The Goran Gifts Company, a maker of novelties, needs your help immediately. The company accountant resigned without leaving adequate records or explanations for the data collected. In reviewing the records for one product line, you find the following information for last month:
Materials purchased 20,000 units @ $.60 each
Materials used 15,000 units
Direct labor costs incurred $36,000
Variable overhead costs incurred $6,675
Actual fixed overhead $7,200
Completed units 7,000
You learn that the standards for the product are:
Direct materials 2 units
Direct labor 1 hour
Variable overhead $0.95 per direct labor hour
Fixed overhead $0.60 per direct labor hour
You find a copy of the budget which shows that $ 6,000 was budgeted for fixed overhead, and that variable overhead is budgeted at $9,500 when 10,000 direct labor hours are worked per month.
You also find some handwritten notes among the accountant’s workpapers, which indicate the following:
Standard price per unit for materials $ .62
Actual average wage rate $4.80 ($.20 less than the standard)
a) Compute the eight variances that were discussed in class.
b) Comment on the results.