Question 3 is the one I need help with. TIA

Basic Variance Analysis, Revision of Standards, Journal Entries

Petrillo Company produces engine parts for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve) is as follows:

direct materials (7 lbs @ $5.40) $37.80

direct labor (1.75 hrs @ $18) 31.50

variable overhead (1.75 hrs @ $4) 7.00

fixed overhead (1.75 hrs @ $3) 5.25

standard unit cost $81.55

During the year, Petrillo had the following activity related to valve production:

1. Production of valves totaled 20,600 units.
2. A total of 135,400 pounds of direct materials was purchased at $5.36 per pound.
3. There were 10,000 pounds of direct materials in beginning inventory (carried at $5.40 per pound). There was no ending inventory.
4. The company used 36,500 direct labor hours at a total cost of $656,270.
5. Actual fixed overhead totaled $110,000.
6. Actual variable overhead totaled $168,000.

Petrillo produces all of its valves in a single plant. Normal activity is 20,000 units per year. Standard overhead rates are computed based on normal activity measured in standard direct labor hours.

Required:

1. Compute the direct materials price and usage variances.

MPV	$	- Select your answer -FavorableUnfavorableCorrect 2 of Item 1
MUV	$	- Select your answer -FavorableUnfavorableCorrect 4 of Item 1

2. Compute the direct labor rate and efficiency variances.

Labor Rate Variance	$	- Select your answer -FavorableUnfavorableCorrect 6 of Item 1
Labor Efficiency Variance	$	- Select your answer -FavorableUnfavorableCorrect 8 of Item 1

3. Compute overhead variances using a two-variance analysis.

Budget Variance	$	- Select your answer -FavorableUnfavorableCorrect 10 of Item 1
Volume Variance	$	- Select your answer -FavorableUnfavorableCorrect 12 of Item 1

4. Compute overhead variances using a four-variance analysis.

Variable overhead spending variance	$	- Select your answer -FavorableUnfavorableCorrect 14 of Item 1
Variable overhead efficiency variance	$	- Select your answer -FavorableUnfavorableCorrect 16 of Item 1
Fixed overhead spending variance	$	- Select your answer -FavorableUnfavorableCorrect 18 of Item 1
Fixed overhead volume variance	$	- Select your answer -FavorableUnfavorableCorrect 20 of Item 1

5. Assume that the purchasing agent for the valve plant purchased a lower-quality direct material from a new supplier. Would you recommend that the company continue to use this cheaper direct material? - Select your answer -YesNoCorrect 21 of Item 1

Hide