Krane Company Has a Standard Costing System and Keeps All

question 113

Essay

Krane Company has a standard costing system and keeps all its costs up to date.The company's main product is beach towels which are made in a single department.The standard variable costs for one beach towel (unit)are as follows:
$\begin{array}{ll}\text { Price difference: }&\text { Standard price } & \$ 1.00 \text { per yard } \\&\text { Less actual price } & \underline{0.99} \text { per yard } \\&\text { Difference } & \$ 0.01\text { (F) } \\\end{array}$

$\text { Direct materials price variance: }$
$\begin{array}{l}=(\text { Standard Price }- \text { Actual Price }) \times \text { Actual Quantity } \\=\$ 0.01(\mathrm{~F}) \times 66,250 \mathrm{yd} \\=\$ 662.50(\mathrm{~F})\end{array}$ The company's normal capacity is 10,000 direct labor hours.Its budgeted fixed overhead costs for the year were $24,000.During the year,it produced and sold 22,000 beach towels and it purchased 66,250 yards of direct materials; the purchase cost was $0.99 per yard.The average labor rate was $9.10 per hour,and 10,900 direct labor hours were worked.The company's actual variable overhead costs for the year were $55,100,and its fixed costs were $24,500.
Using the data given,compute the following using formulas or diagram form:
1.Direct materials cost variances:
a.Direct materials price variance
b.Direct materials quantity variance
c.Total direct materials cost variance
2.Direct labor cost variances:
a.Direct labor rate variance
b.Direct labor efficiency variance
c.Total direct labor cost variance
3.Variable overhead variances:
a.Variable overhead spending variance
b.Variable overhead efficiency variance
c.Total variable overhead variance
4.Fixed overhead variances:
a.Fixed overhead budget variance
b.Fixed overhead volume variance
c.Total fixed overhead variance

Grasp the concept of controllable and uncontrollable expenses in budgeting and performance evaluation.

Comprehend the significance of detailed versus summary reporting in managerial decision-making.

Understand the calculation of return on investment (ROI) and its components.

Identify the role of activity bases in allocating costs in an organization.

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Definitions:

At-The-Money

A term used in options trading to describe an option whose strike price is identical to the current market price of the underlying asset.

Call Option

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Exercise Price

Another term for strike price, specifically the price at which an option or warrant can be executed.