Problem - Amber Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labour hours. The following data are taken from the company's budget for the current year.
|
Denominator activity
|
4,500 units
|
|
Variable manufacturing overhead (9,000 direct labour hours @53.80)
|
$34,200
|
|
Fixed manufacturing overhead cost
|
$63,000
|
|
Predetermined overhead rate ( 597,200+9,000 direct labour hours)
|
510.80
|
The standard cost card for the company's only product is given below:
|
Standard Quantity
or hours
|
Standard price
or rate
|
Standard cost
Per Unit
|
|
Direct materials
|
4 kilograms
|
$2.60 per kilogram
|
$10.40
|
|
Direct labour
|
2 direct labour hours
|
$9 per direct labour hour
|
18.00
|
|
Variable overhead
|
2 direct labour hours
|
$3.80 per direct labour hour
|
7.60
|
|
Fixed overhead
|
2 direct labour hours
|
57 per direct labour hour
|
14.00
|
|
Total standard cost
|
|
|
$50.00
|
During the year. the company produced 4.800 units of product and incurred the following costs:
|
|
Quantity
|
Amount
|
|
Direct materials purchased
|
30,000 kilograms
|
$75,000
|
|
Direct materials used
|
20,000 kilograms
|
|
|
Direct labor
|
10,000 hours
|
$86,000
|
|
Variable manufacturing overhead cost
|
|
$35,900
|
|
Fixed manufacturing overhead cost
|
|
$64,800
|
Required:
(a) Prepare an analysis of the variances for materials and labour for the year.
(b) Prepare an analysis of the variances for variable and fixed overhead for the year.
(c) Based on the results from your analysis above, comment on the cost control efficiency of the company.