Direct Labor and Variable Manufacturing Overhead Variances Assignments

ASSIGNMENTS MANAGERIAL ACCOUNTING Direct Labor and Variable Manufacturing Overhead Variances Special instructions: Use Microsoft Excel to complete the problem. Erie Company manufactures a mobile fitness device called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for Jogging Mate are as follows Standard Hours Standard Rate per Hour Standard Cost 18 minutes $17.00 $5.10 During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $102,350 for the month. Required: 1. 2. 3. 4. 5. What is the standard labor-hours allowed (SH) to make 20,000 Jogging Mates? What is the standard labor cost allowed (SH x SR) to make 20,000 Jogging Mates? What is the labor spending variance? What is the labor rate variance and the labor efficiency variance? The budgeted variable manufacturing overhead rate is $4 per direct labor-hour. During August, the company incurred $21,850 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. 1. The standard labor hours allowed (SH) to make 20,000 Jogging Mates is 6,000 hours. Standard labor Hours for actually produced =20,000× (18 minutes/60 minutes)=6,000 2. Standard Labor Cost = 6,000×$17= $102,000 3.Labor Spending Variance = Standard Cost - Actual Cost= $102,000 - $102,350= -$350 4. Labor Rate Variance = (Standard Rate - Actual Rate) Actual Hours Labor Rate Variance =[$17 - (102,350/5,750)]× 5,750 = (17 - 17.8) ×5,750 = -$4600 Labor Efficiency Variance = (Standard Hours - Actual Hours) Actual Rate (6,000 – 5,750) × $17.8 = $4,450 5.Actual Overhead Rate = $21,850 /5,750= $3.8 Overhead Efficiency Variance = (Standard Hours - Actual Hours) Standard Rate (6,000 – 5,750) × $4= $1,000 In conclusion, the standard labor hours allowed (SH) to makes 20,000 Jogging Mates is 6000 hours. Exercise 10-6 Direct Materials and Direct Labor Variances Special instructions: Complete the requirement for Exercise 9-5 on this document, below the requirements. Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Direct materials Direct labor Standard Quantity or Hours 4.6 pounds 0.2 hours Standard Price or Rate $2.50 per pound $18.00 per hour Standard Cost $11.50 $3.60 During the most recent month, the following activity was recorded: a. Twenty thousand pounds of material were purchased at a cost $2.35 per pound. b. All of the material purchased was used to produce 4,000 units of Zoom. c. 750 hours of direct labor time were recorded at a total labor cost of $14,925. Required: 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month. Materials Price Variance = (standard price -actual price) *actual quantity = (2.50-2.35) *20,000= 3000 F Materials Quantity Variance = (standard quantity at the actual output - actual quantity) * standard price = (4000*4.6 - 20,000) *2.50 = 4000 U Labor Rate Variance = (standard rate - actual rate) * actual hours = (18-14925/750) * 750= -1425 U Labor efficiency variance = (standard hours at the actual output - actual hours) * standard rate= (4000*0.2 - 750) *18= -900 F Materials Price Variance = (standard price-actual price) *actual quantity = (2.50-2.35) * 20,000= 3000 F Exercise 11-9 Return on Investment (ROI) and Residual Income Relations Special instructions: Complete the requirement for Exercise 11-9 by completing the table on this document. LO11-1 and LO11-2 on pages 511-513 will assist in completing this exercise. A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below. Company A Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return Percentage Dollar amount Residual income B C $9,000,000 $ ? $3,000,000 18% $7,000,000 $280,000 $ ? 14% $4,500,000 $ ? $1,800,000 ? 16% $ ? $ ? ? $320,000 $ ? 15% $ ? $90,000 A: Net operating Income = $3,000,000×18% = $54,000,000 Minimum required rate of return: Dollar amount = $3,000,000×16% = 48,000,000 Residual income = $54,000,000- 48,000,000 = $6,000,000 B: Average operating assets = $280,000 / 0.14 = $2,000,000 Minimum required rate of return: Percentage = $320,000 / 2,000,000 = 16% Residual income = $280,000 – 320,000 = - $40,000 C: Dollar amount of minimum req. return = $1,800,000×15% = $270,000 Net operating income = $270,000+ 90,000 = $360,000 Return on investments (ROI) = $360,000 / 1,800,000 = 20% Exercise 11-10 Cost-Volume-Profit Analysis and Return on Investment (ROI) Special instructions: Complete the requirement for Exercise 11-10 by completing the table on this document and then answering the question. Posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expense of $150,000 per year. With this level of operating assets and fixed expenses, the company support sales of up to $3,000,000 per year. The company’s contribution margin ratio is 25%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 25 cents. Required: 1. Complete the following table showing the relation between sales and return on investment (ROI) Sales $2,500,00 0 $2,600,00 0 $2,700,00 0 $2,800,00 0 $2,900,00 0 $3,000,00 0 Net Operating Income Average Operating Assets ROI $475,000 $1,000,000 0.475 $500,000 $1,000,000 0.5 $525,000 $1,000,000 0.525 $550,000 $1,000,000 0.55 $575,000 $1,000,000 0.575 $600,000 $1,000,000 0.6 *Net operating income: Sales ×25% - $150,000 * ROI = Net Operating Income ÷ Average Operating Income 2. What happens to the company’s return on investment (ROI) as sales increase? Explain. As evident in the table, the return on investment increases as the sales increase. This is expected since the average operating assets and fixed expenses return the same while the net operating income is growing 25 cents per Sales dollar.