Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 127,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows: Direct materials (3 pounds @ $2) $ 6 Direct labor (0.25 hours @ $32) 8 Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Sales revenue $ 14,800 Less variable costs Direct materials 828 Direct labor 1,020 Variable overhead 543 Total variable costs $ 2,391 Contribution margin $ 12,409 Less fixed costs Fixed manufacturing overhead 2,150 Nonmanufacturing costs 2,139 Total fixed costs $ 4,289 Operating profit $ 8,120 During the year, the company purchased 327,000 pounds of material and employed 34,460 hours of direct labor. Required: Compute the direct materials price and efficiency variances.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

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Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 127,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows:

Direct materials	(3 pounds @ $2)	$ 6
Direct labor	(0.25 hours @ $32)	8

Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable.

The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products:

Sales revenue	$ 14,800
Less variable costs
Direct materials	828
Direct labor	1,020
Variable overhead	543
Total variable costs	$ 2,391
Contribution margin	$ 12,409
Less fixed costs
Fixed manufacturing overhead	2,150
Nonmanufacturing costs	2,139
Total fixed costs	$ 4,289
Operating profit	$ 8,120

During the year, the company purchased 327,000 pounds of material and employed 34,460 hours of direct labor.

Required:

Compute the direct materials price and efficiency variances.
Compute the direct labor price and efficiency variances.
Compute the variable overhead price and efficiency variances.
Note: For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.

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