PROBLEMS-
1. Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows:
Indirect labor $5.00
Indirect materials 2.50
Maintenance .50
Utilities .30
Fixed overhead costs per month are:
Supervision $1,200
Insurance 400
Property taxes 600
Depreciation 1,800
The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2013, the company incurs the following manufacturing overhead costs:
Indirect labor $28,000
Indirect materials 16.200
Maintenance 2,800
Utilities 1,900
Supervision 1,440
Insurance 400
Property taxes 600
Depreciation 1,860
Instructions - Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August.
2. Lapp Manufacturing uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $400,000 to $480,000. Variable costs and their percentage relationships to sales are:
Sales commissions 6%
Advertising 4%
Traveling 5%
Delivery 1%
Fixed selling expenses consist of sales salaries $80,000 and depreciation on delivery equipment $20,000.
Instructions - Prepare a flexible budget for increments of $40,000 of sales within the relevant range.
3. Engines Done Right Co. is trying to establish the standard labor cost of a typical engine tune-up. The following data have been collected from time and motion studies conducted over the past month.
Actual time spent on the tune-up 1.0 hour
Hourly wage rate $16
Payroll taxes 10% of wage rate
Setup and downtime 10% of actual labor time
Cleanup and rest periods 20% of actual labor time
Fringe benefits 25% of wage rate
Instructions-
Determine the standard direct labor hours per tune-up
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per tune-up.
(d) If a tune-up took 1.5 hours at the standard hourly rate, what was the direct labor quantity variance?
4. Riggins, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each tybo for $8. At the start of monthly production, Riggins estimated 9,500 tybos would be produced in March. Riggins has established the following material and labor standards to produce one tybo:
Standard Quantity Standard Price
Direct materials 2.5 pounds $3 per pound
Direct labor 0.6 hours $10 per hour
During March 2013, the following activity was recorded by the company relating to the production of tybos:
1. The company produced 9,000 units during the month.
2. A total of 24,000 pounds of materials were purchased at a cost of $66,000.
3. A total of 24,000 pounds of materials were used in production.
4. 5,000 hours of labor were incurred during the month at a total wage cost of $55,000.
Instructions- Calculate the following variances for March for Riggins, Inc.
(a) Materials price variance
(b) Materials quantity variance
(c) Labor price variance
(d) Labor quantity variance.