Spencer Company Manufactures a Single Product That Has a Standard

question 49

Essay

Spencer Company manufactures a single product that has a standard materials cost of $20 (4 units of materials at $5 per unit), standard direct labour cost of $9 (1 hour per unit), and standard variable overhead cost of $4 (based on direct labour hours). Fixed overhead is budgeted at $17,000 per month. The following data pertain to operations for May:
$$\begin{array} { l l } \text { Materials purchased: } & 8,000 \text { units costing } \$ 39,400 \\\text { Materials used in production of 1,500 units of finished } & 6,200 \text { units of materials } \\\text { product: } & \\\text { Direct labour used: } & 1,500 \text { hours costing } \$ 15,000 \\\text { Variable overhead costs incurred: } & \$ 5,960 \\\text { Fixed overhead costs incurred: } & \$ 17,500\end{array}$$
a.Prepare a performance report for Spencer for June using the following headings:
1. Actual Production Costs
2. Flexible Budget Costs
3. Flexible Budget Variances
b.Compute the following variances (show calculations):
1. Materials usage variance
2. Labour rate variance
3. Labour efficiency variance
4. Variable overhead spending variance
5. Variable overhead efficiency variance
6. Fixed overhead budget variance
c.Give one possible explanation for each of the six variances computed in part (b).

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Definitions:

Fair Labor Standards Act

U.S. legislation that creates the right to a minimum wage, and "time-and-a-half" overtime pay when people work over forty hours a week. It also prohibits most employment of minors in "oppressive child labor".

Hazardous Occupation

A job or profession that poses significant risks to the safety and health of the workers.

Health-Care Coverage

A type of insurance that pays for medical and surgical expenses incurred by the insured, helping to cover health care costs.

Gross Misconduct

Deplorably unacceptable behavior or actions by an employee that can lead to immediate dismissal due to its serious nature.