Photo Corporation Makes a Product with the Following Standard Costs

question 95

Essay

Photo Corporation makes a product with the following standard costs:
$$\begin{array} { | l | c | c | } \hline \text { Imputs } & \begin{array} { c } \text { Stancard Quantity } \\\text { or Hours }\end{array} & \begin{array} { c } \text { Standard Price } \\\text { or Rate }\end{array} \\\hline \text { Direct materials } & 7.8 \text { kilos } & \$ 1.00 \text { per kilo } \\\hline \text { Direct labor } & 0.4 \text { hours } & \$ 18.00 \text { per hour } \\\hline \text { Variable overhead } & 0.4 \text { hours } & \$ 3.00 \text { per hour } \\\hline\end{array}$$ The company reported the following results concerning this product in August.
$\begin{array}{|l|r|}\hline \text { Actual output } & 8,500 \text { units } \\\hline \text { Raw materials used in production } & 65,560 \text { kilos } \\\hline \text { Purchases of raw materials } & 69,000 \text { kilos } \\\hline \text { Actual direct labor-hours } & 3,410 \text { hours } \\\hline \text { Actual cost of raw materials purchases } & \$ 75,900 \\\hline \text { Actual direct labor cost } & \$ 66,495 \\\hline \text { Actual variable overhead cost } & \$ 9,889 \\\hline\end{array}$
The company applies variable overhead on the basis of direct labor-hours.The direct materials purchases variance is computed when the materials are purchased.Required:
a.Compute the materials quantity variance.b.Compute the materials price variance.c.Compute the labor efficiency variance.d.Compute the direct labor rate variance.e.Compute the variable overhead efficiency variance.f.Compute the variable overhead rate variance.

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Definitions:

Coase Theorem

A principle that asserts that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.

Government Intervention

The involvement of the government in the market, aiming to alter the allocation of resources and distribution of goods and services.

Efficient Outcome

An economic situation in which all resources are allocated in the most effective way possible, maximizing potential benefit.

Negative Externality

A negative effect or cost suffered by a third party due to an economic transaction they were not involved in.