Linda Grace’s Art Supply Company produces various types of paints. Actual direct manufacturing labor- hours in the factory that produces paint have been higher than budgeted hours for the last few months and the owner, Linda G. Martin, is concerned about the effect this has had on the company’s cost overruns. Because variable manufacturing overhead is allocated to units produced using direct manufacturing labor- hours, Linda feels that the mismanagement of labor will have a twofold effect on company profitability. Following are the relevant budgeted and actual results for the second quarter of 2013.

1. Calculate the direct manufacturing labor price and efficiency variances and indicate whether each is favor-able (F) or unfavorable (U).
2. Calculate the variable manufacturing overhead spending and efficiency variances and indicate whether each is favorable (F) or unfavorable (U).
3. For both direct manufacturing labor and variable manufacturing overhead, do the price/ spending variances help Linda explain the efficiency variances?
4. Is Linda correct in her assertion that the mismanagement of labor has a twofold effect on cost overruns? Why might the variable manufacturing overhead efficiency variance not be an accurate representation of the effect of labor overruns on variable manufacturing overheadcosts?

  • CreatedJanuary 15, 2015
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