Question: Kilgore Precision Machining KPM has a highly automated manufacturing process

Kilgore Precision Machining (KPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has reduced its labor costs to only 5% of total manufacturing costs. Consequently, the company does not account for labor as a separate item but instead accounts for labor as part of overhead.
Consider a part used in antilock braking systems. The static budget for producing 750 units in
March 20X1 is as follows:
Direct materials ........ $18,000*
Overhead
Supplies ............ 1,875
Power ............ 1,310
Rent and other building services . 2,815
Factory labor .......... 1,500
Depreciation ......... 4,500
Total manufacturing costs ... $30,000

Supplies and power are variable, and the other overhead items are fixed costs.
Actual costs in March 20X1 for producing 900 units of the brake part were as follows:
Direct materials ....... $21,840*
Overhead
Supplies ............ 2,132
Power ............ 1,612
Rent and other building services . 2,775
Factory labor ......... 1,618
Depreciation .......... 4,500
Total manufacturing costs ... $34,477

1. Compute (a) the direct-materials price and quantity variances and (b) the flexible-budget variance for each overhead item.
2. Comment on the way KPM accounts for and controls factory labor.


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  • CreatedNovember 19, 2014
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