Accounting – Chapter 7 Problem 5

$11.00

Description

Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.
Direct materials: 4 units @ $6.50 $26.00
Direct labor: 8 hours @ $8.50 68
Variable factory overhead: 8 hours @ $7.00 56
Fixed factory overhead: 8 hours @ 2.5 20
Total standard cost per unit $170.00

The following information pertains to activity for December:
1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.
2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.
3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.
4. Actual production amounted to 6,500 completed units.

Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At the beginning of the current year, the company’s accountant made the following estimates for the forthcoming period:
• Estimated variable overhead: $500,000
• Estimated fixed overhead: $400,000
• Estimated direct labor hours: 40,000

It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of five hours per finished unit, calculate the following:
a. Variable overhead efficiency variance
b. Fixed overhead volume variance
c. Overhead spending variance

Banner Company manufactures flags of various countries. Each flag has a standard of eight square feet of fabric and three hours of direct labor time. Information about recent production activity follows.

Actual cost of fabric: $4.50 per square foot
Fabric consumed: 32,080 square feet
Standard price per square foot of fabric: $4.25
Standard direct labor rate: $10.00 per hour
Actual direct labor rate: $10.20 per hour
Actual labor hours worked: 11,940
Actual production completed: 4,000 flags

a. Compute the materials price variance and the materials quantity variance.
b. Compute the labor rate variance and the labor efficiency variance.

“An abbreviated cash budget for Big Chuck Enterprises follows.

July August September
Beginning cash balance $10,000 $ ? $ ?
Add: Cash receipts 50,000 63,000 71,000
Deduct: Cash payments -64,000 -58,000 -64,000
Cash excess (deficiency) before financing ($4,000) $ ? $ ?
Financing
Borrowing to maintain minimum balance ? ? ?
Principal repayment ? ? ?
Interest payment ? ? ?
Ending cash balance $ ? $ ? $ ?

Big Chuck wishes to maintain a $10,000 minimum cash balance at all times. Additional financing is available (and retired) in $1,000 multiples at a 12% interest rate. Assume that borrowings take place at the beginning of the month; retirements, in contrast, occur at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid.

a. Find the unknowns in Big Chuck’s abbreviated cash budget.
b. Determine the outstanding loan balance as of September 30, after any repayments have been made.”

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