This question was answered like this: Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 129,500 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows: Direct materials (3 pounds @ $2) $ 6 Direct labor (0.25 hours @ $32) 8 Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Sales revenue $ 17,300 Less variable costs Direct materials 838 Direct labor 1,030 Variable overhead 553 Total variable costs $ 2,421 Contribution margin $ 14,879 Less fixed costs Fixed manufacturing overhead 2,475 Nonmanufacturing costs 2,144 Total fixed costs $ 4,619 Operating profit $ 10,260 During the year, the company purchased 329,500 pounds of material and employed 35,160 hours of direct labor. Required: Compute the direct materials price and efficiency variances. Compute the direct labor price and efficiency variances. Compute the variable overhead price and efficiency variances. Note: For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option. Explanation The first step is to determine the actual quantity sold. The standard variable overhead per unit is $4 (= 0.25 hours × $16 per hour). The standard total variable cost for a unit is $18 (= $6 direct material + $8 direct labor + $4 variable overhead). Therefore, the standard contribution margin is $42 per unit (= $60 sales price − $18 standard variable costs). The sales activity variance was $336,000 favorable, so the company must have sold 8,000 units (= $336,000 ÷ $42 per unit) more than the master budget level of 129,500. Actual sales volume was 137,500 units (= 129,500 + 8,000). Flexible Budget (based on actual of 137,500 units) (thousands of dollars) Calculations Sales revenue $ 8,250 (137,500 × $60) Variable costs: Materials 825 (137,500 × $6) Direct labor 1,100 (137,500 × $8) Variable overhead 550 (137,500 × $4) Direct materials: Actual costs = (AP × AQ) = $838,000 Actual inputs at standard price = (SP × AQ) = $2 × 329,500 = $659,000 Flexible budget (standard inputs allowed for good output) = (SP × SQ) = $2 × 3 pounds × 137,500 = $825,000 Price variance = $838,000 − $659,000 = $179,000 U Efficiency variance = $659,000 − $825,000 = $166,000 F Direct labor: Actual costs = (AP × AQ) = $1,030,000 Actual inputs at standard price = (SP × AQ) = $32.00 × 35,160 = $1,125,120 Flexible budget (standard inputs allowed for good output) = (SP × SQ) = $32.00 × 0.25 hours × 137,500 = $1,100,000 Price variance = $1,030,000 − $1,125,120 = $95,120 F Efficiency variance = $1,125,120 − $1,100,000 = $25,120 U Variable overhead: Actual costs = (AP × AQ) = $553,000 Actual inputs at standard price = (SP × AQ) = $16 × 35,160= $562,560 Flexible budget (standard inputs allowed for good output) = (SP × SQ) = $16 × 0.25 hours × 137,500 = $550,000 Price variance = $553,000 − $562,560 = $9,560 F Efficiency variance = $562,560 − $550,000 = $12,560 U [Now please answer this: Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 128,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows: Direct materials (3 pounds @ $2) $ 6 Direct labor (0.25 hours @ $32) 8 Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Sales revenue $ 15,800 Less variable costs Direct materials 832 Direct labor 1,024 Variable overhead 547 Total variable costs $ 2,403 Contribution margin $ 13,397 Less fixed costs Fixed manufacturing overhead 2,280 Nonmanufacturing costs 2,141 Total fixed costs $ 4,421 Operating profit $ 8,976 During the year, the company purchased 328,000 pounds of material and employed 34,740 hours of direct labor. Required: Compute the direct materials price and efficiency variances. Compute the direct labor price and efficiency variances. Compute the variable overhead price and efficiency variances. Note: For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.]

To compute the variances, we need to follow the same approach as in the explanation provided. Let's calculate each variance step by step. ### 1. **Direct Materials Variances** - **Actual Costs**: $832,000 - **Actual Quantity (AQ)**: 328,000 pounds - **Standard Price (SP)**: $2 per pound **Price Variance**: - Actual Price (AP) = $832,000 / 328,000 = $2.54 per pound - Price Variance = (AP - SP) × AQ = ($2.54 - $2) × 328,000 = $177,120 U **Efficiency Variance**: - Standard Quantity (SQ) for Actual Output: 3 pounds × 134,000 units = 402,000 pounds - Efficiency Variance = (SQ - AQ) × SP = (402,000 - 328,000) × $2 = $148,000 F ### 2. **Direct Labor Variances** - **Actual Costs**: $1,024,000 - **Actual Hours (AH)**: 34,740 hours - **Standard Rate (SR)**: $32 per hour **Price Variance**: - Actual Rate (AR) = $1,024,000 / 34,740 = $29.48 per hour - Price Variance = (AR - SR) × AH = ($29

Get Started

Get your tax questions answered