There Is Only One Problem This Week On Manufacturing Varianc

There Is Only One Problem This Week On Manufacturing Varianceap

There is only one problem this week on manufacturing variance. Apollo Sports manufacturers fabric tents. The poles are purchased from a vendor, so the only part manufactured is the actual fabric tent. The company uses a standard cost system based on manufacturing 5,000 tents per month. Overhead is applied on a per-unit basis.

In May, 4,840 tents were produced. Management has a policy that all variances greater than 3% from standard should be investigated. Standard and actual costs are listed below: Standard Direct material 18 yards at $3.20 per yard Direct labor 6.5 hours at $16.00 per hour Overhead applied $12.00 per tent Actual Direct material 86,550 yards at $3.25 per yard Direct labor 32,100 hours at $15.80 per hour Actual overhead $56,750

Paper For Above instruction

Standard and Actual Cost Data:

  • Standard Direct Material: 18 yards at $3.20 per yard
  • Standard Direct Labor: 6.5 hours at $16.00 per hour
  • Standard Overhead Applied: $12.00 per tent
  • Actual Direct Material: 86,550 yards at $3.25 per yard
  • Actual Direct Labor: 32,100 hours at $15.80 per hour
  • Actual Overhead: $56,750

Production Data: 4,840 tents produced in May. Standard cost based on 5,000 tents per month.

Part 1: Variance Calculations

Material Variances

First, determine the standard quantity of material allowed for actual production:

Standard Quantity of Material Allowed = Standard yards per tent × Actual number of tents produced = 18 yards × 4,840 tents = 87,120 yards.

Standard Cost of Material = Standard yards × Standard price = 87,120 yards × $3.20 = $278,784.

Actual Cost of Material = Actual yards × Actual price = 86,550 yards × $3.25 = $281,737.50.

Total Material Variance: Actual Cost – Standard Cost = $281,737.50 – $278,784 = $2,953.50 (Unfavorable).

Material Price Variance: (Actual price – Standard price) × Actual quantity = ($3.25 – $3.20) × 86,550 yards = $0.05 × 86,550 = $4,327.50 (Unfavorable).

Material Quantity Variance: (Actual quantity – Standard quantity) × Standard price = (86,550 yards – 87,120 yards) × $3.20 = (−570 yards) × $3.20 = −$1,824 (Favorable).

Labor Variances

Standard hours allowed for actual production:

Standard Hours = Standard hours per tent × Actual tents produced = 6.5 hours × 4,840 = 31,460 hours.

Standard Labor Cost = Standard hours × Standard rate = 31,460 hours × $16.00 = $503,360.

Actual Labor Cost = Actual hours × Actual rate = 32,100 hours × $15.80 = $507,780.

Total Labor Variance: Actual cost – Standard cost = $507,780 – $503,360 = $4,420 (Unfavorable).

Labor Rate Variance: (Actual rate – Standard rate) × Actual hours = ($15.80 – $16.00) × 32,100 = (−$0.20) × 32,100 = −$6,420 (Favorable).

Labor Quantity Variance: (Actual hours – Standard hours) × Standard rate = (32,100 – 31,460) × $16.00 = 640 × $16.00 = $10,240 (Unfavorable).

Part 2: Overhead Variances

Standard overhead per tent is $12.00. Standard total overhead for actual production:

Standard Overhead = Standard overhead per unit × Actual tents produced = $12.00 × 4,840 = $58,080.

Actual overhead costs are given as $56,750.

Total Overhead Variance: Actual – Standard = $56,750 – $58,080 = -$1,330 (Overapplied or favorable).

Overhead applied based on standard per-unit overhead:

Overhead applied = Standard overhead per tent × Actual tents produced = $12.00 × 4,840 = $58,080.

Overhead volume variance (based on production volume):

Standard overhead for budgeted 5,000 tents: $12.00 × 5,000 = $60,000.

Actual overhead applied: $58,080.

Variance due to volume: $60,000 – $58,080 = $1,920 (Unfavorable; less overhead applied than budgeted).

Part 3: Journal Entries

1. To record application of overhead:

Debit: Work in Process Inventory $58,080


Credit: Manufacturing Overhead $58,080

2. To record actual overhead costs incurred:

Debit: Manufacturing Overhead $56,750


Credit: Various Expense Accounts $56,750

3. To record and close variances:

Debit or Credit: Manufacturing Overhead (difference between applied and actual, e.g., minor over- or under-applied)


Debit or Credit: (adjustment account for variances, e.g., Cost of Goods Sold or variance analysis account)

Note: The specific entries depend on company policy for handling variances.

Part 4: Variance Investigation Findings

The key variances identified include an unfavorable material price variance due to higher actual prices paid for fabric, and an unfavorable labor quantity variance reflecting increased labor hours possibly due to inefficiencies or workerSkill factors. The favorable material quantity variance suggests efficiency in material usage, possibly due to improved process or less waste. The overhead volume variance, being unfavorable, indicates lower than expected production volume, which can impact fixed-overhead absorption.

Conclusion

Effective analysis of variances provides important insights into production efficiency, cost control, and potential operational issues. Ongoing investigation and management actions based on variance analysis can help improve overall manufacturing performance and cost management strategies in Apollo Sports.

References

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