Cost Management Problem

I attached the problem with the required.

Mina’s Tricks ‘N Treats

Mina’s Tricks ‘N Treats sells premium dog treats and cute dog accessories for the most fashion forward dogs around. Your mission, should you choose to accept it, is to provide the owner of Mina’s Tricks ‘N Treats with some helpful cost analysis. See, Mina’s Tricks ‘N Treats isn’t doing so hot in comparison to its competitors and the owner wants to know why. All the information to produce Mina’s famous dog biscuits has been gathered and is presented for your analysis below.

Mina’s Tricks ‘N Treats requires two types of direct labor to make dog biscuits: Production and Inspection. Production employees are paid $10.00 per hour. Inspection employees are paid $20.00 per hour and inspections are performed in batches of 300 biscuits. Standards have been established for one biscuit.

Production…………………………………………………………. 1 min per biscuit

Inspection………………………………………………………….. 2 hours per batch

During the current month Mina’s Tricks ‘N Treats produced 300,000 biscuits and incurred the following direct labor costs:

Production……………………………….. 4,900 hours…………………………. $52,150

Inspection………………………………… 2,200 hours…………………………. $43,000

Mina’s Tricks ‘N Treats requires two types of direct materials to make dog biscuits: Peanut Butter and Bacon. Standards have been established based on one biscuit.

Peanut Butter……………………………………………………. .6 unit at $0.30 per unit

Bacon………………………………………………………………… .4 unit at $0.60 per unit

Also during the current month, Mina’s Tricks ‘N Treats noted direct material costs to be as follows:

Materials purchased:

Peanut Butter…………………………………………………… 200,000 units at $0.28 per unit

Bacon……………………………………………………………….. 120,000 units at $0.65 per unit

Of the materials purchased, the following were used:

Peanut Butter…………………………………………………… 198,000 units

Bacon……………………………………………………………….. 113,000 units

Mina’s Tricks ‘N Treats has the following standard overhead rates:

Standard variable overhead rate………………………. $6.00 per direct-labor hour

Standard quantity of direct labor………………………. .02 hours per unit of output

Budgeted fixed overhead………………………………….. $100,000

Budgeted output……………………………………………….. 310,000 biscuits

During the current month the actual overhead results were as follows:

Actual variable overhead……………………………………. $50,000

Actual fixed overhead………………………………………… $63,000

Actual direct labor………………………………………………. 7,100 hours

Required:

Prepare variance analysis based on the above information for each of the listed variances.

a. Direct labor rate variance

b. Direct labor efficiency variance

c. Direct labor mix variance

d. Direct labor yield variance

e. Direct material price variance

f. Direct material quantity variance

g. Direct material mix variance

h. Direct material yield variance

i. Variable overhead spending variance

j. Variable overhead efficiency variance

k. Fixed overhead budget variance

l. Fixed overhead volume variance

2

>Mina’s Cost Analysis

0

Production=/bis.min

2

428571429

Hrs

nits:

3

150 2,000

SR X AH

4,900

4,900

2,200

2,200

$ 43,000

U

)

)

F

AH X SR

X SR

4,900 $ 10.43 5,000 $ 10.43
2,200 $ 21.50 2,000 $ 21.50
$ 51,107 $ 52,150
$ 47,300 $ 43,000

