The Clayton Company Uses a Standard Cost System in Which

question 41

Essay

The Clayton 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}{lr}\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:

Job-Based Pay

A compensation strategy that determines an employee's salary based primarily on the specific job or position they hold.

Competency-Based Pay

Pay based on an employee’s skill level, variety of skills possessed, or increased job knowledge

Hay Profile Method

A job evaluation technique using three factors—knowledge, mental activity, and accountability—to evaluate executive and managerial positions.

Market Pricing

The practice of setting salaries based on the prevailing wage rates for similar positions in the external labor market.