The Tennison Company Uses a Standard Cost System in Which

question 90

Essay

The Tennison Company uses a standard cost system in which manufacturing overhead costs are applied to units of the company's single product on the basis of standard direct labor-hours (DLHs). The standard cost card for the product follows:
$\begin{array}{llr}\text { Standard Cost Card-per unit of product }\\ \text {Direct Materials( 4 yards at \( \$ 3.50 \) per yard) } &\$14\\ \text { Direct Labor'(1.5 DLHs at \$8 per DLH)} &12\\ \text { Variable Overhead(1.5 DLHs at \$2 per DLH) } &3\\ \text { Fixed Overhead(1.5 DLHs at \( \$ 6 \) per DLH) } &9\\ \text {Standard cost per unit } &\$38\\\end{array}$

The following data pertain to last year's activities:
? The company manufactured 18,000 units of product during the year. A total of 70,200 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 18,000 units.
? The company worked 29,250 direct labor-hours during the year at a cost of $7.80 per hour.
? The denominator activity level was 22,500 direct labor-hours.
? Budgeted fixed manufacturing overhead costs were $135,000 while actual manufacturing overhead costs were $133,200.
? Actual variable overhead costs were $61,425.
Required:
a. Compute the direct materials price and quantity variances for the year.
b. Compute the direct labor rate and efficiency variances for the year.
c. Compute the variable overhead rate and efficiency variances for the year.
d. Compute the fixed manufacturing overhead budget and volume variances for the year.

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Definitions:

Fixed

Refers to something that is unchanging and stable, often used in the context of expenses or assets that do not vary with production volume.

Variable

An element, feature, or factor that is likely to vary or change; in scientific experiments, this is the factor being tested or measured.

Product Cost

Product cost refers to the total expenditure incurred to create a product, including direct materials, direct labor, and manufacturing overhead.

Period Cost

Expenses on a company's income statement that are not directly tied to the production of goods or services and are expensed in the period they are incurred.