Question

25. Martin Company currently manufactures all component parts used in the manufacture of various hand tools. The Extruding Division produces a steel handle used in three different tools. The budget for these handles is 129,000 units with the following unit cost.

Direct material	$	0.78
Direct labor		0.49
Variable overhead		0.37
Fixed overhead		0.37
Total unit cost	$	2.01

Polishing Division purchases 29,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 29,000 units of the handle to Polishing Division for $1.97 per unit. The Extruding Division currently has idle capacity that cannot be used.

If Martin would like to develop a range of transfer prices, what would be the maximum transfer price that Polishing would be willing to pay?

$1.64.

$2.01.

$1.27.

$1.97.

26. TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

	Standard					Standard			Standard
	Quantity					Price			Cost
Direct Materials		7	pounds			$	1.90	per pound		$	13.30
Direct Labor		.25	hour			$	10.00	per hour			2.50
										$	15.80

During November, TaskMaster purchased 126,000 pounds of direct materials at a total cost of $277,200. The total factory wages for November were $46,000, 90% of which were for direct labor. TaskMaster manufactured 17,000 units of product during November using 105,000 pounds of direct materials and 6,000 direct labor hours.

What is the direct materials price variance for November?

$31,500.

$13,300.

$26,600.

$37,800.

27. Jackson Company uses a standard cost system. The following information pertains to direct labor for product B for the month of October:

Standard hours allowed for actual production		3,150
Actual rate paid per hour	$	8.50
Standard rate per hour	$	8.10
Labor efficiency variance	$	1,215	U

What were the actual hours worked for the month of October?

3,300.

3,000.

3,007.

3,293.

Answer 1

25. Option D $1.97. Polishing Division would be willing to pay a maximum price of $1.97 per handle which is market price.

26. Option D $37800

Direct Material Price Variance = Standard Price * Materials purchased - Actual Cost

Direct Material Price Variance = 1.90 * 126000 - 277200

Direct Material Price Variance = 37800

27. Option A 3300 Hours

Labor Efficiency Variance = (Standard Hours - Actual Hours) * Standard rate

- $1215 = (3150 - Actual Hours) * 8.10

Actual Hours = 3150 + 1215 / 8.10

Actual Hours = 3150 + 150

Actual Hours = 3300 Hours