Question

You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study.

    

On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information:

Standard Cost Card
Direct materials, 2.20 pounds at $16.20 per pound	$	35.64
Direct labor, 1.00 direct labor-hours at $15.80 per direct labor-hour	$	15.80
Variable manufacturing overhead, 1.00 direct labor-hours at $9.20 per direct labor-hour	$	9.20

	Total Standard Cost*		Variances Reported
			Price or Rate			Quantity or Efficiency
Direct materials	$	570,240	$	10,788	F	$	32,400	U
Direct labor	$	252,800	$	3,400	U	$	15,800	U
Variable manufacturing overhead	$	147,200	$	4,300	F	$	? †	U

^*Applied to Work in Process during the period.

^† Entry obliterated.

You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. Work in process inventories are insignificant and can be ignored.

It is now 8:30 a.m. The executive committee meeting starts in just one hour; you realize that to avoid looking like a bungling fool you must somehow generate the necessary “backup” data for the variances before the meeting begins. Without backup data it will be impossible to lead the discussion or answer any questions..

Required:

1. How many units were produced last period?

Number of units produced

2. How many pounds of direct material were purchased and used in production?

Pounds of direct material were purchased and used in production

Answer 1

(i) No of Units Produced :-

           Total Std Cost for material = $ 570240

          Std Price per pound = $ 16.2

        Std Quantity for actual units produced = 570240/16.2 = 35200 pound

         Std Quantity per unit = 2.20 pound

      Actual Units produced = 35200/2.2 = 16000 units

(ii) Direct Material Purchased & Used :-

                   Direct Material Efficiency Variance = 32400 (U)

      (SQ – AQ) * SR = 32400(U)

    35200 – AQ) * 16.2 = 32400(U)

AQ = 37200 units