Question

Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,625. It also incurred average direct labor costs of $15 per hour for the 4,200 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,950, of which $2,200 was considered fixed. Slick’s standard cost information for each case of synthetic motor oil is as follows.

Direct materials standard price		1.30	per gallon
Standard quantity allowed per case		3.25	gallons
Direct labor standard rate		16.00	per hour
Standard hours allowed per case		0.75	direct labor hours
Fixed overhead budgeted		2,600	per month
Normal level of production		5,200	cases per month
Variable overhead application rate		1.50	per case
Fixed overhead application rate ($2,600 ÷ 5,200 cases)		0.50	per case
Total overhead application rate		2.00	per case

Instructions

a. Compute the materials price and quantity variances.

Materials price variances: 825

Materials quantity variances: (325)

b. Compute the labor rate and efficiency variances.

Labor rate variances: 4200

Efficiency variances: (7200)

c. Compute the manufacturing overhead spending and volume variances.

Overhead spending variances: 150

Overhead volume variances: (100)

d. What might have caused these variances? Who might be responsible? What questions would this bring up, and who might have the answers?

Answer 1

Negative variance generally increase cost of production to the company

Where as positive variance helps to save cost of production to the company

Material quantity variance , labour efficiency variance, overhead volume variance states that there was in efficiency due to which company incurs excess cost

Whereas material price, labour rate, overhead spending states company. Save cost due to efficiency

Generally production manager, for production, HR for labour, are responsible for inefficiency.

They are answerable to management regarding inefficiency. Solutions can be made like regular supervision on them regularly revision of standards as per change in business process

Please please upvote it at the end thank you so much