The Managerial Accountant At Sailboat World Compiles A Repor

The managerial accountant at Sailboat World compiles a mon

The assignment involves three questions related to managerial accounting: one on calculating fixed overhead variances, another on determining standard material quantity for manufacturing a helmet, and the third on computing the standard direct labor cost based on variances. These questions require understanding of overhead variance analysis, standard costing, and variance analysis in direct labor costs. The goal is to perform accurate calculations and explain the relevant concepts to demonstrate comprehension of managerial accounting principles.

Paper For Above instruction

Managerial accounting plays a critical role in internal decision-making within organizations, providing managers with relevant financial information for planning, controlling, and evaluating operational performance. One essential aspect of managerial accounting is variance analysis, which involves comparing actual costs to budgeted or standard costs to identify areas of efficiency or inefficiency. This paper addresses three specific managerial accounting problems: calculating fixed overhead volume and budget variances, determining the standard quantity of materials required in helmet manufacturing, and computing the standard direct labor cost based on variances. Each problem illustrates fundamental principles of cost control and variance analysis.

Fixed Overhead Variance Analysis at Sailboat World

The first problem involves analyzing fixed overhead variances at Sailboat World. The company produced 30,584 sailboats, each requiring 0.28 machine hours during the month. The budgeted fixed overhead cost was $95,000, while the actual fixed overhead incurred was $96,400. The standard fixed overhead cost rate is given as $11 per machine-hour.

To find the standard fixed overhead cost allocated to production, one must first determine the total standard machine hours for the period:

Total standard machine hours = Number of units produced × Machine hours per unit

= 30,584 units × 0.28 hours/unit

= 8,565.52 hours

Next, the standard fixed overhead cost allocated based on budgeted costs is calculated as:

Standard fixed overhead cost = Standard machine hours × Fixed overhead rate

= 8,565.52 hours × $11/hour

= $94,221.72

The actual fixed overhead was $96,400. The fixed overhead variance can be split into two components: the budget (or spending) variance and the volume (or efficiency) variance.

- Fixed Overhead Budget Variance is the difference between actual fixed overhead and budgeted fixed overhead:

Budget variance = Actual FOH - Budgeted FOH

= $96,400 - $95,000

= $1,400 unfavorable

- Fixed Overhead Volume Variance compares the absorbed overhead (based on standard hours) to the budgeted overhead:

Overhead applied = Standard hours for actual production × Rate

= 8,565.52 hours × $11

= $94,221.72

Since the budgeted fixed overhead was $95,000, the volume variance is:

Volume variance = Budgeted fixed overhead - Overhead applied

= $95,000 - $94,221.72

= $778.28 favorable

Alternatively, the volume variance can be computed directly as:

Volume Variance = (Standard hours for actual production - Budgeted hours) × Fixed overhead rate

Given the actual machine hours are based on the actual production, the variance can also reflect under- or over-utilization of resources.

Material Standards and Variance Analysis in Helmet Manufacturing

The second problem involves determining the standard quantity of material per helmet when manufacturing motorcycle helmets. The direct material requirement is 1.2 pounds per helmet, but with allowances for waste and rejected material, the total standard quantity must account for these losses.

Total allowances are:

Waste allowance = 0.25 pounds

Rejected material allowance = 0.35 pounds

Thus, the total standard material quantity per helmet is:

Standard quantity = Material required + Waste + Rejected material

= 1.2 pounds + 0.25 pounds + 0.35 pounds

= 1.8 pounds

This standard helps in measuring efficiency and controlling wastage during production.

Calculating the Standard Direct Labor Cost

The third problem involves analyzing Howard Industries' actual direct labor costs and variances. The actual direct labor cost was $67,000. The company reports an unfavorable rate variance of $1,800 and a favorable efficiency variance of $2,900.

- Standard Direct Labor Cost for Actual Output

Let the standard hourly wage be W, and the standard hours for actual production be SH. The actual hours worked (AH) can be derived from the rate and efficiency variances.

The rate (cost per hour) variance is:

Rate Variance = (Actual rate - Standard rate) × Actual hours

= Unfavorable variance of $1,800

The efficiency variance is:

Efficiency Variance = (Actual hours - Standard hours) × Standard rate

= Favorable variance of $2,900

Since actual direct labor cost is:

Actual Cost = Actual hours × Actual rate = $67,000

And the variances relate as:

Actual cost = (Standard hours × Standard rate) + Rate variance + Efficiency variance

To find the standard cost, rearrange the variance equations and substitute known values by solving the two variance equations simultaneously.

Using the provided variances:

- Unfavorable rate variance = (Actual rate - Standard rate) × Actual hours = $1,800 (negative because unfavorable)

- Favorable efficiency variance = (Actual hours - Standard hours) × Standard rate = $2,900

From these, the standard direct labor cost for actual output can be derived by calculating the standard hours and multiplying by the standard rate. This process involves defining the standard rate and hours and solving the equations accordingly.

Conclusion

In managerial accounting, detailed variance analysis enables managers to identify efficiency issues, control costs, and inform strategic decisions. The problems discussed demonstrate how standard costing and variance analysis are integral in evaluating operational performance. Effective variance analysis requires precise calculations and understanding of fixed overhead, material standards, and labor variances—tools that facilitate proactive management and continuous improvement within organizations.

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