1,000-bag batch produced:
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Direct materials
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11,300 pounds costing $4,378 were purchased and used
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Direct labor
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45 hours costing $450
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Variable overhead
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$250
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Machine hours used
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20 hours
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(a) Determine the actual and standard variable costs per bag of dog food produced, separated into direct materials, direct labor, and variable overhead. Round your answers to 3 decimal places.
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Actual Cost
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Standard Cost
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Direct materials
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$Answer
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$Answer
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Direct labor
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Answer
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Answer
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Variable overhead
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Answer
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Answer
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Total variable costs per bag
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$Answer
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$Answer
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(b) For the last 1,000-bag batch, determine the standard cost variances for direct materials, direct labor, and variable overhead. Round your answers two decimal places.
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Materials price variance
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$Answer
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AnswerFU
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Materials quantity variance
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$Answer
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AnswerFU
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Labor rate variance
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$Answer
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AnswerFU
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Labor efficiency variance
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$Answer
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AnswerFU
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Variable overhead spending variance
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$Answer
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AnswerFU
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Variable overhead efficiency variance
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$Answer
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AnswerFU
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(c) Which of the following is the most likely explanation for an unfavorable labor rate variance and a favorable labor efficiency variance?
- Use of high efficiency equipment by undertrained employees.
- Use of low efficiency equipment by highly skilled employees.
- Use of poor quality materials resulting in overtime labor.
- Use of higher skilled employees and high efficiency equipment.