F

4,300 U

3,257 U

SR X

X

$ 10.43 4,900 5,000

5,000

4,900

$ 21.50 2,200 2,000

$ 10.43 2,000

2,200

$ 21.50

7,100

F

U

F

U

U

U

Act-std
StandardRate

64%

36%

1

– 0 F

U

– 0 U

F

– 0 U

X (Actual Quantity – Standard Quantity) X Standard Proportion

$ 0.30 311,000

$ 0.60 311,000 300000

U

t

0.6 $ 0.30

acon

0.4 $ 0.60

,000

units

per uni

113,000

units

198,000

– 0 U

– 0 U

X

AQ* X SP

B 120,000

120,000 $ 0.60

200,000

200,000 $ 0.30

$ 78,000

$ 56,000

6,000 U

F

2,000 U

X SP

X SP

198,000 $ 0.60

$ 0.60 300,000 0.6

113,000 $ 0.30 120,000 $ 0.30 0.4

U

F

U

AH X

AH X

SH X SVR SH X SVR

7,100

7,100

6,000 $ 6.00 6,000 $ 6.00

$ 36,000

U

U

6,000
0.02
120

F

U

Standard quantity of direct labor………………………. .02 hours per unit of output
Budgeted fixed overhead………………………………….. $100,000
Budgeted output……………………………………………….. 310,000 biscuits
During the current month the actual overhead results were as follows:
Actual variable overhead……………………………………. $50,000
Actual fixed overhead………………………………………… $63,000
Actual direct labor………………………………………………. 7,100 hours

																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																													DL: Production- rate/hr		1	Std’s for biscuit-		60
Inspection- rate/ hr	20	Inspection=hours/batch
a)inspections/batch.	300	std at actual:				5,000	hrs of production
Actual DL cost:						2,000	hrs of inspection
Pro:						4,900		Hrs	$ 52,	150	1		0.6
Insp:						2,200			$ 43,000	19.5454545455	batches inspected	1,000
																				U		300,000					SR	1		0.4
			7,100	21.5
DL Rate Variance
AR																X					AH
$ 10.64					$ 10.43
$ 19.55					$ 21.50
	$ 52,150		$ 51,107
	$ 47,300
1,043
$ (	4,300										F
a)	(	3,257
The DL rate Variance is Favorable overall, but actual production cost more than std allowed.
DL Efficiency Variance
		SH
(1,043)
b)
Total DL Variance						– 0
DL mix Variance
Actual Input Proportions
DL Yield Variance
	Act-std		(Actual Quantity – Standard Quantity)		Standard Proportion
Dl-P	71.43%
	StandardRate	0.71	0.69	DL-I	28.57%
DL-Pro	0.29	0.31
DL-Insp	7,000	(745)
1,229
(1,788)	484
3,686
1,898
Act total Q
	64%	60%			198,000
DM-Pro						$ 0.30		36%	40%	311000			113,000
DM-Insp						$ 0.60			311,000
3,732
(7,464.00)
(3,732.00)
DM Yield Variance
			SP
DM P		300000	60.00%
DM I	40.00%
1,980
2,640
4,620
		units		per uni
Dm: Peanut butter	stds=
	B
Actual Costs:	Used
				120	0.65		$ 78,000
		200,000	0.28	per unit		$ 5				6,000
DM Price Variance
	AQ*	AP
$ 0.65
PB	$ 0.28	Mina’s Tricks ‘N Treats has the following standard overhead rates:
$ 72,000	Standard variable overhead rate………………………. $6.00 per direct-labor hour
$ 60,000
	Standard quantity of direct labor………………………. .02 hours per unit of output
	Budgeted fixed overhead………………………………….. $100,000
(4,000)
	Budgeted output……………………………………………….. 310,000 biscuits
	During the current month the actual overhead results were as follows:
DM Quantity Variance
	Actual variable overhead……………………………………. $50,000
AQ^	SQ
	Actual fixed overhead………………………………………… $63,000
180,000
	Actual direct labor………………………………………………. 7,100 hours
118800	108000	7100
33900	36000	63000
10,800	50000
(2,100)		0.02
8,700
Actual Variable Overhead	Flexible Budget: Variable OH	Variable OH Applied
AVR			SVR
$ 7.04			$ 6.00
$ 50,000	$ 42,600		$ 36,000
$ 7,400	$ 6,600
Variable OH Spending Variance	Variable OH Efficiency Variance
Actual Fixed OH	Budgeted Fixed OH	Fixed OH Applied
Standard hours* unit output
$ 63,000	$ 100,000	$ 120
$ 37,000	$ 99,880
Fixed OH Budget Variance	Fixed OH Volume Variance
Required:
Prepare variance analysis based on the above information for each of the listed variances.
a.       Direct labor rate variance
b.      Direct labor efficiency variance
c.       Direct labor mix variance
d.      Direct labor yield variance
e.      Direct material price variance
f.        Direct material quantity variance
g.       Direct material mix variance
h.      Direct material yield variance
i.         Variable overhead spending variance
j.        Variable overhead efficiency variance
k.       Fixed overhead budget variance
l.         Fixed overhead volume variance

