Mancusco Company uses a flexible budget and standard costs to aid planning and control of its machining manufacturing operations. It’s costing system for manufacturing has two direct cost categories (direct materials and direct manufacturing labour—both variable) and two overhead cost categories (variable manufacturing overhead and fixed manufacturing overhead, both allocated using direct manufacturing labour-hours (DMLH)). At the 40,000 budgeted DMLH level for August, budgeted direct manufacturing labour is $800,000, budgeted variable manufacturing overhead is $480,000, and budgeted fixed manufacturing overhead is $640,000.
The following actual results are for August:
Direct materials price variance (based on purchases) ......$176,000 F
Direct materials efficiency variance .............. 69,000 U
Direct manufacturing labour costs incurred ......... 522,750
Variable manufacturing overhead flexible-budget variance... 10,350 U
Variable manufacturing overhead efficiency variance ..... 18,000 U
Fixed manufacturing overhead incurred ........... 597,460
Fixed manufacturing overhead rate variance .......... 42,540 F
The standard cost per kilogram of direct materials is $11.50. The standard allowance is three kilograms of direct materials for each unit of product. During August, 30,000 units of product were produced. There was no beginning inventory of direct materials. There was no beginning or ending work-in-process. In August, the direct materials price variance was $1.10 per kilogram.
In July, labour unrest caused a major slowdown in the pace of production, resulting in an unfavourable direct manufacturing labour efficiency variance of $45,000. There was no direct manufacturing labour price variance. Labour unrest persisted into August. Some workers quit. Their replacements had to be hired at higher wage rates, which had to be extended to all workers. The actual average wage rate in August exceeded the standard average wage rate by $0.50 per hour.
1. Compute the following for August:
a. Total kilograms of direct materials purchased.
b. Total number of kilograms of excess direct materials used.
c. Variable manufacturing overhead rate variance.
d. Total number of actual DMLH used.
e. Total number of standard DMLH allowed for the units produced.
f. Production-volume variance.
2. Describe how Mancusco's control of variable manufacturing overhead items differs from its control of fixed manufacturing overhead items.