Sheet1

Direct Labor Rate Variance = (Actual labor hours*

) – Actual Cost

*

–

= 3150 (A)

= 2

0*20 –

= 1000 (F)

– Actual hour*standard rate

Standard cost of actual output

0 – 49000 = 1000 (F)

Inspection

– 44000 = 4000 (A)

Standard Rate

Amount($)

5000 10

4900 52150

49000

20 40000

43000

44000

Standard Cost* (actual output- standard output)
Total

Total

Standard Price* (standard mix – actual mix)

a)

Standard Rate

Production =

4900

10

52150

Inspection

20

43000

Total

2150(A)

b) Direct labor efficiency variance =

Standard cost of actual output

For Production,

(1/60)*10 = 1/6

(1/6)*300000 –

49000

=

5000

(2/300)*20 = 4/30

(4/30)*300000 –

44000

=

40000

Total 3000 (A)

c)   Direct labor mix variance = standard rate* (Revised standard hours – actual labor hours)

Standard hour

Amount($)

Actual Hour

Actual Amount($)

AH*AR

50000

4900*10

2000

2200

2200*20

7000

90000

7100

95150

93000

Production = 10* (7100*(5000/7000) – 4900)

= 1714 (F)

Inspection = 20* (7100*(2000/7000) – 2200)

= 3428 (A)

Total = 1714 (A)

d)    Direct Labor Yield Variance =

Standard Cost* (actual output- standard output)

Standard output ((1/6) + (2/300)) =7/300

So, standard output = 7100*(300/7) = 304286

-1285.8

= 1286 (A)

e)    Direct material price variance =

Actual quantity *standard price – actual cost

Peanut butter = (198000*0.30) – (198000*0.28) = 3960 (F)

Bacon = (113000*0.60) – (113000*0.65) = 5650 (A)

= 1690 (A)

f)   Direct Material Quantity variance =

Standard quantity of peanut butter 0.60* 300000 = 180000

Standard quantity of bacon 0.40*300000 = 120000

Standard Price *(standard quantity- actual quantity)

Peanut Butter = 0.30*(180000-198000) = 5400 (A)

Bacon = 0.60* (120000-113000) = 4200 (F)

= 1200 (A)

g)    Direct Material Mix Variance =

Standard Price* (standard mix – actual mix)

Total Input = 198000+113000 = 311000

Standard mix

Peanut butter = 311000* 0.60 =186600

Bacon = 311000*0.40 = 124400

Peanut Butter = 0.30* (186600-198000) = 3420(A)

Bacon = 0.60 *(124400- 113000) = 6840(F)

Total 3420(F)

h)    Direct Material Yield Variance(DMYV)

Standard Cost of 1 unit of finished goods

(0.60*0.30+0.4*0.60) = 0.42

Standard yield = standard output/ standard input*total input

(1/1)*311000 = 311000

DMYV = Standard Cost of 1 unit of finished goods*(Actual yield – standard yield)

= 0.42(300000 – 311000)

= 4620 (A)

i)   Variable overhead spending variance =

Actual hour *standard rate – actual cost

= 7100*6 – 50000 = 7400(A)

j)   Variable overhead efficiency variance =

Standard cost for actual output – actual hours *standard rate

= (6*0.20)*300000 – (7100*6)

=36000 – 42600 = 6600 (A)

k)      Fixed overhead budget variance = Budgeted fixed overhead costs – Actual fixed overhead costs incurred

= 100000 – 63000 = 37000(F)

l)     Fixed Overhead volume variance = Standard cost for actual output – Budgeted fixed overhead

Fixed Overhead Cost absorbed – Budgeted fixed overhead

= 0.02*6000 – 100000 = 99880 (A)

Jenn: Jenn: Fixed OH volume variance = budgeted fixed overhead – applied fixed overhead. See pg 715 in the book.

Jenn: Jenn: When computing the DM price variance and the DM quantity variance, you use direct materials used in one and direct materials purchased for another. Refer to book, pg 668

Sheet2

Sheet3